- Bookmark
- Share
- CaseIQ
The Commissioner Of Income Tax, ... v. The Commissioner Of Income Tax,
Factual and Procedural Background
Karuppan Chettiar, his son Muthukaruppan Chettiar, and the latter’s minor sons constituted a Hindu undivided family (HUF) that was assessed as such up to the assessment year 1948-49. During the 1949-50 assessment proceedings the family claimed (7 February 1951) that its various businesses had been partitioned: Karuppan was said to have taken one share, while Muthukaruppan and his minor sons formed a separate unit.
Rejecting that claim, the Income-tax Officer (ITO) treated the HUF as intact and assessed it for the assessment years 1950-51, 1951-52 and 1952-53 using returns filed by Karuppan in his individual capacity. On appeal, the Appellate Assistant Commissioner (AAC) accepted a complete partition under Section 25A of the Income-tax Act, 1922 (“the Act”) and annulled the HUF assessments on 18 December 1954.
Meanwhile, the newly asserted unit of Muthukaruppan and his minor sons (the present assessee) had filed separate returns for the relevant Tamil years. On 18 June 1953 the ITO closed those files as “no assessment,” stating that, because partition had not been recognised, there was no separate source of income.
After the AAC’s order recognising partition, the ITO, with the Commissioner’s prior approval, issued notices under Section 34 on 2 March 1957 to reopen the three assessments against the assessee family. Assessments were completed on 9 April 1957. The assessee’s appeals to the AAC and the Appellate Tribunal failed, and the Tribunal referred the following question to the High Court under Section 66(1): “Whether the aforesaid assessments for the years 1950-51, 1951-52 and 1952-53 are valid?” The High Court answered in the affirmative on 16 September 1964. The matter then came before the Supreme Court in the present appeals.
Legal Issues Presented
- Whether the reassessments made under Section 34 of the Income-tax Act, 1922 for the assessment years 1950-51, 1951-52 and 1952-53 against the assessee family are valid when voluntary returns for those years had already been filed and not finally disposed of.
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Income-tax Officer v. Murlidhar Bhagwandas | Observation that an appellate authority’s directions can remove the bar of limitation under Section 34(3)/(8). | Court noted the case but stated that it was unnecessary to decide that point because the present matter failed on a more fundamental ground. |
| N. Kt. Sivalingam Chettiar v. Commissioner of Income-tax | Same context as above—impact of appellate orders on limitation under Section 34. | Referenced alongside Murlidhar Bhagwandas and similarly not relied on for the final decision. |
| Commissioner of Income-tax v. Ranchhoddas Karsondas (36 ITR 569) | If a voluntary return is filed before assessment, the ITO must dispose of it; a reassessment ignoring such return and proceeded under Section 34 is invalid. | Supreme Court applied this principle to hold that the ITO could not issue Section 34 notices while earlier voluntary returns remained undisposed of. |
| Estate of the Late A. M. K. M. Karuppan Chettiar v. Commissioner of Income-tax | Section 34 notices are invalid if prior returns have not been dealt with. | The Court stated that the facts were materially identical and that the principle of this earlier decision governed the present case, rendering the impugned assessments invalid. |
Court's Reasoning and Analysis
The Supreme Court focussed on the status of the voluntary returns already filed by the assessee family. It examined the ITO’s order dated 18 June 1953 that had closed the files as “N.A.” (“no assessment”) and concluded that this order did not finally terminate assessment proceedings. Consequently, the original returns filed under Section 22(2) and (3) remained pending and undisposed of.
Invoking the rule in Commissioner of Income-tax v. Ranchhoddas Karsondas, the Court reiterated that where a voluntary return is pending, the ITO cannot lawfully initiate reassessment under Section 34. The subsequent Section 34 notices of 2 March 1957 were therefore issued without jurisdiction.
The Court further relied on its earlier decision in Estate of A. M. K. M. Karuppan Chettiar, which held that reassessment proceedings are invalid if prior returns are not first processed. Finding the present facts indistinguishable, the Court declared the reassessment orders for 1950-51, 1951-52 and 1952-53 “manifestly invalid.”
Holding and Implications
Appeals dismissed with costs.
The Supreme Court held that the reassessments for the three assessment years were invalid because the Income-tax Officer had failed to dispose of the voluntary returns already on record before issuing Section 34 notices. The immediate consequence is that the assessments against the assessee family for 1950-51, 1951-52 and 1952-53 cannot stand. The decision reinforces the precedent that voluntary returns must be acted upon before recourse is had to reassessment proceedings, but it does not articulate any broader doctrinal development beyond confirming that settled principle.
1. Karuppan Chettiar his son Muthukaruppan and the latter's minor sons all together formed a Hindu undivided family which was assessed as such till the end of the assessment year 1948-49. In the course of assessment proceedings for 1949-50 the family claimed on February 7, 1951 that the several businesses of the family had been partitioned between Karuppan Chettiar on the one hand and Muthukaruppan Chettiar and his sons forming a separate family on the other. Following up this claim the returns in response to the notice under Section 22(2) of the Income-tax Act, 1922 (hereinafter called the Act) issued to the family for the assessment years 1950-51, 1951-52 and 1952-53 were made by Karuppan Chettiar in his individual capacity showing the income from the several sources that fell to his share. The Income-tax Officer rejected the claim of partition and assessed the Hindu undivided family for the administrative three years treating Karuppan Chettiar's returns as the proper returns for the family. An appeal was made by the assessee to the Appellate Assistant Commissioner in which complete partition as required by Section 25A of the Act was accepted by the Appellate Assistant Commissioner by his order dated December 18, 1954. In keeping with this order he also cancelled the assessments of the family for the aforesaid years. In the course of his order he observed:
I therefore hold that there is no asset left in the hands of the H. U. F. which can be brought to tax and that the H. U. F. is no longer in existence. As such the present assessment requires to be annulled and the income considered in this assessment requires to be considered in the hands of the separating coparceners. I therefore annul these assessments.
2. Meanwhile Muthukaruppan and his minor sons forming the family, the assessee in this case, filed returns for the Tamil years Virothi, Vikruthi and Kara as the 'previous years' for assessment years 1950-51, 1951-52 and 1952-53 as follows:
Assessment Return under Section Date of return year (voluntary) 1950-51 22(3) 8-2-1951 1951-52 22(2 5-2-1952 1952-53 22(2) 2-12-1952 The Income-tax Officer closed the assessments as 'no assessments' by his notes in the order sheet dated. June 18, 1953 reproduced below:
The assessee is a member of the family of A.M.K.M.K. Karuppan Chettiar, assessed in F. 1005-A. I have held in the family file in my order for income tax year 1949-50 that there have been no division between father and son. This being the case, there is no source of income to be separately assessed in the assessee's hands. The return of income in this file relates to the alleged share of income consequent on partition. Since partition has not been accepted, this file has only to be clubbed with the father's file. If, for any reasons, it is ultimately held on appeal that a separate assessment should be made, it will no doubt be possible to take action under provision of section 34 as now amended. Since there is no separate income, the pending proceedings will be closed as N. A. and for Income-tax year 1953-54 the file will be removed and clubbed with the family file F.1005-A.
The Income-tax Officer m giving effect to the aforesaid order of partition under Section 25-A of the Act and cancelling consequentially the family assessments, simultaneously issued notices under Section 34 on March 2, 1957 for the three assessment years 1950-51, 1951-52 and 1952-53 to the assessee family after obtaining the previous approval of the Commissioner. In response to the notice the assessee submitted its returns on April 9, 1957 for the three assessment years under protest. On the basis of these returns the Income-tax Officer assessed the assessee by his order of the same date for all the three years, ignoring the protest. The assessee appealed to the Appellate Assistant Commissioner but the appeal was dismissed. The assessee took the matter in appeal to the Appellate Tribunal but was unsuccessful The Appellate Tribunal stated a case to the High Court under Section 66(1) of the Income-tax Act on the following question of law:
Whether the aforesaid assessments for years 1950-51, 1951-52 and 1952-53 are valid?
The High Court by its Judgment dated September 16, 1964 recorded an answer in the affirmative. In the view of the High Court, the order passed by the Appellate Assistant Commissioner and the direction given by him lifted the bar of limitation prescribed by Section 34(8) of the Act for making the assessment.
3. It is not necessary to decide whether the observations made by the Appellate Assistant Commissioner in his order declining to assess the income of the Hindu undivided family operated to lift the bar of limitation as regards the assessment of income of the separated members by the application of the principle of the judgments of this Court in Income-tax Officer v. Murlidhar Bhagwandas and N. Kt. Sivalingam Chettiar v. Commissioner of Income-tax . In our opinion the orders passed by the Income-tax authorities and confirmed by the Tribunal suffer from a fundamental defect. As we have already stated, Karuppan Chettiar submitted returns of his income in his individual capacity for the years 1950-51, 1951-52 and 1952-53 in response to the notice issued under Section 22(2) of the Act. By his order dated June 18, 1953 the Income-tax Officer closed the assessments as 'no assessments' and added that since there was no separate income, the pending proceedings would be closed as N. A. and for income-tax year 1953-54 the file would be removed and clubbed with the family file F. 1005-A. Thereafter the assessee filed two sets of returns for the aforesaid three years, once on February 23, 1955 and again on March 30, 1956. These returns were submitted by the assessee in response to the notice issued on March 2, It is manifest that in these circumstances notice under Section 84 of the Act cannot be issued to Muthu Karuppan Chettiar and his minor sons unless the returns which had already been filed by that family were disposed of.
4. It was held by this Court in Commissioner of Income-tax v. Ranchhoddas Karsondas 36 ITR 569 : that the return in answer to the general notice under Section 22(1) of the Act can, under Section 22(3), be filed at any time before assessment and for this there is no limit of time. When in respect of any year a return has been voluntarily submitted before assessment, the Income-tax Officer cannot ignore the return and the notice of reassessment and consequent assessment under Section 34 ignoring the return are invalid. In the present case we are of opinion that the order of the Income-tax Officer dated June 18, 1953 is not an order to terminate the proceedings and the result, therefore, is that the original returns submitted by the assessee under Section 22(2) and (3) have not been properly and legally proceeded with. In the case before us the order of the Income-tax Officer dated June 18, 1953 should be interpreted in the light of circumstances in which that order was passed. So interpreted it appears to us that the Income-tax Officer did not intend to conclude the proceedings before him. It follows, therefore, that there is no disposal of the voluntary returns made by the respondent for the assessment years 1950-51, 1951-52 and 1952-53. It is manifest that the assessment proceedings under Section 34(1) of the Act for the aforesaid three years are invalid.
5. In the Estate of the late A. M. K. M. Karuppan Chettiar v. Commissioner of Income-tax it was held by this Court that notices under Section 34 could not be issued against Karuppan Chettiar in his individual capacity unless the returns which had been filed by him are also disposed of and the assessments made pursuant to the notice under Section 34 were therefore invalid for the three years 1950-51, 1951-52 and 1952-53. The principle of this case governs the present case also as the material facts are not different.
6. For these reasons we hold that these appeals fail and must be dismissed with costs. There will be one set of hearing fee.
Alert