1994 (1) TMI 51 - HC - Wealth-tax

Summary

Issues:
1. Challenge to the validity of section 20A of the Wealth-tax Act, 1957.
2. Constitutionality of section 20A in relation to partial partition among members of a Hindu undivided family.
3. Comparison of section 20A of the Wealth-tax Act with section 171(9) of the Income-tax Act.
4. Impact of section 20A on assessment proceedings and recognition of partial partition.

Detailed Analysis:
The judgment delivered by the High Court of Madras pertains to the challenge against the validity of section 20A of the Wealth-tax Act, 1957. The petitioners sought a declaration that the provisions of this section are unconstitutional concerning their circumstances. Section 20A states that in case of a partial partition among members of a Hindu undivided family after December 31, 1978, the family will continue to be assessed under the Act as if no such partition had occurred. The Explanation to the section clarifies that partial partition is defined as per the Explanation to section 171 of the Income-tax Act. Sub-section (9) of section 171 of the Income-tax Act contains a similar provision regarding partial partitions post-December 31, 1978.

A significant precedent cited in the judgment is the case of M. V. Valliappan v. ITO [1988] 170 ITR 238, where the Division Bench of the court held that section 171(9) of the Income-tax Act is unconstitutional and invalid. The reasoning provided was that such provisions lead to discrimination, arbitrariness, and legislative incompetence. The court found that these sections extend the scope of taxation beyond what is constitutionally permissible and encroach upon the rights of Hindu undivided families to partition their assets.

In the specific cases presented before the court, the petitioners had undergone partial partitions in their Hindu undivided families, which were subsequently challenged by tax authorities based on the introduction of section 20A of the Wealth-tax Act. The court, following the precedent set in Valliappan's case, declared section 20A of the Wealth-tax Act as unconstitutional and invalid. Consequently, the court directed the recognition of the partial partitions in these cases and allowed the writ petitions filed by the petitioners.

Moreover, the court granted the respondents leave to appeal to the Supreme Court, considering the importance of the legal question involved in these cases. The Supreme Court had previously granted leave to appeal against a similar judgment, indicating the significance of the issue at hand. The High Court issued a certificate under article 133(1) of the Constitution of India, recognizing the suitability of the matter for adjudication by the Supreme Court.