1985 (11) TMI 29 - HC - Income Tax

Issues Involved:

1. Validity of the Commissioner's order under section 263 of the Income-tax Act due to non-issue of notices.
2. Tribunal's decision not to remand the case back to the Commissioner after setting aside his order.
3. Distinct property status of the right to appropriate profit of the family business.
4. Division of a joint concern by making division of the capital account.

Issue-wise Detailed Analysis:

Question No. 1: Validity of the Commissioner's order under section 263 due to non-issue of notices

The Tribunal held that the Commissioner's order was invalid as notices were not served to all four members of the Hindu undivided family (HUF). The Tribunal relied on the Andhra Pradesh High Court decision in T. G. Sulakhe v. CIT and CIT v. Ganeshi Lal Sham Lal, where the Commissioner's order was deemed invalid for not serving notice on each member of the HUF. However, in the present case, only a partial partition was alleged, and the HUF was still in existence. According to section 282(2)(a) of the Act, a notice to any member of the HUF suffices. Thus, the Tribunal's reliance on the earlier cases was misplaced. Consequently, the court answered this question in the negative, against the assessee, and in favor of the Revenue.

Question No. 2: Tribunal's decision not to remand the case back to the Commissioner

The Revenue's counsel argued that the Commissioner's order, even if flawed for non-compliance with natural justice, was not without jurisdiction and should have been remanded for fresh decision. The Supreme Court in CIT v. Electro House clarified that the Commissioner need not issue a notice before assuming jurisdiction under section 33B (equivalent to section 263). The assessee's counsel countered, citing CIT v. Scindia Steam Navigation Co. Ltd., that since the point was not argued before the Tribunal, it does not arise from its order. The court agreed, stating that the Tribunal's non-remand decision did not arise from its order and left this question unanswered.

Question No. 3: Distinct property status of the right to appropriate profit of the family business

The Tribunal found that the business's capital account remained intact, indicating no actual partition. The assessee argued that the right to receive profits was a distinct property, citing Charandas Haridas v. CIT and Murlidhar Himatsingka v. CIT. However, the court noted that under section 171 of the Act, partition requires physical division of property, not just income. The court held that mere division of income without dividing the income-producing property does not constitute a partition. The cited cases were distinguished as they were under the Indian Income-tax Act, 1922, which lacked the current Act's definitions. The court answered this question in the affirmative, in favor of the Revenue.

Question No. 4: Division of a joint concern by making division of the capital account

The assessee's counsel conceded that there was no partition of the running business of the HUF. Therefore, this question was deemed irrelevant to the present case and left unanswered.

Conclusion:

The reference was answered as aforementioned, with each party bearing its own costs.

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