1957 (4) TMI 75 - HC - Income Tax

Summary

Issues Involved:
1. Legality of the assessment orders made by the Income-tax Officer.
2. Competence of Civil Court to challenge the assessment orders.
3. Obligation of the sons to pay the tax debts of the father.
4. Validity of the sales conducted by the revenue authorities.
5. Nature of the properties in dispute (whether joint family properties or separate properties).

Issue-wise Detailed Analysis:

1. Legality of the Assessment Orders:
The plaintiffs contended that the assessment orders were illegal as the Income-tax Officer violated the provisions of section 25A of the Indian Income-tax Act by not holding an inquiry into the partition of the joint Hindu family. The court examined section 25A, which requires an inquiry if a partition is claimed at the time of assessment. The court found that no proper claim for partition was made by the family, and the partition deed was not filed before the Income-tax Officer. Moreover, the court held that section 25A could not apply as there was no division of all family properties, and the assessments were enforceable against the properties in question.

2. Competence of Civil Court to Challenge the Assessment Orders:
The court held that the suit challenging the assessment orders was not competent in a Civil Court due to section 67 of the Income-tax Act, which bars any suit to set aside or modify an assessment made under the Act. The court emphasized that the Act provides a self-contained code with remedies for aggrieved assessees, including appeals and revisions. The court referred to the Privy Council case of Raleigh Investment Co. Ltd. v. Governor-General in Council, which established that challenges to assessments should not be entertained by Civil Courts.

3. Obligation of the Sons to Pay the Tax Debts of the Father:
The plaintiffs argued that the tax debts were avyavaharika (immoral) and speculative, and thus not binding on the sons. The court rejected this argument, stating that the family was assessed as a unit, and the tax liability arose from the profits of the joint family business. The court noted that the liability to pay tax arises by virtue of the charging sections of the Act and is not dependent on the assessment. The court concluded that the sons were liable to pay the tax debts as long as the assessments stood uncancelled.

4. Validity of the Sales Conducted by the Revenue Authorities:
The plaintiffs contended that the sales were void as the auction purchasers did not deposit the balance of the purchase money in time. The court held that the Collector had the discretion to extend the time for payment and was not compelled to resell the property immediately. The court also noted that the plaintiffs themselves were responsible for the delay in deposit due to obtaining a stay from the High Court of Madras. Thus, the sales were valid.

5. Nature of the Properties in Dispute:
The plaintiffs claimed that items Nos. 46 to 51 were their separate properties, purchased with funds from their maternal grandmother. The court found this claim unsubstantiated, noting inconsistencies in the evidence provided by the plaintiffs. The court concluded that the properties were purchased by the father benami (in the names of the sons) for the benefit of the joint family. The court also held that the partition was a sham, designed to defraud creditors and the Income-tax Department, and the family continued to be joint.

Conclusion:
The court dismissed the plaintiffs' appeal, upholding the validity of the assessment orders and the sales conducted by the revenue authorities. The court allowed the cross-objections of the Union of India, holding that items Nos. 46 to 51 were joint family properties and could be proceeded against for recovery of tax arrears. The partition was deemed sham and colorable, intended to defeat the creditors. The appeal was dismissed with costs, and the decree of the trial court was modified accordingly.