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Issues:
1. Validity of proceedings under Section 34 for the assessment year 1939-40 against a Hindu undivided family that had ceased to exist after partition. 2. Whether notice should have been served on each member of the defunct Hindu undivided family for initiating proceedings under Section 34. Analysis: The judgment revolves around the validity of proceedings under Section 34 of the Income-tax Act against a Hindu undivided family that had ceased to exist post-partition. The case involved Mr. Laxmi Narain Bhadani and his family, who were initially assessed as a Hindu undivided family until the assessment year 1939-40. A partition was accepted by the Income-tax Officer in 1941. Subsequently, in 1943-44, it was discovered that the family was under-assessed for 1939-40, leading to action under Section 34. The main contention raised was whether Section 34 could be invoked against a defunct Hindu undivided family. Both the Appellate Assistant Commissioner and the Tribunal rejected this argument. The judgment delves into the interpretation of Sections 25A and 34 of the Income-tax Act. Section 25A(1) deals with the partition of a Hindu family, while Section 34 empowers the Income-tax Officer to reassess income if it has escaped assessment. The argument against invoking Section 34 in this case was based on the absence of a specific reference to it in Section 25A. However, the judgment clarifies that Section 34 is not an assessment section; assessments are still made under Section 23. It concludes that the Income-tax Officer can proceed under Section 34 in conjunction with Section 25A(2). Regarding the notice requirement, the judgment highlights a procedural flaw in the Income-tax Officer's actions. Section 34 mandates serving notice on the person liable to pay tax, which, in this case, are the ex-members post-partition. Each ex-member should have been individually served notice for them to be liable. The judgment dismisses the argument that notice should only be served on the karta, emphasizing that each member may have taken over different businesses post-partition. Despite this procedural irregularity, as Mr. Bhadani received the notice and made the return without objection, his liability remains intact. Furthermore, the judgment notes a second irregularity in the Income-tax Officer's procedure. After making the total assessment, the Officer failed to divide it among ex-members as required by Section 25A(2). Instead, demand notices were issued to each ex-member for the total tax assessed on the Hindu undivided family. The Tribunal acknowledged this error, emphasizing the need to apportion the liability among ex-members correctly before resorting to the joint and several liability provision. In conclusion, the judgment clarifies the legal position and procedural requirements under the Income-tax Act, affirming the validity of proceedings under Section 34 against ex-members of a Hindu undivided family post-partition. The issues raised were thoroughly analyzed, emphasizing compliance with notice requirements and correct apportionment of tax liabilities among ex-members.
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