1981 (10) TMI 20 - HC - Wealth-tax

Summary

Issues Involved:
1. Whether the assessee was liable to tax in the status of a Hindu Undivided Family (HUF).
2. Whether the provisions of section 20(2) of the Wealth-tax Act, 1957, could apply to the assessee's case to sustain the assessment made.

Issue-Wise Detailed Analysis:

1. Liability to Tax in the Status of an HUF:
The Tribunal held that the assessee was not liable to tax in the status of an HUF. The background facts reveal that there was a partition in 1932 between Rengiah and his two sons, Kamatchisundaram and Subbarayalu, who executed release deeds in favor of their father. Following this partition, the family properties were assessed separately, and Rengiah was assessed as an individual. Upon Rengiah's death in 1949, the properties devolved on his two sons, who were assessed as an HUF. However, the AAC determined that the properties inherited from Rengiah could not be considered as coparcenary property and that the sons would take the property as tenants-in-common. The Tribunal confirmed this view, stating that the wealth-tax assessment could not be made in the status of an HUF regarding the properties left by Rengiah.

The court agreed with this conclusion, emphasizing that under the law applicable before the Hindu Succession Act, 1956, any property left by an undivided father would devolve separately on the sons. The court noted that there was no evidence of an HUF being formed by reunion of the two brothers after the partition in 1932. Thus, the properties inherited from Rengiah could not be assessed as belonging to an HUF.

2. Applicability of Section 20(2) of the W.T. Act:
The Tribunal also held that section 20(2) of the Wealth-tax Act, 1957, could not apply to the assessee's case. The court examined the legal framework, comparing section 25A of the Indian Income-tax Act, 1922, with section 20 of the Wealth-tax Act. Section 25A deals with the assessment of a Hindu family hitherto assessed as undivided, requiring a claim and acceptance of partition by the Income-tax Officer. Section 20 of the Wealth-tax Act, however, requires the existence of an HUF at the time of assessment and an inquiry into the partition.

The court clarified that section 20(2) presupposes the existence of an HUF, and if there was no such family, the section could not apply. The court found no evidence of an HUF existing between Kamatchisundaram and Subbarayalu after 1932. The court also noted that the assessments made on Kamatchisundaram as the karta of an HUF were practically uncontested, but this did not preclude the assessee from presenting the correct status under the law.

The court further distinguished the language and applicability of section 25A of the Indian Income-tax Act and section 20 of the Wealth-tax Act. While section 25A deems a family to continue as an HUF until a partition is recognized, section 20 of the Wealth-tax Act does not presume the existence of an HUF without evidence. The court concluded that there was no HUF in the relevant year, and section 20(2) could not sustain the assessment as an HUF.

Conclusion:
The court answered both questions in the affirmative, supporting the Tribunal's decision. The assessee was not liable to tax in the status of an HUF, and section 20(2) of the Wealth-tax Act did not apply to the assessee's case. The assessee was entitled to costs, with counsel's fee fixed at Rs. 500.