1975 (12) TMI 189 - SC - Income Tax

Summary

Issues Involved:
1. Applicability of Section 171, Sub-section (6) of the Income Tax Act, 1961.
2. Personal liability of members of a Hindu Undivided Family (HUF) for tax assessed on the HUF.
3. Retrospective application of tax laws.
4. Interpretation of Section 297(2)(d) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Applicability of Section 171, Sub-section (6) of the Income Tax Act, 1961:
The core issue in these appeals was whether Section 171, Sub-section (6) of the Income Tax Act, 1961 (the new Act) applied to the tax assessments of a Hindu Undivided Family (HUF) that were completed under the Indian Income Tax Act, 1922 (the old Act). The Supreme Court held that Sub-section (6) of Section 171 of the new Act did not apply to assessments completed under the old Act. The Court emphasized that the provision could not be given retrospective effect to impose new liabilities on the members of the HUF for tax assessed before the new Act came into force.

2. Personal Liability of Members of a Hindu Undivided Family (HUF) for Tax Assessed on the HUF:
The Court examined whether the members of the HUF could be held personally liable for the tax assessed on the HUF under Section 25A of the old Act and Section 171 of the new Act. It was held that under Section 25A of the old Act, the liability for tax assessed on the HUF could only be recovered from the joint family properties and not personally from the members in cases of partial partition. Section 171(6) of the new Act, which imposed personal liability on members for tax assessed on the HUF, could not be applied retrospectively to assessments completed under the old Act.

3. Retrospective Application of Tax Laws:
The Court reiterated the principle that unless expressly provided or necessarily implied, statutes should not be given retrospective operation to take away or impair existing rights or impose new liabilities. The Court concluded that Sub-section (6) of Section 171 could not be applied retrospectively to impose personal liability on the members of the HUF for tax assessed under the old Act. The Court stated, "unless the terms of a statute expressly so provide or necessarily require it, retrospective operation should not be given to a statute."

4. Interpretation of Section 297(2)(d) of the Income Tax Act, 1961:
The Revenue Authorities argued that since the assessments of the HUF were reopened under Section 148 of the new Act, all provisions of the new Act, including Section 171(6), should apply. The Court rejected this argument, clarifying that Section 297(2)(d) only referred to the machinery for assessment and not to substantive provisions creating new liabilities. The Court held, "The words 'all the provisions of this Act shall apply accordingly' in Clause (ii) of Section 297(2)(d) merely refer to the machinery provided in the new Act for the assessment of the escaped income."

Conclusion:
The Supreme Court allowed the appeals, quashing and setting aside the orders dated 13th August 1974 and 3rd September 1974, which had imposed personal liability on the members of the HUF for the tax assessed on the HUF. The Court held that Section 171(6) of the new Act did not apply retrospectively to assessments completed under the old Act, and the members of the HUF could not be held personally liable for the tax assessed on the HUF for the assessment years 1950-51 to 1956-57. The respondents were ordered to pay the costs of the petitioners throughout.