2005 (5) TMI 684 - HC - Income Tax

Summary

Issues Involved:
1. Validity of assessing a Hindu Undivided Family (HUF) after partition.
2. Applicability of Section 171 of the Income Tax Act to an HUF not previously assessed.
3. Interpretation of "hitherto assessed" in the context of Section 171.
4. Whether self-assessment under Section 140-A equates to an assessment for the purposes of Section 171.

Detailed Analysis:

1. Validity of Assessing an HUF After Partition:
The primary issue was whether the Income Tax Officer (ITO) could validly assess the HUF for the assessment year 1980-1981 after the HUF had partitioned on 25.4.1980. The assessee had informed the ITO of the partition before the completion of the assessment proceedings. The court concluded that since the HUF was not in existence at the time the assessment order was passed, the assessment was invalid. The ITO's action of assessing the HUF despite the partition was not justified.

2. Applicability of Section 171 to an HUF Not Previously Assessed:
Section 171 of the Income Tax Act deals with the assessment of HUFs after partition. The court noted that Section 171(1) applies only to HUFs that have been "hitherto assessed" as undivided. Since the assessee-HUF had not been assessed prior to the assessment year 1980-1981, Section 171 did not apply. The court referred to various judgments, including those from the Calcutta, Gujarat, and Andhra Pradesh High Courts, which supported this interpretation. The court reiterated that Section 171 could not be invoked for an HUF that had never been assessed before.

3. Interpretation of "Hitherto Assessed":
The term "hitherto assessed" in Section 171 was crucial. The court emphasized that this term means that the HUF must have been assessed as undivided in the past. The court rejected the revenue's argument that filing a return under Section 140-A equated to being "hitherto assessed." The court clarified that "assessment" involves a formal order by the assessing authority, not just the filing of a return or self-assessment.

4. Whether Self-Assessment Under Section 140-A Equates to an Assessment:
The revenue argued that self-assessment under Section 140-A should be considered an assessment, thus satisfying the "hitherto assessed" requirement of Section 171. The court disagreed, stating that Section 140-A pertains to self-assessment and does not involve an order by the assessing authority. The court highlighted that the term "assessment" is flexible and context-dependent, but in this case, it required a formal assessment order, which was absent.

Conclusion:
The court concluded that the assessment of the HUF for the year 1980-1981 was invalid as the HUF had partitioned before the assessment order was passed, and Section 171 did not apply since the HUF had not been previously assessed. The court answered both questions of law in favor of the assessee and against the revenue, thereby invalidating the assessment made by the ITO.