1974 (4) TMI 20 - HC - Income Tax

Summary

Issues Involved:
1. Jurisdiction of including income from properties allotted to the plaintiff's branch.
2. Legality of assessing the income of the Hindu undivided family (HUF) in the hands of the receiver.
3. Jurisdiction of the Income-tax Officer to assess the HUF despite knowledge of the partition suit.
4. Legality of recovery against individual members of the family.
5. Bar on recovery proceedings under section 46(7) of the Indian Income-tax Act, 1922.
6. Jurisdiction of imposing penalty upon the receivers.

Issue-wise Detailed Analysis:

1. Jurisdiction of Including Income from Properties Allotted to the Plaintiff's Branch:
The court found that neither Sri Kamta Prasad Kakkar nor Sri R. N. Basu was managing the properties allotted to the plaintiff's branch after 29th December 1939. Consequently, they could not be assessed to tax on income arising from those properties. The assessment order for the year 1950-51, which included a sum of Rs. 15,000 from the plaintiff's branch, was deemed illegal. The learned single judge quashed the notice dated 26th February 1958 and directed a modification of the assessment order to exclude the said amount.

2. Legality of Assessing the Income of the HUF in the Hands of the Receiver:
The court held that the receivers were managing the entire assets of the HUF and maintaining separate accounts for each of the five lots did not alter this fact. The assessment of the HUF income in the hands of the receiver was valid. The court referenced C. Arunachala Mudaliar v. Commissioner of Income-tax, where it was held that receivers managing undivided family properties on behalf of the members of a disrupted joint family are still considered to be managing the HUF estate for tax purposes. The court concluded that the assessment orders were not void ab initio or non est.

3. Jurisdiction of the Income-tax Officer to Assess the HUF Despite Knowledge of the Partition Suit:
The court found no evidence from the assessment orders indicating that the Income-tax Officer had knowledge of the partition proceedings. Furthermore, mere knowledge of the partition suit was irrelevant. Section 25A(1) required a claim by a family member for the Income-tax Officer to record an order of partition. In the absence of such a claim, the HUF continued to be assessed as undivided under section 25A(3).

4. Legality of Recovery Against Individual Members of the Family:
The court dismissed the argument that recovery against individual members was illegal, even if the receivers had sufficient funds. Under section 41, the tax was recoverable from the person on whose behalf the receiver earned the income. The recovery proceedings against the family members were thus valid.

5. Bar on Recovery Proceedings Under Section 46(7) of the Indian Income-tax Act, 1922:
The appellants claimed that recovery proceedings were barred by section 46(7) as they were commenced after one year from the last day of the financial year in which the demand was made. However, the court noted that this plea was not raised in the writ petition or appeal, and no factual allegations supported it. Consequently, the court did not entertain this fresh point.

6. Jurisdiction of Imposing Penalty Upon the Receivers:
The court held that the Income-tax Officer had jurisdiction to impose penalties on the receivers for defaulting in filing returns. Section 41(1) stated that all provisions of the Act, including section 28 (which provides for penalty imposition), applied to the receiver. The receivers' failure to furnish returns on time incurred liability for penalty under section 28(1)(a). Thus, the imposition of penalty was not without jurisdiction.

Conclusion:
The court dismissed the appeal, upholding the legality of the assessment and recovery proceedings, and the jurisdiction of imposing penalties on the receivers. The enforcement of pre-Constitution assessment orders could not be interfered with under article 226 of the Constitution. The appeal was dismissed with costs.