1966 (10) TMI 36 - SC - Income Tax

Whether on the facts and in the circumstances of the case the assessments made on the assessee as on a Hindu undivided family consisting of the three sons of Sir Chinubhai Madhavlal viz. Udayan Kirtidev and Achyut and the wife of Sir Chinubhai Madhavlal viz. Lady Tanumati were correctly so made ? Held that - When an order recognising the total disruption of a Hindu family has been passed under section 25A of the Indian Income-tax Act 1922 and an order of assessment is made on the basis of such an order it is not open to the Income-tax Officer to take proceedings for reassessment under section 34 of the Act ignoring the earlier order under section 25A of the Act on the ground that he has received information that the order under section 25A was obtained by misrepresentation. The proper course for the Income-tax Officer to adopt in such a case is to move the Commissioner of Income-tax to take action under section 33B of the Act to set aside the order under section 25A. We agree with the High Court of Punjab that section 34 of the Indian Income-tax Act confers no general power of reviewing an order passed under section 25A(1) which is in its very nature effective for all subsequent years. Appeal allowed.

Issues Involved:
1. Whether the properties of the Hindu undivided family were partitioned in definite portions.
2. Whether the Income-tax Officer had the authority to assess the family as a Hindu undivided family after an order under section 25A(1) was passed.
3. The applicability of section 25A(3) of the Indian Income-tax Act, 1922.
4. The implications of section 34 of the Indian Income-tax Act, 1922, on the reassessment of the Hindu undivided family.

Detailed Analysis:

1. Partition in Definite Portions:
The court examined whether the properties of the Hindu undivided family were partitioned in definite portions. The High Court of Bombay had passed a decree declaring the dissolution of the joint family and the division of properties among the members. Sir Chinubhai took his share separately, while the properties allotted to his wife and three sons remained undivided among them as tenants-in-common. The court noted that the properties described in Part III of Schedule A were not divided among the assessees, but the partition between Sir Chinubhai and the assessees was in definite portions. The court emphasized that for an order recording partition under section 25A, the properties must be physically divided if possible, otherwise divided in such portions as they admit of.

2. Authority of the Income-tax Officer:
The Income-tax Officer, Ahmedabad, initiated proceedings under section 34 to assess the Hindu undivided family of the four members, arguing that the income had escaped assessment. The assessees contended that they did not constitute a Hindu undivided family during the assessment years in question. The court held that once an order under section 25A(1) was passed, recognizing the partition in definite portions, the original Hindu undivided family ceased to exist. The court stated that the Income-tax Officer, Ahmedabad, could not ignore the order passed by the Income-tax Officer, Bombay, and assess the income as if the original Hindu undivided family continued to exist.

3. Applicability of Section 25A(3):
Section 25A(3) requires the Income-tax Officer to continue assessing a Hindu undivided family that has been divided under personal law until an order under section 25A(1) is recorded. The court clarified that once an order under section 25A(1) is recorded, section 25A(3) no longer applies. The assessees could only be assessed as a Hindu undivided family if they formed such a family under personal law, which was not the case here.

4. Implications of Section 34:
The court addressed the argument that the Income-tax Officer could reassess the family under section 34, ignoring the earlier order under section 25A(1). The court held that section 34 does not confer a general power to review an order passed under section 25A(1). The proper course for the Income-tax Officer would be to move the Commissioner of Income-tax to take action under section 33B to set aside the order under section 25A if it was obtained by misrepresentation.

Conclusion:
The court concluded that the assessments made on the assessees as a Hindu undivided family were not correctly made. The original Hindu undivided family ceased to exist once the order under section 25A(1) was recorded. The appeals were allowed, and the appellants were entitled to their costs in the Supreme Court as well as in the High Court.

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