1964 (11) TMI 12 - SC - Income Tax

Whether in respect of the income of a Hindu undivided family once partition is effected whether the partition is recorded or not under sub-section (1) all members of the family will be jointly and severally liable for the tax assessed on the total income received by or on behalf of the family? Held that - Because there has been before the orders of assessment no order recording that the property of the family has been partitioned among the members the two respondents are not personally liable to satisfy the tax due by the joint family. The remedy of the income-tax authorities in the circumstances of the case was to proceed against the property if any of the Hindu undivided family. That admittedly they have not done. The order of the High Court must therefore be confirmed and the appeals dismissed

Summary

Issues Involved:
1. Validity of tax recovery steps taken without an appropriate order under section 25A(2).
2. Recovery of arrears of tax from the personal remuneration of family members post-partition.

Issue-wise Detailed Analysis:

1. Validity of tax recovery steps taken without an appropriate order under section 25A(2):

The Hindu undivided family (HUF) of Krishnappa and his sons was disrupted in 1946, and the properties were partitioned. However, the Income-tax Officer did not dispose of the claim regarding the partition until June 30, 1952. Assessments for the relevant years were made between 1948 and 1950, resulting in a tax liability of Rs. 65,750. Appeals against these assessments were unsuccessful, and it was not contended that the assessments were illegal due to the pending partition claim.

The Income-tax Officer later recorded the partition under section 25A on June 30, 1952. However, the High Court held that the officer was bound to recognize the partition retrospectively and follow the consequences of the order. The petitioners argued that without an order under section 25A(2), the recovery steps were invalid. The Supreme Court clarified that under the Indian Income-tax Act, 1922, a Hindu undivided family continues to be assessed as undivided unless an order under section 25A(1) is made. The failure to make such an order does not affect the officer's jurisdiction to assess the HUF as undivided. The assessment remains valid, and any error must be rectified through statutory procedures, not collateral challenges.

The Supreme Court concluded that the High Court erred in holding that an order of assessment, which has become final, could be reopened under section 25A(2) based on a subsequent order under section 25A(1).

2. Recovery of arrears of tax from the personal remuneration of family members post-partition:

Despite the partition order, the Income-tax Officer attempted to recover tax arrears by attaching the salaries of Thimmayya and Venkatanarsu under section 46(5). The Supreme Court held that, in the absence of an order under section 25A(1) and subsequent proceedings under section 25A(2), the tax liability must rest on the HUF's property, not personally on the members.

The Solicitor-General argued that the proviso to section 25A(2) imposed joint and several liability on family members post-partition, even without recording the partition. However, the Court rejected this, stating that personal liability arises only after an order under section 25A(1) and subsequent apportionment under section 25A(2).

In this case, since no orders were recorded at the time of assessment, the members were not personally liable for the tax. The officer's attempt to attach personal remuneration was invalid. The remedy was to proceed against the HUF's property, which was not done.

Conclusion:

The Supreme Court confirmed the High Court's order, dismissing the appeals. The members were not personally liable to satisfy the tax due by the joint family, and the income-tax authorities should have proceeded against the HUF's property. Appeals were dismissed with costs.