1988 (9) TMI 98 - AT - Income Tax

Issues Involved:
1. Status of the assessee (Individual vs. HUF)
2. Penalties under Section 271(1)(a) of the Income-tax Act and Section 18(1)(a) of the Wealth-tax Act
3. Bona fide belief regarding the status of the assessee
4. Impact of judicial pronouncements on the assessee's belief

Detailed Analysis:

1. Status of the Assessee (Individual vs. HUF):
The primary issue revolves around whether the assessee should be assessed as an individual or a Hindu Undivided Family (HUF). The assessee, Mr. Ramaswamy, filed returns in the status of an individual for the assessment years 1975-76 and 1976-77. However, for the assessment year 1977-78, the income-tax assessment was completed in the status of HUF. The Appellate Assistant Commissioner (AAC) allowed the assessee's appeal, but the department preferred a second appeal before the Tribunal. The Tribunal referred to the Andhra Pradesh High Court decision in Prem Chand v. CIT, which held that the joint family character of the property received by the husband at partition does not change even if a portion is given to the wife. The marital bond and the status of HUF continue as long as the marital tie lasts.

2. Penalties under Section 271(1)(a) of the Income-tax Act and Section 18(1)(a) of the Wealth-tax Act:
Penalties were levied by the Income Tax Officer (ITO) and Wealth Tax Officer (WTO) for not filing returns in the HUF status within the time allowed under law. The AAC confirmed the penalties, emphasizing that filing a return in the correct status is crucial as the tax liability varies depending on the status. The penalties confirmed were as follows:
- Income-tax Act: Rs. 16,926 (1977-78), Rs. 5,127 (1978-79), Rs. 16,189 (1979-80), Rs. 21,042 (1980-81)
- Wealth-tax Act: Rs. 12,120 (1975-76), Rs. 15,862 (1976-77), Rs. 7,540 (1977-78)

3. Bona Fide Belief Regarding the Status of the Assessee:
The assessee contended that he was under a bona fide belief that his status was that of an individual. This belief was based on the partition of family assets between him and his minor son, and the relinquishment of any claim by his wife, Smt. Sarojadevi. The AAC's order dated 13-12-1984, which was in favor of the assessee, further reinforced this belief. The Tribunal noted that the assessee filed returns in the status of an individual within the prescribed time, except for a marginal delay for which a small penalty was paid.

4. Impact of Judicial Pronouncements on the Assessee's Belief:
The Tribunal considered various judicial pronouncements, including:
- The Orissa High Court decision in CIT v. K. Satyanarayan Murty, which supported the view that the property received on partition is individual property.
- The Andhra Pradesh High Court decision in Prem Chand's case, which was rendered after the reopening notices were issued by the department.
- The Supreme Court decision in Lakshmi Chand Khajuria v. Smt. Ishroo Devi, which held that in the Southern School of Mitakshara Law, the wife is not entitled to a share in the partition.
- The Gujarat High Court decision in CWT v. Senatkumar Jayantilal, which held that there was sufficient cause for delay in filing the return when the assessee revised the original return based on judicial pronouncements.

Conclusion:
The Tribunal concluded that the assessee had reasonable cause to believe that his correct status was that of an individual. The returns filed in the status of an individual were based on a bona fide belief, supported by judicial pronouncements. The Tribunal held that there was sufficient cause for the delay in filing the revised returns and that the penalties should not be sustained. Hence, all penalties for the seven years in question were canceled, and the appeal was allowed.

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