1969 (5) TMI 11 - HC - Wealth-tax

Validity of the wealth-tax assessment made on the assessee Hindu undivided family - HUF had contended in its income-tax assessments that the HUF had been disrupted on the passing of the preliminary decree on the June 26, 1950, and no assessments could be made on the HUF after that date

Issues Involved:
1. Validity of wealth-tax assessment on a Hindu undivided family (HUF) post-disruption.
2. Interpretation and applicability of Section 20 of the Wealth-tax Act, 1957.
3. Relevance of Section 25A of the Indian Income-tax Act, 1922, in the context of the Wealth-tax Act.
4. Impact of preliminary and final decrees on the assessment of HUF.
5. Whether Section 20 of the Wealth-tax Act is a charging or machinery section.

Detailed Analysis:

1. Validity of Wealth-tax Assessment on a Hindu Undivided Family (HUF) Post-Disruption:
The primary issue is whether the wealth-tax assessment for the assessment year 1957-58 was validly made on the HUF of M/s. Ricknath Shewkissen, considering the preliminary decree for partition passed on June 26, 1950. The HUF contended that the family had been disrupted by the preliminary decree and thus could not be assessed post-disruption. The Wealth-tax Officer, however, made an assessment on the HUF, determining the total wealth at Rs. 7,28,640.

2. Interpretation and Applicability of Section 20 of the Wealth-tax Act, 1957:
The court examined whether Section 20 of the Wealth-tax Act is a charging section or merely a machinery section. The section requires the Wealth-tax Officer to be satisfied that the joint family property has been partitioned in definite portions. The court held that Section 20 is a machinery section, similar to Section 25A of the Indian Income-tax Act, 1922, and does not empower the assessment of a family that ceased to be joint before the relevant valuation date.

3. Relevance of Section 25A of the Indian Income-tax Act, 1922, in the Context of the Wealth-tax Act:
Section 25A of the Indian Income-tax Act, 1922, was considered in parallel with Section 20 of the Wealth-tax Act. The court noted that both sections address the assessment of HUFs that have disrupted but have not partitioned their property in definite portions. The court referenced several cases, including Gordhandas T. Mangaldas v. Commissioner of Income-tax and Joint Family of Udayan Chinubhai v. Commissioner of Income-tax, to establish that a physical division of property is required for the application of these sections.

4. Impact of Preliminary and Final Decrees on the Assessment of HUF:
The court discussed the effect of preliminary and final decrees on the status of the HUF. It was established that a preliminary decree indicates an intention to separate, disrupting the joint status of the family. However, for tax purposes, the property must be partitioned in definite portions. Since the final decree was passed after the relevant valuation date, the court held that the preliminary decree alone was insufficient to establish partition for wealth-tax purposes.

5. Whether Section 20 of the Wealth-tax Act is a Charging or Machinery Section:
The court concluded that Section 20 of the Wealth-tax Act is a machinery section, not a charging section. It is designed to facilitate the assessment process where a family was joint at the time of the accrual of liability but disrupted by the time of assessment. The section does not authorize the assessment of a family that ceased to be joint before the relevant valuation date.

Conclusion:
The court answered the question in the negative, ruling that the assessment to wealth-tax for the assessment year 1957-58 on the HUF of M/s. Ricknath Shewkissen was not validly made. The Commissioner of Wealth-tax was ordered to pay the costs of the reference.

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