1971 (8) TMI 80 - HC - Income Tax

Reassessment of a Hindu undivided family after its partition - it was not previously assessed to tax - Notice under section 148 of the Income-tax Act to the disrupted Hindu undivided family was without jurisdiction and it was not properly served. The said notice for the assessment year 1955-56 is hereby quashed and consequently the notice under section 142(1) of the Income-tax Act 1961 is also hereby quashed and set aside. Respondents are restrained from giving any further effect to the said notices

Summary

Issues Involved:
1. Re-opening of assessment under Section 148 of the Income-tax Act, 1961.
2. Taxability of a Hindu Undivided Family (HUF) after its disruption.
3. Proper service of notice under Section 148 of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Re-opening of Assessment under Section 148 of the Income-tax Act, 1961:
The petitioner challenged the initiation of proceedings by the service of notice under Section 148 of the Income-tax Act, 1961, on the grounds that there was no reason for re-opening the said assessment. The court held that the Hindu undivided family (HUF) had taxable income and had failed to file a return for the relevant assessment year. Therefore, there was escapement of income, and the Income-tax Officer had sufficient grounds to issue the notice under Section 148. The petitioner did not seriously urge this point during the application.

2. Taxability of a Hindu Undivided Family (HUF) after its Disruption:
The petitioner argued that the HUF, after its dissolution, could not be taxed. The court noted that, under the Dayabhaga system of Hindu law, mere institution of a partition suit or declaration of shares does not dissolve an HUF. The assessment sought to be re-opened pertained to a year when the family was joint, even though it had disrupted by the time the proceedings were initiated. The court referenced Section 171 of the Income-tax Act, 1961, which provides a machinery for assessing HUFs post-partition, but emphasized that this applies to families "hitherto assessed as undivided." Since the HUF in question had never been assessed before, the court found no machinery to assess it post-disruption. Consequently, the proceedings were deemed irregular and without jurisdiction.

3. Proper Service of Notice under Section 148 of the Income-tax Act, 1961:
The petitioner contended that there was no proper service of notice under Section 148. The court scrutinized the service report and found that the notice was served by affixation without reasonable attempts to find the assessee, Smt. Sarashi Bala Sirkar, who had died prior to the service. The court held that reasonable attempts were not made to serve the notice, which is a condition precedent for re-opening the assessment. The court referenced the Supreme Court's decision in Commissioner of Income-tax v. Thayaballi Mulla Jeevaji Kapasi, which emphasized that proper service of notice is mandatory for initiating reassessment proceedings. The court concluded that the service of notice was not in compliance with the law and thus invalid.

Conclusion:
The court quashed the notice under Section 148 of the Income-tax Act, 1961, for the assessment year 1955-56, and consequently, the notice under Section 142(1) was also quashed. The respondents were restrained from giving any further effect to the said notices. The rule was made absolute, and writs in the nature of mandamus and certiorari were issued accordingly. The court also set aside any assessment order made pursuant to the impugned notices. There was no order as to costs, and a stay of operation of the order was granted for three weeks after the ensuing long vacation.