1975 (12) TMI 144 - SC - Income Tax

Applicability of Section 171, Sub-section (6) of the Income Tax Act, 1961 - enactment of Sub-sections (6) and (7) of Section 171 of the new Act - argument of the Revenue Authorities that when notices u/s 148 were issued for reopening the assessments of the Hindu Undivided Family, all the provisions of the new Act became applicable and they included Sub-sections (6) of Section 171 and, therefore, that Sub-section was applicable for recovery of the tax reassessed on the Hindu Undivided Family pursuant to the notices under Section 148 - Held that - Appeal allowed. The argument f revenue is without force as it is based on a misconstruction of the words all the provisions of this Act shall apply accordingly in Clause (ii) of Section 297(2)(d). These words merely refer to the machinery provided in the new Act for the assessment of the escaped income. They do not import any substantive provisions of the new Act which create rights or liabilities. The word accordingly in the context means nothing more than for the purpose of assessment and it clearly suggests that the provisions of the new Act which are made applicable are those relating to the machinery of assessment. The words all the provisions of this Act shall apply accordingly cannot therefore be construed as incorporating by reference Sub-section (6) of Section 171 so as to make it applicable for recovery of the tax reassessed on the Hindu Undivided Family in cases falling within Clause (ii) of Section 297(2)(d). This contention of the Revenue Authorities must accordingly be rejected.

Summary

Issues Involved:
1. Applicability of Section 171(6) of the Income Tax Act, 1961.
2. Personal liability of members of a Hindu Undivided Family (HUF) for tax assessed on the HUF.
3. Retrospective application of Section 171(6) of the new Act.
4. Interpretation of Section 297(2)(d) of the new Act.

Detailed Analysis:

1. Applicability of Section 171(6) of the Income Tax Act, 1961:
The primary issue was whether Section 171(6) of the new Act could be applied to the assessment of a Hindu Undivided Family (HUF) for the years prior to the enactment of the new Act. The court observed that Section 171 of the new Act, unlike Section 25A of the old Act, applies to both total and partial partitions. However, the court concluded that Sub-section (6) of Section 171 could not be applied retrospectively to assessments completed under the old Act. The court stated, "Sub-section (6) of Section 171 applies only to a situation where the assessment of a Hindu undivided family is completed under Section 143 or Section 144 of the new Act."

2. Personal Liability of Members of a Hindu Undivided Family (HUF) for Tax Assessed on the HUF:
The court examined whether the members of the HUF could be held personally liable for the tax liability of the HUF under Section 171(6) of the new Act. The court noted that Section 25A of the old Act did not impose personal liability on members in cases of partial partition. The court emphasized that "the liability of the Hindu Undivided Family to tax for the assessment years 1950-51 to 1956-57 would be recovered only out of the assets of the joint family and it could not be apportioned amongst the members nor could the members be held jointly and severally liable for payment of such tax liability under Section 25A of the old Act."

3. Retrospective Application of Section 171(6) of the New Act:
The court reiterated the well-established rule that retrospective operation should not be given to a statute unless expressly provided or necessarily required. The court held that applying Sub-section (6) of Section 171 retrospectively would impose a new liability on the members of the HUF, which was not warranted. The court stated, "We cannot, therefore, consistently with the rule of interpretation which denies retrospective operation to a statute which has the effect of creating or imposing a new obligation or liability, construe Sub-section (6) of Section 171 as embracing a case where assessment of a Hindu undivided family is made under the provisions of the old Act."

4. Interpretation of Section 297(2)(d) of the New Act:
The Revenue Authorities argued that since the assessments were reopened under Section 148 of the new Act, all provisions of the new Act, including Section 171(6), should apply. The court rejected this contention, clarifying that "all the provisions of this Act shall apply accordingly" in Section 297(2)(d) refers only to the procedural machinery for assessment and not to substantive provisions creating new liabilities. The court held, "The words 'all the provisions of this Act shall apply accordingly' cannot therefore be construed as incorporating by reference Sub-section (6) of Section 171 so as to make it applicable for recovery of the tax reassessed on the Hindu Undivided Family in cases falling within Clause (ii) of Section 297(2)(d)."

Conclusion:
The appeals were allowed, and the orders dated 13th August 1974 and 3rd September 1974, which imposed personal liability on the members of the HUF, were quashed. The court held that the Revenue Authorities could not apply Sub-section (6) of Section 171 of the new Act retrospectively to assessments completed under the old Act. The respondents were ordered to pay the costs of the petitioners throughout.