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TMI Blog1991 (5) TMI 106X X X X Extracts X X X X X X X X Extracts X X X X ..... ments were pending on the date when the Kerala Legislature passed the Kerala Joint Hindu Family System (Abolition) Act, 1975 with effect from 1-12-1976 (in short 'Abolition Act') and that the only question that arises for consideration is how the pending proceedings should be finalised and whether the Wealth-tax Officer was justified in passing the assessment orders assigning the status "Hindu Undivided Family", in the manner he did. The High Court further noticed that the Tribunal, while declaring the assessments as null and void by following the decision in WTO v. K. Madhavan Nambiar [1988] 169 ITR 810 (Ker.) failed to take notice of the fact that in that case proceedings were started for the first time after the assessee as such had become extinct. The question that was before the High Court in K. Madhavan Nambiar's case was whether the service of notice on a junior member of an extinct HUF was valid or sufficient to effect the assessment. It is on the basis of those facts, the High Court held that on the date of such notice the junior member of the erstwhile family was only a tenant-in-commom with no representative capacity and hence the assessment was invalid. The High Court o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Officer to make a proper assessment. The erstwhile Karta is no longer competent to act for and on behalf of the defunct H.U.F. and even if he had filed revised statements of wealth after the coming into force of the Abolition Act with effect from 1-12-1976. In Bhagyam Ammal v. Mayilswamy Kounder [1990] 2 KLT 537, the Kerala High Court held that notwithstanding the provisions of sections 5 and 6 of the Abolition Act, it is necessary that the members of the coparcenary should be made parties to a suit in order to make the decree binding on their shares because after the commencement of the Abolition Act joint families ceased to exist and the head of the family also ceased to be the manager or Karta and became incompetent to represent the members which became co-owners. In the light of the judgment of the jurisdictional High Court of the fourth issue raised in para 2 above should be found in favour of the assessee. In other words, the filing of the statements of wealth by the erstwhile Karla or even his participation in the assessment proceedings cannot confer any jurisdiction on the Wealth-tax Officer to make the assessments on the HUF. 4. Sri Sankunny further submitted that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erved on all the sharers and not merely on the erstwhile Karta. This haviiig not taken place, the assessments should be held invalid. 5. Sri C. Abraham, the learned senior departmental representative submitted that the answers to the issues raised in the reference applications are to be found in a decision of the Kerala High Court in Shantilal C. Shah. v. CIT [1988] 169 ITR 805. It was held in that case that if the income earned by the H.U.F. before its extinction has escaped assessment, the only course open to the assessing authority is to make a reassessment on the family under section 147 as provided under section 283(1) of the Income-tax Act, 1961 by issuing notice to the quondam Karla in the name of the joint family. Notice in respect of the Hindu undivided family has to be served on the person who was the last manager of the Hindu joint family or if such a person is dead, then on all the adults who were the members of the H.U.F. immediately before the partition. In the case of the assessee in these appeals, the HUF was very much in existence on the relevant valuation dates. The assessing authority determining the tax liability of the HUF does so with reference to the net we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs as provided under the statute and thereby the rights have been defined and settled. In such a case, if the income earned by the Hindu undivided family before such extinction has escaped assessment, the only course open to the assessing authority is to make a reassessment on the family under section 147 as provided under section 283(1) of the Act. That section providing'for notice in bringing to tax the income of the joint family after a partition has been recorded under section 171 should apply in such a case. This view is in accord with the decision. in W.A. No. 159 of 1981." Following this decision of the Kerala High Court, the Tribunal in the case of the assessee for assessment year 1974-75 upheld the income-tax assessment in the hands of the HUF though such assessment was completed on 1-8-1977, i.e., a the abolition of the system of joint family among the Hindus in Kerala. The reasoning of the Tribunal was that the High Court in Shantilal C. Shah's case has viewed that the income of the family prior to its extinction can be assessed in a proceeding under section 147 of the Income-tax Act after giving due notice to the quondam Karta or manager of the family or any other me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty. The High Court referred to the decision of the Supreme Court in Pannalal v. Mt. Naraini AIR 1952 SC 170. It was held therein that-- "After a partition takes place, the father can no longer represent the family and a decree obtained against him alone cannot be binding on the separated sons. In the second place the power exercisable by the father of selling the interests of the sons for satisfaction of his personal debts comes to an end with partition. As the separated share of the sons cannot be said to belong to the father nor has he any disposing power over it or its profits which he can exercise for his benefit, the provision of section 60, Civil P.C., would operate as a bar to the attachment and sale of any such property in execution of a decree against the father." To the same effect is the decision of the Nagpur High Court in Jainarayan v. Sonaji AIR 1938 Nag. 24 at p. 29 which was approvingly quoted in the Kerala High Court decision cited above. Thereupon, their Lordships of the Kerala High Court held that in introducing sections 5(2) and 6 of the Abolition Act, the Legislature has only incorporated the principle underlying the above decisions. Section 5(2) and secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valid assessment order once the assessee-HUF has ceased to exist. The answer to this issue is provided in the following passages in K. Madhavan Nambiar's case : "Act 30 of 1976 operated to put an end to the existence of all joint Hindu families in Kerala. The consequence was that from the day onwards there could be no joint Hindu family in the State. It is not a case of the family disrupting by partition. It is a case of statutory extinction of joint families. To provide for the distribution of the coparcenary property, provision is made in section 4(1) that all members of an undivided Hindu family holding coparcenary property on December 1, 1976, shall be deemed to be holding such coparcenary property as tenants-in-common as if a partition had taken place among all the members of that undivided Hindu family. This means that the members became owners of what they would have obtained as their respective shares if a partition had taken place. It is not as if the law deemed that a partition had actually taken place. No partition has taken place, but had one taken place, each one would have a specific share taking into account the total extent of properties available and the number ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmal's case. 10. The fourth issue highlighted by the Hon'ble High Court is whether the filing of the returns by the assessee himself in the status of HUF and the omission to raise the extinction of the family at the time of assessment proceedings have any impact. For the assessment years 1970-71 to 1973-74, the returns were filed by the Karta before the date on which the HUF became extinct, by virtue of the provisions of the Abolition Act. The wealth belonged to the then HUF and the Karta was competent to act for and on behalf of the HUF. Hence, those returns were valid returns. With the filing of the returns, assessment proceedings had commenced and such commencement had occurred prior to the cut off date, viz., 1-12-1976. With effect from 1-12-1976 the Karta has no authority to represent the HUF nor can he represent any other adult member of the HUF. The reason is, he has become just one among the tenants-in-common in terms of section 4 of the Abolition Act. When an Act is passed by the Legislature and is notified in the Official Gazette every person including the Wealth-tax Officer is deemed to have knowledge of the enactment and the consequences that flow from the same. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... invalid return. The assessment proceedings based on such an invalid return are void ab initio. Therefore, we direct the Wealth-tax Officer to verify the date of filing of the return of wealth for the assessment year 1977-78 and if it is on 10-10-1977 or any date after 1-12-1976 the assessment made on the basis of that return is to be held as void ab initio. The only remedy that might be open to the Wealth-tax Officer is to initiate proceedings under section 17 read with section 41 of the Wealth-tax Act in the light of the ratio of the decision of the jurisdictional High Court in the case of Shantilal C. Shah. 14. In the light of our discussion, we set aside the assessment orders made by the Wealth-tax Officer for the assessment years 1970-71 to 1973-74 and direct him to implead all the adult male members of the family in the proceedings and complete the assessments. The omission to implead the adult male members can be viewed only as supervening illegality in the proceedings that were validly initiated and the Income-tax Officer would be within his right to continue the proceedings from that stage in accordance with law (vide Gudutthur Bros.v. ITO [1960] 40 ITR 298SC). We order ..... X X X X Extracts X X X X X X X X Extracts X X X X
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