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TMI Blog1940 (10) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... mily for the assessment year 1957-58, the relevant valuation date being November 2, 1956. Before the enactment of the Act, which came into force from April 1, 1957, the assessee was being assessed to tax under the Indian Income-tax Act, 1922, in the status of an Hindu undivided family. For the assessment year 1955-56, the assessee had claimed that there was disruption of the family, but this claim was rejected by the Income-tax Officer under section 25A of the Indian Income-tax Act, 1922. A similar application was made in the income-tax proceedings in respect of the assessment year 1957-58, but again that application was rejected by the Income-tax Officer. For the assessment year 1957-58, the assessee had filed a return of income in the status of " Hindu undivided family " under section 3 of the Wealth-tax Act, 1957 : the Act was made applicable from assessment year 1957-58. The assessee did not file any return of net wealth under section 14(1) of the Act ; and, thereafter, the Wealth-tax Officer started proceedings under section 14(2) read with section 17 of the Act. The assessee filed a return of net wealth returning the net wealth as " nil " and the contention on behalf of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... however, held that it was obligatory on the Wealth-tax Officer to pass an order under section 20(2) before proceeding with the assessment against the assessee ; and he, therefore, set aside the entire assessment and directed the Wealth-tax Officer to pass an order under section 20(2) and then compute the net wealth for levy of tax under section 16(3) of the Act. There was a further appeal to the Tribunal and the grounds similar to the grounds which were urged before the Appellate Assistant Commissioner were urged before the Tribunal on behalf of the assessee. The Tribunal rejected the contentions of the assessee and agreed with the view of the Appellate Assistant Commissioner that since the Wealth-tax Officer had not passed any order as contemplated by section 20(2), the assessment had to be set aside and the Tribunal held that the direction given by the Appellate Assistant Commissioner was proper. Thereafter, at the instance of the assessee, the above two questions have been referred to us. In order to appreciate the arguments advanced before us, it would be necessary to refer to the relevant provisions of the Wealth-tax Act. Under section 3, which is the charging section, sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... included in the net wealth of that particular assessee. Section 14 of the Act provides for return of wealth and under sub-section (1), every person whose net wealth renders him liable to wealth-tax under the Act shall before the 30th day of June of the corresponding assessment year furnish the return to the Wealth-tax Officer in the prescribed form. Under sub-section (2) of section 14, if the Wealth-tax Officer is of the opinion that any person is assessable under the Act, whether in respect of his net wealth or the net wealth of any other person, then notwithstanding anything contained in sub-section (1), he may serve a notice upon such person requiring him to furnish within such period, not being less than 30 days, as may be specified in the notice, a return in the prescribed form and verified in the prescribed manner. Section 17(1)(a) provides as follows : "17. (1) If the Wealth-tax Officer- (a) has reason to believe that by reason of the omission or failure on the part of any person to make a return under section 14 of his net wealth or the net wealth of any other person in respect of which he is assessable under this Act for any assessment year or to disclose fully and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titioned among the various members or groups of members in definite portions he shall record an order to that effect : Provided that no such order shall be recorded until notices of the inquiry have been served on all the members of the family. " The material words on which there is departure between the two sections is that section 25A of the Indian Income-tax Act, 1922, contemplated that a claim should be made by or on behalf of any member of the Hindu undivided family " hitherto assessed as undivided " that a separation had taken place among the members and then the inquiry contemplated by section 25A(1) was to be made by the Income-tax Officer and what he was required to be satisfied about under the Indian Income-tax Act, 1922, was that the joint family property had been partitioned among the various members or groups of members in definite portions ; whereas under the Wealth-tax Act, on the other hand, the words " hitherto assessed as undivided " qualifying the words " a Hindu undivided family " are omitted by Parliament and, further, the words " as a whole " have been introduced in the Wealth-tax Act while dealing with the concept of partition of the property in definite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Appellate Tribunal, it was contended before us that the Wealth-tax-Act could never apply to the present assessee inasmuch as nearly two years prior to the relevant date in the instant proceedings, the joint family as such had ceased to exist because of the severance of the status amongst the members of the family. In this connection, Mr. Vakil relied upon the decision of the Calcutta High Court in Srilal Bagri v. Commissioner of Wealth-tax. The Calcutta High Court in that case has held that section 20 of the Wealth-tax Act is only a machinery section directed towards assessment, where at the time the liability to pay wealth-tax arose, the family was joint but has disrupted at the time of the assessment. According to the Calcutta High Court, section 20 does not empower assessment of a Hindu undivided family which has ceased to be a Hindu undivided family prior to the relevant valuation date according to Hindu law. Where the family had never been assessed as a Hindu undivided family and a preliminary decree was passed before the valuation date, section 20, according to the Calcutta High Court, does not authorise the assessment of the members of the family as a Hindu undiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ging section. In that case section 20 of the Wealth-tax Act will only have application in respect of any year in which at the time of the accrual of liability, that is to say, at the time of the relevant valuation date, the family was joint but has disrupted at the time when the assessment was being made. After considering the provisions of section 5(1)(ii) of the Wealth-tax Act, the Division Bench of the Calcutta High Court proceeded to observe at page 910 of the report : " In view of the position of Hindu law discussed above, it is apparent that after the unequivocal expression of intention to separate the individual member of the erstwhile Hindu undivided family will have no interest in the 'coparcenary property of the Hindu undivided family of which he is a member'. The family is disrupted after the expression of intention to separate and the coparcenary comes to an end. Therefore, sub-clause (ii) of section 5(1) of the Wealth-tax Act would be no bar for assessment in respect of the properties in the hands of the erstwhile members of the Hindu undivided family even though the properties have not yet been divided amongst the members in definite portions. " Thereafter, in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving at the conclusions that they did : (1) That section 20 of the Wealth-tax Act is a machinery section. (2) That difference in language between section 20 of the Wealth-tax Act and section 25A of the Indian Income-tax Act, 1922, has been necessitated due to the scheme of the Wealth-tax Act as well as the fact that section 20 has been introduced in the main Act itself and was not introduced by an amending Act as was done in the case of section 25A of the Indian Income-tax Act, 1922. (3) That after the unequivocal expression of intention to separate, the individual member of the erstwhile Hindu undivided family will have no interest in the coparcenary property of the Hindu undivided family of which he was a member. The family is disrupted after the expression of intention to separate and the coparcenary comes to an end. Therefore, sub-clause (ii) of section 5(1) of the Wealth-tax Act would be no bar for assessment in respect of the properties in the hands of the erstwhile members of the Hindu undivided family even though the properties have not yet been divided amongst the members in definite portions. In our opinion, on a close reading of section 20, it becomes clear that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alth-tax Act and the legislature has merely used the words " where at the time of making an assessment ". Therefore, at any time when a Wealth-tax Officer is making the assessment, a contention is raised or is sought to be raised before him that a partition has taken place amongst the members of the Hindu undivided family, he has to enter upon an inquiry and satisfy himself whether there has been a partition by metes and bounds. If he is not so satisfied about the joint family properties having been partitioned by metes and bounds amongst the various members, he has to declare under sub-section (2) of section 2010 that such family shall be deemed for the purposes of the Act to continue to be a Hindu undivided family liable to be assessed as such. Once that declaration under section 20(2) is made, it becomes clear that, even for the purposes of section 5(1) (ii) of the Act, the interest of any individual member of the joint family in coparcenary property of any Hindu undivided family of which he is a member can be safely excluded. The words for the purposes of this Act occurring in section 20(2) would include within their ambit section 5(1)(ii) as well and so long as the satisfactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inion provides is that if a partition by metes and bounds has taken place on the last day of the previous year relevant in the year of assessment, the undivided family has to be assessed under the Wealth-tax Act as such in spite of the partition having taken place so far as that assessment year is concerned. If this condition of the partition having taken place on the last day of the previous year is not satisfied, then for the assessment year referable to that previous year, the Wealth-tax Officer has to treat the Hindu undivided family as completely separate in our opinion, it is only on the basis of this interpretation which appeals to us that full effect can be given to all the provisions of section 20(1) and section 20(2). With respect to the learned judges of the Calcutta High Court, we are unable to agree with their conclusions regarding the interpretation of section 20 of the Act. If full effect is to be given to section 20(2), which provides for the eventuality where the Wealth-tax Officer is not satisfied that the partition by metes and bounds has taken place and if full effect is also to be given to sub-section (1), the only possible interpretation is what has appealed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court. Mr. Vakil, on behalf of the assessee, contended that the words, " at the time of making an assessment ", occurring in section 20(1), indicate that there must be valid assessment proceedings before the Wealth-tax Officer ; and he contended in this connection that the notice under section 17(1) read with section 14(2) being invalid, there was no valid assessment proceeding and, therefore, section 20 cannot be invoked at all. This contention of Mr. Vakil must be rejected because the very basis of a notice under section 17 is that the Wealth-tax Officer must have reason to believe that by reason of failure on the part of the Hindu undivided family to make a return, under section 20, of the net wealth of the Hindu undivided family, the net wealth chargeable to tax has escaped assessment for that year. It cannot, therefore, be said that the Wealth-tax Officer can have no reason to believe that the partition which has taken place is merely a partition by severance of status as distinguished from partition by metes and bounds. If the Wealth-tax Officer is not satisfied as indicated in section 20(1), then it necessarily follows that the assessment proceedings against the Hindu und ..... X X X X Extracts X X X X X X X X Extracts X X X X
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