9911796707
TMI Blog1965 (9) TMI 75X X X X Extracts X X X X X X X X Extracts X X X X ..... 27, 1943 it was assessed to exceeds profits tax for the first chargeable accounting period but the assessment order was set aside because the assessment on the firm under the Indian Income Tax Act itself was reopened and another assessment order was passed on May 31, 1944. For the other chargeable accounting period an assessment order under the Excess Profits Tax Act was passed against the assessee on May 31, 1944. On October 24, 1944, an application was made to the Income Tax Officer on behalf of the Hindu undivided family to the effect that it had been disrupted with effect from November 10, 1942, and an order was sought for under section 25A(1) of the Indian Income Tax Act. On March 17, 1947, the Income Tax officer passed an order under section 25A(1) recognising disruption of the Hindu undivided family with effect from September 6, 1943. Assessment orders under the Excess profits Tax Act passed in respect of the two chargeable accounting periods on May 31, 1944, were quashed by the Appellate Assistant Commissioner on March 17, 1947, and October 9, 1947, respectively and on July 31, 1950 the Income Tax Officer passed fresh assessment orders in respect of both the chargeable acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the statement contained in it about the service of notices under section 13 upon the assessee on June 8, 1942, and to the question which assumes that notices under section 13 were served upon the family before its disruption. The Tribunal overruled the assessees objection saying that the question whether the notices were served upon the assessee or not had never in fact been agitated before it when it heard the appeals. The learned Advocate-General objected to the question framed by the Tribunal on the ground that it mentioned the fact of service of the notices under section 13 upon the Hindu undivided family without its appearing in the judgments of the Tribunal. What he meant to say is that a question to be referred under section 66 to the High Court must arise out of the order of the Tribunal and that the statement of case must mention only those facts which have been admitted by the parties of found to exist by the Tribunal in its order. As pointed out, whatever might have been urged by the assessee in its grounds of appeals it did not urged orally before the Tribunal that the notices were not served upon it or were not served on June 8, 1942. The question whether they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es the decision may seem obvious to the Tribunal and it might dispose of an appeal by a very short order. If a statement of the case is subsequently called for, naturally the Tribunal would want to elaborate its decision by pointing out various materials and pieces of evidence to which it had not referred in the appellate order. But all that can be referred to in the statement of the case are materials and evidence which were before the Tribunal when it heard the appeal. Service of the notices was an essential condition and any question relating to the liability to be assessed to excess profits tax must state either its existence or its absence. No question regarding the service of the notice. If the notice was not served the question regarding the liability must be answered in the negative regardless of all other circumstances and it can never be answered in the affirmative without its being found that the notice was served. The learned Advocate General referred to Petlad Turkey Red Dye Works Co. Ltd. v. Commissioner of Income Tax and Industrial Development and Investment Co. Ltd. and pressed us to refuse to answer the question on the ground that it does not arise out of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f excess profits tax payable on the basis of such assessment.... and.... furnish a copy of such order to the person on whom the assessment has been made, that excess profits tax payable in respect of any chargeable accounting period shall be payable by the person carrying on the business in that period and that where an assessment could, but for his death, have been made on any person it could be made on his legal representatives. Person was defined in Act to include a Hindu undivided family. Section 21 made the provisions of certain sections of the Income Tax Act applicable as if they were contained in the Excess Profits Tax Act and referred to excess profits tax instead of to Income Tax; those provisions included sections 10, 13, 24B, 29 and 45 to 48, but not sections 4, 21, 22, 23, 25, 25A, 26 and 26A. It will be noticed that the unit of assessment under the Excess Profits Tax Act was a business and not any person and that what was to be assessed was the excess profits of the business for each chargeable accounting period. Though it was the business that was to be charged with the tax, the assessment had to be done in the presence of, and the tax had to be paid by, a human be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a return the assessing authority may assess his income and the determine the tax payable by him and that when a person dies his legal representatives is liable to pay out of his estate (to the extent of its capacity to meet the charge) the tax assessed on him. All these provisions were necessary to be applied to assessment under the Excess Profits Tax Act because section 14(4) did not cover the same ground as any of them. Section 25 of the Income Tax Act deals with assessment in case of discontinued business; as the subject-matter of taxation under the Excess Profits Tax Act was (the excess profits of) a business, if a business was discontinued the subject-matter of taxation disappeared and there was no occasion for providing for the discontinuance. If a business was continued, but under charged proprietorship, section 8 dealt with the matter. So there was no need for there being in the Excess Profits Tax Act any provisions analogues to that contained in section 25 of the Income Tax Act. A Hindu undivided family is assessed to Income Tax on income from its property, e.g., the joint family property and the coparceners are not assessed at all on their shares or interest in the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment order. As section 29 and 45 of the Income Tax Act were deemed to be included in the Excess Profits Tax Act a issue of a notice of demand following an assessment order. Section 3 of the Income Tax Act dealing with chargeability of a person to tax was not deemed to be included in the Excess Profits Tax Act because what was to be charged under it was not a person but a business. Nobody was made chargeable to excess profits tax. Therefore, while in respect of Income Tax it can be argued that a person becomes chargeable with Income Tax on the passing of the Finance Act long before he is assessed and that only the liability to pay a certain sum as tax arises when a notice of demand is issued to him, in respect of excess profits tax such a distinction could not be made and it could not be argued that a person was chargeable with excess profits tax on the expiry of the chargeable accounting period and that only the liability to pay a certain sum as excess profits tax accrued to him on the issue of a notice of demand. Under the Excess Profits Tax Act a person was not chargeable at all and, therefore, could not be said to be liable to pay excess profits tax; the only liability th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between its members in which, however, no provision is made for the payment of the debt due by it, the creditor............ can proceed to recover it from every one of the members of the erstwhile Hindu joint family to the extent of the family property in the hands of those individual members. The individual members of a Hindu joint family cannot escape from that liability by making a partition as between themselves of the family property. and relied upon Pannalal v. Smt. Naraini. In order that the above rule of Hindu law applies in the instant case we must be able to say that there was a debt due by the Hindu undivided family before its disruption. Debt is defined by Stroud to mean a sum payable in respect of a liquidated demand recoverable by action. In Webb v. Stenton a judgment debtor was entitled for his life to the income arising from a fund vested in trustees payable half yearly in February and August. In November, 1882, nothing was due to him because the payment for August, 1882, had been made and the Court of Appeal held that there was not indebted to him in November 1882. The trustees were not indebted to him in November. Brett M. R. observed at page 522 : I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aining to his share. Swinfen Eady L.J. said at page 511 : There was.......... no contingency which could happen to deprive him of his right to payment on the figures being finally adjusted and on page 512 : It was not presently payable, the amount not being ascertained, but it was a debt to which the doctors were absolutely and not contingently entitled. The only questions was as to the amount of the debt, the debt not being payable until the amount had been ascertained. He distinguished the debt in question from unliquidated damages by pointing out that in the latter case there is no debt at all until the verdict of the jury is pronounced assessing the damages and judgments is given whereas in the former case there is a debt, uncertain in amount, which will become certain and payable when the accounts are finally dealt with and not a mere probability of a debt, as for instance, where a person has to serve for a fixed period before being entitled to any salary. In Banchharam Majumdar v. Adyanath Bhattacharjee, a Full Bench of the Calcutta High Court held that when a person advances a loan which is repayable on a certain date and dies before that date there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ............... Their Lordships were not considering the meaning of debt and liability and debt are not synonyms. Further, they considered the liability imposed by a statute upon a person which is distinct from the chargeability imposed by section 4 of the Excess Profits Tax Act upon a business. In Neptune Assurance Co. Ltd. v. Life Insurance Corporation the Supreme Court said at page 149 : It is well established that under the Income Tax law the liability to be charged to tax....exists all long.....from the 1st April,.... the amounts of the tax payable by the appellant became determinable, for the income was then capable of computation and the rate was also known......... The assessment only particularised the amounts; it did not create the right, for the right came into existence as soon as according to the relative Finance Act it became ascertainable that the tax deducted at source or treated as paid on its behalf had exceeded the tax payable. That right, therefore, was an asset contemplated in section 7 of the Act of 1956. The question before the Supreme Court was not what is the meaning of debt but whether the right to refund of Income Tax deducted at so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bt to pay the tax comes into existence. The general nature of the charging section 3 of the Income Tax Act was explained by Lord Uthawatt in Wallace Brothers and Co. Ltd. v. Commissioner of Income Tax stating : ........ the rate of tax for the year of assessment may be fixed after the close of the previous year and the assessment will necessarily be made after the close of that year. But the liability to tax arises by virtue of the charging section alone, and it arises not later than the close of the previous year, though quantification of the amount payable is postponed. Their Lordships were considering quite a different question and not the question when indebtedness arises in respect of Income Tax and should not be understood to lay down that liability to tax amounts to indebtedness. Now in this case there was disruption of the Hindu undivided family on September 6, 1943, after the chargeable accounting periods had expired, the profits of the business carried on by the Hindu undivided family had become liable to be assessed and notices under section 13 of the Excess Profits Tax Act had been served upon its karta, but before an enforceable assessment order was passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... due by the assessee, even though it had made provision for it in its balance-sheet, because the Finance Act itself had not been passed and the assessees income had not been assessed by the Income Tax authorities. The learned judges held that all liabilities are not debts within the meaning of section 2(m) of the Wealth-tax Act and that only debts solvendum in present can be deducted. We are not concerned with the interpretation of section 2(m) of the Wealth-tax Act and admittedly there was no debt solvendum in present because the assessment itself had not been done. The case is, therefore, of no assistance to us. In Commissioner of Wealth-tax v. Pierce Leslie and Co. Ltd., the Madras High Court held that earmarking a sum of money for payment of Income Tax not yet assessed was not a debt within the meaning of section 2(m). Jagadisan J. said at page 1015 : (Debt) is an ascertained, liquidated, quantified obligation enforceable in present or in future. A debt must be a debitum - that is due. The fact that the time for payment will arise in future does not make it any the less a debt............ A future contingent liability is not a debt due and owing. A contrary view was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to include both debts payable at once as well as those payable in future and that it also includes debts which are ascertained as well as those that are not ascertained . There can be quarrel with this statement provided that an unascertained debt is as debitum in present and not a contingent debt. The question before the learned judges was whether agricultural Income Tax to be paid for the assessment year 1959-60 was a debt on March 31, 1959, even though no assessment order had been passed. Under the Mysore Agricultural Income Tax Act, agricultural Income Tax was payable for the year 1959-60 on the agricultural income for the year ended on March 31, 1959. Because the year, the income of which was the basis of the tax, had expired the learned judges held that the tax payable on it was a debt. They have not referred to the relevant provisions of the Mysore Agricultural Income Tax Act, such as the sections dealing with the chargeability, the liability to be assessed and to pay the tax, the date on which the tax becomes payable, etc. Further the valuation date was March 31, 1959, earlier than April 1, 1959, on which date the liability to pay the tax accrued for the first time. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if there was disruption of the family after the expiry and before the making of an assessment order. The business was there and the excess profits were there during the whole of the assessment years, but the person against whom the assessment orders could be passed ceased to exist, with the consequence that there was no person against whom assessment orders could be passed and from whom the assessed tax could be realised. The tax could be realised only from the Hindu undivided family. Under the Hindu law a debt due from a Hindu undivided family can be realised from its members after disruption, but, as I have shown, there was no debt due from the Hindu undivided family before its disruption. The position under the Income Tax Act is this. When a Hindu undivided family earns income in an accounting year and continues to exist at the time of the assessment it will be assessed and not its members : see sections 3 and 14(1). If it is disrupted after the expiry of the accounting year, but before the assessment proceedings, it does not exist and cannot be assessed under section 3. Sections 25A, however, allows it to be assessed in a certain circumstance, viz., if no order contemplated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment by section 14(1), even if disruption takes place before the assessment. Section 14(1), had to be enacted if he legislature decided not to tax money withdrawn by a member of a Hindu undivided family as such, because otherwise he would be liable under section 3. Since the protection granted by section 14(1) was irrespective of any question of disruption (taking place subsequently but before assessment proceedings), section 25A(2) had to be enacted if the member had not to be protected after disruption, if it took place before assessment. The Excess Profits Tax Act contained a provision for the death of the person who had carried on the business during a chargeable accounting period prior to the assessment but contained no provision in respect of disruption before assessment of a Hindu undivided family that had carried on a business during a chargeable accounting period. The consequence is that nobody could be assessed to the tax; the Hindu undivided family could not be assessed because it did not exist and the members could not be assessed because they had not carried on the business and the family's liability had not been transferred to them by any provision in the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ajan claimed dissolution of the partnership of March 4, 1943, and Muthappa instituted a suit challenging the claim. The High Court held in 1953 that the partnership was dissolved with effect from 1949. In 1951, the Income Tax Officer served upon Thyagrajan a notice under section 13 of the Excess Profits Tax Act, assessed the excess profits for the chargeable accounting period ending on March 4, 1943, and proceeded to realise the excess profits tax from Muthappa. The Supreme Court held that Muthappa, who had been asserting all along that the partnership had not been dissolved, could not contend during the pendency of his suit that there was dissolution, that even if there was disruption prior to the assessment, the assessment remained valid because it was the business that was the unit of assessment and section 44 of the Income Tax Act was made applicable. These two cases, which dealt with partnership, are distinguishable from the instant case. A partnership is nothing but the partners taken collectively; there is no distinction between a partnership and the partners taken collectively. A Hindu undivided family on the other hand is not synonymous with the members constituting it and ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
