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TMI Blog1990 (8) TMI 182X X X X Extracts X X X X X X X X Extracts X X X X ..... a notice under s. 148 was a condition precedent to the validity of any asssessment under s. 147 and if the notice issued under s. 148 was not valid, assessment was not legally sustainable. Another contention raised was that since the HUF had ceased to exist by the time the assessments came to be made, the assessments were bad in law, as law does not provide for making assessment on defunct HUF. It was stated that the HUF had disrupted on 8-5-1972. There is also dispute as to the applicability of the provisions of s. 150(1) which lift the bar of limitation prescribed for the issue of notice under s. 148. The view of the department that, since the assessments are in consequence of or to give effect to the "finding" of the Hon'ble High Court of Karnataka in the case of Paramanand L. Bajaj v. CIT [1982] 135 ITR 673, the bar of limitation for issue of notice under s. 148 is lifted, is disputed. 3. Let the facts be stated. There had existed a HUF consisting of Paramanand L. Bajaj, his wife, three sons and two daughters. The three sons of Paramanand L. Bajaj are Devendra P. Bajaj, Vijaykumar P. Bajaj and Nandlal P. Bajaj. The assessment was being made on the HUF represented by its karta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch the department was of the view that the re-union was not valid was that all the properties which the re-uniting members had earlier received on partition were not brought back to the fold of the re-united family. As stated above, it was only Paramanand L. Bajaj who had brought the properties back to the fold of the re-united family and as far as his three sons were concerned, they had not brought the properties back to the fold of the re-united family. Even Paramanand L. Bajaj had not brought all the properties back to the fold of the re-united family. According to the department, it was the prime requirement for the re-union that the properties obtained by the members of the HUF at the time of partition were brought back into the hotch-pot of the re-united family. Since this requirement was not fulfilled in this case, the conclusion of the department was that there was no valid re-union. In this view of the matter, the department concluded that the properties which the smaller HUF of Paramanand L. Bajaj had thrown into the hotch-pot of the re-united family were to be considered to have continued to belong to the smaller HUF of Paramanand L. Bajaj, as, according to the departmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For the assessment years 1978-79 and 1979-80, the assessee had not filed any returns on its own. 9. As stated above, the department was of the view that the re-union was not valid and as such, the bigger HUF could not be considered to have come into existence. The department was, hence, of the view that the properties thrown by Paramanand L. Bajaj into the hotch-pot of the bigger re-united family had continued in law to belong to the smaller HUF of Paramanand L. Bajaj. The department, hence, assessed the income of these properties in the hands of the smaller HUF of Paramanand L. Bajaj for the assessment years 1971-72 and 1972-73. This was objected to by Paramanand L. Bajaj. Ultimately, the matter went to the Hon'ble High Court of Karnataka in reference. The High Court decided the matter in the case of Paramanand L. Bajaj by its judgment dated 13-4-1981. The High Court found that in the facts of the case, the essential ingredients of re-union had existed. The High Court, hence, held that the re-union was valid. Clause (3) of the agreerment of re-union had provided that the properties got by the parties on partition prior to this re-union were to continue to be their respective pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 13-4-1981 of the Karnataka High Court in the case of Paramanand L. Bajaj wherein the validity of the re-union of the family on 27-3-1971 had been upheld. The department had, however, not accepted the decision of the High Court and had taken the matter to the Supreme Court. It was pointed out on behalf of the assessee that when the department was of the view that there was no valid reunion, it could have no "reason to believe" that income of the re-united family had escaped assessment. It was argued that, under the circumstances, the department was not justified to proceed under s. 147. This argument of the assessee does not appeal to us. The decision of the High Court, as long as it subsists, is the law of the land. On the basis of the decision of the High Court upholding the validity of the reunion, the ITO did have "reason to believe" that the income of the re-united family had escaped assessment. As such, the ITO was justified to proceed under s. 147. 12. The assessee has also put forth the contention that the assessments made under s. 147 are bad in law since notices under s. 148 for the various assessment years were not validly issued. Before making an assessment under s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a), notice under s. 148 may be issued at any time within 8 years from the end of the assessment year for which proceedings have been taken. If, however, the income chargeable to tax which has escaped assessment, amounts to or is likely to amount to at least Rs. 50,000, notice under s. 148 may be issued at any time within 16 years from the end of the assessment year for which action is being taken. In cases falling under clause (b) of s. 147, notice under s. 148 may be issued at any time within four years from the end of the assessment year for which the re-assessment has to be made. Now, since the time limit for the issue of notice under s. 148 depends on whether the case falls under clause (a) or under clause (b) of s. 147, it becomes imperative to find out whether action in respect of a particular year falls under clause (a) or under clause (b). As far as assessment years 1971-72, 1978-79 and 1979-80 are concerned, action lies under s. 147(a), since there had been omission on the part of the assessee to file returns for these years. It was pointed out by the learned departmental representative that action for assessment years 1972-73 to 1977-78 would also lie under clause (a). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t even if there has been any such omission or failure, but that has not led to the escapement of income, clause (a) would not become applicable. From the facts narrated above, it is clear that the escapement of income was not attributable to any lack of knowledge on the part of the ITO about the re-union, which lack of knowledge could be said to have been generated by the failure on the part of the assessee to disclose the fact of reunion, but the escapement of income was on account of ITO's not recognising the validity of the re-union. Hence, we are unable to accept the contention put forth by the learned departmental representative that even in respect of assessment years 1972-73 to 1977-78 clause (a) would be applicable. But, in respect of these assessment years, however, clause (b) does become applicable. The judgment dated 13-4-1981 of the Hon'ble High Court of Karnataka in the case of Paramanand L. Bajaj constituted "information" on the basis of which the ITO had reason to believe that income had escaped assessment. This would entitle the ITO to proceed under clause (b) of s. 147 to bring to tax the income that had escaped assessment 16. Hence, as far as assessment years 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of, or to give effect to, the finding of the High Court in the case of Paramanand L. Bajaj. It was also suggested by the learned departmental representative that the High Court had in its judgment given a direction to the department to assess the income in the hands of the re-united family and, hence, it could be said that the action for reassessments had been taken to give effect to this direction of the High Court. Hence, the question to be determined is whether the re-assessments for the above-mentioned assessment years in the case of the re-united family can be considered to be in consequence of, or to give effect to, the "finding or the direction" of the High Court. 18. Section 150(1) and Explanations 2 and 3 below section 153 are as under : " S. 150(1): Notwithstanding anything contained in section 149, the notice under section 148 may be issued at any time for the purpose of making an assessment or reassessment or recomputation in consequence of or to give effect to any finding or direction contained in an order passed by any authority in any proceeding under this Act by way of appeal, reference or revision (or by a Court in any proceeding under any other law) ". " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as of the view that observation of the Appellate Asstt. Commissioner had amounted to a "direction" for the purpose of s. 153(3)(ii). According to the Supreme Court, this observation could not be regarded as being a direction because it had been left to the option and discretion of the ITO whether or not to take action. Similarly, the observation of the Karnataka High Court in the case of Paramanand L. Bajaj could not be regarded as being a "direction" since the matter was left to the discretion of the Income-tax Authorities to assess or not to assess the income of the properties in the hands of the re-united family. 20. Now, we will proceed to consider whether the re-assessments for the assessment years 1972-73 to 1976-77 could be considered to be in consequence of, or to give effect to, any "finding" of the High Court in the case of Paramanand L. Bajaj. The issue that had cropped up in the case of Paramanand L. Bajaj in the assessment year 1972-73, which was the subject-matter of reference, was as to whether the income of the properties, which Paramanand L. Bajaj had thrown into the hotch-pot of the re-united family, could be assessed in the hands of Paramanand L. Bajaj. The cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 22. We have given our utmost consideration to the plea advanced on behalf of the department. We must admit that we are finding it difficult to persuade ourselves to accept the point of view canvassed by the department that the decision of the High Court constitutes "finding" contemplated under s. 150(1) so as to lift the bar of limitation for the issue of notices under s. 148 for all these years. The assessee before us is the re-united family. The "finding" that the re-union was valid was given by the High Court in the case of Paramanand L. Bajaj in respect of the assessment year 1972-73 which was the subject-matter of reference before the High Court. We fail to understand as to how action taken in the case of the assessee to assess the escaped income in respect of the assessment years 1972-73 to 1976-77 can be said to be in consequence of or to give effect to the "finding" given by the High Court in the case of Paramanand L. Bajaj in respect of the assessment year 1972-73. It is well established that the term "finding" has got a limited meaning. The authority or the Court is competent to give a finding with regard to the matter before it. The decision by the authority or the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot fall under the Explanation, the question of the bar of limitation for the issue of notice under s. 148 being lifted will not arise. Then the question that arises for consideration is whether the assessment of the re-united family in respect of the assessment years 1972-73 to 1976-77 come within the purview of Explanation 3. If they do not, then it cannot be said that they were made in consequence of or to give effect to the finding of the High Court. As per the Explanation, where by an order in appeal or reference or revision, any income is excluded from the total income of one person and held to be the income of another person, then, an assessment of such income on such other person shall, for the purposes of s. 150, be deemed to be one made in consequence of or to give effect to any finding contained in the said order, provided such other person was given an opportunity of being heard before the said order was passed. Thus, if "A" files an appeal against the assessment and the appellate authority deletes certain income on the ground that the income really belongs to "B", a notice under s. 148 may be issued to "B" at any time and an assessment or re-assessment on him may be com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be deemed to be the assessments made in consequence of or to give effect to the finding of the High Court in the case of Paramanand L. Bajaj. The bar of limitation for the issue of notice under s. 148 can be lifted if the Explanation becomes applicable. It is, hence, held by us that notices under s. 148 had not been issued in respect of the assessment years 1973-74 to 1976-77 within the prescribed time. As far as the re-assessment for the assessment year 1972-73 is concerned, the provisions of s. 150(1) do become applicable to it. We uphold the validity of the assessment for the assessment year 1972-73. 23. We will draw attention to the decision of the Karnataka High Court in the case of Consolidated Coffee Ltd. v. ITO [1985] 155 ITR 729. In that case, in respect of the assessment years 1964-65 to 1966-67, the Tribunal had held that the sale proceeds of timber had brought about capital gain. In the previous year relevant to assessment year 1963-64 also, the assessee had sold timber and that was for Rs. 11,91,508. For that assessment year, no capital gain had been taken into account. In view of the decision of the Tribunal in respect of the assessment years 1964-65 to 1966- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are struck down as having been made without proper authority. 24. Another ground on the basis of which the validity of the assessments has been challenged is that since the re-united family was not in existence on the dates on which the assessments under s. 147 were made, the assessments were invalid, as no assessment could be made on a defunct family. It was stated that the re-united family had disrupted on 8-5-1972. It was stated that the assessments which had been made subsequent to 8-5-1972 could not be sustained, since no assessment could be made on a defunct Hindu undivided family. 25. We have considered the matter carefully. As per s. 171, once a Hindu undivided family is assessed as such, it would continue to be so assessed even after it has disrupted and has ceased to exist unless a finding is given under this section recording the total partition. The re-union of the family had taken place on 27-3-1971. No finding of total partition had since been recorded till the date of the assessments. The agreement to re-unite had provided that "any party to this agreement can throw either his self-acquired property or any property got by him on partition of the HUF before this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eemed to have been partitioned on the date of the re-union itself, i.e., on 27-3-1971. It was stated that the very fact that the members had kept the properties with them was indicative of the intention of their enjoying those properties separately. It was stated that as such what had happened on 8-5-1972 was the total disruption of the family when even those properties which had been brought into the hotch-pot of the re-united family were partitioned. Thus, according to the learned authorised representative of the assessee, there was a complete disruption of the reunited family on 8-5-1972. We are unable to accept this contention of the assessee. Partition could only be subsequent to the bringing of the properties back to the fold of the re-united family. Partition is a conscious act. We are unable to accept the contention of the assessee that the fact that the members had not brought the properties back to the fold of the re-united family was tantamount to partition. The agreement of re-union had left it to the option of the members to bring or not to bring the properties back to the fold of the re-united family. When a member keeps the property with himself, it is because he has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the position with regard to Hindu Law. But, as far as income-tax law is concerned, the recording of the finding of partition under s. 171 is absolutely necessary. A property will continue to belong to the HUF unless in respect of it there is recorded under s. 171 a finding of partition. Since, in this case, there was no finding of partition under s. 171 in respect of the various properties which came to belong to the HUF, on re-union, the HUF is to be deemed to continue to exist and those properties will belong to the HUF. 27. It was also pointed out by the learned authorised representative of the assessee that in this case, since the re-united family had not previously been assessed to tax, there was no need for the recording of a finding under s. 171. But the family that was there prior to disruption had been assessed to tax. If the re-united family is to be considered to be an entity different from the one which had existed earlier, then what has been stated by the assessee would be acceptable. But the re-united family is not a different entity. It was the same family which had disrupted earlier but which came to be re-united. The family prior to its disruption had been asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been taken in consequence of or to give effect to the finding of the High Court in the case of Paramanand L. Bajaj there was no need to take sanction of the Board prior to issue of notice under s. 148. 32. We have considered the matter. The Madhya Pradesh High Court has held as under in the case of Sukhdayal Pahwa v. CIT [1983] 140 ITR 206 : " Section 150 of the IT Act, 1961, is an exception to and overrides the provisions of ss. 149 and 151. It starts with a non obstante clause 'notwhithstanding anything contained in s. 149'. Hence, when a notice under s. 148 is issued at any time for the purposes for making an assessment or reassessment in consequence of or to give effect to any finding or direction contained in an appellate order, the provisions of s. 149 as a whole will not be applicable. Sub-section (2) of s. 149, which makes the provisions of sub-s. (1) subject to the provisions of s. 151, will also not be applicable in view of the clear language of s. 150(1). Therefore, it is not necessary for the ITO to obtain the sanction either of the Commissioner or of the CBDT under s. 151 prior to the issue of a notice under s. 148 of the Act where the case is covered by s. 150(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assess only such income in the hands of the re-united family. As far as other incomes are concerned, the ITO lacks jurisdiction to assess them, since the ITO had failed to obtain the sanction of the Board prior to the issue of notice under s. 148. 33. Now, we will proceed to examine the same issue, i.e., as to what incomes the ITO is competent to assess with regard to assessment year 1972-73. We have already upheld the re-assessment for the assessment year 1972-73. The original assessment was re-opened under s. 147(b). Notice under s. 148 was issued on 27-3-1982. In cases falling under clause (b) of s. 147, notice under s. 148 may be issued at any time within four years from the end of the assessment year for which the re-assessment has to be made. It is, thus, obvious that notice under s. 148 for this assessment year was issued beyond the time limit laid down for the issue of notice under s. 149. The claim of the department that this notice was saved by the provisions of s. 150(1) has been accepted by us. It means that the jurisdiction of the ITO to assess the income merely arises on account of the fact that he has taken up the proceedings to assess the escaped income in conseq ..... 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