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TMI Blog1982 (8) TMI 100X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment for the assessment year 1976-77 was completed on 10-1-1978 on a total income of Rs. 47,560. These two assessments were made by the same ITO (Shri H. K. Srivastava) acting as the ITO. There was a firm, working under the name and style of Mangat Ram Ramesh Kumar, Yamunanagar, having business of timber. This firm was constituted of six sons of Mela Ram, namely, Mangat Ram, Ramesh Kumar and Surinder Kumar who were major and fullfledged partners and Vijay Kumar, Ashok Kumar and Virinder Kumar, minors admitted to the benefits of partnership, and his wife Smt. Sumitra Devi. For the assessment year 1976-77, the assessment of the firm was completed on 27-9-1978 treating the firm as registered. The shares of the minors as per allocation under section 158 of the Act were respectively, Rs. 11,174, Rs. 8,381 and Rs. 8,381. Before completion of the firm's assessment the ITO had assessed under section 143(1), the three minors on the share of income coming to them from this firm. These assessments were made in all the three cases on 10-1-1978. 3. Subsequently, the ITO issued notice under section 148 of the Act to reopen the assessment in the case of Mela Ram under section 147(a) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere excluded from the benefits of partnership with effect from 1-10-1975 when the new firm was constituted. The share of the minors included by the ITO was the amount that accrued to each of them up to the taking of the accounts on 30-9-1975 as was clear from the order of the firm for the assessment year 1976-77 made by the same ITO on 20-9-1977. He, therefore, held that on merits, section 64(1)(iii) was not applicable. Since on merits, the said section was not applicable, there was no escapement of income and section 147(a) was not applicable. The ITO's order was, therefore, cancelled. Hence, the appeal by the revenue. 6. It was contended on behalf of the revenue that the reassessment made by the ITO upon the assessee was valid because the law applicable to an assessment is the law that stands on 1st of April of the relevant assessment year and on that date the amended provisions of law were applicable. The ITO, it was contended, validly reopened the assessment because he could have a tentative belief that income liable to tax had escaped assessment. For this proposition, reliance was placed on the Calcutta High Court judgment in the case of H. A. Nanji Co. v. ITO [1979] 120 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and his wife and, therefore, all the legal heirs particularly the major sons of the deceased should have been served with necessary notices. Since the major sons of the deceased have not been served with notices, the reassessment is void ab initio in view of the judgment of the Gauhati High Court in the case of Jai Prakash Singh v. CIT [1978] 111 ITR 507. 10. The learned counsel for the assessee further submitted that the reassessment is bad in law because the amended provisions of section 64(1)(iii) were not properly applied by the ITO. In this regard, he submitted that the total income of Mela Ram (deceased) for the assessment year 1976-77, as per assessment raised by the ITO on 26-6-1978, was Rs. 39,900. The income of his wife Smt. Sumitra Devi was Rs. 47,560. Taking into consideration the provisions of the Explanation 1 to section 64(1), the ITO was obliged to include, if it otherwise was includible, the income of the minor child from the benefits of partnership in the income of that parent whose total income [excluding the income referred to in clause (iii) of sub-section (1) of section 64] was greater. Since the income of Smt. Sumitra Devi, widow of late Mela Ram, for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction (1) ibid., with effect from 1-4-1976. The substituted section provides that in computing the total income of any individual, there shall be included all such income as arises directly or indirectly to the minor child of such individual from the admission of the minor to the benefits of partnership in a firm. The Explanation provides, inter alia, that for purposes of clause (iii), the income of the minor child from the partnership shall be included in the income of that parent whose total income (excluding the income referred to in this clause) is greater. This Explanation also provides that where any such income is once included in the total income of either spouse or parent, any such income arising in any succeeding year shall not be included in the total income of the either spouse or parent unless the ITO is satisfied, after giving that spouse or parent an opportunity of being heard, that it is necessary so, to do. Since the substituted section was brought on the statute book with effect from 1-10-1975, the Central Government, by virtue of the powers conferred by sub-section (2) of section 1 of the Taxation Laws (Amendment) Act, 1975 (41 of 1975), appointed the date as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the minors about their shares on 10-1-1978. Not that it matters, but incidently the person of the ITO (sic) making assessments on the minors and subsequently making assessment on Mela Ram, who has since deceased, was the same. It is also very pertinent to note that till there was amendment in law as pointed out above by substitution of section 64(1)(iii) by the Taxation Laws (Amendment) Act, 1975, the share accruing to the minor child of an assessee from a firm where the assessee was not partner was includible in his total income. Therefore, there was no obligation on the part of Mela Ram to disclose the share of the three minors in question in his return. As such, there was no failure on the part of Mela Ram to disclose fully and truly all material facts necessary for his assessment. The ITO could not, therefore, proceed under section 147(a). 17. When the amended law came on the statute book, the ITO has interpreted it as if his interpretation is universally acceptable. In our considered opinion, the ITO was himself proceeding against the clear cut indication given by the Central Government in Notification No. S. O. 475(E), dated 5-9-1975, wherein the operation of the amended s ..... 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