JUDGMENT B. UPADHYA J. - I have had the advantage of reading the order proposed by my learned brother, but I regret I am unable to agree with him.
The facts of the case have been clearly set out by my learned brother and it is unnecessary to repeat them. The answer to both the questions referred to depends, to my mind, on the single question as to whether the Income-tax Officer must necessarily make an assessment under section 23 after passing an order under section 25A(1) of the Income-tax Act. The contention raised by learned counsel for the assessee relating to the apportionment of the tax on the income of the erstwhile family between the two separated groups does not appear to have any force and I agree with my learned brother when he says that having regard to the language of the statute the apportionment has to be made according to the portion of the joint family property allotted to each separated member. I agree that there is nothing in the statute to support the argument that in deciding the value of the portion the income yielding capacity of that portion should be determined by the Income-at Officer. In a partition the value of the different assets are often estimated not only having regard to the capital invested in acquiring them, but due consideration is given to their income or profit yielding capacity, but this is done before the allotment of the various assets of the family to the shares of the members entitled to partition. If four persons are entitled to equal shares, the portion which each would get on partition would be one-fourth portion of the entire family assets. The word "portion" in section 25A(2) is used in this sense and I agree with my learned brother that the Income-tax Officer is not expected to embark upon and duty of determining a fresh the value of the assets that fell to the lot of the separating members in order to determine what portion of the joint family property fell to the share of each member.But this argument does not appear to have any bearing on the questions referred to us.
The real question is as to whether, after having passes an order under section 25A(1), there has been a partition among the members of the Hindu undivided family and the joint family property has been partitioned among the members in undivided portions and after having made an assessment of the total income received by the family up to the date of partition, it is necessary for the Income-tax Officer to make an assessment on the separated members under section 25A(2) of the Act. Section 25A has been quoted by my learned brother. Sub-section (1) shows that the claim that a partition has taken place amongst the members of the family, till then assessed as undivided, must be made at the time of making an assessment under section 23. Once the assessment of the family is completed under section 23, no such claim may be made. If a claim is made at the proper time, the Income-tax Officer is required by the statute to make such enquiry thereinto as he may think fit and if he is satisfied that the joint family property has been partitioned in definite portions he has to record an order to that effect. From an order made under section 25A(1), the assessee has a right of appeal under section 30(1) of the Income-tax Act, if he objects to any order passed under section 25A of the Act. Section 30(2) of the Act, which mentions the period during which an appeal may be presented, states that "the intimation of the refusal to pass an order under sub-section (1) of section 25A" furnishes the starting point for the period of thirty days during which the appeal has to be presented. Section 31(2)(e) of the Act says that in the case of an order under sub-section (1) of section 25A an Appellate Assistant Commissioner may confirm such an order or direct further enquiry and the passing of a fresh order or direct the Income-tax officer to make an assessment in the manner laid down in sub-section (2) of section 25A. Reading the provisions of sections 30 and 31 together it appears that in case a claim is made as mentioned under section 25A(1) and the Income-tax Officer passes an order which is objected to by the assessee, he may prefer an appeal and the Appellate Assistant Commissioner may either confirm that order or cancel it and direct further enquiry with a direction to pass a fresh order or he may direct the Income-tax Officer to make an assessment in the manner laid down under sub-secion (2) of section 25A. In section 25A the main thing to be done by the Income-tax Officer is to pass an order relating to the claim of partition and to see whether there has been a partition of the joint family property in definite portions among the various members. It is clear that he has to find if the Hindu undivided family in whose assessment proceedings the claim was made does not, in fact, exist any more as such. The Income-tax Officer, in levying the tax, has to levy it on a person in existence so that the tax may be recovered and the other proceedings under the Act may be enforced. The legislature appears to have proceeded on the view that the Hindu undivided family having ceased to exist, the income which was earned by the erstwhile family should be subjected to tax in the hands of those who have distributed the assets including the profits of the family among themselves. Under section 25(A)(2) the Income-tax Officer is required "to make an assessment of the total income received by or on behalf of the joint family as such as if no partition has taken place". This phrase, to my mind, means that he has to ascertain the amount of income earned by the family while it existed during the relevant accounting period. The statute lays down that for the tax which would have been levied on the family if it had continued to exist the liability falls on the divided members in proportion to the share in the family property taken by them. The Income-tax Officer has, therefore, to calculate what the tax on the income of the erstwhile family would have been but he is not to determine the tax payable by the family as such. One may recall the provisions of section 23(30) of the Act. Dealing with an assessment in the normal course, it says :
"23. (3) On the day specified in the notice issued under sub-section (2), or as soon afterwards as may be, the Income-tax Officer, after hearing such evidence as such person may produce and such other evidence as the Income-tax Officer may require, on specified points, shall, by an order in writing, assess the total income of the assessee, and determine the sum payable by him on the basis of such assessment."
Under section 25A(2) the Income-tax Officer is required to assess the total income of the erstwhile family but he is not required "to determine the sum payable by the family on the basis of such assessment". The simple reason for this is that the family is no more in existence. The law, therefore, provides that the liability for the tax that would have been payable by the erstwhile family if it had not ceased should devolve proportionately on the divided members and in order to crystallise this liability the statute says, "and the Income-tax Officer shall make assessments accordingly on the various members and groups of members in accordance with the provisions of section 23." The proviso makes it further clear that the divided members "shall be liable jointly and severally for the tax assessed on the total income received by or on behalf of the joint family as such". the liability for the entire tax remains joint and several. But the Income-tax Officer has got to make assessments on the divided members in accordance with the provisions of section 23.
The Income-tax Act does not provide for two assessments being made on the same person. The tax is to be levied according to the Income-tax Act read with the Finance Act passed every year and it is levied on the total income earned by the units of assessment mentioned in section 3 of the Act during the previous year. Every member of a Hindu undivided family is capable of having his own separate property and his own separate income. It is also possible that he may be a person separately assessed to income-tax. The liability that falls on him as a divided member of his erstwhile family in accordance with section 25A has to be included by the Income-tax Officer in the assessment that has to be made against that person. When the statute says that the Income-tax Officer shall make assessments in accordance with the provisions of section 23, it is difficult to assume that all the provisions of section 23 required to be complied with in making an assessment are not to be complied with in making the assessment under section 25A(2) on the divided members. Section 23(1) says how the Income-tax Officer may make an assessment if he feels that the return made under section 22 is correct and complete. Section 23(2) requires the Income-tax Officer to give an opportunity to the assessee to produce evidence in support of his return. The next sub-section enables the Income-tax Officer to call for evidence on specified points if he so desires and then to assess the total income of the assessee and determine the sum payable by him on the basis of such assessment. After considering the language of the statute, I am of opinion, that when the statute requires an assessment to be made in accordance with section 23, it confers on the assessee the right of availing of the opportunities mentioned in section 23 and to take part in his assessment to tax. I find on justification for taking the view that, in spite of the express language of the statute requiring the assessments on the various divided members being made in accordance with the provisions of section 23, all that the Income-tax Officer may do is to calculate the tax liability and issue a notice of demand. It is possible that the divided members may have no other income and the Income-tax Officer may find it ultimately that they are liable to pay only their respective shares of the tax that would have been levied on the income of the erstwhile family. But it is in the interests of revenue to probe into the matter and to ascertain that the divided members or groups of members have in fact no other income on which tax may be demanded from them. It is also possible that these divided members or some of them may have assessable income and may be separately liable to tax without reference to their liability for the tax recoverable from under section 25A(2). But only one assessment can be made under the Income-tax Act unless an assessment on income that has escaped assessment is made under section 34 of the Act. It is true that the word "assessment" has not been used in the same sense everywhere in the Income-tax Act, but when the statute requires the Income-tax Officer to make an assessment in accordance with the provisions of section 23, I am of opinion that the procedure under section 23 cannot be ignored.
In the instant case it is admitted that no assessment in accordance with the provisions of section 23 of the Income-tax Act was made on the separated groups of members. I am, therefore, of opinion that question No. 1 should be answered in the affirmative.
Before answering the second question it appears necessary to consider the language of section 29 also. Section 29 says that "when any tax, penalty or interest is due in consequence of any order passed under or in pursuance of this Act, the Income-tax Officer shall serve upon the assesses or other person liable to pay such tax, penalty or interest, a notice of demand in the prescribed form specifying the sum so payable". Though this argument was not addressed, it might be contended that section 25A(2) makes the divided members liable for the share of the tax on the income of the erstwhile family and because of this liability a notice of demand may be issued section 29. I fear this argument ignores the fact that a notice of demand under section 29 may be issued for tax due in consequence of an order only, and the order that the Income-tax Officer has to pass to create a liability for the tax on a divided member must be an order of assessment passed in accordance with the provisions of section 23. The earlier portion of section 25A(2) merely declares the liability of the divided members. This liability imposed by the statute has to be crystallised and made definite by the Income-tax Officer by proceeding to make an assessment under section 23 on each of the undivided members or groups of members. I am, therefore, of opinion that the notice of demand mentioned in question No. 2 was invalid.
As, in my opinion, the assessee succeeds entirely, he is entitled to his costs, which I would assess at Rs. 200. The fee of the learned counsel for the income-tax department is also assessed at the same amount.
JAGDISH SAHAI J. - On an application under section 66(2) of the Indian Income-tax Act (hereinafter referred to as the Act) we had, on March 23, 1960, directed the Income-tax Appellate Tribunal to submit a case to us and to refer the following questions of law for the opinion of this court :
"(1) Whether the Income-tax Officer, after passing an order under section 25A(1), was bound in law to make an assessment on the separated group of members in accordance with the provisions of section 23 of the Income-tax Act ?
(2) Whether, in the circumstances of the case, when no assessment had been made on the separated group of members as mentioned in section 25A(2) the notice of demand for Rs. 8,663 issued to the assessee was invalid ?"
The Tribunal has consequently submitted a case and has referred those questions of law to us for decision. The questions of law arise in the circumstances mentioned below :
Jagannath Prasad Kashi Prasad was a Hindu undivided family carrying on the business of sale of paper, books and stationery, in the City of Varanasi. There was a partition in the family with effect from 19th January, 1943. The family separated into two units one of which consisted of Kailash Nath Bhargava, Baikunth Nath Bhargava, Harihar Nath Bhargava, and their sons, and the other consisted of Prithivi Nath Bhargava, Shambhu Nath Bhargava and their sons. The Income-tax Officer by his order dated July 29, 1946, accepted the partition and the assessment for the year 1943-44 was made on the income of the family for the period up to the date of the partition and the total tax charge-able on the family was determined and apportioned between the two separated groups of the family. A demand notice under section 29 of the Act was issued to Kailash Nath Bhargava (hereinafter referred to as Kailash Nath) for the entire amount. But the mistake was realized and subsequently the Income-tax Officer, on January 20, 1947, issued two demand notices, one of which was addressed to Kailash Nath demanding Rs. 8,633, which represented the pro rata share of the tax due from the group represented by Kailash Nath. Kailash Nath filed an appeal against this demand notice. The appeal was dismissed by the Appellate Assistant Commissioner as barred by time. He then filed an appeal before the Income-tax Appellate Tribunal (hereafter referred to as the Tribunal). The Tribunal set aside the order of the Appellate Assistant Commissioner and directed him to hear the appeal on merits. The submission that was made before the Appellate Assistant Commissioner after remand, inter alia, was firstly, that the issue of the notice of demand was bad because proceedings in accordance with section 25A(2) read with section 25(4) and section 23 of the Act were not taken, and secondly, that there was no proper and legal assessment as laid down in section 25A(2) without which the issue of notice of demand was ultra vires. The Appellate Assistant Commissioner accepted the contention of Kailash Nath and held that the notice of demand under section 29 of the Act could not be issued without an assessment being made under section 23 read with section 25A(2). He, therefore, cancelled the notice issued by the Income-tax Officer. The income-tax department filed an appeal before the Tribunal against this order of the Appellate Assistant Commissioner. The Tribunal allowed the appeal and set aside the order of the Appellate Assistant Commissioner restoring that of the Income-tax Officer.
We have heard Mr. G.P. Bhargava for Kailash Nath and Mr. Gopal Behari for the department. The question raised relates to the interpretation of section 25A of the Income-tax Act. The said section reads as follows :
"25A.(1) Where, at the time of making an assessment under section 23, it is claimed by or on behalf of any member of a Hindu family hitherto assessed as undivided that a partition has taken place among the members of such family, the Income-tax Officer shall make such inquiry thereinto as he may think fit, and, it he is satisfied that the joint family property has been partitioned 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.
(2) Where such an order has been passed, or where any person has succeeded to a business, profession or vocation formerly carried on by a Hindu undivided family whose joint family property has been partitioned on or after the last day on which it carried on such business, profession or vocation, the Income-tax Officer shall make an assessment of the total income received by or on behalf of the joint family as such, as if no partition had taken place, and each member or group of members shall, in addition to any income-tax for which he or it may be separately liable and notwithstanding anything contained is sub-section (1) of section 14, be liable for a share of the tax on the income so assessed according to the portion of the joint family property allotted to him or it; and the Income-tax Officer shall make assessments accordingly on the various members and groups of members is accordance with the provisions of section 23 :
Provided that all the members and groups of members whose joint family property has been partitioned shall be liable jointly and severally for the tax assessed on the total income received by or on behalf of the joint family as such.
(3) Where such an order has not been passed in respect of a Hindu family hitherto assessed as undivided, such family shall be deemed, for the purposes of this Act, to continue to be a Hindu undivided family."
Mr. Bhargava, who has appeared for the petitioner, had made two submissions before us. His first submission is that the tax assessed on the family should have been apportioned between the two separate groups according to the income yielding capacity of the different portions of the property allotted to each of the two groups and not according to the quantum of the interest or the capital value of the share taken by each of them. In order words the submission is that the words "be liable for a share of the tax on the income so assessed according to the portion of the joint family property allotted to him or it" indicate that the apportionment should be made out on the basis of the share in the family property, which is one half each in the present case, but on the basis of actual property falling in the lot of each of the groups according to the portion of the joint Hindu family property allotted to him or it. The second submission is that after that tax on the family had been determined and apportioned between the two separated groups, the Income-tax Officer should have started fresh proceedings for the assessment of tax on the two divided groups and should not have merely made the separated groups liable for the payment of half of the tax each due from the family as such.
It would contribute towards the proper adjudication on the two submissions made before us if the scope and the scheme of this section were clearly understood. Section 25A is a machinery section. It was enacted to meet the difficulty of levying and collecting income-tax in cases where a joint Hindu family had received income in the year of account, but had ceased to exist as a joint unit at the time of the assessment. Section 14(1) of the Act exempts from tax any sum received by an assessee as a member of a joint Hindu family. Consequently this section was introduced into the Act. It provides that in the event of the Hindu undivided family property being partitioned in definite portions notwithstanding section 14(1) of the Act, the assessment must be made on the family treating it to be joint, but apportioning the tax amongst the divided groups or members in proportion to their share in the family property. The substance of section 25A(1) is that if there has been a partition in the family, any one of the separated members can, during proceedings for assessment under section 23 of the Act, claim that partition has taken place in the family and when that if done, the Income-tax Officer would have to investigate into that question and decide whether in fact the partition has taken place. The substance of sub-section (2) of section 25A is that if the Income-tax Officer is satisfied that a partition has in fact taken place and consequently passed an order to that effect under sub-section (1) of section 25A of the Act, he shall, for the period during which the family was joint, assess the family as if no partition has taken place. After having done that he would apportion the tax assessed on the family as such between the separated members or groups, as the case may be, in proportion to their share in the joint family property. Thereafter he would assess the separated members or groups by making them liable to pay the amount apportioned against them in respect of the tax due from the family as a whole and adding to that amount any income-tax which the separated members or groups are liable to pay in respect of their separate incomes. Even though the tax due from the family is apportioned on the separated members or groups, there still remains joint and several liability on all the members to pay the entire sum assessed on the family and not only the amount apportioned to them. We are not concerned with sub-section (3) in this case.
So far as the first submission made by the learned counsel for the petitioner is concerned it appears to me that reference to definite portions in section 25A of the Act was made as a check on the genuineness of the partition. The idea was not to recognise sham or mere paper partitions but only those which were really genuine. If joint property after partition is carved out is separate portions the genuineness of the partition cannot be doubted. Hence the words "definite portions" in sub-section (1) of section 25A. Since the word "portions" or "portion" was used in sub-section (1) it had also to be used in sub-section (2) of section 25A. The word "portion" in sub-section (2) to my mind was used in the sense of quantum of share in the family property represented by that portion and not in the sense of the various items of property falling in a portion. It may also be mentioned that though the case of Gordhandas T. Mangaldas v. Commissioner of Income-tax was not cited before us, there are certain observations in the judgment of Beaumont C.J., which considerably support the contention of the learned counsel. Those words are as follows :
"But Mr. Setalvad on behalf of the Commissioner contends that the word portionis used in exactly the same sense as in sub-section (1), and refers to a physical part of the property; he suggests, I think correctly, that sub-section (2) is designed, at any rate in part, to meet the case in which there has been a partition of joint family property, where one member gets a portion producing income, and another member gets a portion producing less income, or no income at all, for instance, where one member of the joint family takes income producing lands or shares, and another member takes jewellery of considerable capital value, but producing no income. It would be unfair in such a case to apportion the income amongst the members in proportion to the value of the shares they take. The allocation of the tax ought to be made in accordance with the particular portion of the property which each member has taken."
With the greatest respect to the learned Chief Justice I am unable to agree with him. It may be stated that Kania J., who was the other member of the Bench deciding the case of Gordhandas T. Mangaldas v. Commissioner of Income-tax, has not endorsed the words of the Chief Justice quoted above. I do not think that the use of the word "portion" in section 25A(2) of the Act can lead to the conclusion that the Income-tax Officer must, after determining the liability of the family as such and assessing the tax on it, open fresh proceedings and make fresh assessments on the separated groups on the basis of the properties received by them in their respective share. To my mind there will be two difficulties in accepting the submission of the learned counsel and the view of the learned Chief Justice. The first difficulty would be that the assessment of the tax on the family as such would be meaningless and would be an unnecessary formality. The second difficulty would be that the assessment on the Hindu undivided family under section 25A(2) of the Act being made only for the period for which the family was joint and thus all the members of the family would be liable for the payment of the tax, one group may not be required to pay half of the amount of tax due on the family only because in its share properties yielding less income but having more capital value have fallen on partition. With regard to the tax due for the period in which the two groups were joint their liability should be half of the tax each and not in proportion to the incomes that accrued to the properties falling in their shares. This is so because they have benefited from the income of the family to the extent of half each. I am unable to read the word "portion" in the sense in which Beaumont C.J. has read it. In the present case the partition deed is on the record, having been made an annexure to the statement of the case, and it is clear that both the groups got half share each in the joint family property. There is nothing on the record and the partition deed also does not show that in the division one group of the family got more income yielding properties and the other properties of higher capital value but yielding less income. The language of section 25A(2) of the Act, to my mind, does not warrant a conclusion that even after the family as a unit has been assessed, the apportionment has got to be made on the basis of the actual properties received and not on the basis of the respective shares of the two groups. In my opinion the words "according to the portion of the joint family property allotted to him or it" have not been used in the sense of the portions of the properties being considered itemwise, but in the sense of the extent of shares of the separated groups or members in the family property. I, therefor, overrule the first submission of the learned counsel.
The argument advanced by Mr. Bhargava in connection with his second submission is that the words "in accordance with the provisions of section 23" occurring in section 25A(2) of the Act indicate that completely fresh proceedings under section 23 have got to be started against the separated groups or members after the tax due from the family as such has been apportioned. I am unable to agree with the submission of the learned counsel, I have already mentioned in an earlier part of the judgment what, to my mind, was the scheme of this provision. the question of assessment on the family as such and on the separated members or groups is raised practically simultaneously. It is only when the time for assessing the Hindu undivided family comes that a claim has got to be made that the family has separated. In other words at the time when assessment proceedings under section 23 of the Act have started, the claim with regard to partition can be made and entertained. When that claim is made, the Income-tax Officer has to decide whether or not there has been a partition in the family. If he decides that there has been a partition, he has first to assess the family as such assuming that there has been no partition and then to apportion the amount of the tax assessed on the family between the separated groups or members. Having done that he has to consider whether or not any income-tax is payable by the divided groups or members in respect of their separate incomes. It any such tax is due from any of the divided groups or members, then the Income-tax Officer is required to add the amount of this tax to the sum apportioned against that group in connection with the assessment made on the family as such and this total sum will be deemed to have been assessed on that separated group. If, however, no tax is payable by the separated group in respect of any separate income, then the amount apportioned against that group in respect of the tax due from the family will be deemed to the amount assessed on this group. The scheme of the Act, therefore, shows that the entire proceedings contemplated by sub-sections (1) and (2) of section 25A take place at the same time and there can be no question of starting completely fresh proceedings under section 23 of the Act against the separated groups. Hence under the proceedings under section 25A of the Act started in connection with the proceedings under section 23 of the Act any order passed under sub-section (2) of section 25A is an order made in accordance with section 23 of the Act. It is in that sense that the words "in accordance with the provisions of section 23" have been used in sub-section (2) of section 25A of the Act. The word "assessments" used in section 25A has been used in the sense of orders making the separated groups liable to pay the amount apportioned against them. The word "assessments" has not been defined in the Act, but the word "assessee" has been defined. Section 2(2) of the Act reads as follows :
"2. In this Act, unless there is anything repugnant in the subject or context : -......
(2) assessee means a person by whom income-tax or any other sum of money is payable under this Act, and includes every person in respect of whom any proceeding under this Act has been taken for the assessment of his income or of the loss sustained by him or of the amount of refund due to him."
This definition is wide enough to include a person who has been made liable to pay the amount apportioned on him in respect of the tax due from the family. Inasmuch as he is liable to pay the apportioned amount of the tax, he is an "assessee." If he is an assessee, the order which makes him liable to pay the apportioned amount is an order of assessment within the meaning of section 25A(2) of the Act. To my mind the words "and the Income-tax Officer shall make assessments accordingly on the various members and groups of members" only mean that he shall pass orders making the separated groups liable for the apportioned amount. It may also be mentioned that even with regard to the words, which have been defined in the Act, section 2 itself clearly provides that the meanings of the words as they appear from the context in which they are used, would prevail over the meanings given in the definition clause. Therefore, the context in which a word has been used is all-important. The context in which a words "shall make assessments" have been used, in my judgment, only justifies one conclusion, i.e., that these words have been used in the sense of an order to be made making the separated groups liable for the apportioned amount. It is not necessary, as has been suggested by the learned counsel for Kailash Nath, that fresh returns should be made under section 22 and fresh proceedings should be started under section 23 of the Act. It would be noticed that sub-section (2) of section 25A does not require that with regard to separate incomes fresh proceedings should be opened. The words used are "and each member or group of members shall, in addition to any income-tax for which he or it may be separately liable". In other words if proceedings under sections 22 and 23 have already taken place against the separated members or groups in respect of their separate incomes, no fresh proceedings need be started for the purposes of section 25A(2) of the Act and all that is required to be done is that the sum assessed in respect of separate incomes shall be added to the amount apportioned. If the idea was to start completely fresh proceedings under sections 22 and 23 of the Act, then the words would not have been "to any income-tax for which he or it may be separately liable", but would have been "for any amount of tax which may be found to be chargeable in respect of his or its separate income". The words "to any income-tax for which he or it may be separately liable" clearly show that the amount of tax already made against the separate members or groups shall not be determined afresh after apportionment, but shall simply be added to the amount apportioned. This negatives the possibility of completely fresh assessments being required by the provision. It cannot be denied that the plain language of section 25A(2) warrants the conclusion that the separated groups will have to pay the amount apportioned on them in respect of the joint family tax plus any tax which has been assessed on them in respect of their separate incomes. Both these amounts are fixed and cannot be varied. Therefore, even if fresh assessment proceedings were to take place, they can be nothing more than a useless formality for neither the amount apportioned nor the amount taxed in respect of separate incomes can be varied. Thus the fresh proceedings suggested by Mr. Bhargava would not only be completely useless proceedings, but would also yield no results either in favour of the assessee or in favour of the department. An interpretation which leads to such an absurd result cannot be accepted. It is also not warranted by the language of section 25A(2) of the Act. In the case of Lakshminarain Bhadani v. Commissioner of Income-tax their Lordships of the Supreme Court, while considering the scope of section 25A(2) of the Act, observed as follows :
"The next contention urged by Mr. Umrigar was that section 25A(2) requires that the assessment should be made against each member of the joint family for a proportionate share of the tax and it is only after one of them had failed to pay such share that the Income-tax Officer could proceed to recover it from the others. The argument so formulated cannot be accepted. On a true construction of section 25A(1), it appears that the Income-tax Officer in the first place has to make an assessment of the total income as if no partition had taken place. That means that he has to find out what the total income was and calculate the amount of tax payable thereon as if it was payable by one unit. Having done that, it is the duty of the Income-tax Officer under the section to apportion the amount payable by the unit amongst the members of the joint family according to the portion of the joint family property allotted to each of them. That duty also appears to be imperative having regard to the concluding words of section 25A(2)."
What their Lordships were pleased to say, in my judgment, supports the conclusion to which I have arrived. It is true that ordinarily the word "assessment" is used in the sense of an order made under section 23 of the Act, but that word has not been used in the same sense throughout the Act or in sub-section (2) of section 25A of the Act. While dealing with that word in the English Act it was observed by the House of Lords in the case of Income-tax Commissioners for City of London v. Gibbs that that words has been used in more than one sense in the English Act. In my opinion that is the position in our Act also and I have already indicated above as to what in my judgment that word means in the context in which it is used in section 25A of the Act.
For the reasons mentioned above I am of the opinion that there is no substance in this submission also.
The result, therefore, is that in my opinion both the questions referred to us must be answered in the negative and against the assessee. I am also of the opinion that in the circumstances of the present case there should be no order as to costs, but I would fix the fee of learned counsel for the department at Rs. 200.
BY THE COURT : As there is a difference of opinion between us, let the matter be placed before the honble the Chief Justice so that the case may be referred to a third judge.
BRIJLAL GUPTA J. - This income-tax reference case has been referred to me because of a difference of opinion between Balram Upadhya and Jagdish Sahai JJ.
The two questions of law which were referred to this court for opinion by the Income-tax Appellate Tribunal are :
"(1) Whether the Income-tax Officer, after passing an order under section 25A(1), was bound in law to make an assessment on the separated group of members in accordance with the provisions of section 23 of the Income-tax Act ?
(2) Whether, in the circumstances of the case, when no assessment had been made on the separated group of members as mentioned in section 25A(2) the notice of demand for Rs. 8,663 issued to the assessee was invalid ?"
Balram Upadhya J. proposed the answer to the two questions in the affirmative while Jagdish Sahai J. proposed the answer to both the question in the negative.
The facts of the case lie within a narrow compass and have been sufficiently stated by Jagdish Sahai J. in his judgment and it is not necessary for me to repeat them.
One question which was agitated before the Division Bench when the reference was heard by it was that the tax assessed on the family should have been apportioned between the two groups according to the income yielding capacity of different portions of the property allotted to each one of the two groups and not according to the quantum of interest or the capital value of the share allotted to each.
The professed object of this argument was that the if the argument was accepted, the necessary result would be that another and fresh assessment would have to be made before the tax liability of each group was finally determined and a notice of demand issued. The two learned judges agreed that the apportionment of tax on the total income of the family between the two groups was not to be made upon the basis of the income yielding capacity of different portions of the property, but on the share of property allotted to each group. In view of this agreement between the learned judges, it is quite unnecessary for me to go into it. Even if I took a different view, it would be of no avail, as the view of the majority will necessarily prevail over mine. Accordingly I do not propose to enter into this question.
The only question, therefore, on which I have to express my opinion is whether after an assessment of the total income of the family has been made, and the liability apportioned between the separating groups according to their share of property at the partition, is it necessary for the Income-tax Officer to start fresh assessment proceedings under section 23 against the separating groups before he can issue a notice of demand under section 29 ?
The answer depends upon the meaning to be attached to the word "assessment" in the last portion of section 25A(2), which runs as follows :
"....... and the Income-tax Officer shall make assessments accordingly on the various members and groups of members in accordance with the provisions of section 23."
It is well settled that the word "assessment" occurring in the Income-tax Act does not mean the same thing in the various sections and sometimes not even in the same section. Lord Simon, in his speech in Income Tax Commissioners v. Gibbs at page 124 of the report pointed out that the word "assessment" is used in the English Income Tax Code in more than one sense, and sometimes within the bounds of the same section two separate meanings of the word may be found. One meaning is "the fixing of the sum taken to represent the actual profits for the purpose of charging tax upon it" and the other "the actual sum in tax which the taxpayer is liable to pay". The Supreme Court in Lakshman Shenoy v. Income-tax Officer has approved of this dictum and has observed as follows at page 291 of the report :
"This brief resume of the relevant provisions of the Income-tax Act clearly establishes that the word "assessment" has to be understood in each section with reference to the context in which it has been used. In some sections it has a comprehensive meaning and in some somewhat restricted meaning......"
The Privy Council in Commissioner of Income-tax v. Khemchand Ramdas, at page 416 of the report, observed as follows :
"One of the peculiarities of most Income-tax Acts is that the word assessment is used as meaning sometimes the computation of income, sometimes the determination of the amount of tax payable and sometimes the whole procedure laid down in the Act for imposing liability upon the taxpayer. The Indian Income-tax Act is no exception in this respect....."
It may be stated that Upadhya J. has also observed that the word "assessment" has not been used in the same sense everywhere in the Income-tax Act.
The question, therefore, boils down to this : What is the exact sense in which the word "assessment" has been used in the last portion of section 25A(2) which has already been quoted above. Does it mean a fresh or a new assessment as held by Upadhya J. or does it mean only the determination of the amount of tax as held by Jagdish Sahai J. ?
Before addressing myself to this question, it may be stated that section 25A is a machinery section. Its purpose is to provide for the levy and collection of tax due from a Hindu undivided family for the year in which it has become disrupted.
Section 25A(1) provides that where a partition has taken place in any year and proceedings for the assessment of the Hindu undivided family hitherto assessed as joint are pending for that year, a claim may be made therein by any member of the family setting up partition and he may ask the Income-tax Officer for the recording of an order regarding partition. This implies that assessment proceedings against the family must have been initiated in the manner provided by section 23 and a notice must have been issued under that section. Section 25A(2) goes on to provide that in the assessment proceedings against the family, the Income-tax Officer shall make an assessment of the total income received by or on behalf of the joint family as such, as if no partition had taken place. The basis of this procedure is the legislative fiction that, even though a partition has taken place and an order recognising partition has been recorded, the family would still be assessed as if it had continued joint, because the legislature wanted the liability for the entire tax to be joint and several. The assessment of the family would necessarily result in the computation of the total income of the family and the total amount of tax calculated and finally determined thereon by simple arithmetic. After this has been done, section 25A(2) goes on to provide that the divided groups or members would be liable for a share of the tax according to the portion of the joint family property allotted to each. This would again involve only a mathematical calculation for determining the share of the tax liability of each group out of the total tax liability of the entire family. Section 25A(2) further provides that the final liability of each group for tax shall be by addition of any separate liability which it may have be reason of possessing any separate income. We may pause here and consider two possible classes of separated members : One, consisting of those who have no separate tax liability by reason of the fact that they have no separate income of their own apart from their share in the income of the family. In their case, nothing more will remain to be done after the determination of their share of the liability out of the entire tax liability of the family except to recover it by notice under section 29. No useful purpose at all will be served by initiating fresh assessment proceedings against such separated members in accordance with the provisions of section 23. Even if a fresh assessment proceeding was started, it would not result in any variation or modification of the tax liability already determined as aforesaid. The other class of separated members would consist of persons or groups, who have a separate income also, apart from share in the income of the Hindu undivided family. In the case of such members or groups of members proceedings under section 23 will necessarily have to be initiated to bring to tax their separate income These proceedings may either have concluded or be pending or may yet have to be taken. Once these proceedings have terminated, and their separate tax liability determined, all that would remain to be done would be to add to the tax liability thus determined, the share of the tax liability of the family for which this class of members would be liable according to their share at the partition and to arrive at the total tax liability that will have to be realised from them by issue of notice under section 29. In the case of this class of members also, it will serve no useful purpose at all if a fresh assessment proceeding under section 23 is once again initiated against them by the issue of a notice under section 23. Thus, in the case of both of the classes, a fresh proceeding under section 23 will be a completely useless and idle, formality. Accordingly, there appears to be no reason at all in principle or policy that the last few words of section 25A(2) should be interpreted in such a way as to give countenance to proceedings which will only involve waste of public time and harassment to the assessees and will yield no useful results either for the assessee or for the revenue. It follows that, if possible, such a construction should be put upon the word "assessment" in the last few words of the section as would avoid or obviate this result.
I may notice here a small point, which has been made by Upadhya J. at one place in his judgment. He has observed as follows :
"I am of the opinion that when the statute requires an assessment to be made in accordance with section 23, confers on the assessee the right of availing of the opportunities mentioned in section 23 and to take part in his assessment to tax...... It is in the interest of revenue of revenue to probe into the matter and to ascertain that the divided members or group of members have in fact no other income on which tax may be demanded from them."
As pointed out above, all the members have ample opportunity of taking part in assessment proceedings under section 23, when proceedings against the Hindu undivided family are pending. So far as the members having separate property are concerned they again have ample opportunity of taking part in the proceedings under section 23 which might already have been concluded or be pending or may be subsequently initiated for assessing their separate income. So far as the members who have no separate income are concerned, they will not be deprived of any right if futile proceedings under section 23 are not taken against them. So far as the revenue is concerned, it has ample machinery through inspectors and other departmental officers to discover and initiate proceedings against persons, who may have a taxable income. Therefore the interest of the revenue will in no way suffer, if fresh proceedings under section 23 are not taken against members who have no separate income.
To my mind, therefore, it is clear that the word "assessment" in the last few words of section 25A(2) is used not in the sense of a fresh proceeding initiated by notice under section 23 with the object of fixing sum taken to represent the actual profit for the purpose of charging tax upon it, but of a proceeding for the determination of "the actual sum in tax which an assessee is liable to pay" on his profits. In Gulabrai Manohar Lall v. Commissioner of Income-tax this precise question was answered by a division bench of the Patna High Court on page 340 of the report as follows :
"It was contended by the learned counsel on behalf of the assessee that the notice of the proceedings should have been given to each and every member of the Hindu joint family which had been divided. Learned counsel referred to the latter part of section 25A(2) which states that the Income-tax Officer shall make assessments accordingly on the various members and groups of members in accordance with the provisions of section 23. But the word assessment in this clause is not used in the sense of a proceeding for assessment for imposing liability upon the assessee. The word assessment used in this clause means computation of income or the determination of the amount of tax payable."
I respectfully agree with this statement of the law.
Upadhya J. has referred to the difference of language used in section 23 and the language used in section 25A(2). The relevant portion of the language used in section 23(3) is as follows :
"........ assess the total income of the assessee, and determine the sum payable by him on the basis of such assessment."
Whereas the language used in section 25A(2) is :
"....... the Income-tax Officer shall make an assessment of the total income received by or on behalf of the joint family......."
He has pointed out that under the latter provisions, an Income-tax Officer is not required to determine the sum payable by the family on the basis of the assessment. So a fresh assessment of the members under section 23 is necessary. It appears to me that too much significance should not be attached to this difference. Under section 23, a determination has also to be made, perhaps for the reason that the person liable for payment is the person against whom the assessment is made and his liability should be determined to conclude the proceeding. A similar determination will have to be made under section 23 in the case of a member of the Hindu undivided family, who has a separate income in separate proceedings against him. It is only in the case of a member who has no separate income of his own that no separate assessment is made, but the assessment is made in assessment proceedings against the Hindu undivided family, and he is made liable for payment of a share of the tax liability of the family proportionate to his share in the properties of the family which have been allotted to him. In such a case the determination of the tax liability is merely a mathematical calculation and nothing more is required for ascertainment of liability for which a separate assessment proceeding under section 23 against him may be necessary. Apart from this, as has already been shown above, the word "assessment" is used in different senses in different provisions of the Act and sometimes even in the same section.
A reference might also be made to the decision of the Privy Council in Commissioner of Income-tax v. Khemchand Ramdas, already referred to in an earlier part of this judgment. At pages 416 and 417 of the report, the Privy Council were concerned with the consideration of an argument precisely on the same point arising by reason of the difference in the language used in section 23(1) and (3) and the language used in section 23(4) as it stood at that time. The expression used in sub-sections (1) and (3) of sections 23 was "assess the total income of the assessee and determine the sum payable by him on the basis of such assessment"; whereas the language used in sub-section (4) of that section was merely to the effect "make the assessment to the best of his judgment". There was thus no specific reference to the determination of a sum due by the assessee in sub-section (4). Even though their Lordships of the Judicial Committee did not feel themselves called upon to answer the question in that case, they observed as follows :
"Unless, therefore, the word assessment in sub-section (4) is intended to mean something more than the word means in sub-sections (1) and (3) (and it may be observed that this is by no means improbable in an Income-tax Act), the officer is not in terms given any power to determine the sum payable by the taxpayer. Their Lordships do not find it necessary to express any opinion upon this question, which seems to them to be, merely one of academic interest. For even if such power be not given expressly by the direction to make the assessment, it is, in their opinion, plainly implied, reading the section as a whole."
Their Lordships go on to reinforce this conclusion as follows :
"...... this view is strongly corroborated by section 29 (as it then stood) which is in these terms : When the Income-tax Officer has determined a sum to be payable by an assessee under section 23....... the Income-tax Officer shall serve on the assessee a notice of demand in the prescribed form specifying the sum so payable."
Now the prescribed form in terms applies to an assessment under section 23(4)."
From this it follows that the power to determine the tax liability is sometimes implied in the word "assessment" and the word "assessment" does not necessarily mean the fixing of a sum in a proceeding under section 23 against the assessee personally for the purpose of charging tax upon him. The computation of income may very well be made in a proceeding against another person, as in this case against the Hindu undivided family, and on the basis of that computation, the liability of a divided member may be determined and be properly described as "assessment" under section 23 against that person.
It also follows from this that a notice under section 29 may also properly issue without there being necessarily a fresh assessment proceeding under section 23, against the person from whom tax is sought to be realised by notice under section 29.
This conclusion further follows from the definition of the word "assessee" in sub-section (2) of section 2. The definition contemplates two classes of persons :
(1) persons by whom any tax, penalty or interest is payable under this Act, whether any proceeding under this Act has been actually taken against them or not, and (2) persons against whom any of the proceedings specified in the definition clause has been taken, whether he is or is not liable to pay any tax, penalty or interest.
It follows that the Hindu undivided family and the divided member against whom an assessment proceeding has been taken and the divided member against whom no assessment proceeding has been taken, but who is liable to pay tax, are all "assessees". There is nothing in the language of section 29 to warrant the conclusion that a notice under that section can issue only in consequence of an order of assessment passed in accordance with the provisions of section 23 against an assessee personally. Section 29 speaks only of a tax demand due in consequence of an "order passed under or in pursuance of this Act". The order is not necessarily an order passed in a proceeding under section 23 against the assessee himself personally. A demand under section 29 would still be a valid demand if it is in pursuance of an order under the Act even though that order is not one under section 23.
I share the view taken by Jagdish Sahai J. that this conclusion is supported by the observations of the Supreme Court in Lakshminarain Bhadani v. Commissioner of Income-tax quoted by him in his judgment.
I may also point out that if the word "assessment" in the concluding portion of section 25A(2) was intended to imply a fresh assessment under section 23, there was nothing to prevent the legislature from using the expression "fresh assessment" in place of the word "assessment" there, as it does in section 27, where it says that after cancellation of assessment in certain circumstances the Income-tax Officer shall "proceed to make a fresh assessment in accordance with the provisions of section 23", or as in section 31, where it says "that the appellate authority may set aside the assessment direct the Income-tax Officer to make a fresh assessment". In the exercise of his revisional powers under section 33B, the Commissioner can in appropriate cases cancel the assessment and direct fresh assessment to be made.
The Income-tax Act is at the moment on the legislative anvil and is being hammered into shape, professedly in the interest of clarity and simplification. By way of curiosity, I looked up the provisions of the Income-tax (Amendment) Bill 1961. Clause 171(7), which corresponds to the last few words of section 25A(2), runs as follows :
"171. Assessment after partition of a Hindu undivided family. - (7) For the purposes of this section, the several liability of any member or group of members thereunder shall be computed shall be computed according to the portion of the joint family property allotted to him or it at the partition, whether total or partial."
It will be noticed that in sub-clause (7) the words "in accordance with the provisions of section 23" have been omitted.
The notes on clauses to the bill state the reason for the omission as follows :
"(iv) The existing provision in section 25A(2), main para., to the effect that the Income-tax Officer shall make assessments on the members or group of members in accordance with the provisions of section 23 creates an impression that a special assessment for the purposes of this section has to be made on the member, etc. This is, however, not the intention. The section merely intended to lay down the liability of the members for pre-partition income, and does not require that the assessment made in pursuance of his liability should be made separately from the individual assessment of each member. This part of the sub-section has, therefore, been omitted."
Naturally, this cannot affect the interpretation of the last few words in section 25A(2) with which we are concerned and I have mentioned this only by the way.
For the above reasons I am of the opinion that both the questions referred to this court should be answered in the negative and against the assessee. My opinion is in accord with the opinion of Jagdish Sahai J. and contrary to that of Upadhya J.
With this opinion this case is sent back to the honble the Chief Justice for further orders.
BY THE COURT. - In accordance with the opinion of the majority of the judges who have heard the reference the two questions referred to this court are answered in the negative and against the assessee. In the circumstances of the case there will be no order as to costs. The fee of the counsel for the department is assessed at Rs. 200.
Questions answered in the negative.