1. These appeals stand restored to us by the judgment dated 25-1-1991 of the Hon'ble High Court of Kerala in ITR Nos. 147 to 150 of 1988 and by its judgment dated 4-2-1991 in ITR No. 87 of 1989. The common questions that were referred to the High Court were as follows: 1. Whether, on the facts and in the circumstances of the case, was the Tribunal right in law and in fact in holding that there is no joint family system in existence on the passing of the Kerala Joint Hindu Family (Abolition) Act, 1975 since the family is defunct on the date of assessment order 2. Whether, on the facts and in the circumstances of the case, was the Tribunal right in law and in fact in holding that assessments are null and void 2. The High Court noticed that in all these cases, the assessments were pending on the date when the Kerala Legislature passed the Kerala Joint Hindu Family System (Abolition) Act, 1975 with effect from 1-12-1976 (in short 'Abolition Act') and that the only question that arises for consideration is how the pending proceedings should be finalised and whether the Wealth-tax Officer was justified in passing the assessment orders assigning the status "Hindu Undivided Family", in the manner he did. The High Court further noticed that the Tribunal, while declaring the assessments as null and void by following the decision in WTO v. K.Madhavan Nambiar [1988] 169 ITR 810 (Ker.) failed to take notice of the fact that in that case proceedings were started for the first time after the assessee as such had become extinct. The question that was before the High Court in K. Madhavan Nambiar's case (supra) was whether the service of notice on a junior member of an extinct HUF was valid or sufficient to effect the assessment. Itison thebasisof those facts, the High Court held that on the date of such notice the junior member of the erstwhile family was only a tenant-in-commom with no representative capacity and hence the assessment was invalid. The High Court observed further that the case of the assessee in these appeals is different.
The Hindu undivided family was in existence as on the impugned valuation dates and the assessment proceedings, having been initiated prior to coming into force of the Kerala Joint Hindu Family System (Abolition) Act, 1975, with effect from 1-12-1976, were pending before the assessing authority. The High Court highlighted the following issues : (i) On the date when the Abolition Act came into force, as the assessments proceedings were pending, on whom further notices should be served before the assessments are finalised (ii) Is it enough if the notice is served on the erstwhile Karta or should it be served on all sharers (tenants-in-common) in whom the property devolved by the operation of law (iii) Is there any provision in law including the Wealth-tax Act which enables the assessing authority to pass an assessment order once the assessee has ceased to exist (iv) Whether the filing of the returns by the assessee himself in the status of HUF and the omission to raise the extinction of the family at the time of assessment proceedings, have any impact The Hon'ble High Court after raising the above issues declined to answer the questions as the Tribunal had not addressed itself to such relevant aspects of the matter in its decision. Therefore, the High Court directed the Tribunal to decide the issues in accordance with law.
3. Accordingly, we restored the appeals and posted them for hearing.
Sri C. Sankunny, the learned counsel for the assessee submitted that in the facts and circumstances of the case, the assessments in the status of HUF completed on 3-1-1983 were without jurisdiction. With the coming into force of the Kerala Joint Hindu Family System (Abolition) Act, 1975 with effect from 1-12-1976, the assessable entity viz., the HUF has become extinct and disappeared in thin air. The abolition was through a public enactment and the Wealth-tax Officer is deemed to have knowledge of the provisions of the Act and, therefore, it is immaterial that the erstwhile Karta had filed revised statement of wealth for the assessment years 1970-71 to 1973-74 and 1977-78 and such filing of the revised statement of wealth after the coming into force of the Abolition Act cannot be held against the assessee. The assessee might have acted in ignorance, but it is for the Wealth-tax Officer to make a proper assessment. The erstwhile Karta is no longer competent to act for and on behalf of the defunct H.U.F. and even if he had filed revised statements of wealth after the coming into force of the Abolition Act with effect from 1-12-1976. In Bhagyam Ammal v.Mayilswamy Kounder [1990] 2 KLT 537, the Kerala High Court held that notwithstanding the provisions of sections 5 and 6 of the Abolition Act, it is necessary that the members of the coparcenary should be made parties to a suit in order to make the decree binding on their shares because after the commencement of the Abolition Act joint families ceased to exist and the head of the family also ceased to be the manager or Karta and became incompetent to represent the members which became co-owners. In the light of the judgment of the jurisdictional High Court of the fourth issue raised in para 2 above should be found in favour of the assessee. In other words, the filing of the statements of wealth by the erstwhile Karta or even his participation in the assessment proceedings cannot confer any jurisdiction on the Wealth-tax Officer to make the assessments on the HUF.4. Sri Sankunny further submitted that there is no provision in the Wealth-tax Act, 1957 to make an assessment on a H.U.F. that has become extinct by operation of law unlike the corresponding provisions in the Income-tax Act (section 189 of the Income-tax Act, 1961 corresponding to Section 44 of the Income-tax Act, 1922). Of course, there is a provision in the Wealth-tax Act for the assessment of a disrupted H.U.F. after total or partial partition in sections 20 and 20A of the Wealth-tax Act. However, the issues involved in these appeals are not whether there was total partition or partial partition of the H.U.F.The issue in these appeals is the very basis of the assessment. In the case of the State of Punjab v. Jullundwr Vegetables Syndicate [1966] 17 STC 326, the Supreme Court held that as the firm was dissolved before the order of assessment was made, the assessment order was bad in law.
It further held that on the dissolution of the firm it ceases to be a legal entity and on principle, thereafter, unless there is a statutory provision permitting the assessment of a dissolved firm, there is no scope for assessing the firm. In that case their Lordships of the Supreme Court compared the provisions of Section 16 of the East Punjab General Sales Tax Act, 1948 with the provisionsof Section 144 of the Income- tax Act, 1922 and noticed that there was no provision in the Sales-tax Act corresponding to the provisions of the Income-tax Act for the assessment of adissolved firm even in respect of the turnover earned during its subsistence. Ultimately, the Apex Court held that the assessment was ultra vires the Sales-tax Act. Similarly, there is no provision in the Wealth-tax Act, 1957 corresponding to the provisions of Section 44 of the Income-tax Act, 1922 or corresponding to Section 199 of the Income-tax Act, 1961 and as such the ratio decidendi laid down by the Hon'ble Supreme Court should be squarely applied to the facts of this case. Hence, there cannot be an assessment on the assessce-HUF, which has become extinct, though it might have existed on the relevant valuation dates. Therefore, the answer to issue No. 3 posed by the High Court should be found in favour of the assessee. In view of this, it is not necessary to answer issues 1 and 2 as stated in para 2 above and even if an answer is to be given it should be held that the notices for continuation of the assessment proceedings must have been served on all the sharers and not merely on the erstwhile Karta. This having not taken place, the assessments should be held invalid.
5. Sri C. Abraham, the learned senior departmental representative submitted that the answers to the issues raised in the reference applications are to be found in a decision of the Kerala High Court in Shantilal C. Shah. v. CIT [1988] 169 ITR 805. It was held in that case that if the income earned by the H.U.F. before its extinction has escaped assessment, the only course open to the assessing authority is to make a reassessment on the family under Section 147 as provided under Section 283(1) of the Income-tax Act, 1961 by issuing notice to the quondam Karta in the name of the joint family. Notice in respect of the Hindu undivided family has to be served on the person who was the last manager of the Hindu joint family or if such a person is dead, then on all the adults who were the members of the H.U.F. immediately before the partition. In the case of the assessee in these appeals, the HUF was very much in existence on the relevant valuation dates. The assessing authority determining the tax liability of the HUF docs so with reference to the net wealth as it stands on the respective valuation dates. The valuation comprises in these appeals are anterior to the date when the Abolition Act had come into force. Therefore, in the ratio of the decision of the jurisdictional High Court cited supra, the orders of assessments in respect of these valuation dates do not suffer from any infirmity. The learned departmental representative also relied on the decision of the Tribunal dated 4-7-1989 in the case of the same assessee for the assessment year 1974-75 in I.T.A. No. 698 (Coch.)/1984.
6. We thus heard the rival submissions and perused the materials on record. Though the system of Hindu undivided family as such was abolished with effect from 1-12-1976 it was very much in existence on the relevant valuation dates for each of the assessment years 1970-71 to 1973-74 and also 1977-78. The HUF had assessable net wealth on the respective valuation dates and as such was liable to be assessed under the provisions of the Wealth-tax Act, 1957. The assessee's case is that as the assessments were completed long after the abolition of the joint Hindu family system, the assessment orders have no legal legs to stand upon and in this context it relies on the decision in Bhagyam Ammal's case (supra) and also the decision of the Supreme Court in Jullundur Vegetables Syndicate's case (supra).
7. We have carefully gone through the decisions cited before us. The impact and the effect of the Kerala Joint Hindu Family System (Abolition) Act, 1975 came up for consideration before the Kerala High Court in Shantilal C. Shah's case (supra) wherein the Court held as follows : Where a joint family has ceased to exist by operation of law, the question of recording a partition as envisaged under Section 171 of the Income-tax Act does not arise. That section applies only in cases where a Hindu family has been assessed as Hindu undivided family and a claim of partition is made subsequently. For the purpose of bringing to tax the income earned by the joint family before its disruption on partition, a fiction has been introduced in the section that until the partition is recorded by the Income-tax Officer after enquiries, the joint family shall be deemed to continue. The machinery thus provided under Section 171 is inapplicable in a case where no such partition has taken place, but the family has come to an end under law, the property had devolved on the members as provided under the statute and thereby the rights have been defined and settled. In such a case, if the income earned by the Hindu undivided family before such extinction has escaped assessment, the only course open to the assessing authority is to make a reassessment on the family under Section 147 as provided under Section 283(1) of the Act. That section providing for notice in bringing to tax the income of the joint family after a partition has been recorded under Section 171 should apply in such a case.
This view is in accord with the decision in W.A. No. 159 of 1981.
Following this decision of the Kerala High Court, the Tribunal in the case of the assessee for assessment year 1974-75 upheld the income-tax assessment in the hands of the HUF though such assessment was completed on 19-8-1977, i.e., after the abolition of the system of joint family among the Hindus in Kerala. The reasoning of the Tribunal was that the High Court in Shantilal C. Shah's case (supra) has viewed that the income of the family prior to its extinction can be assessed in a proceeding under Section 147 of the Income-tax Act after giving due notice to the quondam Karta or manager of the family or any other member of the family. If such be the case for escaped income, when a regular assessment is made on the family in respect of the income earned by it prior to its extinction, such assessment has to be upheld in the light of the decision of the Kerala High Court in Shantilal C.Shah's case (supra). This is how the assessment in the case of the same assessee in income-tax proceedings for 1977-78 was upheld by the Tribunal. Normally, we are bound by our earlier decision and more so when the earlier decision has applied the ratio of the decision of the jurisdictional High Court. However, we arc in seisin of restored appeals with a few issues (highlighted by the High Court) confronting us. Therefore, our decision will have to be based on the view we take on those issues. With this perspective in view, we proceed to analyse the case further.
8. It is not in dispute that on 1-12-1976 when the Abolition Act came into force, the assessment proceedings were pending in respect of the assessment years 1970-71 to 1973-74 as the returns had been filed prior to the cut off date. It is also not in dispute that during the pendency of the assessment proceedings the family has become extinct by virtue of the provisions of the Abolition Act. Therefore, the crucial question is whether the Wealth-tax Officer is bound to implead the adult members of the erstwhile coparcenary and serve notice on them before the completion of the assessments. Section 41 of the Wealth-tax Act, 1957, which provides for issue of notices on thedisrupted family does not conceive of the extinction of the family itself. This feature has been emphasised in K. Madhavan Nambiar's case (supra). It was also made manifestly clear that the provisions of sections 20 and 20A of the Wealth- tax Act will apply to a case in which there was only disruption of the family total or partial and not its extinction. In Bhdgyam Animal's case (supra), the Kerala High Court had an occasion to consider the impact of the Abolition Act. In that case, the contention was that the Kerala Joint Hindu. Family System (Abolition) Act, 1975 came into force on 1-12-1976 and the family stood divided by virtue of Section 4 of the said Act and therefore Pachayyappa Rounder could not represent the joint family or Mayilswamy Rounder in any proceedings and any decree obtained on the party array cannot bind either Mayilswamy Rounder or his share in the joint family property. The High Court referred to the decision of the Supreme Court in Pannalal v. Mt.
Naraini AIR After a partition takes place, the father can no longer represent the family and a decree obtained against him alone cannot be binding on the separated sons. In the second place the power exercisable by the father of selling the interests of the sons for satisfaction of his personal debts comes to an end with partition. As the separated share of the sons cannot be said to belong to the father nor has he any disposing power over it or its profits which he can exercise for his benefit, the provision of Section 60, Civil P.C., would operate as a bar to the attachment and sale of any such property in execution of a decree against the father.
To the same effect is the decision of the Nagpur High Court in Jainarayan v. Sonaji AIR 1938 Nag. 24 at p. 29 which was approvingly quoted in the Kerala High Court decision cited above. Thereupon, their Lordships of the Kerala High Court held that in introducing sections 5(2) and 6 of the Abolition Act, the Legislature has only incorporated the principle underlying the above decisions. Section 5(2) and Section 6 certainly save the obligation or liability contracted prior to the commencement of the Act, but it does not in any way dispense with the necessity of impleading the son, grandson or great grandson, as the case may be, in order to obtain an effective decree which is binding on such person. Though this decision was rendered in the context of a civil case, the principle underlying the same is, in our opinion, equally applicable if not with greater force in the wealth-tax assessments. While it is true that in the case of a partition, assessments can be made on the income or the assets of the family by service of notice on the quondam Karta or any member of the family, the same procedure cannot be considered to be a valid procedure in the event of extinction of the family itself in contra-distinction to the disruption of the family. After the extinction if the family, since the coparceners have become tenants-in-common, all of them have to be impleaded in the proceedings. A parallel situation would be the death of an assessee in which case the proceedings once commenced have to be continued by bringing on record all the legal representatives. If the legal representatives are not impleaded the entire proceedings stand vitiated. Similarly, after the legal death of the joint family, the tenants-in-common ought to have been brought on record because the Karta or any member of the coparcenary have lost their status as members of the family or as joint tenants.
This has not been done in this case. In the light of our discussions, we hold that even though proceedings have started validly, when the Karta of the family filed the returns of wealth for the assessment years 1970-71 to 1973-74 prior to the legal death of the joint family system, such proceedings can be validly continued only and if only notices were issued on all the tenants-in-common. Notices to all the tenants-in- common is necessary to validate the pending proceedings because individually none has a right to represent the other or the family itself after its extinction. Therefore, our answer to the first and second issues highlighted by the High Court is that inasmuch as the tenants-in-common were not impleaded in the proceedings, the assessment orders stand vitiated.
9. The third issue is whether there is any provision in the Wealth-tax Act, 1957, which will enable the Wealth-tax Officer to pass a valid assessment order once the assessee- HUF has ceased to exist. The answer to this issue is provided in the following passages in K. Madhavan Nambiar's case (supra): Act 30 of 1976 operated to put an end to the existence of all joint Hindu families in Kerala. The consequence was that from the day onwards there could be no joint Hindu family in the State. It is not a case of the family disrupting by partition. It is a case of statutory extinction of joint families. To provide for the distribution of the coparcenary property, provision is made in Section 4(1) that all members of an undivided Hindu family holding coparcenary property on December 1,1976, shall be deemed to be holding such coparcenary property as tenants-in-common as if a partition had taken place among all the members of that undivided Hindu family. This means that the members became owners of what they would have obtained as their respective shares if a partition had taken place. It is not as if the law deemed that a partition had actually taken place. No partition has taken place, but had one taken place, each one would have a specific share taking into account the total extent of properties available and the number of members.
Therefore, we hold that the provisions of sections 20 and 20A of the Wealth-tax Act are inapplicable. Further, we hold that if the assessment is in relation to a valuation date falling on or after 1-12-1976, there cannot be any assessment on the H.U.F. as it ceased to exist on 1-12-1976; if the assessment is in relation to a valuation date falling before 1 -12-1976 and if the assessment proceedings have already commenced prior to the cut off date, continuation of the assessment proceedings can be had by impleading all erstwhile coparceners of the HUF, that is, the tenants-in-common, as parties to the proceedings. If the HUF has not been assessed to wealth-tax in respect of any valuation date, prior to 1 -12-1976 and if the officer has reason to believe that wealth had escaped assessment, he can proceed against the HUF under Section 17 read with Section 41(2) of the Wealth-tax Act, by issuing a notice to the quondam Karta or if such person is dead, then on all the surviving adults who were members of the HUF immediately before partition. This view is in accord with the decision of the jurisdictional High Court in Shantilal C. Shah's case referred to in para 7 above. But the ratio decidendi will not apply to original assessment proceedings that are completed after 1-12-1976 in respect of return filed before that date. To quote again the judgment in the case cited supra : The Income-tax Officer is, therefore, empowered to make a reassessment in respect of the income earned by the Hindu undivided family up to December 1,1976, by issuing notice to the quondam Karta in the names of the joint family. The income accruing, therefore, can only be assessed in the hands of the members of the family in proportion to their share as the income of the individual members and not as that of the Hindu undivided Family.
Thus, the power of the Wealth-tax Officer is found to be existing by the jurisdictional High Court only in the domain of reassessment. In our opinion, it cannot be extended to the sphere of original assessment insofar as the procedural aspects of the matter are concerned and to that extent we are in respectful disagreement with the decision of the Tribunal in I.T.A. No. 698 (Coch.)/84 in the assessee's own case as that decision does not reflect the view of the High Court in Shantilal C. Shah's case (supra), K. Madhavan Nambiar's case (supra) and Bhagyam Ammal's case (supra).
10. The fourth issue highlighted by the Hon'ble High Court is whether the filing of the returns by the assessee himself in the status of HUF and the omission to raise the extinction of the family at the time of assessment proceedings have any impact. For the assessment years 1970-71 to 1973-74, the returns were filed by the Karta before the date on which the HUF became extinct, by virtue of the provisions of the Abolition Act. The wealth belonged to the then HUF and the Karta was competent to act for and on behalf of the HUF, Hence, those returns were valid returns. With the filing of the returns, assessment proceedings had commenced and such commencement had occurred prior to the cut off date, viz., 1-12-1976. With effect from 1-12-1976 the Karta has no authority to represent the HUF nor can he represent any other adult member of the HUF. The reason is, he has become just one among the tenants-in-common in terms of Section 4 of the Abolition Act. When an Act is passed by the Legislature and is notified in the Official Gazette every person including the Wealth-tax Officer is deemed to have knowledge of the enactment and the consequences that flow from the same. There can be no estoppel against law. Therefore, the omission of the Karta to bring to the notice of the Wealth-tax Officer of the factum of extinction of the joint Hindu family docs not have any legal significance.
11. Sri Sankunny relied on the decision of the Supreme Court in Jullundur Vegetables Syndicate's case (supra). That was a case in which the Apex Court found no provision to tax the escaped turnover in the case of a dissolved firm in the East Punjab General Sales-tax Act, 1948 corresponding to the provisions of Section 44 of the Income-tax Act, 1922. There are provisions in the Income-tax Act, 1961 as well as in the Wealth-tax Act, 1957 for making reassessment of escaped income or wealth. The Kerala High Court in Shantilal C. Shah's case (supra) has held that even in the case of an extinct Hindu undivided family, the provisions of Section 147 read with Section 283(1) can be invoked to rope in the escaped income. Corresponding provisions in the Wealth-tax Act, 1957 arc sections 17 and 41 in the sphere of reassessment of escaped wealth. Therefore, we are not impressed with the submission of the learned counsel for the asscsscc that there is no provision in the Wealth- tax Act, 1957 to reassess the escaped wealth. At any rate, the case relied on by the learned counsel for the assessec is not germane to the issue on hand before us..
12. In the result, we hold that the assessments made in the status of HUF for the assessment years 1970-71 to 1973-74 stand vitiated, inasmuch as, all the other adult members or at least the tenants-in-common have not been implcadcd in the assessment proceedings, which were continued after the extinction of the HUF with effect from 1-12-1976.
13. The facts relating to the assessment year 1977-78 would appear to stand on a different footing. The valuation date for this assessment year is 31-12-1951 M.E. corresponding to 15-8-1976. The corresponding date is noted as 16-8-1976 by the CIT (Appeals), but as 15-8-1976 in the High Court judgment and therefore the correct date is to be substituted on verification. The return of wealth appears to have been filed on 10-10-1977 as per our earlier notings in the assessment order kept in our file. This again requires verification. If the return itself was filed on 10-10-1977 it has to be held that the Karta was incompetent to act for and on behalf of an extinct HUF and the return thus filed would be an invalid return. The assessment proceedings based on such an invalid return are void ab initio. Therefore, we direct the Wealth-tax Officer to verify the date of filing of the return of wealth for the assessment year 1977-78 and if it is on 10-10-1977 or any date after 1-12-1976 the assessment made on the basis of that return is to be held as void ab initio. The only remedy that might be open to the Wealth-tax Officer is to initiate proceedings under Section 17 read with Section 41 of the Wealth-tax Act in the light of the ratio of the decision of the jurisdictional High Court in the case of Shantilal C.Shah (supra).
14. In the light of our discussion, we set aside the assessment orders made by the Wealth-tax Officer for the assessment years 1970-71 to 1973-74 and direct him to implead all the adult male members of the family in the proceedings and complete the assessments. The omission to implead the adult male members can be viewed only as supervening illegality in the proceedings that were validly initiated and the Income-tax Officer would be within his right to continue the proceedings from that stage in accordance with law (vide Guduthur Bros.
v. ITO [1960] 40 ITR 298 SC). We order accordingly. In the view we have taken we do not go into he merits of the additions.
15. The appeals for the assessment years 1970-71 to 1973-74 are allowed for statistical purposes and the appeal for the assessment year 1977-78 is allowed.