1. The Income-tax Appellate Tribunal, Delhi Bench 'A', has referred the following question of law under Section 27(1) of the Wealth-tax Act to this court:
' Whether, on the facts and in the circumstances of the case, the Wealth-tax Officer was competent to complete assessments against three kartas in their individual status in the absence of any wealth-tax returns filed by them and without serving them with notice under Section 14(2) for filing wealth-tax returns '
2. This reference arises out of wealth-tax assessment for the year 1957-58 under Section 16(3) of the Wealth-tax Act (hereinafter referred to as ' the Act '). The Wealth-tax Act, 1957, came into force from the first day of April, 1957.
3. The assessment year 1957-58 was thus the first assessment year under the Act. The Wealth-tax Officer issued notices under Section 14(2) of the Act in the names of Shri Ridhkaran Bengani, Sbri Munnalal Bengani and Shri Prithviraj Bengani of Bidasar for filing their wealth-tax, returns. The notices did not specify whether they were to submit wealth-tax returns in respect of the properties belonging to them individually or whether they were to submit wealth-tax returns in respect of the property owned by their Hindu undivided families. However, in response to the notices the returns were submitted by them as kartas of their Hindu undivided families. The Wealth-tax Officer held the status of the assessees as that of 'individual' and completed the assessment against the kartas under Section 16(3) of the Act. All the three of them appealed and the Appellate Assistant Commissioner upheld the assessments against the kartas in the status of ' individual '. The assessees went in appeal before the Appellate Tribunal and it was contended on their behalf that as the notice under Section 14(2) of the Act did not specify the status and the returns were filed by the Hindu undivided families through their kartas, it was not open to the assessment officer to assess them as individuals unless a fresh notice under Section 14(2) of the Act in their individual status was issued by the Wealth-tax Officer. By a common order in all the throe appeals, the Tribunal accepted the contention and held that the Wealth-tax Officer exceeded his jurisdiction to complete the assessment of the kartas in their individual status under Section 16(3) of the Act. Accordingly, the assessments were set aside.
4. The Commissioner of Wealth-tax, Delhi (Central) and Rajasthan, New Delhi, moved the Tribunal under Section 27(1) of the Act to make a reference. As there was a common question of law, the Tribunal made the reference and submitted a consolidated statement of the case.
5. After having heard learned counsel for the parties, we are of the opinion that the question must be answered in the negative. Section 3 of the Act provides that, subject to the other provisions contained in this Act, there shall be charged for every assessment year commencing on and from the first day of April, 1957, wealth tax in respect of the net wealth on the corresponding valuation date of every individual, Hindu undivided family and company at the rate or rates specified in the Schedule. According to this section, individual, Hindu undivided family and company were treated as separate units for purposes of assessing wealth-tax. It may be noticed here that from April 1, 1960, a company is not a unit for assessing wealth-tax. Chapter IV of the Act deals with assessment. Under Section 14(1), every person, if his net wealth or the net wealth of any other person in respect of which he is assessable under this Act on the valuation date is of such an amount as to render him liable to wealth-tax under this Act, shall, before the 30th day of June of the corresponding assessment year, furnish to the Wealth-tax Officer a return in the prescribed form and verified in the prescribed manner setting forth the net wealth as on that valuation date. This sub-section provides for a voluntary filing of the return. Sub-section (2) of Section 14 further provides that if a person does not voluntarily furnish his return and if the Wealth-tax Officer is of the opinion that any person is assessable under this Act, whether in respect of his net wealth or the net wealth of any other person, then, notwithstanding anything contained in Sub-section (1), he may serve a notice upon such person requiring him to furnish within such period, not less than thirty days, as may be specified in the notice, a return in the prescribed form and verified in the prescribed manner, the net wealth of such person as on the valuation date mentioned in the notice. Section 15 of the Act enables a person who has not furnished his return within the time allowed under Section 14 or having furnished the return under that section discovers any omission or a wrong statement therein, he may furnish a return or a revised return as the case may be at any time before the assessment is made. These two sections deal with the filing of returns. In the scheme of the Act, the assessment is made under Section 16 of the Act. Section 16(1) empowers the Wealth-tax Officer to assess the net wealth of the assessee and determine the amount of wealth-tax payable by him or the amount refundable to him on the basis of his return if he is satisfied that the return filed by him under Section 14 or Section 15 does not require the presence of the assessee or production by him of any evidence to substantiate the correctness of the return. In case the Wealth-tax Officer is not satisfied with the return, he shall serve a notice on the assessee under Section 16(2) either to attend in person at his office on a date to be specified in the notice or produce or cause to be produced on that date any evidence on which the assessee may rely in support of his return. Under Section 16(3) the Wealth-tax Officer will hear such evidence as the person may produce and such other evidence as he may require on any specified points, and after taking into account all relevant material which he has gathered, and shall thereafter by order in writing assess the net wealth of the assessee and determine the amount of wealth-tax payable by him or the amount refundable to him on the basis of such assessment. Sub-section (4) of Section 16 also empowers the Wealth-tax Officer to ' require the assessee by a notice to produce or cause to be produced on a date to be specified in the notice such accounts, records and other documents as he may require. Section 16(5) deals with such cases where a person fails to make a return in response to any notice under Section 14(2) or fails to comply with the terms of the notice under sub-section (2) or subsection (4) of Section 16. In such a case, the Wealth-tax Officer, after taking into account all relevant material which he has gathered, shall estimate the net wealth to the best of his judgment and determine the amount of wealth-tax payable by the person. From the scrutiny of this section it is abundantly clear that the assessment under Sections 16(1) and 16(3) envisages a return having been filed by the assessee. There can be no assessment under these sub-sections if the assessee has not filed a return. Where the assessee does not file a return, the only section available to the Wealth-tax Officer to assess the net wealth is Sub-section (5) of Section 16 where he can estimate his net wealth to the best of his judgment and determine the amount of wealth-tax payable by him. In the present case, notices were issued under Section 14(2) of the Act. The notice did not specify the status under which the assessee was required to file the return. However, it did entitle the assessee to file the return either as 'individual' or as ' karta' of the Hindu undivided family. The returns were admittedly filed as the kartas representing their Hindu undivided families. The returns before the Wealth-tax Officer were on behalf of the Hindu undivided family and there was no return by them in the status of ' individual'. It was not therefore open to the Wealth-tax Officer to complete the assessment under Section 16(3) of the Act of the kartas representing their Hindu undivided families in the status of ' individual '. As already noticed, assessment under Section 16(3) contemplates filing of the return by the assessee. The status of 'individual' and 'Hindu undivided family' are separate units. We therefore agree with the Tribunal that in completing the assessments against the kartas in their ' individual ' status without issuing a fresh notice to them under Section 14(2) to file the returns, the Wealth-tax Officer exceeded his jurisdiction under Section 16 of the Act. The Wealth-tax Officer has, in assessing the kartas in their 'individual' status while they had filed the returns as ' Hindu undivided family ', acted contrary to Section 16(3) as it is to assess them as a different unit and without the return in the status as 'individual'.
6. Mr. Lodha on behalf of the department contends that, as the notice under Section 14(2) was without specifying the status, it was open to the Wealth-tax Officer to assess the kartas in their ' individual' status even when the returns were filed on behalf of the ' Hindu undivided family '. He placed reliance on Gopaldas Parshottamdas v. Commissioner of Income-tax, [1941] 9 I.T.R. 130 (All.), Radhey Lal Balmukand, In re, [1942] 10 I.T.R. 131 (All.), Commissioner of Income-tax v. Swami-nathan Chettiar, [1947] 15 I.T.R. 430 (Mad.), and Mohd. Haneef v. Commissioner of Income-tax, [1955] 27 I.T.R. 447 (All.).
7. Gopaldas Parshottamdas v. Commissioner of Income-tax :
In this case, the assessee was a Hindu undivided family. A notice was issued to the assessee, which was a Hindu undivided family, under Section 23(2) of the Income-tax Act, 1922. The notice indicated four capacities, namely, individual, firm, family and association, without any of these capacities having been scored out. The assessee also submitted his return without scoring out any of the four capacities. The assessee was submitting the return in the previous years as a ' Hindu undivided family ' and was also being assessed as such. The assessee was assessed for the relevant year as ' Hindu undivided family '. A question was raised that the notice issued to the assessee was invalid. It was held that the notice issued under Section 23(2) of the Act of 1922 was not invalid and he was rightly assessed as a ' Hindu undivided family '. The facts of this case are distinguishable. Besides, the assessee was assessed as ' Hindu undivided family ' which was most favourable to him.
8. Radhey Lal Balmukand, In re:
In this case a notice was issued under Section 22(2) of the Income-tax Act, 1922, without scoring out any of the four capacities. But from the facts it appears that it was addressed to the firm ' Messrs. Radhey Lal Balmukand, Kinari Bazar, Agra '. Their Lordships of the Allahabad High Court held that from the notice it was clear that it was addressed to the assessee as a firm and it was a valid notice. It was also observed in this case: ' It is not obligatory upon the Income-tax Officer in a notice issued to an assessee under Section 22(2) of the Income-tax Act to strike off such of the four capacities as do not apply to the assessee and to clearly indicate in which capacity the assessee is required to submit the return. It is the duty of the person receiving the notice to score out the irrelevant capacities in the notice.'
9. These observations suggest that in a case where the notice does notspecify the status, it is for the person filing the return to indicate hisstatus in which he files the return. So far as the notice in this case wasconcerned, it was addressed to the firm and there was no defect in holdingthat it was meant for the assessee as a firm. This case does not helpthe department.
10. Commissioner of Income-tax v. Swaminathun Chettiar :
In this case, the assessee, the karta of a joint Hindu family, was assessed for the assessment year 1939-40 as the karta of the family and also in his individual capacity. In the assessment year 1940-41 the assessee put forward a claim under Section 25A of the Income-tax Act that on 21st January, 1940, a partition had taken place among the members of the family. The Income-tax Officer rejected the claim, but the Appellate Assistant Commissioner by his order dated 17th August, 1942, accepted it and directed an assessment to be made on that basis. Meanwhile, the Income-tax Officer discovered that the family's income for the assessment year 1939-40 had been assessed at too low a rate and he, therefore, issued, on 6th July, 1942, a notice under Section 34 stating, inter alia, that ' your income' for the year ending 31st March, 1939, had been assessed at too low a rate and that it was, therefore, proposed to reassess such income. The assessee, in response to this notice, submitted a return of the family income describing himself to be the karta of the family and the Income-tax Officer made a supplementary assessment on the family. One of the questions raised was whether a valid notice under Section 34 was served on the family. It was held that the notice dated 6th July, 1942, issued to the assessee without indicating in what capacity he was to be assessed under Section 34 was in the circumstances of the case a valid notice to the family under that section. It was further held that the service of the notice under Section 34 on the person was perfectly in order as he was a person ' liable to pay ' the whole of the tax imposed under the supplementary assessment. Even assuming that the notice did not give the correct-particulars as to the person or income sought to be assessed, it was held that the irregularity must, in the circumstances of the case, be deemed to have been waived by the assessee inasmuch as he submitted the return as ' karta' of the family. Obviously, this case has no application to the facts of the present case The question that arises in the instant case is whether on the basis of a return filed as karta on behalf of the Hindu undivided family, the karta could be assessed as ' individual', whereas in the Madras case the returns were filed as ' karta ' of the family and he was assessed as such.
11. Mohd. Haneef v. Commissioner of Income-tax:
In this case, A was assessed as principal officer of an association of individuals consisting of A, B, C and D for three assessment years. The Income-tax Officer started reassessment proceedings with respect to one of these years and issued a notice to A without indicating whether the notice Was issued to him as principal officer of the association or as individual. In the reassessment proceedings, the Income-tax Officer found that A was the principal officer representing another association of individuals, E and F to whom the income already assessed as well as the escaped income belonged and assessed A to tax accordingly. On appeal, the Appellate Tribunal held that the association of individuals which was taxable consisted of A, B, C and D and not E and F. The validity of the notice under Section 34 was disputed. It was held on the facts of the case that the notice issued to A under Section 34 was not bad in law. It was, however, observed that it would have been better if the Income-tax Officer had indicated in that notice that it was being served on A as the principal officer of an association of individuals consisting of himself and B, C and D, but the facts of the previous assessment having been mentioned, A could have in his mind no doubt as to the status in which the notice was being served on him. It was also held that the Income-tax Officer could not in the reassessment proceedings of A, B, C and D assess an entirely new association of individuals of E and F. The facts of this case are entirely distinguishable and do not help the department.
12. Learned counsel for the assessee invited our attention to a decision of the Supreme Court in Commissioner of Income-tax v. K. Adinarayana Murthy, [1967] 65 I.T.R. 607; [1967] 3 S.C.R. 388 (S.C.). In this case the respondent was a Hindu undivided family. Subsequent to the original assessment, the Income-tax Officer had known information that the respondent had done some procurement business and earned large profits which had escaped assessment for the assessment year 1949-50. Since for the assessment year 1954-55, the Income-tax Officer had taken the status of the respondent to be that of an ' individual ' he issued a notice under Section 34 of the Income-tax Act on March 22, 1957, to reopen the assessment for the assessment year 1949-50 in the status of an individual having taken the sanction of the Commissioner to make the reassessment in that status. The respondent, however, filed the return in the status of a ' Hindu undivided family '. Pending the proceedings the Appellate Assistant Commissioner, in appeal against the assessment for the year 1954-55, held that the status of the respondent was that of a Hindu undivided family. Thereafter, the Income-tax Officer issued a fresh notice under Section 34 on February 12, 1958, to reassess the income of the respondent for the year 1949-50 as a 'Hindu undivided family'.' A second return was duly filed pursuant to the second notice and the Income-tax Officer made an assessment on August 16, 1958. Both the notices were, however, in identical terms. The question was whether the assessment made pursuant to the second notice and the second return ignoring the first return filed pursuant to the first notice was valid. It was held that since the correct status of the respondent was that of a ' Hindu undivided family', the first notice issued in the status of an ' individual' was illegal and without jurisdiction and the Income-tax Officer could not have validly acted on the return filed by the respondent pursuant to that notice, notwithstanding that it was made in the status of a ' Hindu undivided family' and any assessment made on such a return would have been invalid. The Income-tax Officer was entitled to ignore that return as non est in law. The second notice issued on February 12, 1958, was valid and the return filed in response to that notice and the assessment thereon were valid. Under the scheme of the Act, ' individual' and ' Hindu undivided family ' are treated as separate units of assessment and if a notice under Section 34 of the Act is wrongly issued to the assessee in the status of an individual and not in the correct status of a Hindu undivided family, the notice is illegal and all proceedings taken under that notice are ultra vires and without jurisdiction. From this statement of law, it can be said that the notice specifying wrong status is invalid. But a notice without specifying the status cannot be said to be invalid as it does entitle the party receiving the notice to file a return in the status he thinks he is assessable to tax and if return has been filed in pursuance of such a notice, the assessment can be completed only in that status. If the assessing officer thinks that the person holds the property in another status, a fresh notice required by law shall have to be issued. While assessing a person in a status different from the one for which he has filed the the return, he deserves a notice not only under the provisions of the Wealth-tax Act, but also as a rule of natural justice. The assessee must have notice if he is going to be assessed otherwise than in the status claimed by him.
13. For the reasons indicated above, we agree with the view taken by the Tribunal in this case. The question is answered in the negative. The department will pay costs to the assessee.