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St. K. Vr. Veerappa Chettiar and Another Vs. Commissioner of Income-tax, Madras. - Court Judgment

SooperKanoon Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Cases Nos. 11 and 12 of 1964 (Reference Nos. 8 and 9 of 1964)
Reported in[1968]70ITR737(Mad)
AppellantSt. K. Vr. Veerappa Chettiar and Another
RespondentCommissioner of Income-tax, Madras.
Cases ReferredV. S. Sivalingam Chettiar v. Commissioner of Income
Excerpt:
- .....for which he may be separately liable in addition to the liability for a share of the tax on the income assessed on the joint family according to the portion of the joint family property allotted to him. the later part of section 25a(2) attracts section 23 of the act. in the fasciculus of events above narrated, which bring out the content and purport of section 25a as a whole, the reference to section 23 therein fades into insignificance and does not appear to be a mandate which has to be literally and strictly followed. indeed the appellate assistant commissioner frankly states :'although in fact section 25a(2) enjoins such an assessment after the date of partition in respect of the income of the family upto the date of partition, in practice the income-tax officers do not actually.....
Judgment:

RAMAPRASADA RAO J. - In both the above Tax Cases, a common question has been referred to us, namely, 'whether the levy of penalty under section 28(1) (a) read with section 18A(9) (b) is lawful ?' The four assessment year involved in both the cases are 1950-51, 1951-52, 1952-53 and 1953-54. The applicants in the two cases are brothers and members of the quondam Hindu undivided family. A partition took place in the Hindu undivided family of Karuppan Chettiar and his two sons, Veerappa and Chidambaram, on August 15, 1940. The former is the applicant in T. C. No. 11 of 1964 and the latter is the applicant in T. C. 12 of 1964. The fact of such partition was recorded by the Appellate Assistant Commissioner by his order dated May 2, 1942, under section 25A(1). This resulted in a fresh assessment on the divided members of the Hindu undivided family for the year 1941-42 on December 5, 1942.

In T. C. No. 11 of 1964, a notice under section 22(2) was issued on November 22, 1949, in respect of the assessment year 1949-50 and the assessee returned a loss of Rs. 1,310 and for the subsequent year an income of Rs. 238 in response to a similar notice issued on March 27, 1951. The assessee furnished voluntary returns for the subsequent years on July 24, 1953, declaring his respective incomes for the years 1951-52, 1952-53 and 1953-54. For all such years commencing from 1950-51 and ending with 1953-54 the accounts were examined, income determined and the tax was demanded as per law. For all these years, for failure to pay advance tax under section 18A, the applicant was required to show cause why penalty should not be imposed.

In T. C. No. 12 of 1964, the assessee filed voluntary returns for the years 1942-43 to 1948-49 and stated that he incurred losses and therefore there was no assessment. On a notice being issued under section 22(2) for the assessment year 1949-50, the assessee returned a loss of Rs. 1,920 and for the subsequent year he showed a net income of Rs. 481 in response to a similar notice issued under section 22(2). Similarly for the years commencing from 1950-51 and ending with 1953-54 the income of the applicant was determined and assessed to tax. For failure to pay advance tax under section 18A, the assessee was required to show cause why penalty should not be levied in respect of the years 1950-51 to 1953-54.

The explanation of both the applicants before the revenue was that, inasmuch as there was an assessment of the tax on the income of the Hindu undivided family under section 25A(2) for the assessment year 1941-42, they should be deemed to assesses in law and, therefore, section 18A(3) had no application. In particular, in T. C. No. 11 of 1964, it was urged that for the year 1953-54 in any event he cannot be subjected to proceedings under section 18A(3), as a notice under section 34 had been served on the assessee on March 27, 1951, and on March 27, 1957, the Income-tax Officer had closed the file saying 'no action' after verifying the books. The contention of the applicant in this Tax Case is that the determination of the proceedings with the endorsement 'no action' tantamounts to a regular assessment in the eye of law and, therefore, section 18A(3) proceedings cannot be initiated against him in so far as the year 1953-54 is concerned. The particular contention in T. C. No. 12 of 1964 is that in respect of the year 1949-50 notice under section 23(2) has been served on the assessee for compliance on March 7, 1950, and that on that date the books were looked into and assessments made and the mere fact that till November 30, 1953, the Income-tax Officer chose to delay the issue of the assessment order did not mean that the assessments had not been made. Both the applicants contend generally that in any event they cannot be penalised under section 18A(9) as the voluntary assessments to be made by them under section 18A(3) and the consequential voluntary assessment of the tax by them were not made since they believed reasonably that an assessment under section 25A(2) and the subsequent proceedings initiated against them under section 22(2) were sufficient indicia to sustain a case of reasonable cause for their inaction under section 18A(3).

Before the various decisions cited before us are considered, the real scope of section 25A and 18A of the Indian Income-tax Act (XI of 1922), has to be understood. Section 25A is a peculiar machinery set up for purposes of collection of tax over the income which is exigible by a Hindu joint family at a time when a division takes place amongst the members of the coparcenary by metes and bounds. When such a division is effectuated, it is obligatory that any one of its members brings such an event to the notice of the Income-tax Officer concerned, who shall satisfy himself both objectively and subjectively about the factum of such a disruption in the family. On such an ascertainment by the Income-tax Officer, he has to record a finding to that effect under section 25(1) of the Act. Such a finding leads on to the ascertainment and reckoning of the quantum of tax over the income of the family. As already seen, the united family, no doubt, is no longer is existence. Here the law imports a fiction. The fiction consists in treating the family as if it is joint, to reckon the income thereat and to quantify it. After such quantification, by another legal fiction the ban imposed under section 14(1) of the Act is partially removed. It is a partial screening of the interdict adumbrated in section 14(1), because section 25A(2) enables the Income-tax Officer to treat the family as if joint for a certain purpose and upto a certain point and thereafter compute the tax on such income of the family ascertained by him and make the individual members composing the family liable for the tax according to the aliquot share of his, allotted in the partition. Incidentally, if the individual member has independent income of his own, the Income-tax Officer shall make such individual liable for any income-tax for which he may be separately liable in addition to the liability for a share of the tax on the income assessed on the joint family according to the portion of the joint family property allotted to him. The later part of section 25A(2) attracts section 23 of the Act. In the fasciculus of events above narrated, which bring out the content and purport of section 25A as a whole, the reference to section 23 therein fades into insignificance and does not appear to be a mandate which has to be literally and strictly followed. Indeed the Appellate Assistant Commissioner frankly states :

'Although in fact section 25A(2) enjoins such an assessment after the date of partition in respect of the income of the family upto the date of partition, in practice the Income-tax Officers do not actually pass such a separate order. It is generally found that a common order is passed and by agreement amongst the members of the family, they pay up the demand and it is only very rarely that individual assessments are passed and separate notices of demand are issued.'

As a matter of fact, majority of the judges of the Full Bench of the Allahabad High Court in Kailash Nath Bhargava v. Commissioner of Income-tax, had to consider this aspect. The following observation of theirs are indeed apposite :

'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 by 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 a aforesaid. The other class of separated members would consist of persons or groups, who have a separate income also part from a share in the income of the Hindu undivided family. In the case of such members or groups of members proddings 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.'

We may also add that any order passed under section 25A(2), even if it were to be passed by adopting the machinery indicated therein, would nevertheless be an order directing the payment of tax on the income of the family, in case the member is not already assessed on his own income, but would not amount to an amount of the income of the member qua an individual as is popularly understood. Thus, therefore, the real signification of the processual mechanism specifically provided in the case of a division in a Hindu united family, appears to be that the Income-tax Officer, fictionally treats the family as continuing to be joint for ascertaining the income thereof and after so ascertaining the income, charges the tax arising therefrom proportionately in the hands of its members according to the portion of the joint family property allotted to him. It is vehemently contended by the learned counsel for the assessee that the liability to pay the tax on the income of the family virtually amounts to taxing the individual on his own income, and therefore he should be deemed to be a person who has already been assessed. We are unable to accept this contention. To treat the assessee as a person already assessed and therefore outside the purview of section 18A (3), on the basis of the contention of the learned counsel for the applicant, would result in introducing new words or meaning in or to the section which is plain and unambiguous. It is a golden rule, while interpreting statutes, to attribute the ordinary meaning to the words of a statute. Any modification of the plain meaning of the statutory words can only be adopted in cases of doubt. Even otherwise, when the intention of the legislature is manifest, it would not be proper to work a statute so as to reduce its utility to futility and courts are bound to work a statute so as to reduce its utility to futility and courts are bound in such circumstances 'to accept the bolder construction based on the view that Parliament would legislate only for the purpose of bringing about an effective result.' Thus attributing the plain grammatical meaning to the expression 'liable for a share of the tax on the income so assessed', the conclusion is irresistible that the liability in the hands of the divided coparcenary in a Hindu undivided family is not a liability arising from the income earned by him for the assessment year in question, but on the income earned by the joint family as such, prior to its disruption.

It is convenient at this state to consider the import or section 18A of the Act. Section 18A (1) enables an Income-tax Officer by order in writing to call upon an assessee to pay in quarterly installments and amount equal to one quarter of the income-tax and super-tax payable on so much of such income as is included in his total income of the latest previous year in respect of which he has been assessed, if that total income exceeded the maximum amount not chargeable to tax in his case by two thousand five hundred rupees. This provision obligates the Income-tax Officer to act and call upon a person already assessed on his income to pay advance tax as provided for above. No doubt, the assessee, on receipt of such an order, may make representations under section 18A (2) that his income is not as estimated by the Income-tax Officer and he may voluntarily assess his own income and estimate the same and pay such amount as accords with his estimate in equal installments on such of the dates specified in sub-section (1) (a) of section 18A. On a fair reading of sub-sections (1) and (2) of section 18A, it is clear that what is contemplated herein is the income of the assessee. It would be illogical to extend the principle enunciated in the above two sub-sections to a case where a divided coparcenary is called upon to pay the tax on the assessed income of the quondam joint family. The latter aspect is completely different and alien to that provided for in sub-sections (1) and (2) of section 18A. Whereas section 18A (1) and (2) envisage and deal with the total income of the assessee as such, section 25 deals with the fictional liability to suffer a tax which is exigible in the normal course of events in the hands of the Hindu joint family. It was sought to be made out at the Bar that section 18A (2) provides as indicia to interpret section 25A of the Act. This is an extreme contention. As already stated, interpreting section 25A in its ordinary and grammatical sense, it does not advert itself to the income of the individual coparcener as such. It is mainly concerned with the income of the joint family. Ordinarily, a joint family so long as it continues to be joint is liable to pay the tax as such an unit. It is recognised in the eye a law under section 14(1) of the Act. But the fictional impact created by statute in section 25A lifts the ban as it were and enables recovery of the tax payable by the joint family from the individual who constituted one of its limbs but, of course, in proportion to the family assets allotted to him in the partition. It would not, by such reckoning, ascertainment and recovery of the tax ordinarily due and payable by the joint family, make such an order, an order of assessment of the income of the individual as popularly understood. If only such an assessment of the total income of the individual has been taxed, the demand for payment of advance tax under section 18A (1) will arise; it is only when a demand for such advance tax under section 18A (1) is made, the option given to an assessee under section 18A (2) to question the quantum of advance tax as claimed by the Income-tax Officer will arise. If this demarcation and dischotomy is borne in mind, the argument of Mr. Swaminathan that the assessment under section 27A (2) of the Act is in pari material with an assessment of an individual under the scheme of the provisions of the Act to be rejected. Even so, it appears to us to be plain that the expression in section 18A (3) that 'any person who has hitherto been assessed' should only refer, in the context of events, to a person who has been assessed as such on 'his total income'. It cannot be said that in the instant case the applicant was assessed in that sense when proceedings were initiated, and completed under section 25A (2) of the Act. Such compartmentalisation of the two distinct assessments under section 25A (2) and under the other provisions of the Act, such as section 23 et seq it borne in mind, leads to the one and only conclusion that the applicant cannot be deemed to be a person who has been hitherto assessed within the meaning of section 18A (3) of the Act.

We shall now consider the precedents cited by the learned counsel for the applicants and of the revenue. Mr. Swaminathan contends that the proceedings initiated under section 25A (1) followed up by the quantification of the tax liability of the coparcener, tantamounts to an 'assessment' of the individual and therefore, there is no obligation cast upon the applicant in each of these cases whose exigibility to tax has been so determined, to act under section 18A(3). Analogies are sought from assessment proceedings against an agent of a non-resident principal and the assessment proceedings against the legal representatives of a deceased assessee. Reliance is placed on M. C. T. M. Corporation Private Limited v. Income-tax Officer, Pudukottai. In that case a firm called S. Pm. Ct. M. Firm carrying on business at Madras, was treated as the agent of the petitioner therein, then a non-resident corporation and the income of the petitioner accruing and arising in British India was assessed in the hands of this resident agent, the firm and such an assessment was that of the petitioner was not in dispute. In those circumstances, the learned judges held that the petitioner was not a person who had not been assessed. The facts in the tax revision cases before us are entirely different. In fact, the observation in the same case that 'sub-section (3) of section 18 does not cover every case where the Income-tax Officer is not enabled to make a demand' clearly is a pointer that section 18A(1) does not govern section 18A(3). The next case cited by the learned counsel for the assessee is Additional Income-tax Officer v. E. Alfred. That was a case where the question was whether under section 24B of the Act the legal representatives of a deceased assessee is liable to pay the tax which might have been assessed, but not paid by the deceased person or which might be assessed after his death. While answering the question posed in the affirmative, their Lordships held that section 24B covers all situations and contingencies and makes the liability absolute, limited however to the extent to which the estate of the deceased is capable of meeting the charge. They then proceeded to say :

'The word assessment bears different meanings, and in one sense, it comprehends the entire process of computation and levy of tax. It is in this sense that the legal representative becomes an assessee by the fiction, and it is this fiction, which has to be fully worked out, to its logical conclusion.'

This decision does not help the applicant either. Ex facie the facts in the instant case are totally different and besides the assessment in section 25A(2) is for a part an assessment of the income of the joint family and for the other part imprinting a liability on the individual member for payment of the aliquoted share of tax. We fail to see how any assistance could be drawn from this decision in the instant case to find that the divided coparcener, as the applicants are, could be treated in pari materia with the legal representative of a deceased assessee liable to tax under section 24B of the Act.

Mr. Balasubrahmanyan, learned counsel for the revenue, drew our attention to several decided case, a few of which throw considerable light on the subject under discussion. He referred to C. A. Abraham v. Income-tax Officer, Lottayam to support his view that it is only section 23 which deals with assessment as if it is computation of income but the other sections in Chapter IV of the Act deal with determination of liability and machinery for imposing such liability and the procedure in that behalf. According to him, and indeed rightly, section 25 is one such section. Following up his argument, he referred to us the following passage in Sundar Singh Mahjithia v. Commissioner of Income-tax :

'Section 25A provides that if it be found that the family property has been partitioned in definite portions, assessment may be made notwith standing section 14(1), on each individual or group in respect of his or its share of the profits made by the undivided family, while holding all the members jointly and severally liable for the total tax.'

He also relied upon Kalwa Devadattam v. Union of India where their Lordships of the Supreme Court observed :

'Section 25A merely sets up a machinery for avoiding difficulties encountered in levying and collecting tax, where since the income was received the property of the joint family has been partitioned in definite portions, while at the same time affirming the liability of such members or group of members, jointly and severally to satisfy the total tax in respect of the income of the family as such. The section seeks to remove the bar imposed by section 14(1) against recovery of tax from an individual member of a joint Hindu family in respect of any sum which he receives as a member of the family, and to ensure recovery of tax due, notwithstanding partition.'

To a similar effect is the passage in Additional Income-tax Officer v. Thimmayya which reads :

'Where an order that the property of the family has been partitioned is recorded, the liability of the members has to be apportioned in the manner set out in the sub-section, but one of the incidents of assessment after apportionment of tax liability is that the members of the family stand jointly and severally liable for the entire amount of tax assessed against the family.'

On the strength of the above it is contended that under section 25A(2), the tax liability on the individual member is determined and there is no assessment of his income so that the member could take advantage of section 18A(3). This contention, as already formulated by us, is well founded. The scope of section 25A has been summarised with precision by Venkatarama Aiyar J., in Lakhmichand Baijnath v. Commissioner of Income-tax, in these words :

'.... section 25A enacted that until an order is made under that section, the family should be deemed to continue as an u divided family.

When an order is made under that section, its effect is that while the tax payable on the total income is apportioned among the divided members or groups, all of them are liable for payable on the total income of the family. What that tax is would depend on the assessment of income in proceedings taken under section 23, and an order under section 25A, would have no effect on that assessment.'

We respectfully apply this ratio and find that the petitioner is not a person, and cannot be deemed to be one, who has already been assessed within the meaning of section 18A(3).

The next contention of the learned counsel for the applicants is that in T. C. No. 11 of 1964 a notice under section 34 of the act in respect of the year 1942-43, had been served on the assessee on March 27, 1952, and that the Income-tax Officer had closed the file saying 'on action', after looking into the books of account had that therefore an 'assessment' was made within the meaning of the Act and hence the penalty provision under section 18A cannot be pressed into service for the entire period and in any event for the period 1953-54. Reliance is placed upon V. S. Sivalingam Chettiar v. Commissioner of Income-tax. In that case one of us speaking for the Bench, held the view that a note 'N. A.' (no action) of the Income-tax Officer is an order which is covered by section 23(3) of the Act. The applicant in this case also secured a similar order on March 27, 1952. Therefore it would be anomalous to treat the applicant as a 'person not hitherto assessed' for the assessment year 1953-54. Learned counsel for the revenue, however, relied on Commissioner of Income-tax v. Bidhu Bhusan Sarkar to contend contra. That was a case where their Lordships had to interpret the word 'filed' used by the Income-tax Officer in disposing of a proceeding before him. It was held :

'..... on the facts, that in making the order dated February 4, 1952 that the case be filed the only intention the additional Income-tax Officer could have had was that the proceedings before him initiated by the notice dated February 23, 1950, should no longer remain in existence as being unnecessary, and he clearly intended that they should be terminated or dropped. In the circumstances, the word filed had to be interpreted as equivalent to disposed of.'

This is not the case here. An order well within section 23 of the Act has been passed by the Income-tax Officer on March 27, 1952. Applying the ratio in V. S. Sivalingam Chettiar v. Commissioner of Income-tax, we hold that in T. C. No. 11 of 1964 the levy of penalty under section 28(1) (a) read with section 18(b) is not legal for the assessment year 1953-54.

As regards the levy of penalty for the other years in question in both the revision cases, the argument of the learned counsel for the applicants proceed that the revenue has not considered one important aspect which touches at the root of their jurisdiction to attract the penal provisions of section 18A(9), read with section 28 Section 18A(9) and section 28 of Act envisage that if any assessee has without reasonable cause failed to comply satisfied about it then such an assessee shall be deemed to be a person in default liable to suffer the penalty provided in section 28. It is not disputed that the assessee made representations before the Tribunal that the applicants in both the tax cases were prevented by sufficient reasonable cause in not having acted under section 18A(3). We do not find any indication in the order of the Tribunal or in the statement of the case that such representations of the applicants were considered by it. The sine qua non for the attraction of the penal phase of both section 18A(3). We do not find any indication in the order of the Tribunal or in the statement of the case that such representations of the applicants were considered by it. The sine qua non for the attraction of the penal phase of both section 18A(9) and section 28 appears to be absence of reasonable cause on the part of the assessee. There is of course no yard stick to measure which cause is reasonable, when and how far.

The applicants case in T. C. No. 11 of 1964 is that since the section 34 proceedings relate to the assessment year 1942-43 and he had been called upon to file returns of income and produce books of account ever since 1942-43, he had a reasonable cause in not filing his voluntary estimate of his income under section 18A(3) and pay the advance tax thereon for the years commencing from 1950-51. The case of the petitioners in T. C. No. 12 of 1964 is that in respect of the year 1949-50 notice under section 23(2) has been served in February, 1950, for compliance on March 3, 1950 and that on that date the books of account were looked into and assessment made later in 1953 and for this reason he had a justifiable reason not to act as per the requirements of section 18A(3) for the years commencing from 1950-51. The revenue no doubt concedes that such were the representations made by the respective applicants. The point for determination is whether the authorities including the Tribunal adverted themselves to the material contention of the applicants that there was reasonable cause for the inaction under section 18A(3). As already stated, a specific finding one way or the other is not found in the order of the Tribunal. Whilst therefore answering the question in each of the reference in the affirmative excepting for the assessment year 1953-54 in T. C. No. 11 of 1964 we are of the view that the Tribunal before finalising the proceedings against the applicants do consider the contentions of the respective parties that each of them had reasonable cause in not filing the estimates under section 18A(3) and decide accordingly. There shall be no order as to costs in both the cases.


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