Commissioner of Wealth-tax Vs. G.E. Narayana and Others - Court Judgment

K. Shivashankar Bhat, J.

1. In T. R. C. Nos. 23 and 24 of 1987, the following question is required to be answered under the provision of the Wealth-tax Act, 1957 ('the Act' for short) :

'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in coming to the conclusion that there is no provision in the Wealth-tax Act to make an assessment on the erstwhile Hindu undivided family in case where the karta of the said erstwhile Hindu undivided family has filed the return of wealth of the Hindu undivided family and thereafter died before completion of the assessment and ignoring the fact that the Hindu undivided family was not in existence as on the date of assessment ?'

2. In other references, though the questions are worded differently, the substance of the questions is the same and hence the above questions could be safely treated as the one involved in all these cases.

3. In respect of the assessment years 1977-78 and 1978-79, wealth-tax returns were filed by G. E. Narayana on August 25, 1977, and September 12, 1978, respectively as karta of the Hindu undivided family. The Hindu undivided family consisted of himself and his minor son. On June 26, 1982, G. E. Narayana died. Thereafter, assessment orders were made on February 14, 1983, and March 28, 1983, respectively, in respect of the two assessment years, assessing the Hindu undivided family. In other references also, the situation was the same. The same karta of the Hindu undivided family, G. E. Narayana, had filed the wealth-tax returns for the various years before his death. But, in all those cases also, the assessment orders were made after his death. Consequent on the death of G. E. Narayana, the Hindu undivided family ceased to exist because his only minor son was left by him who was earlier a member of the Hindu undivided family. Therefore, it was contended that, on the extinction of the Hindu undivided family, there was no Hindu undivided family on which an assessment order could have been made and there is no provision in the Act providing for such a contingency to make an order of assessment in respect of a return filed earlier by the then existing Hindu undivided family which ceased to exist by the time the assessment order is made. The Appellate Tribunal has accepted this contention and held that there is no machinery to assess a Hindu undivided family which cased to exist after filing the return. Hence these references.

4. Mr. G. Chanderkumar, learned counsel for the Revenue, contended that the Hindu undivided family is a 'person' and when it is said that the Hindu undivided family ceased to exist, it is the same as the death of a person, the subject which is covered by section 19 of the Act and, therefore, the surviving member of the Hindu undivided family could be assessed as the legal representative representing the erstwhile Hindu undivided family. It is further contended that the scheme of the Act is to complete the assessment in respect of a return filed by the then existing assessee and the provisions of the Act will have to be interpreted to make the said scheme workable and effective. Learned counsel pointed out that, while filing the return itself, an assessee (Hindu undivided family) may have to make a self-assessment under section 15B and if tax had been paid accordingly, such a completed self-assessment cannot stand nullified by any alleged lacuna in the machinery provisions of the Act

5. Learned counsel further pointed out that sections 20 and 20A provided for the assessment of a Hindu undivided family its partition or after a partial partition which again indicate the scheme of the Act to tax a Hindu undivided family and collect the tax payable by it under all circumstances.

6. Sri Sarangan, learned counsel for the assessee, however pointed out that when there is no specific provision to make an assessment in respect of a return filed by an erstwhile Hindu undivided family, it is not possible to imply a machinery under the Act to make such an assessment. Learned counsel referred to a few decision wherein the Privy Council as well as the Supreme Court have held that a specific machinery is necessary to make an assessment order in respect of a taxable entity like a Hindu undivided family. Mr. Chanderkumar also tried to establish that the charge under the Act for the levy of tax is on the assets of the assessee and such a charge gets crystallised on the valuation date and, therefore, so long as such assets are available, the crystallised tax can be assessed and collected.

7. Before proceeding further, the nature of the charge under the Act has to be clarified. The charging provision is section 3. It states that there shall be charged for every assessment year a tax in respect of the net wealth on the valuation date, of every individual, Hindu undivided family and company at the rate Specified in the Schedule. Thus, this language is substantially similar in its structure to Section 4 of this Income-tax Act whereunder income-tax shall be charged in respect of the total income of the previous year of every person. Under the Income-tax Act, the tax is connected with and related to the total Income of every person. Similarly, under the Wealth-tax Act the tax is in respect of the net wealth which means the tax is related to and connected with the net wealth of the three kinds of assessee, referred therein. Consulting a similar provision of the Indian Income-tax Act, 1922, the Bombay High Court held in Patiala State Bank In re. : [1941]9ITR95(Bom) , that the tax is not made a charge on the income upon which it is levied and that broadly speaking it was accurate to say that income-tax is a tax imposed upon a person in relation to his income. Chief Justice be amount observed an page 112 thus :

'I think that, properly considered, income-tax is a tax on a person in relation to his income. The tax is not imposed on income generally; it is imposed on the income of a person, natural or artificial, as defined in section 3. The assessment has to be made against a person, and the tax has to be collected from the assessee. The tax is not made a charge on the income upon which it is levied, and I think, broadly speaking, it is accurate to say that income tax is a tax imposed upon a person in relation to his income.'

8. This view of the Bombay High court has been affirmed by the Privy Council in an appeal therefrom which is reported in Patiala State Bank v. CIT [1943] 11 ITR 617. The nature of the Wealth-tax charged under the Act was considered by the Supreme Court in a case wherein the inclusion of agricultural lands in the assessable net wealth was challenged. In that connection, the Supreme Court had to consider whether it is a tax on the agricultural land falling within entry 49 of List II, Schedule VII to the Constitution. While considering the question, the Supreme Court quoted with approval the opinion expressed by a learned author as to the nature of the wealth-tax. In Union of India v. Harbhajan Singh Dhillon : [1972]83ITR582(SC) , the Supreme Court, inter alia, quoted the following passage :

'The net wealth-tax is really intended to tax the annual yields of capital rather than the principal itself as do death duties or a capital levy, even though it is levied on the value of the principal. Since it taxes net wealth, it also differs from property taxes imposed on the gross value of property - primarily real property - in a number of countries. The net wealth-tax gives consideration to the taxpayer's taxable capacity through the deduction of all outstanding liabilities and personal exemptions as well as through other devices, while the property tax generally does not take these factors into account. The net wealth-tax is, therefore, deemed to be imposed on the person of the taxpayer, while the property tax is often deemed to be imposed on an object-the property itself.'

9. From the above, it is clear that the charge is not on the assets but on the parson, though the charge is related to the net wealth of the person concerned.

10. Under the Income-tax Act also, the Hindu undivided family is a person assessable to tax. There were almost similar situations which arose under the provisions of the Indian Income-tax Act, 1922, as well as under the present Income-tax Act, 1961, in connection with the assessment of the Hindu undivided family. One such situation resulted in the enactment of section 25A in the earlier Income-tax Act, 1922. The said provision was enacted to get over the difficulty caused when a Hindu undivided family had received income in the year of account but was no longer existing as such, at the time of assessment. The Privy Council, in the case of Sir Sundar Singh Majithia v. CIT [1942] 10 ITR 457, observed at page 465, thus :

'Section 25A deals with the difficulty in two ways, which are explained by the rule, applicable to families governed by the Mitakshara that by a mere claim of partition a division of Interest may be effected among coparceners so as to disrupt the family and put an end to all right of succession by survivorship. It is trite law that the filing of the suit for partition may have this effect though it may take years before the shares of the various parties are determined or partition made by metes and bounds. Meanwhile the family property will belong to the members as it does in a Dayabhaga family in effect as tenants in common. Section 25A provides that if it be found that the family property has been partitioned in definite portions, assessment may be made, non withstanding 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. If however, though the joint Hindu family has come to an end it be found that its property has not been partitioned in definite portions, then the family is to be deemed to continue - that is to be an existent Hindu family upon which assessment can be made on its gains of the previous year.'

11. But for section 25A, the erstwhile Hindu undivided family could not be assessed at all. In Lakhmichand Baijnath v. CIT : [1959]35ITR416(SC) , the Supreme Court pointed out that, but for section 25A of the Indian Income-tax Act, 1922, a Hindu undivided family which ceased to exist could not have been taxed at all. At page 422, the court observed :

'Under the provision of the Act as they stood prior to the amendment, when the assessee was an undivided family, no assessment could be made thereon if at the time of the assessment it had become divided, because at that point of time, there was no undivided family in existence which could be taxed, though when the income was received in the year of account the family was joint. Nor could the individual members of the family be taxed in respect of such income as the same is exempt from tax under section 14(1) of the Act. The result of these provisions was that a joint family which had become divided at the time of the assessment escaped tax altogether. To remove this defect, section 25A enacted that until an order is made under that section, the family should be deemed to continue as an undivided family.'

12. Again, in Govinddas v. ITO : [1976]103ITR123(SC) , it was pointed out at page 128 thus :

'We may first look at section 25A of the old Act. The position which obtained before this section was introduced in the old Act was that though a Hindu undivided family was a unit of assessment, there was no machinery provided in the Act for levying tax and enforcing liability to tax in cases where a Hindu undivided family had received income in the year of account but was no longer in existence as such at the time of assessment. This difficulty was the more acute by reason of the provision contained in section 14(1) which said that tax shall not be payable by an assessee in respect of any sum which he received as a member of a Hindu undivided family. The result was that the income of a Hindu undivided family could not be assessed and the tax could not be collected from the members of the family, if at the time of making the assessment the family was divided. This was obviously a lacuna and the Legislature, therefore, introduced section 25A in the old Act for assessment of the income of a Hindu undivided family was no longer in existence at the date of assessment.'

13. The above observation once again points out that a lacuna in the taxing law cannot be filled up by any judicial exercise and the difficulty caused by the lacuna will have to be removed by the Legislature.

14. The forerunner to this principle is found in the decision of the Bombay High Court in Ellis C. Reid v. CIT, : AIR1931Bom333 , wherein the Bombay High Court held that, when a person died after the commencement of the assessment year but before his income for the relevant accounting year was assessed, his executor was not liable to pay the tax. After this decision, section 24B was introduced in the earlier Income-tax Act, 1922 (similar to the present section 159). That the existence of the assessee at the time of the assessment order is an absolute necessity is a matter which has been recognised in all these decisions and if the assessee is not in existence, there should be a specific provision to assess the said income which was liable to be taxed under the provisions of the Income-tax Act. The same logic governs the Wealth-tax Act also.

15. In CWT v. Keshub Mahindra : [1983]139ITR22(Bom) , the Bombay High Court has pointed out the distinction between the Income-tax Act and the Wealth-tax Act and there is an observation that the liability to tax arises on the valuation date under the Wealth-tax Act. This observation was sought to be developed by Mr. G. Chanderkumar in support of his contention, but we are of the view that the observation has to be understood in the context of the case and, actually, the Bombay High Court held that, if a person is not alive on the valuation date and he dies during the course of the previous year before the valuation date, then no liability arises under the Act so far as the said person is concerned. Similarly, the decision of the Madras High Court in A and F. Harvey Ltd. (As Agents to executors of the Estate of late Andrew Harvey) v. CWT : [1977]107ITR326(Mad) is of no assistance to Mr. Chanderkumar. The decision of the Calcutta High Court in CWT v. Executors to the Estate of Sir E. C. Benthal : [1977]106ITR57(Cal) , is also of no avail to learned counsel for the Revenue CWT v. Ridhkaran is a decision of the Rajasthan High Court which again has no relevance to the facts of the instant case. The Rajasthan High Court pointed out that, when a return is filed under a particular status and the Assessing Officer does not accept it as a proper status, a fresh notice shall have to be issued to the proper person.

16. An identical situation arose before the Madras High Court in Seethammal v. CIT : [1981]130ITR597(Mad) , though under the provisions of the Income-tax Act. There were only two members constituting a Hindu undivided family; one of them died; consequently, the Hindu undivided family ceased to exist. The question was whether section 171(1) of the Income-tax Act could be applied to make as order of assessment assessing the erstwhile Hindu undivided family. The Madras High Court pointed out that there was no provision at all to make the assessment on the Hindu undivided family, even though the income was earned during the accounting year when there was a Hindu undivided family. Section 171 of the Income-tax Act did not made any provision to meet such a contingency. It is that clear that a specific provision is necessary to make an order of assessment against a taxable entry which does not exist on the date of the assessment even though the said entry was in existence when the liability to tax arose.

17. The Hindu undivided family is an assessable entry : without the presence of the assessee. It is not possible to make an order of assessment, unless the law provides a machinery to assess the erstwhile Hindu undivided family by enabling the assessment proceedings to be initiated or continued against a proper successor. Section 19 is one such provision which enables the initiation of proceedings against the legal representatives of the deceased person who was liable to pay the tax under the Act. Sections 19A, 20 and 21 are also entitled to provide for certain similar contingencies. But, nowhere is a provision found in the Act, enabling the Assessing Officer to make an order of assessment against the person who succeeded to the wealth of an erstwhile Hindu undivided family which was in existence on the date of the valuation date, but ceased to exist by the time the order of assessment is made, the said cessation being due to natural causes as happened in the instant case Section 20 covers an entirely different field wherein the Hindu undivided family ceases to exist by act of parties.

18. Mr Chanderkumar attempted to bring in section 19 to this situation, by contending that this is a case where the Hindu undivided family was a 'person', 'dead', as a result of the death of one of the two coparceners. The word 'person' may include all the assessable entries referred to in section 3; but the question, here, is, can it be said that the Hindu undivided family 'dies' as a result of the death of the coparcener out of two, leaving behind only one member of the family and can it be said that such a surviving member is the legal representative of the 'deceased Hindu undivided family' To the extent of his individual interest, the sole surviving coparcener cannot be the legal representative; he is the legal representative of the share of the deceased coparcener; but here, the Hindu undivided family simply vanished from existence as a legal entity. The term 'dies'. is normally referable to the expiration of the life of a living person, animal or a plant. In the absence of any statutory fiction, the meaning of the said word cannot be extended to convey a meaning which is not normally attributed to it.

19. Consequently, the question referred to us has to answered in the affirmative and against the Revenue. References are answered accordingly.