BALCHAND MALAIYA Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) FOR the assessment year 1946-47, the ITQ, Sagar, passed an assessment order on March 17, 1951, against the HUF of which Balchand Malaiya was the then karta. Thereafter, the family disrupted and assets of the joint family were partitioned on November 10, 1958. This partition was complete and not partial. The ITO refused to recognise this partition but in appeal the AAC, by order dated January 11, 1967, accepted and finally recognised that partition. In those proceedings, all the members of the quondam joint family were noticed and fully heard. After the recognition of this partition, the ITO reopened the proceedings and reassessed the petitioners. This assessment was set aside by the AAC by order dated August 26, 1967. Thereafter, the ITO issued a notice to Balchand Malaiya alone under Section 148 of the I.T. Act, 1961, in response to which he returned an income of Rs. 35,697 for the assessment year 1946-47. This return was filed on May 30, 1973. The ITO, vide order dated July 8, 1974 (annex. B), reassessed the income of the HUF at Rs. 1,45,700. At the same time, it also apportioned the liability of all the petitioners, who were the members of the then HUF, in proportion to the assets received by each of them in the partition dated November 10, 1958. Petitioners, other than Balchand Malaiya, were not noticed even when the tax liability was apportioned and each of the petitioners was made proportionately liable. Rectification proceedings were later initiated as it was found that the petitioners were wrongly made liable for interest and the liability was reduced to Rs. 90,642. This liability was again apportioned as at the time of rectification and again without any notice to the petitioners, except to Balchand Malaiya. Balchand Malaiya alone appealed against the reassessment. This appeal was dismissed by the AAC vide order dated August 12, 1980. We are informed that his further appeal against this order is still pending. In this petition, the challenge is to the order of apportionment and fixing of the liability of each of the petitioners according to their shares in the assets of the HUF, as determined in the partition dated November 10, 1958. Consequently, demands made vide notices dated December 12, 1980 (annexs. N-1 to N-7), have also been questioned and are sought to be quashed.

(2.) THE only ground urged before us, in support of this petition, is that the order directing apportionment of liability is bad for want of notice of the proceedings for reassessment and consequent apportionment between the petitioners. At the outset, it may be said the Balchand Malaiya, the petitioner No. 1, who had notice of proceedings, had filed a return and on being reassessed, had filed an appeal challenging the reassessment, and as his further appeal is said to be still pending, this petition on his behalf, is not tenable. Clearly, he has a right of appeal against the order of reassessment. He availed of that right. We would, therefore, decline to interfere in these proceedings under Article 226 of the Constitution on his behalf. THE argument based upon the absence of a notice of the reassessment and rectification proceedings resulting in reassessment of tax and apportionment of liability ex facie appears to be attractive. Indeed, on an earlier occasion, a Division Bench of this court was successfully persuaded to accept this argument in Miscellaneous Petition No. 15 of 1975, decided on 10-7-1980 (Balchand Malaiya v. ITO [1983] 144 ITR 795 (MP) 795 (Appx.) infra). It, however, appears that while deciding that writ petition which was also filed by the present petitioners and related to the assessment year 1957-58, the Bench was influenced by the fact that the assessment orders for the years 1953-54, 1954-55, 1955-56, 1956-57 and 1958-59 were set aside by the AAC in appeal. THEre, the attention of the court does not seem to have been drawn to a decision of the Supreme Court in Lakshminarain Bhadani v. CIT [1951] 20 ITR 594. This decision in Lakshminarain's case is an authority for the proposition that where the ITO proceeds to assess the income of joint Hindu family for the year prior to its partition, it is not necessary to issue notice of the proceedings to every member of the family, and where under Section 25A of the 1922 Act (which is in pari materia with Section 171 of the 1961 Act), the ITO has to make an assessment of the total income of the family as if no partition had taken place, calculate the amount of tax payable thereon as if it was payable by one unit and apportion the amount payable by the unit among the members of the family according to the portion of the joint family property allotted to each of them. In that case, the karta of the family was assessed to income-tax for the year 1939-40. It was then noticed in the year 1944, that some income had escaped assessment. In the meanwhile, the family became divided and order under Section 25A(1) of the Act was passed. THE ITO then served the karta a notice directing to make a return in respect of the escaped income, which return was submitted in response to that notice. THE escaped income was then assessed and demand was made on the karta and also on two other members of the family. THE contention before the High Court was that the proceedings were irregular both at the stage of initiation and at the stage of completion. THE High Court, however, held that no prejudice could be demonstrated due to the irregularities and, therefore, upheld the assessment. THE Supreme Court, on the question of want of notice to each member of the dividend family, held as follows (p. 596):