Income Tax Appellate Tribunal - Chandigarh
Income-Tax Officer vs Ved Parkash Deepak Kumar on 17 July, 1991
Equivalent citations: [1991]39ITD400(CHD)
ORDER
S.K. Chander, Accountant Member
1. These appeals by the Revenue are directed against the consolidated order of the CIT(A) dated 1-4-1987 relating to assessment years 1980-81, 1982-83 and 1983-84. The common grievance that emerges from the grounds of appeal for these years is that the CIT(A) erred in canceling the reassessment made under Section 147(a) for the assessment year 1980-81, that he erred in canceling the assessment for the assessment year 1982-83 by wrongly holding that it was a case of reassessment completed under Section 147(a) whereas in fact it was first assessment under Section 147(a) read with Section 143(3) and that he erred in canceling the assessment for the assessment year 1983-84 by wrongly holding that it was a case of reassessment whereas in fact the assessment was a regular assessment for the first time made under Section 143(3) of the Act on the basis of return filed in response to notice under Section 139(2) of the Act.
2. The grounds in fact do not reflect the real controversy in these appeals. Therefore, in order to bring out the controversy, it will first be necessary to bring into focus the factual backdrop of the case from which the controversy arises.
3. A Hindu undivided family known as M/s Ved Parkash Deepak Kumar consisting of Ved Parkash, his wife Smt. Nirmal Devi and their minor son Deepak Kumar, was assessed to tax, inter alia, on income from business carried under the name and style of M/s Ved Parkash Deepak Kumar. By an application dated 25-2-1980, a claim was made before the Assessing Officer that partial partition qua the capital of the business above named amounting to Rs. 68,210.31 had taken place on 31-3-1979 and it be recognised under Section 171 of the Act. The Assessing Officer after making an enquiry and reaching a judicial satisfaction made an order on 22-4-1980 recognising this partial partition. The HUF was following the financial year as the previous year for its business and other sources of income.
4. For the assessment year 1980-81, the business carried on in the name of M/s Ved Parkash Deepak Kumar became the proprietary business of Ved Parkash as recorded in para 14 of the impugned order for the assessment year 1980-81 made on 20-3-1986. For the sources of income of M/s Ved Parkash Deepak Kumar christened from the assessment year 1980-81 as M/s Ved Parkash & Sons, return was filed by Ved Parkash as karta. For the same assessment year for the business income in the name of M/s Ved Parkash Deepak Kumar, income was shown in his individual capacity. This appears to be the position for the assessment years 1982-83 and 1983-84.
5. Finance (No. 2) Act, 1980 which received the assent of the President on 21 -8-1980 brought on the statute book by way of insertion of Sub-section (9) to Section 171, effective from 1-4-1980, which reads as under: -
171(9) Notwithstanding anything contained in the foregoing provisions of this section, where a partial partition has taken place after the 31st day of December, 1978, among the members of a Hindu undivided family hitherto assessed as undivided, -
(a) no claim that such partial partition has taken place shall be inquired into under Sub-section (2) and no finding shall be recorded under Sub-section (3) that such partial partition had taken place and any finding recorded under Sub-section (3) to that effect whether before or after the 18th day of June, 1980, being the date of introduction of the Finance (No. 2) Bill, 1980, shall be null and void;
(b) such family shall continue to be liable to be assessed under this Act as if no such partial partition had taken place;
(c) each member or group of members of such family immediately before such partial partition and the family shall be jointly and severally liable for any tax, penalty, interest, fine or other sum payable under this Act by the family in respect of any period, whether before or after such partial partition;
(d) the several liability of any member or group of members aforesaid shall be computed according to the portion of the joint family property allotted to him or it at such partial partition, and the provisions of this Act shall apply accordingly.
6. The Assessing Officer relying on this sub-section held that partial partition claimed and allowed to the assessee w.e.f. 31-3-1979 which was after the crucial date of 31-12-1978, "was not permissible under the aforementioned provisions of the Income-tax Act, 1961. The assessment is to be completed in the status of HUF, as if no partial partition of above assets of HUF had taken place". In order to bring to tax income accruing and arising from all the assets divided and transferred amongst the members as a result of partial partition affected on 31-3-1979, proceedings under Section 147(a) by issuance of notice under Section 148 were initiated on 25-11-1983. The notice under Section 148 to Ved Parkash, karta of M/s Ved Parkash Deepak Kumar, was issued. It has been recorded in the impugned assessment order that in response to this notice, "the assessee filed its return of income in the status of HUF (specified) in the name of Shri Ved Parkash, karta of Ved Parkash & Sons, Ambala". In the computation of total income, the Assessing Officer not only included income from the business carried on by Ved Parkash in the name of M/s Ved Parkash Deepak Kumar but also brought to tax income that was accruing and arising to other members of the family from assets transferred on account of partial partition w.e.f. 31-3-1979.
7. For the assessment year 1982-83, the Assessing Officer was apparently under the impression that return filed in the name of M/s Ved Parkash & Sons was not the return of the HUF called Ved Parkash Deepak Kumar. Therefore, notice under Section 148 as appearing at page 12 of the assessee's paper book was issued in response to which the assessee projected to the Assessing Officer that return for the assessment year had already been filed in the status of HUF and, therefore, that may be treated as return in response of notice now issued under Section 148. Acting on such return, the impugned assessment was framed and additions were made as shown in the assessment order.
8. For the assessment year 1983-84 also an assessment under Section 143(1) had been made on the basis of return filed on 18-8-1983 in the name of Shri Ved Parkash & Sons as appearing at page 4 of the assessee's paper book. The status taken in the assessment is HUF (specified). Notice issued under Section 139(2) appearing at page 5 of the paper book is dated 25-11-1983 and is in pursuance of what the officer thought to be proceedings under Section 147(a). When he completed the impugned assessment, he has indicated it as having been made under Section 143(3)/147(a)/ 171(9)(a) and 171(9)(b). Thus the Assessing Officer included in the total income of HUF called Ved Parkash Deepak Kumar various amounts in the assessments made under Section 143(3) read with Section 147(a). The grievance of the Revenue that those assessments were not so made and the CIT(A) erred in holding so does not bear out from the facts of the case recorded in the impugned assessment order. It is also very clear from the sections under which the Assessing Officer is required to show that the assessment has been made. But that is not very important in these proceedings. What is important is whether invoking the provisions of Section 171(9) the partial partition effected on 31 -3-1979 for the assessment year 1979-80 and recognised by a lawful order under Section 171 made on 22-4-1980 would be considered as non est and the HUF could be proceeded against as if no partial partition had taken place.
9. These assessments came up in appeal before the CIT(A). The CIT(A) in his impugned order disposing of the appeals for all the year has recorded that the Assessing Officer has taken even investment in property No. 182, Grain Market, Sector 26, Chandigarh as the investment made by HUF. There are also other contentious issues on merits in all the years under appeal. But he instead of going into these things, held that the assessee had, "disclosed all the facts and according to these facts the assessment was completed, there was no failure on the part of the assessee, there was no suppression of the income on the part of the assessee". He, therefore, held that the Assessing Officer was not justified to take action under Section 147 (a). The assessments were, therefore, cancelled.
10. It had been submitted before him that the manner and method in which the Assessing Officer proceeded was not in accordance with law because if the partial partition recognised earlier had to be treated as null and void, the Assessing Officer should have taken action first for cancellation of the same order by invoking various provisions contained in the Act such as suggesting action under Section 263 etc. The CIT(A) held that such things were not required to be considered by him because he held that original assessments made in this case will stand. He, therefore, restored the original assessments but cancelled the reassessments made. He did not go into the merits of various other issues like disallowances of various expenses and additions on different accounts.
11. The learned Sr. D.R. contended that the CIT(A) has held that original assessments were made in this case, that the assessee had disclosed all material facts at the time of original assessments and that reassessment in each year was based on change of opinion by the Assessing Officer and as such were bad in law. The learned D.R. contended that the CIT(A) has not applied his mind while passing the above orders canceling the assessments and that the Assessing Officer has filed rectification applications before the CIT(A) on 3-8-1987 pointing out certain defects which show mistakes apparent from record in the impugned order. The learned D.R. contended that the department has taken the stand that notices under Section 148 were not directed against the order under Section 171(3) passed for the assessment year 1979-80 on 22-4-1980 but the notices were issued to bring to tax income of Shri Ved Parkash karta of M/s Ved Parkash Deepak Kumar. It was submitted that the orders of the CIT(A) be set aside and that of the Assessing Officer restored.
12. The learned Counsel for the assessee, on the other hand, submitted that Sub-section (9) of Section 171 is ultra vires in view of the judgment of the Madras High Court in the case of M.V. Valliappan v. ITO [1988] 170 ITR 238. He, however, hastened to add that that judgment has been taken up by SLP before the Supreme Court and the Supreme Court has admitted the SLP against the judgment of the Madras High Court and also ordered stay of the operation of the High Court judgment in 171 ITR 52 (Statutes). However, he emphasized that the Andhra Pradesh High Court in the case of G. Lakshmi Narayana v. ITO [1989] 175 ITR 593 on identical facts as that of the assessee has held that partial partition recognised for the assessment year 1979-80 could not be touched despite the insertion of Sub-section (9) to Section 171.
13. It was submitted by the learned Counsel for the assessee that if a provision is held as ultra vires by any of the High Courts of the country that ought to be taken note of by the Tribunal which is an all India body. For this he relied on the judgment of the Bombay High Court in the case of CTT v. Smt. Godavaridevi Sara/[1978] 113 ITR 589. It was further submitted by the learned Counsel for the assessee that if a provision in the Act has been struck down by a High Court, the Tribunal in the appellate proceedings may take note of such judgment and decide the issue before it taking that provision as non est in law-Reliance was placed on a judgment of the Bombay High Court in the case of Shri B.B. Poojara [1984] Taxation 75 (1) -34. For this proposition he also relied on the judgment of the Gujarat High Court in the case of Shree Vallabh Glass Works Ltd. v. C1T [1981] 127 ITR 37 and Madhya Pradesh High Court judgment in the case of CIT v. Vrajlal Manilal & Co. [1981] 127 ITR 512.
14. In the rejoinder, the learned Departmental Representative submitted that the judgment of the Punjab and Haryana High Court in the case of Hari Ram v. Assistant CED [1975] 101 ITR 539 supported the case of the Revenue and that the judgment of the Andhra Pradesh High Court in the case of G.N. Lakshmi Haryana v. ITO [1989] 175 ITR 593, in fact, supports the Revenue.
15. We have given very careful consideration to the rival submissions and have also very carefully perused the relevant provisions of law along with the authorities cited. It is true that the Hon'ble Madras High Court in the case of M.V. Valliappan (supra) has held that Section 171(9) suffers from invalidity on the ground of discrimination and arbitrariness and hence has to be declared as void and that it is void also on the ground of violation of Article 14 of the Constitution of India. Yet it cannot be said that the law so laid down by the Hon'ble Madras High Court must be followed by the Tribunal because a Special Leave Petition has been admitted by the Supreme Court and the Supreme Court has ordered stay of operation of the High Court judgment as reported in [1988] 171 ITR 52 (St.). However, it is clear that the judgments cited above are one on the issues that the provision of Section 171(9) is restricted only to a claim in respect of partial partition effected after 31st December, 1978 made for the first time in the assessment year 1980-81 and that the provisions of Section 171(9)(a) would not affect a partial partition which has already been recognised in the assessment year 1979-80 and in respect of which a finding has already been recorded in the assessment proceedings for the assessment year 1979-80. This also becomes clear from the notes on clauses to Finance (No. 2) Bill, 1980, the explanatory memo as well as the circular issued by the Central Board of Direct Taxes after the amendment was enforced as pointed out by the Andhra Pradesh High Court in the case of G. Lakshmi Narayana mentioned supra.
16. Now if the case before us is examined in the light of the above position of law, it is apparent that the Assessing Officer could not disturb the partial partition recognised by order under Section 171 made on 22-4-1980. Since the proceedings for all the assessment years under appeal were based entirely on de-recognizing partial partition recognised earlier, the entire proceedings were ab initio void. The CIT(A), therefore, though for different reasons, rightly arrived at the conclusion that he did. Since he has restored the status quo ante with respect to all the assessment years under appeal, it cannot be said that the interest of the Revenue has been prejudiced in any manner.
17. Appeals of the revenue are dismissed.