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SUPREME COURT OF INDIA
19th April, 1963
A.K. SARKAR M. HIDAYATULLAH AND J.C. SHAH. JJ.
Kalwa Devadattam and others (in both the appeals) Appellants
Versus
1. Union of India and others (In C.A. No. 641 of 1961) 2. Kamaji Saremal, Firm and others (In C. A. No. 642 of 1961) Respondents.
Civil Appeals Nos. 641 and 642 of 1961.
Advocates appeared
Mr. A. V. Viswanatha Sastri, Senior Advocate. (Mr. P. V. Chalapati Rau, Advocate and M/s S. N. Andley and Rameshwar Nath, Advocates of M/s. Rajinder Narain and Co. with him), for Appellants; (In both the appeals); Mr. K. N. Rajagopal Sastri, Senior Advocate, (Mr. R. N. Sachthey, Advocate, with him), for Respondent (Nos. 1 to 4 In C. A. No. 641 of 1961 ): M/s C. Kandiah, M. Rajagopalan and K. R. Chaudhuri, Advocates for Respondent No. 1 (In C. A. No. 642 of 1961).
INCOME TAX - Assessment - Joint Hindu family - Partition - Liability to pay tax - Section 25A of the Indian Income-tax Act, 1922 - Scope and effect - Suit to set aside assessment - Maintainability - Section 67 of the Indian Income-tax Act, 1922 - Bar of suit - Irregularity in assessment proceedings - Remedy - Appeal under Section 30 of the Indian Income-tax Act, 1922 - Partition - Burden of proof - Evidence - Appreciation - Sham transaction - Partition deed - Execution and registration - Effect - Intention of parties - Circumstances to be considered.
Fact of the Case:
Nagappa, a Hindu undivided family carrying on business in yarn, drugs, and forward contracts, was assessed to pay income tax and super tax for the years 1944-45, 1945-46, and 1946-47. He also incurred penalty and excess profits tax, totaling Rs. 26,602/-. The revenue authorities attached 51 items of immovable property belonging to the joint family and sold 38 of them. Nagappa's sons, through their mother as their next friend, filed a suit to declare the assessment orders unenforceable, restrain the sale of their properties, and claim a decree for possession of the unsold properties. The Union of India and the purchasers of the properties resisted the suit on various grounds.
Finding of the Court:
The Court held that the suit was not maintainable because of Section 67 of the Indian Income-tax Act, 1922, which barred suits to set aside or modify assessments made under the Act. The Court also held that the assessment of the Hindu joint family was properly made in the absence of an order under Section 25A(1) of the Act recording partition. Even if such an order had been made, the liability of the plaintiffs to pay income tax assessed on the family could still be enforced against them jointly and severally under Section 25A(2) proviso. The Court further held that the plaintiffs failed to establish that the properties purchased in the names of two of them were purchased with funds supplied by their grandmother, Seshamma, and that the burden of proof lay upon the Union to prove that the properties were purchased out of the joint family funds, which was duly discharged.
Issues: 1. Whether a suit to set aside an assessment of income tax was maintainable in light of Section 67 of the Indian Income-tax Act, 1922? 2. Whether the assessment of a Hindu joint family was properly made in the absence of an order under Section 25A(1) of the Act recording partition? 3. Whether the liability of the plaintiffs to pay income tax assessed on the family could be enforced against them jointly and severally under Section 25A(2) proviso, even if an order recording partition was made? 4. Whether the plaintiffs had established that the properties purchased in the names of two of them were purchased with funds supplied by their grandmother, Seshamma? 5. Whether the burden of proof lay upon the Union to prove that the properties were purchased out of the joint family funds?
Ratio Decidendi: 1. Section 67 of the Indian Income-tax Act, 1922, barred suits to set aside or modify assessments made under the Act. Therefore, the suit filed by the plaintiffs to set aside the assessment orders was not maintainable. 2. In the absence of an order under Section 25A(1) of the Act recording partition, the assessment of the Hindu joint family was properly made. The Income-tax Officer was bound to assess the undivided family even after partition on the footing that the family still continued to be joint. 3. Even if an order recording partition was made, the liability of the plaintiffs to pay income tax assessed on the family could still be enforced against them jointly and severally under Section 25A(2) proviso. 4. The plaintiffs failed to establish that the properties purchased in the names of two of them were purchased with funds supplied by their grandmother, Seshamma. The burden of proof lay upon the Union to prove that the properties were purchased out of the joint family funds, which was duly discharged.
Final Decision: Both appeals were dismissed with costs.
Judgment
SHAH, J. : Nagappa son of Pullanna resident of Nandyal carried on business in yarn, drugs and forward contracts. He acquired in that business a considerable estate which was treated by him as property of the joint family of himself and his sons. Nagappa and his sons were assessed by the Income-tax authorities to pay income-tax and super-tax in the status of a Hindu undivided family as set out in the following table :
Year of account ending: Year of assessment Date of order. Income-tax and super-tax assessed
24-3-44 1944-45 25-2-48 Rs. 51,116-7-0
14-3-45 1945-46 25-2-48 Rs. 21,452-1-0
2-4-46 1946-47 31-3-48 Rs. 21,012-13-0
2. Besides this amount of income-tax and super-tax he was assessed to pay penalty and excess profits tax aggregating to Rs. 26,602/- The total amount of tax due for the three years of assessment 1944-45, 1945-46 and 1946-47 aggregated to Rs. 1,23,233/5/- Nagappa did not pay the tax. The revenue authorities of the Province of Madras, at the instance of the Income-tax Department attached 51 items of immovable property as belonging to the joint family of Nagappa and his sons and put up the same for sale under the Madras Revenue Recovery Act II of 1864. Out of these 38 item were sold and were purchased by certain persons.
3. Kalwa Devadattam, Kalwa Devarayulu and Kalwa Nandi Sankarappa (sons of Nagappa) - hereinafter called collectively the plaintiffs - through their mother acing as their next friend commenced suit No. 52 of 1950 in the Court of the Subordinate Judge, Kurnool, against the Union of India the revenue authorities of the State of Madras, the purchasers of the properties at the auction and Nagappa, claiming a decree declaring that the assessment orders made by the Income-tax Officer, Kurnool, for the years 1944-45, 1945-46 and 1946-47 were unenforceable against 51 items of property of the plaintiffs described in the schedule and sale of their property by the revenue authorities was "without jurisdiction, void and illegal", and an order restraining the Union of India and the authorities of the State of Madras from selling the "scheduled properties" or confirming the sale already held or that may be held after the institution of the suit. It was the case of the plaintiffs that items 46 to 51 did not at any time belong to the joint family, having been acquired by them with funds provided by their maternal grandmother Seshamma, and that the remaining items of property were not liable to be attached and sold since these had been allotted to them on a partition of the joint family estate before the order of assessment was made by the Income-tax authorities.
4. The suit was resisted by the Union of India and also by the purchasers on diverse grounds. The Union contended, inter alia, that the plaintiffs were not entitled to question the correctness of the assessment of tax in a Civil Court because the jurisdiction of the Court in that behalf was excluded by S. 67 of the Indian Income-tax Act, that the plaintiffs were in any event precluded from setting up the plea of a partition between them and Nagappa as a defence to the enforcement of liability for payment of tax in view of the provisions of S. 25A(3) that the partition was sham and not intended to be operative and that items 46 to 51 were not the separate estate of the plaintiffs as contended by them. The purchasers (who were impleaded as defendants 5 to 28) contended that there was no invalidity in the proceedings for assessment of tax and that they having purchased those properties for the full amounts for which they were sold, sales in their favour though not confirmed were binding upon the plaintiffs.
5. Suit No. 52 of 1950 was tried with another suit being suit No 54 of 1949 of the same Court in which also the validity of the partition dated March 14, 1947 fell to be determined, between the sons of Nagappa and the firm of Kumaji Sare Mal who were creditors under a money decree against Nagappa. The facts which gave rise to that suit are these : K
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