KAPURCHAND SHRIMAL vs. COMMISSIONER OF INCOME TAX, ANDHRA PRADESH,HYDERABAD

CIVIL APPEAL No. 1286/1973Supreme Court[1982] 1 S.C.R. 50528 August 1981Bench: 2 JudgesAuthor: P.N. BHAGWATI, E.S. VENKATARAMIAH SHRIMAL14 pages
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What were the facts?

The assessee, a Hindu Undivided Family (HUF), is challenging assessment orders for the assessment years 1955-56 and 1957-58 to 1961-62. The assessee had claimed partition of its properties by deeds effective from July 10, 1960, and requested the Income-tax Officer (ITO) to record this fact. Despite multiple letters and reminders between October 1960 and March 1962, the ITO completed assessments for the years 1955-56 to 1958-59 between August 1962 and March 1963 without conducting an inquiry into the partition claim as required by Section 25A of the Indian Income Tax Act, 1922. Subsequently, the ITO refused to record the partition. The Appellate Assistant Commissioner (AAC) set aside this refusal and directed the ITO to record the partition. However, in appeals against the assessment orders, the Income-tax Appellate Tribunal (Tribunal) cancelled the assessments without directing fresh assessments. The High Court, on a reference by the Tribunal, ruled in favour of the Revenue, leading to these appeals.

What did the Supreme Court hold?

The Supreme Court held that under Section 25A of the 1922 Act, the ITO was bound to hold an inquiry into a partition claim made by or on behalf of a member of an assessed HUF and record a finding. If no such finding is recorded, sub-section (3) of Section 25A is attracted. When a claim is made in time and an assessment is made on the HUF without the required inquiry, the assessment is liable to be set aside in appeal as it violates the prescribed procedure. The Tribunal was correct in holding that the assessments were liable to be set aside due to non-compliance with Section 25A(1). However, the Court disagreed with the submission that the Tribunal's duty ended with declaring the assessments illegal. An appellate authority has the jurisdiction and duty to correct errors and issue appropriate directions for fresh disposal of the matter unless forbidden by statute. Since it was not established that the partition claim was belated, the proper order should have been to set aside the assessments and direct the ITO to make fresh assessments in accordance with law. Therefore, the Tribunal erred in merely cancelling the assessment orders without issuing further directions. The Court also disagreed with the High Court's order upholding the assessments and directing modifications, setting aside that order. The appeals were allowed, with assessments to be set aside and fresh assessments directed.

What were the issues?

1. Whether an order of assessment passed by the Income-tax Officer (ITO) in the case of a Hindu Undivided Family (HUF) without holding an inquiry into the validity of a partition claim, made within a reasonable time, is liable to be merely cancelled in appeal by the Income-tax Appellate Tribunal (Tribunal) without a further direction to the assessing authority to modify the assessment or pass a fresh order in accordance with law, under Section 25A of the Indian Income Tax Act, 1922? Assessee's contentions: The assessee argued that the assessments were liable to be set aside because the inquiry into the claim of partition, a condition precedent for making an assessment order on the HUF, had not been made as required by Section 25A of the Act. The Tribunal correctly cancelled the assessments but erred in not issuing further directions. Revenue's contentions: The Revenue contended that the High Court was correct in answering the reference in its favour. The Revenue likely argued that the Tribunal's cancellation of assessments was sufficient and no further directions were necessary, or that the High Court's modification of assessments was appropriate. The judgment does not explicitly detail all of the Revenue's arguments before the Supreme Court.

Which sections of the Income-tax Act were involved?

Section 25A,Section 18A(1),Section 66(1),Section 171

AI-generated summary — verify with the full judgment below

KAPURCHAND SHRIMAL v. COMMISSIONER OF INCOME TAX, ANDHRAPRADESH,HYDERABAD August 28, 1981 [P.N. BHAGWATI AND E.S. VENKATARAM!AH, JJ.) 505 Income Tax Act, 1922, section 25A, scope of-Whether an order of assessment passed under the Indian Income Tax Act, 1922 by the Income Tax Officer in the case of a Hi'ndu undivi'ded family without holding an inquiry into the validity of the claim made within a reasonable time by a mem'ier of the Hindu undivided family that a partition had taken place among the n1embers of the family is liable to be merely cancelled in appeal by the lncome--tax Appellate Tribunal without a further direction to the asres-;ing authority either to modify the assessmeilt suitably or to pass a fresh order of assess1nent in accordance with law.

The assessee is a Hindu undivided family and the assessment years are 1955-56 and 1957-58 to 1961-62. The assessee addressed on October 10, 1960 to the Income-tax Officer in connection with a notice received under section 18A(l) of the Act in respect of the assessment year 1961-62 stating that all the movable and immovable properties of the assessee had been partitioned by metes and bounds under partition deeds

The order continues below.

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