M/S. GAURI SHANKAR, CHANDRABHAN vs. C.I.T., U.P., LUCKNOW

CIVIL APPEAL No. 886/1971Supreme Court1976 INSC 13503 May 1976Bench: 2 JudgesAuthor: A.C. GUPTA, JASWANT SINGH5 pages
AI SummaryDismissed

What were the facts?

The appellant, a Hindu Undivided Family (HUF), was assessed for the assessment year 1946-47. The Income Tax Officer (ITO) issued a show cause notice on March 15, 1957, for concealment of income. The appellant agreed to Rs. 15,000 being treated as income. On March 20, 1958, the ITO added Rs. 68,550 to the income and imposed a penalty of Rs. 26,000, which was later reduced to Rs. 15,000 on appeal. Meanwhile, on March 19, 1957, the appellant applied under Section 25A for recording a partition of the HUF property, claiming it occurred on June 22, 1956. The ITO accepted the disruption of the HUF by an order dated March 26, 1962. The appellant contended that the penalty imposed in 1958 was invalid due to the subsequent recognition of partition in 1962.

What did the Supreme Court hold?

The Supreme Court dismissed the appeal, upholding the High Court's decision. The Court held that Section 25A(3) of the Income Tax Act creates a legal fiction, deeming a Hindu family previously assessed as undivided to continue as such until an order under Section 25A(1) is passed. Therefore, the jurisdiction of the Income Tax Officer to assess the family as undivided remains unaffected despite a partition under personal law, as long as no order under Section 25A(1) has been recorded. In this case, the penalty proceedings were initiated on March 15, 1957, and the penalty was imposed on March 20, 1958. At neither of these times was there an order under Section 25A(1) recognizing the partition. The order recognizing the partition was only passed on March 26, 1962. Consequently, there was no bar to the imposition of the penalty. The Court applied the principles from Additional Income Tax Officer, Quddapah v. A. Thimmayya & Anr. and Joint Family of Udayan Chinubhai etc. v. Commissioner of Income-tax, Gujarat.

What were the issues?

1. Whether the imposition of penalty under Section 28(1)(c) on the Hindu Undivided Family (HUF) after it had disrupted within the meaning of Section 25A is bad in law? Assessee's contention: The appellant argued that since the HUF disruption was accepted by the ITO on March 26, 1962, under Section 25A(1), the penalty imposed on March 20, 1958, after the disruption, was bad in law and unsustainable. They relied on cases like Commissioner of Income Tax v. Sanichar Salz Bhim Sah, S. A. Raju Chattiar & Ors. v. Collector of Madras & Anr., Mahankali Subba Rao, Mahankali Nageswara Rao & Anr. v. Commissioner of Income-tax, Hyderabad, and Commissioner of Income-tax, Punjab v. Mathu Ram Prem Chand. Revenue's contention: The revenue contended that the penalty was validly imposed because, as per Section 25A(3), the HUF is deemed to continue as undivided until an order under Section 25A(1) is passed. The application for partition was filed after the penalty proceedings were initiated and the order recognizing the partition was passed much later.

Which sections of the Income-tax Act were involved?

Section 28(1)(c),Section 25A,Section 25A(1),Section 25A(3),Section 66(1),Section 23,Section 14

AI-generated summary — verify with the full judgment below

l • I M/S. GAURI SHANKAR, CHANDRABHAN / \'. C.I.T., U.P., LUCKNOW May 3, 1976 [A. C. GUPTA AND JASWANT SINGH, JJ.J 505 AsseJ.rn1ent juri iction of Income Tax Officer~uri iction to continue to assess u undivided, despite partition under personal law. a HindU family whicll has hitherto been assessed in that status-Interpretation and scope of s. 25A(3) r<ad 1>ith s. 25A(I) of the Income Tax Act-Penalty imposed under s. 28(l)(c) of the Act for concealment of income by the Hindu Undivided Family prior to the actual date of recording of an order accepting the disruption of the Hindu Vfldivided Family is proper.

In response to a show cause notice dated March 15, 1957, under s. 28(l)(c) of the Income Tax Act, before imposing a penalty for deliberate concealment of its income, the appellant, through ;ts authorised representni·.:e, voluntarily agreed to a sum of Rs. 15,000/- being treated as income of I-Iindu Un<li,·iJed Family. The Income Tax Officer, by his order dated March 20, 1958, ·added a sum of Rs. 68,550/ ... to the income of the appellant and imposed on it a penalty of R.. 26,000/- which on appeal was reduced to Rs. 15,000/-. Mean while, on March 19, 19157

The order continues below.

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