COMMISSIONER OF INCOME-TAX, ASSAM vs. NANDLAL AGGARWAL & ANR.

CIVIL APPEAL No. 820/1964Supreme Court[1966] 2 S.C.R. 61217 November 1965Bench: 3 JudgesAuthor: K. SUBBA RAO, J.C. SHAH, S.M. SIKRI6 pages
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What were the facts?

Following the death of Shri Kishanlal Agarwalla, who was assessed as an individual, his two minor sons, Basanta and Ashok, became the beneficiaries. Their father and mother had passed away. The District Judge appointed Shri Nandlal Agarwalla as a temporary guardian, and later, on December 15, 1953, Shri Dwarka Prasad Agarwalla and Shri Nandlal Agarwalla were appointed as permanent guardians of the person and properties of the minors. For the assessment year 1954-55, a return was filed in the status of a Joint Hindu Family by the guardians. The Income-tax Officer assessed the guardians under Section 23(3) read with Section 41 of the Income-tax Act. The Appellate Assistant Commissioner directed separate individual assessments, which was set aside by the Income Tax Appellate Tribunal. The High Court held against the Revenue, stating the minors should be taxed individually.

What did the Supreme Court hold?

The Supreme Court held that Section 40 of the Indian Income-tax Act, 1922, applied to the case. The Court reasoned that on the death of Shri Kishanlal, his minor sons constituted a joint Hindu family, and the business was joint family property. The order appointing guardians did not effect a partition of the property, especially as a Civil Court under the Guardianship Act lacks jurisdiction to partition joint Hindu family property. Furthermore, the order allowing separate accounts, dated March 25, 1958, came into existence after the assessment year and after the Income-tax Officer's order, thus having no bearing on the relevant accounting year. The Court agreed with the principle that if a guardian carries on business on behalf of minors and receives income on their behalf, Section 40 must be applied. Consequently, the guardians had to be assessed, treating the minors as constituting an HUF. The appeal was accepted, and the question referred to the High Court was answered in the affirmative.

What were the issues?

1. Whether, in the circumstances of the case, the Tribunal was justified in assessing the income of the minors in the hands of the guardians as the income of a Hindu undivided family (HUF)? (Question of law) Assessee's contentions: - The minors would not have been assessed as an HUF but individually on their separate incomes. - Under the Guardians and Wards Act, no guardian could have been appointed in respect of the undivided interest of a minor, implying the properties were considered divided. - The order dated March 25, 1958, allowing separate accounts, indicated separate interests. Revenue's contentions: - Under Section 40 of the Act, the guardians were liable to pay tax in the same manner and to the same amount as it would be leviable upon and recoverable from the minors if they were of full age. - If the minors had been of full age, they would have been assessed as an HUF.

Which sections of the Income-tax Act were involved?

Section 40,Section 23(3),Section 41,Section 66A(2),Section 66(2),Section 7

AI-generated summary — verify with the full judgment below

·6 12 COMMISSIONER OF INCOME-TAX, ASSAM V. NANDLAL AGGARWAL & ANR.

November 17, 1965 (K. SUBBA RAo, J. C. SHAH AND S. M. S!KRI, JJ.)

Indian Income-tax Act (11 of 1922), s. 40-Two guardians appointed for two minors-Hindu undivided famUy or individual, assessment.

The two respondents were appointed guardians of the two minor sons after the death of their father and mother, by an order of the Civil Court. Prior to his death the income of the, father's business was assessed as an individual.

The guardians filed a return on behalf of the minors in the status of a joint Hindu family.

The Income-tax Officer assessed the guardians under s. 23(3) read with s. 41 of the Income- tax Act.

Later the Court allowed the guardians to keep and submit separate accounts thereafter for each of the minors. The Appellate Assistant Commissioner, on appeal against the assessment, directied their separate individual assessments, which was set aside by the Tri- bunal. On reference, the High Court held against the Revenue.

In this Court, the Revenue contended that under s. 40 of the Act the guardians were liable to pay tax as it would be leviable from minors if of full age, and i

The order continues below.

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