M/S Prahladari & Sons. vs. The Commissioner Of Income Tax-Ii

All these appeals have been filed by the appellant being aggrieved by the order passed by the Income Tax Appellate Tribunal dated 22.6.2005 in I.T.A. Nos.159 to 162/JAB/2000 relating to the assessment years 1992-93 to 1995-96. These appeals were admitted by this Court on the following substantial questions of law:- 2 MAIT No.75/2005 & Bunch “(i) Whether there were any material before the Tribunal to come to the conclusion that the house property and shops are located in the land in Khasra No.1279/2.91, 1280/0.87 and 1281/0.44 ? (ii) Whether the Tribunal was right in holding that the income from the house property as well as from the shops was assessable in the hands of Shri Prem Prakash and Shri Pawan Kumar Chamaria in view of the provisions of Section 171 of the Income-tax Act requiring a finding to be recorded by the assessing officer regarding the partition of the said house property and shops which were earlier part of the Hindu Undivided Family ?”

The learned Senior Counsel appearing for the appellants submits that the Income Tax Appellate Tribunal, while deciding the matter, has totally ignored the provisions of Section 171 of the Income Tax Act (hereinafter it will be referred to as “the Act”).

It is submitted that in the present case, the appellants were assessed to tax as a Hindu Undivided Family by the Assessing Authority in respect of the income derived from the house properties and interest from banks and FDRs. It is submitted that as far back as on 21.9.1965, the Income Tax Authorities had passed an order under Section 171 of the Income Tax Act to the 3 MAIT No.75/2005 & Bunch effect that the asessee therein who was the predecessor HUF of the present appellant had affected partial partition amongst its members on 1.4.1961. It is submitted that on the basis of the aforesaid order under Section 171 of the Act, the predecessor of the appellant were assessed to tax as Hindu Undivided Family. It is stated that subsequently another order was passed by the Income Tax Authorities under Section 171 of the Act, on 17.11.1972 again recording a finding to the effect that the present appellant had also undertaken partial partition amongst its members on 18.10.1971 and on the basis of the aforesaid order under Section 171 of the Act, the appellant was also assessed to tax as Hindu Undivided Family.

It is submitted that up to the assessment year 1991- 92 the appellant was assessed as an Hindu Undivided Family, however, subsequently the Assessing Authority without passing any further order under Section 171 of the Act, and without there being any claim for partition or any application in that regard by the appellant, recorded a finding that the appellant was not a HUF and therefore, all its members were required to be assessed individually. On the basis of the aforesaid finding, the Assessing Authority passed orders of substantive assessment 4 MAIT No.75/2005 & Bunch against the individual members and orders of protective assessment against the appellant HUF. While the appeal filed by the appellant before the Commissioner, Income Tax against the aforesaid finding was allowed, the finding recorded by the Commissioner, Income Tax has been reversed by the Income Tax Appellate Tribunal on the behest of the department by the impugned order under challenge in the present appeal.

The learned Senior Counsel for the appellants submits that the Income Tax Appellate Tribunal has totally ignored the previous orders passed under Section 171 of the Act, to the effect that there was a partial partition in respect of the income from capital investment in the firm but there was no partition of the immovable property amongst the members of the HUF. It is submitted that in view of the fact that there was an order under Section 171 of the Act, the appellate authority could not treat the appellant as an individual and not as a HUF and impose tax upon it.

It is submitted that in view of the provisions of Section 171 of the Act and the order passed thereunder, the appellant has to be treated as a HUF for all purposes even presuming but not conceding the fact that the 5 MAIT No.75/2005 & Bunch constituent members of the appellant has infact entered into a partition. It is submitted that in view of the mandate of Section 171 of the Act, in the absence of a fresh order under Section 171 of the Act, the authority was bound to treat the appellant as an HUF and assess it accordingly.

It is submitted that the appellant had raised this issue before the Commissioner (Appeals) as well as before Income Tax Appellate Tribunal but while the Commissioner, Income Tax accepted the contention of the appellant in this regard, the Income Tax Appellate Tribunal in the impugned order has totally ignored the aforesaid contention of the appellant and in the absence of any application of mind by the Income Tax Appellate Tribunal to the contention of the appellant and the provisions of Section 171 of the Act, the impugned order deserves to be set aside.

The learned counsel appearing for the respondent submits that in the instant case the Assessing Officer as well as the Income Tax Appellate Tribunal has taken note of the fact that the immovable property of the HUF had been gifted to certain members and has also taken note of the fact that there was mutation on part of the 6 MAIT No.75/2005 & Bunch immovable property in the name of individual members and has therefore, proceeded to record a finding that there was no HUF. It is submitted that the aforesaid finding has been recorded by the Income Tax Appellate Tribunal based on the facts and documents on record and therefore no fault can be found with the same.

We have heard the learned counsel for the parties at length. We have also carefully perused the provisions of Section 171 of the Act as well as the impugned order passed by the Income Tax Appellate Tribunal.

From a perusal of the impugned order, it is apparent that the effect, impact and import of the provisions of Section 171 of the Act or for that matter, the effect and impact of the previous orders passed in respect of the appellant under Section 171 of the Act have not been taken into consideration by the appellate authority or by the Income Tax Appellate Tribunal, nor has it applied its mind to the effect and impact of the same on the finding regarding the status of the appellant. The Income Tax Appellate Tribunal has also not considered the effect and impact of the provisions of law on the facts and circumstances of the case specifically the documents and the other material on record. 7 MAIT No.75/2005 & Bunch

In view of the aforesaid undisputed fact regarding non-consideration of Section 171 of the Act, we are of the considered opinion that the Income Tax Appellate Tribunal is required to reexamine the matter keeping in mind and in the light of the provision of Section 171 of the Income Tax Act and thereafter, arrive at a finding as to its import and impact in the facts of the present case, as in the absence of any such finding in the impugned order, it is impossible for this Court to exercise its power of judicial review for examining the validity of the contention raised by the parties, moreso, as this Court is precluded from looking into the finding of fact recorded by the Assessing Authority or the other authorities in the present case.

In view of the aforesaid facts and circumstances, the appeals filed by the appellant is allowed to the extent that the impugned order passed by the Income Tax Appellate Tribunal dated 22.6.2005 is set aside and the matter is remitted back to the Income Tax Appellate Tribunal to re- examine the same in the light of the provisions of Section 171 of the Income Tax Act and the other provisions of law, consider the import and impact of the same and record a finding in that regard in the facts and circumstances prevailing in the present case. 8 MAIT No.75/2005 & Bunch

It is made clear that this Court has not expressed any opinion on the merits of the case and, therefore, the Income Tax Appellate Tribunal would be at liberty to re- examine the matter keeping all facts and facets into consideration and, thereafter, take a reasoned independent decision in the matter by either accepting or rejecting the contention of the appellant, as the case may be.

With the aforesaid direction, the appeals filed by the appellant, stands allowed and disposed of. (R. S. JHA) (A. K. JOSHI) J U D G E J U D G E