THE COMMISSIONER OF INCOME TAX vs. SMT.K.M.GIRIJA

ITA/305/2009HC KarnatakaKAHC01039291200909 January 2015Bench: B.VEERAPPA,N.KUMAR12 pages

AI SummaryDismissed

What did the High Court hold?

The High Court held that the properties in question were indeed Joint Family properties. This was supported by the fact that Sri. Mallaraiah received his share in the Joint Family property through a partition deed, and subsequently, his son Shivamallaiah, after his father's death, became the sole coparcener, continuing the joint family with his mother. Further, Shivamallaiah himself effected a partition of Joint Family properties on January 15, 2000, involving himself, his wife, children, and mother, where his daughters also received a share. Crucially, the finding of the Tribunal that the properties were Joint Family properties and that the deceased Mallaraiah was the Kartha in the status of a Joint Family was not challenged by the Revenue in their appeals. Consequently, the High Court found no fault with the Tribunal's decision that the assessment should have been in the capacity of a Joint Family, not as individuals, thereby vitiating the Block Assessment proceedings. All substantial questions of law were answered against the Revenue.

What were the facts?

The appeals by the Revenue challenge an order of the Income Tax Appellate Tribunal (ITAT) dated December 31, 2008. The ITAT had set aside Block Assessment orders for the assessment block period April 1, 1990, to August 23, 2000, passed against Sri. H.M. Shivamallaiah and Smt. K.M. Girija. The Revenue did not appeal the ITAT's finding that Block Assessment proceedings could not be initiated against a deceased person, Sri. Mallaraiah. The core issue revolves around whether the properties and income belonged to the Joint Family or the individuals. The initial partition of joint family properties occurred on November 13, 1966. Sri. Mallaraiah, the Kartha, died on July 23, 1997, leaving his son Shivamallaiah as the sole coparcener. Shivamallaiah later effected a partition on January 15, 2000.

What were the issues?

The Tribunal had to decide whether the Block Assessment orders were validly passed against the assessees as individuals, or if they should have been assessed as a Hindu Undivided Family (HUF). The Revenue's primary arguments, as reflected in the substantial questions of law, were: 1. Whether the Tribunal erred in holding that the assessee should be assessed in the status of HUF and not as an individual, without properly examining the evidence considered by the lower authorities, leading to a perverse finding. 2. Whether the Tribunal was correct in holding that the Block Assessment should have been passed in the hands of the HUF, despite evidence suggesting income and properties belonged to the individual assessee, either through self-acquisition or inheritance from his father. 3. Whether the Tribunal correctly held that business income and interest income should be taxed in the hands of the HUF when the business and investments were in the individual's name. 4. Whether the Tribunal erred in holding that capital gains and house property income could not be taxed in the hands of the assessee without considering the material evidence. 5. Whether the Tribunal correctly held that unexplained investment in the assessee's wife and consequential rental income could not be brought to tax in the hands of the assessee. 6. Whether the Appellate Commissioner was correct in holding that no surcharge was leviable on the Block Assessment order. The Assessee contended that the properties were joint family properties and the assessment should have been in the status of HUF. The Revenue argued that the properties and income were individual and the Tribunal's findings were perverse.

Which sections of the Income-tax Act were involved?

Section 260A

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 9th DAY OF JANUARY 2015

PRESENT

THE HON’BLE MR. JUSTICE N.KUMAR AND THE HON’BLE MR. JUSTICE B.VEERAPPA

I.T.A. NO.296/2009 C/W. I.T.A. NOS. 305/2009 & 309/2009

In I.T.A. No.296/2009

BETWEEN :

The Commissioner of Income-tax, C.R.Building, Queens Road, Bangalore.

The Asst. Commissioner Of Income-tax, Central Circle-1(4), C.R.Building, Queens Road, Bangalore. ...APPELLANTS

(By Sri.K.V.Aravind, Adv.)

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AND :

Sri.H.M.Shivamallaiah, No.1/1, E.A.T.Street, Gandhi Bazar, Bangalore – 560 004. …RESPONDENT

(By Sri.A.Shankar, Adv.)

. . . .

This I.T.A. is filed under Section 260A of the Income Tax Act, 1961, arising out of order dated 31.12.2008 passed in IT(SS)A No.99/Bng/2004, for the Assessment year 01.04.1990 to 23.08.2000 praying to :

(i) formulate the substantial questions of law stated therein,

(ii) Allow the appeal and set-aside the order passed by the Income Tax Appellate Tribunal, Bangalore in IT(SS)A No.99/Bng/2004, dated 31.12.2008 and confirm the order passed by the Assistant Commissioner of Income Tax, Central Circle-1(4), Bangalore in the interest of justice and equity.

In I.T.A. No.305/2009

BETWEEN :

The Commissioner of Income-tax,

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C.R.Building, Queens Road, Bangalore.

The Asst. Commissioner Of Income-tax, Central Circle-1(4), C.R.Building, Queens Road, Bangalore. ...APPELLANTS

(By Sri.K.V.Aravind, Adv.)

AND :

Smt.K.M.Girija, No.1/1, E.A.T. Street, Gandhi Bazar, Bangalore – 560 004. …RESPONDENT

(By Sri.A.Shankar, Adv.)

. . . .

This I.T.A. is filed under Section 260A of the Income Tax Act, 1961, arising out of order dated 31.12.2008 passed in IT(SS)A No.67/Bng/2004, for the Assessment Block Period 01.04.1990 to 23.08.2000 praying to :

(i) formulate the substantial questions of law stated therein,

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(ii) Allow the appeal and set-aside the order passed by the Income Tax Appellate Tribunal, Bangalore in IT(SS)A No.67/Bng/2004, dated 31.12.2008 confirming the order of the Appellate Commissioner and confirm the order passed by the Assistant Commissioner of Income Tax, Central Circle-1(4), Bangalore in the interest of justice and equity.

In I.T.A. No.309/2009

BETWEEN :

The Commissioner of Income-tax, C.R.Building, Queens Road, Bangalore.

The Asst. Commissioner Of Income-tax, Central Circle-1(4), C.R.Building, Queens Road, Bangalore. ...APPELLANTS

(By Sri.K.V.Aravind, Adv.)

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AND :

Sri.H.M.Shivamallaiah, No.1/1, E.A.T.Street, Gandhi Bazar, Bangalore – 560 004. …RESPONDENT

(By Sri.A.Shankar, Adv.)

. . . .

This I.T.A. is filed under Section 260A of the Income Tax Act, 1961, arising out of order dated 31.12.2008 passed in IT(SS)A No.93/Bang/2004, for the Assessment year 01.04.1990 to 23.08.2000, praying to :

(i) formulate the substantial questions of law stated therein,

(ii) Allow the appeal and set-aside the order passed by the Income Tax Appellate Tribunal, Bangalore in IT(SS)A No.93/Bang/2004 dated 31.12.2008 and confirm the order passed by the Assistant Commissioner of Income Tax, Central Circle- 1(4), Bangalore.

These I.T.As. coming on for admission, this day, N.Kumar J., delivered the following:

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JUDGMENT

As common questions of law arise for consideration in all these three appeals, they are taken up for consideration together and disposed of by a common order.

The facts which emanate from the records is, under a partition deed dated 13.11.1966 between Sri.Malle Gowda, Sri. Mallaraiah, Sri. Siddaiah and Sri.Bogasiddaiah, the Joint Family properties were partitioned. Thereafter, Sri.Mallaraiah, became the Kartha of his branch consisting of his son Sri.H.M.Shivamallaiah. He had five daughters, who were all married prior to 1990. After the death of Sri.Mallaraiah, on 23.07.1997, his son Shivamallaiah became the sole surviving coparcenor and the joint family constituting of himself and his mother. All the properties devolved on them.

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There was a search of the premises of Shivamallaiah on 23.08.2000. The search warrant was issued in the name of Sri.Shivamallaiah. On the basis of the information secured in the said search, proceedings were initiated against the deceased Mallaraiah. A Block Assessment Order came to be passed treating the income of all these persons in their individual capacity. The same was challenged by the assessee before the Tribunal. The Tribunal, on consideration of the entire material on record has set- aside the order on two grounds. Firstly, the Block Assessment proceedings could not have been initiated against the dead person. Secondly, all the properties belonged to the Joint Family and not individually to them. Aggrieved by the said order, the Revenue has preferred these appeals.

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It is to be noticed that the Revenue has not preferred any appeal against that portion of the order setting aside the Block Assessment order in respect of the deceased Sri.Mallaraiah. The Revenue has raised the following substantial questions of law in the appeal memo: 1. Whether the Tribunal was correct in holding that the assessee should be assessed in the status of HUF and not individual without examining the evidence considered by the Assessing Officer and Appellate Commissioner and consequently recorded a perverse finding?

Whether the Tribunal was correct in holding that the Block Assessment passed in the hands of assessee sould have been passed in the hands of HUF even though the evidence clearly showed that the income earned was by the assessee individual and the properties

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stood in the name of assessee individual by virtue of self acquisition or beneath from his father and consequently recorded a perverse finding?

Whether the Tribunal was correct in holding that the income earned by the assessee from the business carried on and interest income from deposits should be brought to tax in the hands of the HUF when the business was carried on and the investments made in bank were standing in the individual name of the assessee and consequently recorded a perverse finding?

Whether the Tribunal was correct in holding that the income from capital gains and house property cannot be brought to tax in the hands of the assessee without taking into consideration the material evidence considered by the Assessing Officer as

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well as the Appellate Commissioner and recorded a perverse finding?

Whether the Tribunal was correct in holding that the unexplained investment in the assessee’s wife and the consequential rental income cannot be brought to tax in the hands of the assessee?

Whether the Appellate Commissioner was correct in holding that no surcharge was leviable in respect of the Block Assessment order?

From the aforesaid material on record, it is clear that Sri.Mallaraiah, in a partition between his father and brothers got his share in the Joint Family property. He had a son by name Shivamallaiah. They constituted a Joint family. After the death of Mallaraiah, Shivamallaiah who is his son, became the sole coparcenor and the joint family continued consisting of

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himself and his mother. Subsequently, he also effected a partition of Joint Family properties between himself, his wife, children and his mother on 15.01.2000. The daughter also got a share in the said property. Therefore, from the aforesaid facts, it is clear that the said properties were not individual properties but it was Joint Family properties. In fact the finding of the Tribunal that the said properties were all Joint Family Properties and deceased Mallaraiah was the kartha in the status of Joint family, was not questioned by preferring an appeal. The said finding is recorded in the very same common order, which is in appeal.

In the light of the aforesaid facts, we are satisfied that the finding recorded by the Tribunal that these persons ought to have been assessed in their capacity of Joint Family and not as individual and therefore, the entire Block Assessment proceedings

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initiated and orders passed are vitiated, cannot be found fault with. In that view of the matter, we do not see any merit in these appeals. Accordingly, all the substantial questions of law raised are answered against the Revenue and in favour of the Assessee. Appeals are dismissed. No costs.

Sd/- JUDGE

SPS

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