SHAH, J.; - (1.) THE following Judgment of the court was delivered by
(2.) NAGAPPA son of Pullanna resident Nandyal carried on business in yarn, drugs and forward contracts. He acquired in that business a considerable estate which was treated by him as property of the joint family of himself and his sons. NAGAPPA and his sons were assessed by the Incometax authorities to pay income-tax and supper-tax in the status of a Hindu undivided family as set out in the following table : JUDGEMENT_880_AIR(SC)_1964Html1.htm Besides this amount of income-tax and supertax he was assessed to pay penalty and excess profits tax aggregating to Rs. 26,602.00. The total amount of tax due for the three years of assessment 1944-45, 1945-46 and 1946-47 aggregated to Rs. 1,23,233/5.00. Nagappa did not pay the tax. The revenue authorities of the Province of Madras, at the instance of the Income-tax Department attached 51 items of immovable property as belonging to the joint family of Nagappa and his sons and put up the same for sale under the Madras Revenue Recovery Act 11 of 1864. Out of these 38 items were sold and were purchased by certain persons. Kalwa Devadattam, Kalwa Devarayulu and Kalwa Nandi Sankarappa (sons of Nagappa) hereinafter called collectively 'the plaintiffs'--through their mother acting as their next friend commenced suit No. 52 of 1950 in the court of the Subordinate Judge, Kurnool, against the Union of India, the revenue authorities of the State of Madras, the purchasers of the properties at the auction, and Nagappa, claiming a decree declaring that the assessment orders made by the Income-tax officer, Kurnool, for the years 1944-45, 1945-46 and 1946-47 were unenforceable against 51 items of property of the plaintiffs described in the schedule and sale of their property by the revenue authorities was without jurisdiction, void and illegal', and an order restraining the Union of India and the authorities of the State of Madras from selling the 'scheduled properties' or confirming the sale already held or that may be held after the institution of the suit. It was the case of the plaintiffs that items 46 to 51 did not at any time belong to the joint family, having been acquired by them with funds provided by their maternal grandmother Seshamma, and that the remaining items of property were not liable to be attached and sold since these had been allotted to them on a partition of the joint family estate before the order of assessment was made by the Income-tax authorities. The suit was resisted by the Union of India and also by the purchasers on diverse grounds. The Union contended, inter aria that the plaintiffs were not entitled to question the correctness of the assessment of tax in a Civil court because the jurisdiction of the Court in that behalf was excluded by s. 67 of the Indian Income-tax Act, that the plaintiffs were in any event precluded from setting up the plea of a partition between them and Nagappa as a defence to the enforcement of liability for payment of tax in view of the provisions of s. 25A (3), that the partition was sham and not intended to be operative and that items 46 to 51 were not the separate estate of the plaintiffs as contended by them. The purchasers (who were impleaded as defendants 5 to 28) contended that there was no invalidity in the proceedings for assessment of tax and that they having purchased those properties for the full amounts for which they were sold, sales in their favour though not confirmed were binding upon the plaintiffs. Suit No. 52 of 1950 was tried with another suit being suit No. 54 of 1949 of the same court in which also the validity of the partition dated 14/03/1947 fell to be determined, between the sons of Nagappa and the firm of Kumaji Sare Mal who were creditors under a money decree against Nagappa. The facts which gave rise to that suit are these: Kumaji Sare Mal filed suit No. 7 of 1944 in the court of the Subordinate Judge, Anantpur, against Nagappa for a decree for Rs. 10,022-10-6 due' at the foot of certain transactions in yarn. This suit was dismissed by the Trial court on the ground that the contracts for the supply of yarn were wagering contracts, but in Appeal No. 174 of 1945 the High court of Madras decreed the suit on 5/03/1947 holding that the contracts giving rise to the liability though speculative were not of a wagering Character. The High court passed a decree for Rs. 10,000.00 with interest at 6 per cent from the date of suit and costs. This decree was soon followed by the execution of the deed of partition,dated 14/03/1947, between Nagappa and the plaintiffs, by which the joint family estate valued approximately at Rs. 1,25,000.00 was divided into four shares. To Nagappa was allotted under that partition property of the value of Rs. 31,150.00 and he stood liable to satisfy debts of the value of Rs. 12,236/4/9. In execution of the decree in suit No. 7 of 1944 Kumaji Sare Mal attached some of the properties that fell to the share of the plaintiffs under the deed of partition dated 14/03/1947. Objections to the attachment preferred under 0.21 r. 58 Code of Civil Procedure by the plaintiffs were dismissed by the executing court on 12/07/1948. The plaintiffs then filed suit No. 54 of 1949 for a decree setting aside the summary order passed in the execution proceeding, claiming that the debt incurred by Nagappa being avyavaharika, the plaintiffs were not liable to satisfy the debt, and that the firm of Kumaji Sare Mal was incompetent to bring to sale in execution of the decree obtained against Nagappa in his individual capacity, the interest of the plaintiffs in the joint family property after the joint family status was severed and the properties of the family were partitioned. Common evidence was recorded in the two suits.
(3.) THE Trial Judge held that the properties items 1 to 45 belonged in the relevant years of assessment to the joint family of Nagappa and his sons, and in the absence of an order recording partition under s. 25A (1) of the Indian Income-tax Act, the Income-tax Officer was bound to assess the undivided family even after partition on the footing that the family still continued to be joint. He further held that by virtue of s. 67 of the Indian Income-tax Act, no action questioning the assessment could be entertained by the courts, and that there was no irregularity in the proceedings for sale. But the court held that on 14/03/1947 division of property of the undivided family was in fact made between Nagappa and the plaintiffs: that the partition was effected with the object of defeating the claims of the creditors including the Income-tax authorities, but it was nevertheless partition which was intended to be overative. THE court further held that items 46 to 51 were not proved by the defendants to be the joint family property of the plaintiffs and Nagappa. In suit No. 54 of 1949 the learned Judge held following Schwebo K.S.R.M. Firm through Partner Govindan, alias Ramanathan Chettiar v. Subbiah alias Shanmugham Chettiar (1), that after a partition between the members of the joint Hindu family the sons' share in the joint family property cannot be ' proceeded against in execution so as to enforce the pious obligation of the sons to satisfy their father's debts under a decree passed against the father alone. THE learned Judge accordingly decreed suit No. 54 of 1949 holding that the only remedy of the firm Kumaji Sare Mal was to proceed by a suit to enforce the pious obligation of the plaintiffs to discharge the pre-partition debts. The plaintiffs appealed against the decree in suit No. 57 of 1950 to the High court of Madras and the Union filed cross-objections to the decree appealed from. Firm Kumaji Sure Mal also appealed against the decree dismissing their suit No. 54 of 1949. The High court of Andhra Pradesh to which the appeals stood transferred for hearing under the States Reorganisation Act 1956 held agreeing with the Trial court that a suit to set aside the assessment of income-tax was not maintainable against the Union, and that in any event in the absence of an order under s. 25A(I) of the Indian Income-tax Act, recording a partition, the Income-tax authorities were bound to assess tax on the Hindu undivided family as if that status continued. The High court also held that the partition set up by the plaintiffs was a transaction which was nominal and sham, 'and that the evidence established that itmes 46 to 51 were purchased with the aid of joint family funds and not with ,he funds supplied by Seshamma and therefore all the properties itmes 1 to 51 were liable to satisfy the tax liability of the joint family. The High court also held that the firm Kumaji Safe Mal was entitled to recover the debt due to them in execution proceeding, there being no real partition between Nagappa and the plaintiffs prior to the date of attachment. The High court accordingly dismissed both the suits. We will reserve for separate consideration the common question which arose in these two appeals, namely, whether the partition by the deed dated 14/03/1947 between Nagappa and his sons the plaintiffs was a sham transaction. Even on the footing that the partition was real and intended to be operative, suit No. 52 of 1950 filed by the plaintiffs against the Union was bound to fail for more reasons than one. For the assessment year 1943-44 the Hindu undivided family of Nagappa and his sons was assessed to income-tax. In the years 1944-45, 1945-46 and 1946-47 the family was also assessed to pay income-tax, super-tax and excess profits tax, as set out hereinbefore. Nagappa maintained his accounts according to the Telugu year. and the last year of account corresponding to the assessment year 1946-47 ended on 2/04/1946. Under the Indian Income Tax Act liability to pay income.tax arises on the accrual of the income, and not from the computation made by the Taxing authorities in the course of assessment proceedings: it arises at a point of time not later than the close of the year of account. As pointed out by the Judicial Committee of the Privy council in Wallace Brothers and Co, Ltd. v. The Commissioner of Income-tax, Bombay City and Bombay Suburban District (1): 'The general nature of the charging section is clear. First, the charge for tax at the rate fixed for the year of assessment is a charge in respect of the income of the 'previous year,' not a charge in respect of the income of the year of assessment as measured by the income of the previous year. x x x Second the rate of tax for the year of assessment may be fixed after the close of the previous year and the assessment will necessarily be made after the close of that year. But the liability to tax arises by virtue of the charging section alone, and it arises not later than the close of the previous year though quantification of the amount pa yable is postponed.' Liability of the Hindu undivided family of Nagappa and his sons therefore arose not later than the close of each account year and account period for which the tax was assessed and it is not the case of the plaintiffs that the family estate was partitioned before the liability of the undivided family to pay tax arose. There is no dispute in the suit filed by the plaintiffs against the Union that the business carried on by Nagappa was the business of the joint family. It is on the footing that the business carried on by Nagappa was of the joint family, and the income earned in the conduct of the business and the property was joint family income that the plaintiffs have filed this suit. Under s. 25A of the Income-tax Act, if at the date when the liability to pay tax arose there was in. existence a joint family which has subsequently disrupted, the tax will still be assessed on the Joint family. The machinery for recovery of the tax however. differs according as an order recording partition is.made or not made. If the Income-tax Officer is satisfied on a claim made by a member of the family that the joint family property has, since the close of the. year of account been' partitioned among the various members or groups of members m definite portions, he must' record an order.. to that effect and thereupon notwithstanding anything contained in sub-s. (1) of s. 14 of the Act each member .or group of members is liable in addition .to any income-tax for which he. is separately liable for a share of the tax on the income so assessed according to the portion. of the .joint family property allotted to him or it. But even after this apportionment of liability for the tax assessed on the total income of the joint family, the members of the family or groups thereof remain jointly and severally liable for the tax assessed on the total income received by the family as such. If no order is recorded tinder sub-s. (1) of S. 25A, by virtue of sub-s. (3) the family shall be deemed, for the purposes of the Act, to continue to remain a Hinduundivided family. Section 25A merely sets up machinery for avoiding difficulties encountered in levying and collecting tax, where since the income was received the property of the joint family has been partitioned in definite portions, while at the same time affirming the liability of such members or group of members, jointly and severally to satisfy the total tax in respect of the income of the family as such. The section seeks to remove the bar imposed by S. 14 (1) against recovery of tax from an individual member of a joint Hindu family in respect of any sum which he receives as a member of the family, and to ensure recovery of tax due, notwithstanding partition. The incidence of tax, but not the quantum is readjusted to altered conditions. ;