Lakshminarain Bhadani vs C.I.T. Bihar and Orissa

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Appeal (civil) 23 of 1950

Decision Date: 11 September 1951

Coram: H.J. Kania, N.C. Aiyar, V. Bose, M.P. Sastri, S. R. Das

Lakshminarain Bhadani versus the Central Inland Revenue Authority of Bihar and Orissa was decided on 11 September 1951 by the Supreme Court of India. The case was reported in AIR 1953 SC 429. The appeal, identified as Appeal (Civil) No. 23 of 1950, was filed by Lakshminarain Bhadani against the respondent Central Inland Revenue Authority of Bihar and Orissa. The bench that heard the appeal comprised Chief Justice H.J. Kania, Justice M.P. Sastri, Justice S.R. Das, Justice N.C. Aiyar and Justice V. Bose. The judgment was delivered by Chief Justice Kania.

This proceeding originated as an appeal from a judgment of the Patna High Court and concerned a reference made to that High Court under section 66(1) of the Indian Income-Tax Act. The factual background was that a joint Hindu family, of which the appellant was the karta, had been assessed to income tax for the assessment year 1939-40. In 1944 the Income-Tax Officer discovered that certain income attributable to the family for that year had escaped assessment. By that time the joint family had been divided, and the members had taken steps to obtain an order under section 25A(1) of the Income-Tax Act confirming the partition.

The Income-Tax Officer subsequently issued a notice in the name of the joint Hindu family and served it upon the appellant under section 34 read with section 22 of the Income-Tax Act, requiring a return for the escaped income. The appellant complied and filed the required return. Following this, the Officer made an assessment of the escaped income amounting to Rs 37,098 and issued a notice of demand addressed to the appellant as karta as well as to the two other members of the former joint family. The demand notice required payment of the full tax liability on the escaped income and did not allocate the liability proportionately among the three members.

The appellant contended that the proceedings were irregular and that he bore no liability for the assessed tax. This contention was rejected by the Income-Tax Officer, by the Appellate Assistant Commissioner and later by the Income-Tax Appellate Tribunal. The appellant then prayed that a question of law be referred to the High Court for clarification. Accordingly, the Tribunal posed the following question to the High Court: “Whether, in the circumstances of this case, proceedings under section 34 in respect of the assessment year 1939-40 were validly initiated and completed against the Hindu undivided family, which had ceased to exist at that time, when an order under section 25A(1) accepting the partition of the Hindu undivided family had already been passed.”

The Patna High Court observed that there were irregularities both in the initiation and the completion of the proceedings. Nevertheless, it held that no prejudice had been caused to the appellant, answered the reference in the affirmative, and ordered the appellant to pay the costs of the reference. Dissatisfied with this outcome, the appellant filed an appeal before this Court. Counsel for the appellant, identified in the record as Mr Umrigar, advanced only a single point of argument before the Supreme Court.

The appellant placed before the Court a submission for its consideration. He argued that, because the High Court had found the proceedings to have been irregularly initiated and irregularly completed, those proceedings were void and therefore no assessment order could lawfully be made. To support that argument he relied upon the wording of section 25A(1) of the Income-Tax Act. In the view of the Court this argument was untenable, and likewise the High Court’s view that the proceedings were irregularly initiated was also found to be without merit. The Court observed that when proceedings are launched under section 34 read with section 22 of the Income-Tax Act, it is not mandatory to serve a notice on every individual member of the Hindu undivided family. The situation is analogous to an assessment of the income of the Hindu undivided family for the year 1939-40, as if the family were a single unit. Accordingly, the Court rejected the appellant’s first contention.

The next contention urged by counsel for the appellant was that section 25A(2) required the assessment to be made against each member of the joint family in proportion to his share of the tax, and that the Income-Tax Officer could proceed against the remaining members only after one member had failed to pay his share. The Court could not accept that formulation. A proper construction of section 25A(1) shows that the Income-Tax Officer must first assess the total income of the joint family as though no partition had occurred. This entails determining the total income and computing the tax payable on that amount as if the whole liability fell on a single entity. After that overall assessment, the Officer is obligated, under the same provision, to apportion the tax liability among the members of the joint family in accordance with the portion of the joint family property allotted to each of them. The concluding words of section 25A(2) reinforce this duty to apportion.

In the present case the Income-Tax Officer failed to make any such apportionment. That omission was noted both in the judgment of the High Court and in the decision of the Income-Tax Appellate Tribunal, which observed that the error could be corrected. The Court therefore held that the Officer must issue a separate notice of demand to each member of the family, as required by the final words of section 25A(2). The Court was unable to accept the second part of the appellant’s argument that the Government could recover the tax share from other members only when one member defaults. The proviso to section 25A(2) makes the position clear, and, unlike the proviso to section 26, it does not contain language limiting recovery to cases of default by a particular party. Consequently, the Court rejected that portion of the appellant’s submission.

In the Court’s view, the reference to the proviso of section 25A(2) leads inevitably to the conclusion that the specific portion of Mr Umrigar’s argument must be dismissed. The Court explained that the language of section 25A(2) does not contain the qualification that would permit recovery from other members only upon the default of one member, and therefore the contention advanced by Mr Umrigar cannot be sustained. Accordingly, the Court rejected that segment of the submissions. Having found that the appeal was substantially unsuccessful, the Court proceeded to address the issue of costs. It ordered that the appellant should bear the expenses incurred in connection with the appeal. The direction concerning costs reflects the principle that a party whose appeal fails in substance is liable to pay the costs of the proceeding. The decision on costs also serves to discourage the filing of appeals that do not have a reasonable prospect of success. By ordering the appellant to meet the cost liability, the Court aimed to balance the equities between the parties and to ensure that the expenditure incurred by the opposite side would not be borne by the taxpayer. Consequently, the appellant was required to satisfy the cost order promptly, and failure to do so would invite further enforcement measures as permitted by law.