TATAVARTHI RAJAH AND ANR.versusCOMMISSIONER OF WEALTH TAX, HYDERABAD

              TATAVARTHI RAJAH AND ANR.                                        A
                          v.
        COMMISSIONER OF WEALTH TAX, HYDERABAD

                              APRIL 4, 1997

            (S.C. AGRAWAL AND G.B. PATTANAIK, JJ.)                             B

      Wealth Tax Act, 1957: Section 20.

      HUF-Pa1tition-Taking place of-Held : Pmtition of joint family
prope1ty amongst members of HUF in metes and bound~ondition prece-             C
dent-Difference between pmtition for pwposes of Wealth Tax and Income
Tax and paltition for pwpose of Hindu Law pointed out-Income Tax Act,
1961, S. 171-Income Tax Act, 1922, S. 25-A.

       Section W-Applicability of-Held : Applicable even to cases where
severance of joint f amity was claimed to have taken place prior to coming     D
into force of the Act.

       Section 20 and 5( l)(ii)-Object of-To avoid a situation where neither
the HUF nor the individual members could be taxed in respect of the joint
f amity propeity.
                                                                               E
      Tue appellant-assessee was a Hindu joint family, which consisted of
four members. One of them gave a registered notice expressing her desire
to separate and subsequently she filed a suit for partition. The other
members of the joint family filed their written statements agreeing to the
partition. Preliminary and final decree for partition were passed. For         p
assessment years 1958-59, 1959-60 and 1960-61 the Wealth Tax Officer
(WTO) made the assessment on the basis that there was no partition by
metes and bounds and that the Hindu Undivided Family (HUF) consisted
of four members. Before the Income Tax Appellate Tribunal, the assessee
contended that there was severance in the status of the HUF when the first
registered notice was issued and on the date when the suit for partition       G
was filed as well as on the date when the written statements were filed.
Considering that the said contention went to the root of the matter,
name(y; whether the assessee was in existence at all, the Tribunal cancelled
the assessment orders in respect of the three Assessment Years and
remitted the matter to the WTO to decide afresh as to who the assessee         H
                                    607
    608                  SUPREME COURT REPORTS                  [1997] 3 S.C.R.

A was and what assets formed part of his net wealth. The High Court held
    the cancellation of assessments for the said three AY's as unjustified in
    terms of Section 20 of the Wealth Tax Act, 1957. Hence this appeal.

          Dismissing the appeal, this Court

B          HELD : 1.1. Section 20 of the Wealth Tax Act, 1957 is similar to the
    provision contained in Section 25-A of the Income Tax Act, 1922 and
    Section 171 of the Income Tax Act, 1961. These provisions in the tax laws
    make a departure from the personal law governing partition in a joint
    Hindu family. Under the Hindu law a mere declaration of an intention to
C   severe the joint status of the members of the Hindu undivided family is
    sullicient to constitute partition and the moment such declaration is made,
    the joint family comes to an end and, thereafter the members of the
    undivided family become separated in status and they held the joint family
    property as tenants under common ownership with definite shares in that
    property. But for the purpose of assessment of Income Tax and Wealth
D   Tax and legislature has imposed the re11uirement that for a partition in a
    Hindu undivided family, it is necessary that the joint family property
    should be partitioned among the various members or group of members
    in definite portions. [612-E-H]

E         1.2. Like the rationale for the introduction of Section 25-A in the
    Income Tax Act, 1922, the object underlying Section 20 of the Wealth Tax
    Act, 1957 is also to avoid a situation where neither the Hindu undivided
    family nor the individual members can be taxed in respect of the property
    of the joint family. Section 20 of the Act is applicable even to cases where
    severance of join!. family is claimed to have taken place prior to coming
F   into force of the Act. [612-H; 613-D-F]

          Lakshmichand Baijnath v. CIT, [1959] Supp. 1 SCR 415, referred to.

         2. The High Court has rightly observed that no distinction can be
  made between the case where partition is alleged to have taken place before
G the commencement of the Act and where the partition is said to have taken
  place after the commencement of the Act because the idea behind Section
  20 of the Act as well as Section 171 of the Income Tax Act, 1961 is that for
  a given assessment year either the Hindu undivided family must be as·
  sessed or its members must be assessed individually and unless the joint
H family properties are divided in definite portions and allotted to each
    TATAVARTHIRAIAHv. COMMISSJONEROFWEALTHTAX                             609

individual members, it cannot be said that a particular member can be A
assessed with respect to particular properties or income, as the case may
be, and a mere division in status does not indicate which member is
entitled to which of the properties. (615-G-H; 616-A-B]

     Goswami B1ijrata11lalji Maharaj v. CVl'T, (1971) 79 ITR 373 (Guj.),
approved.                                                                        B
      Slui S1ilal Bagii v. CWT, (1970) 77 ITR 901, overruled.

      CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 5957-59
of 1983.
                                                                                 c
     From the Judgment and Order dated 26.8.82 of the Andhra Pradesh
High Court in R.C. No. 58 of 1977.

      B. Parthasarthy and S. Rajappa for the Appellants.

     Ranbir Chandra, B. Krishna Prasad, C. Radha Krishna and Rajeev              D
Sharma for the Respondent.

      The Judgment of the Court was delivered by

       S.C. AGRAWAL, J. These appeals by the assessee raise the question
whether the provisions of Section 20 of the Wealth Tax Act, 1957                 E
(hereinafter referred to as 'the f>.ct') can be applied to a case where the
partition in the Hindu undivided Family in accordance with the principles
of Hindu Law has taken place before the commencement of the Act.

      The assessee was a Hindu joint family constituted by T. Nagapotha
Rao and his three sons. Sitarama Rao, Raja and Satyanarayana Murthy.             F
Sitarama Rao died in 1947 and Nagapotha Rao died in 1950. Thereafter
the family constituted of the two minor coparceners Raja and
Satyanarayana Murthy and Smt. Mahalakshmamma, widow of Nagapotha
Rao and Smt. Raja Syamala, widow of Sitarama Rao. Differences arose
between Smt. Raja Syamala and the other members of the family and on             G
October 7, 1950 Smt. Raja Syamala gave a registered notice expressing her
desire to separate. On April 7, 1954 she filed a suit (O.S. No. 47 of 1954)
for partition in the court of Subordinate Judge, Tanali. In the said suit Smt.
Mahalakshmamma on behalf of herself and her two minor sons filed a
written statement on October 27, 1954 agreeing to the division of all the        H
    610                  SUPREME COURT REPORTS                  [1997] 3 S.C.R.

A family properties into four equal shares. On attaining majority Raja as well
  as Satyanarayana Murthy filed written statement making similar request.
  On the basis of compromise between the parties a preliminary dt:cree for
  partition was passed in the said suit on April l, 1956. The final decree was
  passed in the suit on March 16, 1961. The present appeals relate to
B assessment year 1958-59, 1959-60 and 1960-61. In respect of these years
  returns were filed by the assessee as a Hindu undivided Family consisting
  of three members, namely, Smt. Mahalakshmamma and her sons Raja and
  Satyanarayana Murthy. The Wealth Tax Officer made the assessment on
  the basis that there was no partition by meters and bounds and that Hindu
C undivided family consisted of four members including Smt. Raja Syamala
  and the properties allotted to Smt. Raja Syamala were included in the joint
  properties of Hindu undivided family. On appeal it was submitted on
  behalf of the assessee before the Appellant Assistant Commissioner that
  the assessee should be treated as a Hindu undivided family with three
  members and not four members. This contention of the assessee was,
D however, rejected by the Appellate Assistant Commissioner. On further
  appeal before the Income Tax Appellate Tribunal (hereinafter referred to
  as the 'Tribunal') the assessee raised an additional ground that there was
  servance in status of Hindu undivided family as early as on October 7, 1950
  when the first registered notice was issued by Smt. Raja Syamala to the
E other three members and on April 7, 1954 when Smt. Raja Syamala filed
  the suit for partition as well as on October 27, 1954 when Smt.
  Mahalakshmamma, on behalf on hcrsdf and her two minor sons, filed the
  written statement claiming t!1at all the properties be divided in four equal
  shares. The said additional ground was permitted to be raised by the
F Tribunal since, according to the Tribunal, it went to the root of the matter,
  namely, whether assessec wa:. in existence at all. After considering the
  submissions of both sides the Tribunal has state that the present claim of
   the assessee is that in fact on the valuation dates for all the;,e assessment
  years there was no Hindu undivided family of the Type taken by the Wealth
G Tax Officer and the family was, if at all, di;,rupted a long time before the
   Wealth Tax Act came into force and accordingly the provisions of Section
   20(2) of the Act do not apply and the Wealth tax Officer ought to have
   assessed the asscssee on what exactly were his assets rather than on the
   assets held by all the members of the erstwhile family together. The
H Tribunal felt that the assessee had reasonable ground for the present claim
    TATAVARTHI RAJAHv. COMMISSIONER OF WEALTH TAX                       611

to be considered in the light of the facts and the law applicable to them A
and if the family ha<l acquired different status long before the Act came
into force, the family as assessed for these assessments would not be in
existence on the valuation dates. The Tribunal, therefore, cancelled the
assessment orders for the three assessment years before it and sent the
matter back to the Wealth Tax Officer to decide afresh the question as to B
who the assessee is and what assets formed part of his net wealth. At the
instance of the Revenue, the Tribunal referred the following question for
the opinion of the High Court of An<lhra Pradesh :

        "Whether on the facts and in the circumstances of the case, the        C
        Appellate Tribunal is justified in cancelling the Wealth Tax assess-
        ments for the years 1958-59, 1959-60 and 1960- 61 ?"


       The said question has been answered by the High Court by the
impugned judgment dated August .26, 1982 in favour of the Revenue and D
against the assessee. The High Court has held that having regard to the
language of sub-section (1) of Section 20, no distinction can be made
between a case \Vhere the partition is alleged to have taken place before
the commencement of the Act and where the partition is said to have taken
place after the commencement of the Act. The idea behind Section 20 of E
the Act is that unless the joint family properties are divided into definite
portions and allotted to each individual member, it cannot be said that a
particular member Can be assessed with respect to particular properties. If
it is contended that a mere division in status is sufficient for the purpose
of putting an encl to the Hindu undivided family, even for the purpose of
the Act, the resultant situation would be that, while the Hindu undivided F
family cannot be assessed on the ground that no Hindu undivided family
is in existence, the members also cannot be assessed, because until the
properties are divided into definite portions, it cannot be said which
member is entitled to which property. The High Court has agreed with the
decision of the Gujarat High Court in Goswami B1ijratanlalji Maharaj v. G
Commissioner of Wealth Tax, (1971) 79 ITR 373, and has differed from the
decision of the Calcutta High Court in Shri S1ilal Bagri v. Commissioner of
Wealth Tax, (1970) 77 ITR 901. Jn view of the difference of opinion
between the High Courts on the question, the High Court has granted
certificate of fitness for appeal to this Court. Hence this appeal.          H
    612                  SUPREME COURT REPORTS                   [1997) 3 S.C.R.

A         Section 20 of the Act provides as under :

            "20(1). Where, at the time of making an assessment, it is brought
            to the notice of the Wealth-tax Officer that a partition has taken
            place among the members of a Hindu undivided family, and the
            Wealth-tax Officer, after inquiry, is satisfied that the joint family
B           property has been partitioned as a whole among the various
            members or groups of members in definite portions, he shall
            record an order to that effect and shall make assessments on the
            net wealth of the undivided family as such for the assessment year
            or years, including the relevant to the previous year in which the
c           partition has taken place, if the partition has taken place on the
            last day of the previous year and each member or groups of
            members shall be liable jointly and severally for the tax assessed
            on the net wealth of the joint family as such.

            (2) Where the Wealth-tax Officer is not so satisfied, he may, by ·
D           order, declare that such family shall be deemed for the purpose
            of this Act to continue to be a Hindu undivided family liable to be
            assessed as such."

         The said provision is similar to that contained in Section 25A of the
E Income Tax Act, 1922 and Section 171 of the Income Tax Act, 1961. These
  provisions in the tax laws make as departure from the personal law govern-
  ing partition in a joint Hindu family. Under the Hindu law a mere decla-
  ration of an intention to severe the joint status of the members of the Hindu
  undivided family is sufficient to constitute partition and the moment such
  a declaration is made, the joint family comes to an end and, thereafter the
F members of undivided family become separated in status and they hold that
  joint family property as tenants under common ownership with definite
  shares in that property. But for the purpose of assessment of Income Tax
  and Wealth Tax the legislature has imposed the requirement that for a
  partition in a Hindu undivided family, it is necessary that the Joint family
G property should be partitioned among the various members or group of
  members in definite portions.

          The rational for the introduction of Section 25-A in the Indian
    Income Tax Act, 1922 has been thus explained by Venkatarama Aiyar J,
    in Lakhmicha11d Baijnath v. Commissio11er of Income Tax, West Bengal,
H   [1959] Supp. 1 SCR 415; 35 ITR 416 :
    TATAVARTHI RAIAHv. COMMISSIONER OF WEALTH TAX                     613

        "That Section was, it should be noted, introduced by the Indian A
        Income Tax (Amendment) Act, 1928 (3 of 1928), for removing a
        defect which the working of the Act as enacted in 1922 had
        disclosed. Under the provisions of the Act as they stood prior to
        the amendment, when the assessee was an undivided family, no
        assessment could be made thereon if at the time of the assessment
        it had become divided, because at that point of time, there was no B
        undivided family in existence which could be taxed, though when
        the income was received in the year of account the family was joint.
        Nor could the individual members of the family be taxed in respect
        of such income as the same is exempt from tax under s. 14(1) of
        the Act. The result of these provisions was that a joint family which C
        had become divided at the time of the assessment escaped tax
        altogether. To remove this defect, s. 25A enacted that until an
        order is made under that section, the family should be deemed to
        continue as an undivided family." (pp. 421-422)

                                                                            D
       The object underlying Section 20 of the Act is also to avoid a
situation whether neither the Hindu undivided family nor the individual
members can be taxed in respect of the property of the joint family. With
that end in view Section 20 prescribes that if at the time of making an
assessment it is claimed that a partition has taken place among the mem-
bers of a Hindu undivided family, the Wealth Tax Officer, after making an E
inquiry, must satisfy himself that joint family property has been partitioned
as a whole among the various members or groups of members in definite
portions and if he is so satisfied he has to record an order to that effect
and make assessment on that basis. The question that needs to be con-
sidered is whether the provisions of Section 20 arc confined in their F
application to cases where the severance in Hindu undivided family is
claimed to have taken place after the coming into force of the Act and the
provision has no application to cases where the severance in the joint family
is claimed to have taken place prior to coming into force of the Act.

      The Calcutta High Court in Shri S1ilal Bagri v. Commissioner of G
Wealth Tax (supra) has taken the view that Section 20 docs not empower
assessment of a Hindu undivided family which has ceased to be a Hindu
undivided family according to the relevant Hindu law prior to the relevant
valuation date and that where the family had never been assessed under
the Act as Hindu undivided family and a preliminary decree for partition H
    614                  SUPREME COURT REPORTS                  [1997) 3 S.C.R.

A had been passed prior to valuation date Section 20 does not authorise
    assessment of the members of the family as a Hindu undivided family after
    the preliminary decree. In taking the view the Calcutta High Court has
    proceeded on the basis that Section 20 is in pari matelia with Section 25A
    of the Income Tax Act, 1922 and is only a machinery section. The High
    Court has also held that in view of the position of Hindu law that after the
B   unequivocal expression of intention to separate the individual member of
    the erstwhile Hindu undivided family will have no interest in the coparcen-
    ary property of the Hindu undivided family of which he was a member and
    sub-section (ii) of Section 5(1) of the Act would be no bar for assessment
    in respect of the properties in the hands of the erstwhile members of the
C   Hindu undivided family even though the properties have not yet been
    divided amongst the members in definite portions. The High Court has
    further held that sub-section (2) of Section 20 would not be attracted where
    no prior assessment had been made of the assessee as a Hindu undivided
    family under the Act because in that event there is no question of this
D   family being continued to be liable to be assessed as such under sub-section
    (2) of Section 20.

          In Goswami B1ijrata11/alji Maharaj v. Commissioner of Wealth Tax
    (supra) after taking note of the reasons given by the Calcutta High Court
    in the Shri Sri/al Bagri v. Commissioner of Wealth Tax (supra), the learned
E   Judges of the Gujarat High Court have pointed out that the words "not
    previously assessed" occurring in Section 25-A of Indian Income Tax Act,
    1922 have been omitted from Section 20 of the Act and the legislature has
    merely used the words "where at the time of making the assessment". The
    learned Judges have observed :

F
             "Therefore, at any time when a Wealth-tax Officer is making the
             assessment, a contention is raised or is sought to be raised before
             him that a partition has taken place amongst the members of the
             Hindu undivided family, he has to enter upon an inquiry and satisfy
             himself whether there has been a partition by metes and bounds.
G            It he is not so satisfied about the joint family properties having
             been partitioned by metes and bounds amongst the various mem-
             bers, he has to declare under sub-section (2) of Section 20 that
             such family shall be deemed for the purposes of the Act to continue
             to be a Hindu undivided family liable to be assessed as such. Once
H            that declaration under Section 20(2) is made, it becomes clear that
        TATAVARTHI RAJAH v. COMMISSIONER OF WEALTH TAX                       615

            even for the purposes of Section S(l)(ii) of the Act, the interest      A
            of any individual member of the joint family in coparcenary proper-
            ty of any Hindu undivided family of which he is a member can be
            safely excluded. The words for the purposes of this Act occurring
            in Section 20(2) would include within their ambit section S(l)(ii)
            as well and so long as the satisfaction about the properties of the     B
            joint family having been partitioned by metes and bounds is not
            reached by the Wealth-tax Officer, he has to declare that such
            family for the purposes of the Act shall continue to be a Hindu
            undivided family liable to be assessed as such. Once such a dec-
            laration is made, even though there may be notional partition, and
            even though for the purposes of Hindu law there is disruption of        C
            the joint family, for the purposes of the Wealth-Tax Act the family
            is deemed .to continue to be a Hindu undivided family liable to be
            assessed as such. Therefore, the undivided share or interest of an
            individual members of such Hindu undivided family will continue
            to be assessed as part of the property of the Hindu undivided           D
            family and will not be includible in Jhe next wealth of that in-
            dividual member." (pp. 387, 388)

            "In our opinion, the question that has to be considered by the
            Wealth-tax Officer is not whether there has been a disruption in
            status according to notions of Hindu law but whether there has          E
            been a partition by metes and bounds and whether there has been
            a physical partition of properties of the Hindu undivided family
            amongst different members; and it is only after that test of physical
            partition by metes and bounds is satisfied that the necessary
            consequences for the purposes of assessment under the Wealth-tax        F
            Act will follow." (p. 389)

           We are in agreement with these observations and we are unable to
    agree with the interpretation placed by the Calcutta High Court in Sri/al
    Bagri (supra on the provisions of Section 20 of the Act. In the impugned
    judgment the learned Judges, in our opinion, have rightly observed that no G
    distinction can be made between the case where partition is alleged to have


-   taken place before the commencement of the Act and whether the partition
    is said to have taken place after the commencement of the Act because the
    idea behind Section 20 of the Act as well as Section 171 of the Income Tax
    Act, 1961 is that for a given assessment year either the Hindu undivided H
                                                                                   .0
    616                  SUPREME COURT REPORTS                  (1997] 3 S.C.R.

A family must be assessed or its members must he assessed individually and
    unless the joint family properties are divided in definite portions and
    allotted to each individual member, it cannot be said that a particular
    member can be assessed with respect to particular properties or income,
    as the case may be, and a mere division in status docs not indicate which
    member is entitled to which of the properties. The learned .I udges have
B   also mentioned that in the present case returns were filed by the Hindu
    undivided family in the status of a Hindu undivided family and the only
    difference between the asscssec and the department was whether it com-
    prised of three members or four members, i.e., whether Sml. Raja Syamala
    must also be treated as a member of the Hindu undivided family or not
C   and that it was only before the Tribunal it was contended for the first time
    that there was a division in status between the parties long prior to the
    coming into force of the Act.

          We are of the view that approach of the Gujarat High Court in
    Goswami Blijratanlalji Maharaj v. Commissioner of Wealth Tax (supra) and
D   that of the learned Judges in th.: impugned judgment in the matter of
    interpretation of Section 20 of the Act is correct and we are in agreement
    with the same.

          In that view of the matter, we do not find any merit in these appeals
E   and same arc accordingly dismissed. But in the circumstances there will be
    no order as to co~ts.

    v.s.s.                                                  Appeals dismissed.