Tax on beneficiaries' property after partition of HUF was held to be improper

1. Krishnappa and his two sons—Thimmayya and Venkatanarsu—constituted a Hindu undivided family. They carried on business in mining in the name and style of Krishnappa and Sons. The family was disrupted in 1946, and all its properties were divided among the members of the family. The business of Krishnappa and Sons was taken over by a firm of which the partners were Krishnappa and his two sons. A private limited company styled "Krishnappa Asbestos and Barytes (Private) Ltd." took over the business of the firm on May 21, 1947, for Rs. 2,04,000. Thimmayya obtained employment under the company as mines superintendent at a monthly salary of Rs. 400 and Venkatanarsu as general manager at a monthly salary of Rs. 500.

2. Assessments for the five years in question were made by the Income-tax Officer on diverse dates between September 30, 1948, and November 30, 1950, resulting in a tax liability of Rs. 65,750 in the aggregate for the five years.

3. Appeals preferred against the orders of assessment to the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal proved unsuccessful.

4. On June 30, 1952, the Income-tax Officer, Special Circle, Madras, made an order under section 25A recording that the property of the Hindu undivided family of Krishnappa and his sons was partitioned on November 2, 1946. As the tax due was not paid, the Income-tax Officer made an order under section 46(5) of the Indian Income-tax Act, 1922, on June 25, 1958, calling upon the managing director to withhold the amount of tax due from the salaries payable to the defaulters, Thimmayya and Venkatanarsu, and to show the same to the credit of the Government of India.

5. On appeal to the High Court, The High Court held that the order on the claim made under section 25A(1) on June 30, 1952, was given "a clear retrospective operation", and the Income-tax Officer was bound "to give effect to that order recognising the partition and to follow up the consequences which flowed from the order".

6. The Supreme Court on appeal, held as under:In the present case no orders were recorded by the Income-tax Officer at the time of making assessments in respect of the five years, and therefore no personal liability of the members of the family arose under the proviso to sub-section (2). The Income-tax Officer does not seek to reach in the hands of Thimmayya and Venkatanarsu the property which was once the property of the Hindu undivided family: he seeks to reach the personal income of the two respondents. That the Income-tax Officer could do only if by virtue of the proviso to sub-section (2) a personal liability has arisen against them. In the absence of an order under sub-section (1) however, such a liability does not arise against the members of the Hindu undivided family, even if the family is disrupted.

We are therefore of the view, but not for the reasons mentioned by the High Court, that because there has been before the orders of assessment no order recording that the property of the family has been partitioned among the members, the two respondents are not personally liable to satisfy the tax due by the joint family. The remedy of the income-tax authorities, in the circumstances of the case, was to proceed against the property, if any, of the Hindu undivided family. That admittedly they have not done.

The order of the High Court must, therefore, be confirmed and the appeals dismissed with costs. There will be one hearing fee.