Andhra Pradesh H.C : These four writ petitions raise a common question and were heard as a batch.

High Court Of Andhra Pradesh

G. Lakshminarayana vs. Income Tax Officer & Anr.

Section 171(a), Art. 226

Asst. Year 1979-80

Jeevan Reddy & Upendralal Waghray, JJ.

Writ Petn. Nos. 251, 258, 2785 & 2787 of 1981

24th April, 1988

Counsel AppearedA.V.S. Rama Krishnaiah & A. Krishna Kumar, for the Petitioners : M.S.N. Murthy, for the Respondents

UPENDRALAL WAGHRAY, J.:

These four writ petitions raise a common question and were heard as a batch.

2. The controversy in all these cases relates to the assessment proceedings under the IT Act for the asst. yr. 1979-80. All the petitioners had filed their respective returns for the said assessment year in which they had claimed that there was a partial partition of the family and had requested for an order under s. 171 of the Act also. It is to be noticed that the partial partitions in all these cases are said to have taken place between 1st Jan., 1979 and 31st Dec., 1979 during the relevant previous year for the asst. yr. 1979-80. In the case of two petitioners, after enquiry an order under s. 171 was also passed and assessment completed, while in the case of two others the assessment was yet to be completed. However, after coming into force of the Finance Act 2 of 1980, the ITO decided to ignore the partial partition in these cases. The prayer in these writ petitions is for a declaration that the amendment inserting sub-s. (9) of s. 171 of the IT Act, 1961 by the Finance Act 2 of 1980 giving retrospective effect from 1st Jan., 1979 is void and illegal.

For all these cases, single counter-affidavits have been filed on behalf of the respondents, i.e., by the ITO (Judicial), CIT, Hyderabad, and Under Secretary, Ministry of Finance, Government of India. According to s. 171 of the Act, where a Hindu family hitherto assessed as undivided shall be deemed for the purposes of the Act to continue to be an HUF, except where and insofar as a finding of partition has been given under that section in respect of the HUF by the ITO. It also provides for various incidental matters and applies not only to cases of total partition but of partial partitions. By the Finance Act 2 of 1980, a new sub-s. (9) was introduced to s. 171, which reads as follows : “(9) Notwithstanding anything contained in the foregoing provisions of this section, where as partial partition has taken place after the 31st day of Dec., 1978, among the members of an HUF hitherto assessed as undivided,- (a) no claim that such partial partition has taken place shall be inquired into under sub-s. (2) and no finding shall be recorded under sub-s. (3) that such partial partition had taken place and any finding recorded under sub-s. (3) to that effect whether before or after the 18th day of June, 1980, being the date of introduction of the Finance (No. 2) Bill, 1980, shall be null and void : (b) such family shall continue to be liable to be assessed under this Act as if no such partial partition had taken place : (c) each member or group of members of such family immediately before such partial partition and the family shall be jointly and severally liable for any tax, penalty, interest, fine or other sum payable under this Act by the family in respect of any period whether before or after such partial partition : (d) the several liability of any member or group of members aforesaid shall be computed according to the portion of the joint family property allotted to him or it at such partial partition, and the provisions of this Act shall apply accordingly.”

According to the counsel for the petitioners the date 31st day of Dec., 1978 mentioned in the opening words of the newly introduced s. (9) is arbitrary and because of the aforesaid provision the petitioners are adversely affected. According to him, there was a partial partition between 1st Jan., 1979 and 31st March,1979 during the previous year relevant to the asst. yr. 1979-80 and they filed returns stating this fact. In two cases, after enquiry orders under s. 171 as well as the assessment orders were also passed. But, because of the aforesaid amendment, the ITO is ignoring the earlier order passed by him under s. 171 or to recognise the partial partition. The counsel for the petitioners has referred to several cases in support of his contention that the choosing of the date i.e., 31st Dec., 1978 is arbitrary, and the retrospective effect in the sub- section affects the rights of the petitioners.

The counsel for the Revenue has contended that the amendment was within the legislative competence of Parliament and that there is no arbitrariness in choosing the date or the retrospective effect given which was done to curb the creation of multiple HUFs and as a measure for countering tax avoidance. After some debate and going through the relevant provisions of the Finance Act 2 of 1980, Notes on Clauses and Memo explaining the various provisions in the Bill, etc., we do not consider it necessary to go into the question of constitutional validity of sub- s. (9), as we are of the view that the said provision does not apply to the asst. yr. 1979-80 with which the petitioner’s cases are concerned. Sec. 4(1) of the IT Act which provides for the basis of the charge reads as follows :”4. (1) Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with and subject to the provisions of this Act in respect of the total income of the previous year or previous years, as the case may be, of every person; Provided that where by virtue of any provision of this Act income-tax is to be charged in respect of the income of a period other than the previous year, income-tax shall be charged accordingly. (2)…………”

9. The Finance Act 2 of 1980 received the assent of the President on 21st Aug., 1980 and was published thereafter. Its preamble says, that it is an Act to give effect to the financial proposals of the Central Government for the financial year 1980-81. Sec. 1, sub-s. (2) reads as follows : “1. (2) Save as otherwise provided in this Act ss. 2 to 43 and ss. 52 and 53 shall be deemed to have come into force on the 1st day of April, 1980”. By s. 28 of this Act, sub-s. (9) is introduced in s. 171 of the IT Act. In view of s. 1, sub.s (2) this amendment has retrospective effect from 1st day of April, 1980. The notes on Clauses in the Bill for the aforesaid Act states as follows :

“Clause 28 seeks to insert a new sub-s. (9) in s. 171 of the IT Act…..This amendment will take effect from 1st April, 1980 and will accordingly apply in relation to the asst. yr. 1980-81 and subsequent years”. Further, in the memo explaining the provisions annexed to the said Bill paragraphs 44 to 47 deal with cl. 28. Para 47 which is relevant reads as follows : “This amendment will take effect from 1st April, 1980 and will accordingly apply in relation to the asst. yr. 1980-81, and subsequent years.”

After the Finance Act was passed the CBDT issued Circular No. 281 dt. 22nd Sept., 1980 containing explanatory notes on the provisions relating to Direct Taxes in Finance Act 2 of 1980. Paras 31.1 to 31.4 deal with this amendments. Para 31.4 read as follows : “31.4 This amendment has come into force w.e.f. 1st April, 1980 and in accordingly applicable in relation to the asst. yr. 1980-81 and subsequent years” and is accordingly applicable in relation to the asst. yr. 1980-81 and subsequent years”.

The aforesaid material clearly indicates that sub-s. (9) is deemed to be on the statute book from 1st April, 1981 and is applicable for the asst. yr. 1980-81 onwards. “Assessment year” is defined in s. 2(9) of the Act and it means the period of twelve months commencing on the 1st day of April every year. In view of s. 3 of the Act, “Previous year” for the asst. yr. 1980-81 will be the preceding financial year i.e. 1st April, 1979 to 31st March, 1980 and in cases where the assessee was being previously assessed to income-tax and maintains accounts the period of twelve months ending within the said financial year i.e. any period of 12 months ending with 2nd April, 1979 to 31st March, 1980. By s. 1(2) of the Finance Act 2 of 1980, sub-s. (9) is introduced from 1st April, 1980 and in view of s. 4 of the Act will apply to the assessment years commencing after 1st April, 1980. The assessment proceedings for earlier assessment years, that is, 1979-80 and prior years will have to be completed without reference to the said amendment. This is also evident from the notes on clauses to the Bill, the explanatory memo as well as the circular issued by the Board after the amendment was enforced. The date 31st Dec., 1978 for reopening partial partitions is only for those who claimed such partial partition during the asst. yr. 1980-81. Several returns in respect of asst. yr. 1980-81 would not have been filed by the date of the introduction of the Bill viz., 18th June, 1980 and to avoid fabrication of partial partitions, after the introduction of the Bill and before the filing of returns an anterior date i.e. 31st Dec., 1978 has been adopted and provision made to ignore earlier partial partitions. For the earlier assessment years there is no question of fabrication due to the knowledge of the amending Bill because the returns must have been filed an year earlier.

The date 31st Dec., 1978 may create classification among the assessees for the asst. yr. 198081, but, we are not concerned with the same in this case, as we are not concerned with the question whether the amendment applies to the asst. yr. 1979-80. In view of the position that the amendment does not apply to the asst. yr. 1979-80 the ITO is not justified in invoking sub-s. (9) of s. 171 for ignoring the partial partition claimed by the petitioners during the asst. yr. 1979-80 on the ground that it was effected after 31st Dec., 1978, viz between 1st Jan., 1979 to 31st March, 1979 which also happen to be a part of the previous year of the assessee for the asst. yr. 1979-80. As the said provision does not apply to this assessment year, the ITO cannot apply the amended provision. The provisions of the Act as well as the explanatory statement in the Bill and the Circular of the Board clearly show that sub-s. (9) is to be applied only in respect of the asst. yr. 1980-81 onwards.

12. In view of the aforesaid position there shall be a direction to the ITO not to apply the provisions of sub-s. (9) of s. 171 of the Act to the proceedings of the petitioners for the asst. yr. 1979-80, and to complete their cases without reference to it. The writ petitions are, accordingly, allowed to the extent indicated above. There shall be no orders as to costs.

[Citation : 175 ITR 593]

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