1966 (7) TMI 2 - HC - Income Tax

Court rules wife's land allotment not a transfer under tax law. Illegitimate notice, valid assessment. Wife's income excluded.

Keshav Laxman Sangoram Versus State Of Mysore.

The court held that the allotment of lands to the wife during partition did not constitute a transfer of assets under the relevant tax law. Additionally, ... Notice was issued to the assessee on July 15, 1958, u/s 18(2) after the expiry of the relevant financial year, but the assessee did, however, produce his return before the assessment was made - notice served on the assessee on July 31, 1958, u/s 18(2) is an illegal notice, but that the assessment made u/s 19(3) after the issue of such notice is not liable to be quashed on the ground that the notice issued u/s 18(2) is an illegal notice Issues Involved:1. Whether the lands allotted to the wife of the assessee at the time of partition amounted to a transfer of assets directly or indirectly within the meaning of section 11(2)(a)(iii) of the Mysore Agricultural Income-tax Act, 1957.2. Whether the notice issued on July 15, 1958, and served on July 31, 1958, was illegal and whether the assessment based on such notice was liable to be quashed.Issue-Wise Detailed Analysis:Issue 1: Transfer of Assets to WifeThe first issue concerns whether the allotment of property to the wife during the partition between the assessee and his son constituted a transfer of assets within the meaning of section 11(2)(a)(iii) of the Mysore Agricultural Income-tax Act, 1957. This section includes in the total agricultural income of an individual any income arising from assets transferred directly or indirectly to the wife by the husband otherwise than for adequate consideration or in connection with an agreement to live apart.The Agricultural Income-tax Officer and the Deputy Commissioner concluded that the property allotment to the wife was a transfer without adequate consideration, thus the income from that property should be included in the assessee's income. However, the Commissioner of Agricultural Income-tax's statement of the case indicated that the wife was not entitled to a share under Hindu law, and since there was no separation between the husband and wife, the property transfer was deemed to be for the husband's benefit.The court found this assumption incorrect, noting that under the Bombay Mitakshara School of Hindu law, the wife is entitled to a share equal to that of a son at the partition between her husband and sons. The court cited the Full Bench decision of the High Court of Bombay in Parappa Ningappa Khaded v. Mallappa Kallappa, which held that a Hindu wife is entitled to a share at such partition.The court further clarified that a partition of property among Hindu joint family members does not constitute a transfer of property. The Supreme Court in Commissioner of Income-tax v. Keshavlal Lallubhai Patel and Sarin v. Ajit Kumar explained that partition transforms the initial subsisting title to the total property into several titles of individual coparceners, not a transfer of property.Thus, the court concluded that the allotment of property to the wife at the partition did not amount to a transfer of assets within the meaning of section 11(2)(a)(iii), and the income from that property could not be included in the assessee's income.Issue 2: Legality of Notice and AssessmentThe second issue involved the legality of the notice issued under section 18(2) of the Act on July 15, 1958, and served on July 31, 1958, and whether the assessment based on such notice was liable to be quashed.Section 18(2) allows the Agricultural Income-tax Officer to serve a notice requiring the production of a return within the relevant financial year. In this case, the relevant financial year ended on March 31, 1958. The notice was issued and served after this period, making it illegal.The Deputy Commissioner had viewed the provision for service of notice as an enabling provision, suggesting that the timing of the notice was irrelevant. The Commissioner of Agricultural Income-tax had argued that the notice could be considered under section 36 for escaped income, but the court found this interpretation incorrect since the notice was not for assessing escaped income.Despite the illegality of the notice, the assessee produced a return, and the Agricultural Income-tax Officer made an assessment under section 19(3). The court noted that under section 18(3), an assessee could furnish a return at any time before the assessment is made, even if the notice under section 18(2) was issued late.The court leaned towards the view that the return submitted by the assessee should be considered as one produced under section 18(3), regardless of the late notice. The Supreme Court's decision in Commissioner of Income-tax v. Ranchhoddas Karsondas supported this view, stating that a return submitted after the prescribed period but before assessment is valid.Therefore, the court concluded that the assessment made under section 19(3) was valid despite the late notice under section 18(2). The assessment was based on the return voluntarily produced by the assessee, which was permissible under section 18(3).Conclusion:1. The allotment of lands to the wife at the time of partition does not amount to a transfer of assets within the meaning of section 11(2)(a)(iii) of the Act.2. The notice served on July 31, 1958, under section 18(2) is illegal, but the assessment made under section 19(3) is not liable to be quashed on this ground.The court clarified that the income from the property allotted to the wife cannot be assessed as the income of the assessee. No costs were awarded.