1972 (3) TMI 21 - HC - Income Tax

Court Rules Against Revenue in Assessment Reopening, Excludes HUF Expenditure

The court found the Expenditure-tax Officer's reopening of individual assessments for 1959-60 and 1960-61 illegal as it was based on a change of opinion ... Expenditure Tax Act, 1957 - When the assessee Karta spent family money on wife and minor children, whether the expenditure is of the family or the individual - When HUF spends certain amount on Karta's wife and children it is doing so on account of its own obligation to the Karta's wife and children who are the members of the family and not in respect of a personal obligation of a Karta in his individual capacity therefore the expenditure cannot be treated as that of the individual Karta Issues Involved:1. Legality of reopening original assessments for 1959-60 and 1960-61 under section 16 of the Expenditure-tax Act.2. Inclusion of expenditure incurred by the Hindu undivided family (HUF) for the benefit of the assessee's wife and minor children in the individual assessments of the assessee for 1959-60 and 1960-61.3. Inclusion of expenditure incurred by the assessee's wife and minor children after the disruption of the HUF in the individual assessment of the assessee for 1961-62.Detailed Analysis:Issue 1: Legality of Reopening Original AssessmentsThe court addressed whether the Expenditure-tax Officer (ETO) was justified in reopening the individual assessments for 1959-60 and 1960-61 under section 16 of the Expenditure-tax Act. The ETO reopened the assessments on the grounds that the expenditure incurred by the assessee as karta for his wife and children was not included in his individual returns but was shown in the HUF returns. The Tribunal upheld the reopening, stating that the information in the HUF returns was not part of the individual returns, thus constituting new information. However, the court found that the ETO was aware of the expenditures during the original assessments and had treated them as HUF expenditures. The court concluded that the ETO's action was based on a change of opinion rather than new information, making the reopening of assessments illegal. Therefore, the first question was answered in the negative and against the revenue.Issue 2: Inclusion of HUF Expenditure in Individual AssessmentsThe court examined whether the expenditure incurred by the HUF for the benefit of the assessee's wife and minor children should be included in the individual assessments of the assessee for 1959-60 and 1960-61. The Tribunal had held that the expenditure should be included, reasoning that the assessee had a personal obligation to maintain his wife and children. The court, however, found that the HUF had an independent obligation to maintain its members, including the wife and minor children of the assessee. The expenditure by the HUF was primarily for discharging its own obligation, even though it indirectly discharged the assessee's personal obligation. The court concluded that the same expenditure could not be taxed in the hands of both the HUF and the individual. Therefore, the second question was answered in the negative and against the revenue.Issue 3: Inclusion of Post-Partition Expenditure in Individual AssessmentThe court considered whether the expenditure incurred by the assessee's wife and minor children after the partition of the HUF should be included in the individual assessment of the assessee for 1961-62. The Tribunal had included this expenditure, interpreting that the wife and minor children fell within the definition of 'dependant' under section 2(g) of the Act, as amended by the Finance Act of 1959. The court referred to the Supreme Court's decision in H.H. Prince Azam Jha Bahadur v. Expenditure-tax Officer, which held that the spouse or minor child of an individual is considered a dependant irrespective of their actual dependence on the individual for support. Therefore, the court affirmed that the post-partition expenditure was rightly included in the individual assessment of the assessee. The third question was answered in the affirmative and in favor of the revenue.