AI Structured Summary
Not yet generated for this judgment
Judgment
UNTWALIA, J. - The Income Tax Appellate Tribunal, Patna Bench, has stated a case u/s 66(1) of the Income Tax Act, 1922, hereinafter called the Act and referred to the High Court the following question of law : "Whether, on the facts and circumstances of the case, proceedings u/s 34 of the Income Tax Act were validly initiated against the assessee for the assessment year 1950-51 ?"
The facts are in a short compass. The assessee is a registered firm and the question relates to the assessment year 1950-51, the corresponding accounting period being October 12, 1948, to September 30, 1949. The partners of this firm along with some others originally were members of a Hindu undivided family carrying on business under the same name and style, i.e., Joharmal Parsuram. There was a partition in the family and, in the course of the assessment proceeding for the year 1948-49, the Hindu undivided family claimed a partition with effect from November 12, 1947. The Income Tax Officer rejected the claim but, on appeal by the family, the Appellate Assistant Commissioner accepted the partition as effective from June 16, 1949. On further appeal to the Tribunal, by its order dated April 1, 1955, it allowed the assessees claim for partition with effect from January 1, 1948. In the meantime assessment proceeding was started against the Hindu undivided family for the assessment year 1950-51, corresponding to the accounting period October 12, 1948, to September 30, 1949. It was claimed on behalf of the Hindu undivided family that, since it had ceased to exist during the accounting period, no assessment should be made on it. After partition, the present partnership firm, which is the assessee in this case, was formed and it filed a voluntary return u/s 22(3) of the Act on December 16, 1950, for the assessment year 1950-51 showing an income of Rs. 68,724. Since in the appeal filed by the Hindu undivided family the Appellate Assistant Commissioner had allowed the claim for partition with effect from June 16, 1949, the Income Tax Officer split up the accounting year into two periods : (i) from October 12, 1948, to June 15, 1949, and (ii) June 16, 1949, to September 30, 1949. The income for the former period was assessed as that of the Hindu undivided family and the income for the remaining three and half months for the latter period was assessed in the hands of the partnership firm. This assessment was made on March 31, 1955. On appeal by the Hindu undivided family, the Appellate Assistant Commissioner by his order dated December 13, 1955, cancelled the assessment in accordance with the decision of the Tribunal in the earlier appeal filed by the Hindu undivided family accepting the partition as effective from January 1, 1948, and directed the Income Tax Officer to make assessment afresh on proper persons in the correct status in the light of the claim of partition of the Hindu undivided family as finally accepted by the Appellate Tribunal.
The Income Tax Officer, thereupon, issued a notice u/s 34 of the Act to the assessee-firm on September 24, 1958, for reopening the original assessment made on March 31, 1955, in respect of the assessment year 1950-51. No return was filed by the assessee. The Income Tax Officer by his order dated March 14, 1959, determined the total income of the firm at Rs. 1,08,778 for the whole of the year, October 12, 1948, to September 30, 1949, u/s 23(3) read with section 34 of the Act. The assessee appealed to the Appellate Assistant Commissioner and challenged the assessment with the aid of section 34 of the Act as being barred by time under the provisions of section 34(1) (b) of the Act. By his order dated November 21, 1959, the Appellate Assistant Commissioner held that the limitation commenced to run from March 31, 1956, and end of the financial year in which the order dated April 1, 1955, of the Tribunal was made in the earlier appeal filed by the Hindu undivided family accepting the partition as effective from January 1, 1948. On further appeal by the assessee-firm, the Tribunal has held that the assessment was bared by limitation and it was not saved by the second proviso appended to sub-section (3) of section 34 of the Act. It further held that the direction given by the Appellate Assistant Commissioner in deciding the appeal filed by the Hindu undivided family for the assessment year 1950-51 to make fresh assessment on the proper persons in the correct status did not amount to a "finding" in law which could save the limitation under the said proviso. At the instance of the Commissioner of Income Tax, a reference has been made to this court for determination of the question of law aforesaid.
It was conceded, and in my opinion rightly, by Mr. S. N. Datta, learned standing counsel for the department, that the view of the appellate Assistant Commissioner that the limitation for four years would commence from March 31, 1956, was obviously wrong and could not be supported. It was also accepted on all hands, and there cannot be any dispute in that respect, that the present case comes within clause (b) of sub-section (1) of section 34 of the Act and, hence, unless saved by the proviso aforesaid, the period of four years for initiation of the proceedings would apply and the period undoubtedly would commence from the 1st of April, 1951. In that view of the matter, the notice given to the assessee on September 24, 1958, was clearly beyond time. That would render the proceedings for the assessment in question invalid.
The only question, therefore, which falls for determination is whether the second proviso to section 34(3) of the Act applies to this case. The proviso reads thus :
"Provided further that nothing contained in this section limiting the time within which any action may be taken or any order, assessment or reassessment may be made, shall apply to a reassessment made u/s 27 or to an assessment or reassessment made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order u/s 31, section 33, section 33A, section 33B, section 66 or section 66A." This proviso has been the subject-matter of consideration and interpretation in various cases by the different High Courts and the Supreme Court. In S. C. Prashar v. Vasantsen Dwarkadas, Chagla C.J. and Tendolkar J., constituting a Bench of the Bombay High Court, held that the proviso, in so far as it affected the rights of strangers, i.e., persons other than the assessee in whose proceedings the order envisaged under the proviso is made, is ultra vires as infringing article 14 of the Constitution of India. This case went up to the Supreme Court (vide S. C. Prashar v. Vasantsen Dwarkadas, and the majority decision approved the view expressed by the Bombay High Court. The proviso was introduced in the parent Act by an amending Act of 1953, and was deemed to have come into force from the 1st of April, 1952. The proceedings in the case of Vasantsen Dwarkadas had been started after expiry of the period of limitation as provided in the statute and it was held both by the Bombay High Court and the Supreme Court that the proviso could not receive a proceeding which was already barred even if it applied to the facts of that case.
It is necessary to state the facts of the case of Vasantsen Dwarkadas as the learned standing counsel for the department tried to distinguish this case on the ground that it was the case of a stranger who had no connection with the assessee in whose proceedings the order envisaged under the proviso had been made while the partners of the present assessee-firm were not strangers, rather, they were members of the erstwhile Hindu undivided family. In my opinion the distinction is not real. Dwarkadas Vussonji and Parmanand Odhavji started a partnership firm know as Purshottam Laxmidas on October 28, 1935. Dwarkadas died on April 1, 1946, leaving a son, Vasantsen. Another firm by the name of Vasantsen Dwarkadas had been started on January 28, 1941. There were three partners in this firm, namely, Vasantsen, Narandas, Shivaji and Nandlal Odhavji. This firm was dissolved on October 24, 1946. It filed a return of its income for the assessment year 1942-43 and applied for registration of the firm. The Income Tax authorities refused registration on the ground that the firm of Vasantsen Dwarkadas belonged really to Dwarkadas; therefore, they added the income of the firm to his income. In subsequent assessment years the said firm again applied for registration but it was again refused. For the assessment years 1942-43 to 1948-49, several appeals were filed before the Income Tax Appellate Tribunal by Vasantsen Dwarkadas both against the quantum of income assessed and against the refusal of the Income Tax Officer to register the firm. An appeal was filed by the firm, Purshottam Laxmidas, against its assessment in respect of excess profits tax. For the assessment year 1942-43, Vasantsen as the heir and legal representative of his father, Dwarkadas, filed an appeal against the decision of the Income Tax authorities that the income of the firm, Vasantsen Dwarkadas, was that of Dwarkadas. Appeals filed by the firm, Vasantsen Dwarkadas, and by Vasantsen, as representing the estate of his father as also the appeals filed by the firm, Purshottam Laxmidas, were all heard together by the Income Tax Appellate Tribunal which, by its order made on August 14, 1951, gave a finding that Dwarkadas was not the sole proprietor of the business styled as Vasantsen Dwarkadas; on the other hand, the said business belonged to the firm, Purshottam Laxmidas. This view of the Tribunal was upheld by the High Court on a reference made under the Act. Thereupon, on April 13, 1954, the Income Tax Officer served a notice on the firm, Purshottam Laxmidas, u/s 34 of the Act for reassessing the income of the year 1942-43. In such a situation, S. K. Das J. (as he then was), whose judgment is one of the majority decisions of the Supreme Court, said :
"The finding which the Appellate Tribunal gave in its consolidated order dated April 14, 1951, was a finding given in the appeal filed by Vasantsen as heir and legal representative of his father for the assessment year 1942-43. In that appeal the firm, Purshottam Laxmidas, was not even a party, though Purshottam Laxmidas was a party to certain other appeals before the Appellate Tribunal."
It would thus be noticed that the firm, Purshottam Laxmidas, was not a stranger to the appeal of Vasantsen filed by the latter as heir and legal representative of his father, Dwarkadas, in the sense urged by the learned standing counsel. Dwarkadas was a partner in the firm aforesaid. In the instant case also, the partnership firm consisting of the partners, who were some of the members of the erstwhile Hindu undivided family, was a stranger or a third party of the appeal filed by the Hindu undivided family in almost the same sense in which the firm, Purshottam Laxmidas, was in relation to the appeal filed by Vasantsen.
Learned standing counsel placed reliance upon a Bench Decision of the Allahabad High Court in Pt. Hazari Lal v. Income Tax Officer, Dist. II(ii), Kanpur. In that case, in an appeal before the Appellate Assistant Commissioner in respect of the assessment year 1947-48, he held that the inclusion of a certain sum of money for the assessment year 1947-48 was erroneous because that sum ought to have been included in the income assessed for the year 1946-47. The notice issued by the Income Tax Officer after the lapse of the period of limitation for reassessing the income for the year 1946-47 was held to be not saved from the mischief of limitation under the proviso in question. The High Court held that the power of the Appellate Assistant Commissioner u/s 31 of the Act to record finding was limited to matters which he was called upon to decide when passing an order in appeal in conformity with what is laid down in section 31(3). Any finding recorded by him which was not necessary for the purpose of making an order envisaged by section 31(3) would be a finding without jurisdiction and cannot come in aid to the application of the proviso to section 34(3) of the Act. Mr. Datta, however, placed reliance upon the various types of persons other than the assessees enumerated by way of example at pages 273 to 275 while considering the meaning of the expression "any person" in the proviso. Learned counsel submitted that applying the same test it should be held in the present case that the assessee was also "any person" within the meaning of the proviso. I am unable to accept this contention. The examples given by the Allahabad Bench are of the persons, such as, of partners or shareholders of companies whose assessments can often depend upon the assessments of the firm or the company as they are generally called consequential assessments. This is not the case here. The assessment of the assessee-firm did not depend upon or was consequential to the assessment of the Hindu undivided family. The same view was expressed in the majority decision of the Supreme Court in the case of Income Tax Officer, A-Ward, Sitapur v. Murlidhar Bhagwan Das. The contrary view expressed by the Full Bench of the Allahabad High Court in Lakshman Prakash v. Commissioner of Income Tax and in some other cases was overruled by the Supreme Court. Subba Rao J., who delivered the judgment of the majority, said :
"A finding, therefore, can be only that which is necessary for the disposal of an appeal in respect of an assessment of a particular year. The Appellate Assistant Commissioner many hold, on the evidence, that the income shown by the assessee is not the income for the relevant year and thereby exclude that income from the assessment of the year under appeal. The finding in that context is that income does not belong to the relevant year. He may incidentally find that the income belongs to another year, but that is not a finding necessary for the disposal of an appeal in respect of the year of assessment in question. The expression direction cannot be construed in vacuum, but must be collated to the directions which the Appellate Assistant Commissioner can give u/s 31. Under that section he can give directions, inter alia, u/s 31(3) (b), (c) or (e) or section 31(4). The expression direction in the proviso could only refer to the directions which the Appellate Assistant Commissioner or other Tribunals can issue under the powers conferred on him or them under the respective sections. Therefore, the expression finding as well as the expression direction can be given full meaning, namely, that the finding is a finding necessary for giving relief in respect of the assessment of the year in question and the direction is a direction which the appellate or revisional authority, as the case may be, is empowered to give under the sections mentioned therein. The words in consequence of or to give effect to do not create any difficulty, for they have to be collated with, and cannot enlarge, the scope of the finding or direction under the proviso. If the scope is limited as aforesaid, the said words also must be related to the scope of the findings and directions."
The expression "any person" in the subsequent paragraph occurring at page 346 was also held to be limited in its scope and meant to include persons other than the assessee, such as, partners of a firm, members of a Hindu undivided family and the like. In such cases, though they are not eo nomine parties to the appeal, their assessments depend upon the assessments of the firm or the Hindu undivided family. It was, therefore, help that "the expression any person in the setting in which it appears must be confined to a person intimately connected in the aforesaid sense with the assessments of the year under appeal", that is to say, person who might or could be affected by the orders passed by the Appellate Assistant Commissioner in exercise of his powers u/s 31(3) and section 31(4) of the Act. In my opinion the Supreme Court decision in the case of Murlidhar Bhagwan Das is a settler on the point and, applying the test laid by the court in that case, it is manifest that the assessee-firm was not a person whose assessment could be affected by or depended upon the order passed by the Appellate Assistant Commissioner in the appeal filed by the Hindu undivided family. Incidentally the Appellate Assistant Commissioner could express the view as he did that the income belonged to the partnership firm and on the basis of the information gathered form that order the Income Tax Officer could be justified in initiating the proceeding u/s 34 of the Act against the partnership firm. But that could not be so done beyond the period of limitation and under the shelter of the proviso in question.
Mr. Datta then placed reliance upon a learned single judge decision of the Allahabad High Court in Mukand Lal v. Income Tax Officer, A-Ward, Varanasi. In that case it was held that members of a Hindu undivided family are not strangers to Income Tax proceedings taken in respect of the assessment of the family and any directions given in the proceedings in respect of the family could be given effect to against the individual members thereof. The ratio of the case is based upon the decision of the Full Bench of the Allahabad High Court in Lakshman Prakash v. Commissioner of Income Tax which was not approved by the Supreme Court in the case of Income Tax Officer, A-Ward, Sitapur v. Murlidhar Bhagwan Das. Three more cases were cited by Mr. Tarkeshwar Prasad appearing for the assessee in Miscellaneous Judicial Case No. 174 of 1962, in which an identical point is involved and the judgment is being delivered today. They are, M. K. K. R. Muthukaruppan Chettiar v. Commissioner of Income Tax, Commissioner of Income Tax v. Shantilal Punjabhai and Rameshwarlal Sanwarmal v. Commissioner of Income Tax. Out of the decisions aforesaid the decisions of the Madras High Court in Muthukaruppan Chettiar v. Commissioner of Income Tax and the decision of the Gujarat High Court in Commissioner of Income Tax v. Shantilal Punjabhai do support the submissions made on behalf of the assessees in these cases. It may also be noted here that a single judge decision of the Allahabad High Court in Mukand Lal v. Income Tax Officer, A-Ward, Varanasi was not followed by the Bench of the Gujarat High Court in Commissioner of Income Tax v. Shantilal Punjabhai.
Mr. Brajeshwar Prasad Sinha, apart from advancing the argument that the assessee-firm was not a person of the kind envisaged within the meaning of the proviso in question and that the finding given by the Appellate Assistant Commissioner in his order dated December 13, 1955, was also not a finding which could attract the provisions of the said proviso, further submitted on the authority of the decisions of the Bombay High Court and the Supreme Court in the case of Vasantsen Dwarkadas as also upon a Bench decision of this court in Sardar Lakhmir Singh v. Commissioner of Income Tax that the order of the Appellate Assistant Commissioner made in the appeal of the Hindu undivided family on December 13, 1955, being beyond the expiry of the period of four years, i.e., March 31, 1955, could not revive the proceeding which was already barred. The Patna case went up to the Supreme Court and the view expressed therein was approved in Commissioner of Income Tax v. Sardar Lakhmir Singh. In the instant case, however, the argument as put forward cannot be accepted. The period of four years had not expired when the proviso in question came into force on April 1, 1952, and if it could be held that this was a case governed by the proviso to section 34(3) of the Act, it would not have been possible to accept the view that the orders envisaged under the proviso could save limitation only if they were made before the expert of the requisite period. Obviously, the contention does not find any support from the language of the proviso.
For the reasons given above, I hold that, on the facts and in the circumstances of the case, the proceeding u/s 34 of the Act was not validly initiated against the assessee for the assessment year 1950-51. The question of law referred to this court must be answered in favour of the assessee and against the Commissioner of Income Tax who must pay the costs, of this reference to the assessee. Hearing fee Rs. 250 only.
G. N. PRASAD J., - I agree.
Question answered in favour of the assessee.