Patna High Court
The Commissioner Of Income-Tax vs Joharmal Parsuram on 22 December, 1965
Equivalent citations: AIR1967PAT49
Author: N.L. Untwalia
Bench: N.L. Untwalia
JUDGMENT Untwalia, J.
1. This Income-tax Appellate Tribunal, Patna Bench, has stated a case under Section 66(1) of the Income-tax Act, 1922, here-in-after called the Act and referred to the High Court the following question of law:
"Whether on the facts and circumstances of the case proceedings under Section 34 of the I- T. Act were validly initiated against the assessee for the assessment year 1950-51."
2. The facts are in a short compass. The assessee is a registered firm and the question relates to the assessment in year 1950-51, corresponding accounting period being 12-10-1948 to 30-9-1949. 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 12-11-1947. The Income Tax Officer rejected the claim but on appeal by the family, the Appellate Assistant Commissioner accepted the partition as effective from 16-6-1949. On further appeal to the Tribunal, by its order dated 1-4-1955, it allowed the assessee's claim for partition with effect from 1-1-1948. In the mean time assessment proceeding was started against the Hindu undivided family for the assessment year 1950-51 corresponding to the accounting period 12-10-1948 to 30-9-1949. 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 under Section 22(3) of the Act on 15-12-1950 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 16-6-1949, the Income Tax Officer split up the accounting year into two periods, (f) from 12-10-1948 to 15-6-1949 and (ii) 16-6-1949 to 30-9-1949. The income for the former period was assessed as that of the Hindu undivided family and the income for the remaining 3 1/2 months for the latter period was assessed in the hands of the partnership firm. This assessment was made on 31-3-1955. On appeal by the Hindu undivided family the Appellate Assistant Commissioner by his order dated 13-12-1955 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 1-1-1948 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.
3. The Income Tax Officer, thereupon, issued a notice under Section 34 of the Act to the assessee firm on 24-9-1958 for reopening the original assessment made on 31-3-1955 in respect of the assessment year 1950-51. No return was filed by the assessee. The Income Tax Officer by his order dated 14-3-1959 determined the total income of the firm at Rs. 1,08,778 for the whole of the year 12-10-1948 to 30-9-1949 under Section 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 21-11-1959, the Appellate Assistant Commissioner held that the limitation commenced to run from 31-3-1950, the end of the financial year in which the order dated 1-4-1955 of the Tribunal was made in the earlier appeal filed by the Hindu undivided family accepting the partition as effective from 1-1-1948. On further appeal by the assessee firm the Tribunal has held that the assessment was barred 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 as aforesaid.
4. 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 81-3-1956 was obviously wrong and could not be supported. It was also accepted on all hands and mere 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 24-9-1958 was clearly beyond time. That would render the proceedings for the assessment in question invalid.
5. 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 re-assessment may be made, shall apply to a re-assessment made under Section 27 or to an assessment or re-assessment made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order under Section 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 Dwarka-das, (1956) 29 ITR 857: (AIR 1956 Bom 530) 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, (1963) 49 ITR (SC) 1: (AIR 1963 SC 1356)) 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 in 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 revive a proceeding which was already barred even if it applied to the facts of that case.
6. It is necessary to state the facts of the case of Vasantsen Dwarkadas as the learned standing counsel for the department hied 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 known as Purshottam Laxmidas on October 28, 1935, Dwarkadas died on April, 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, Naran-das Shivli and Nanalal 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. In 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 under Section 34 of the Act for re-assessing 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 Vasaulsen 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."
7. It would thus be noticed that the firm Purshottam Laxmidas was not quite 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 to the appeal filed by the Hindu undivided family in almost the sense in which the firm Purshottam Laxmidas was in relation to the appeal filed by Vasantsen.
8. Learned standing counsel placed reliance upon a Bench decision of the Allahabad Court in Hazari Lal v. Income Tax Officer, Dist. II (ii), Kanpur, (1960) 39 ITR 265: (AIR 1960 All 97). 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 re-assessing 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 under Section 31 of the Act to record findings 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. Datla, however, placed reliance upon the various types of persons other than the assessees enumerated by way of example at pp. 273 to 275 (of ITR): (at pp. 99-100 o! AIR) 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 share-holders 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, (1964) 52 ITR 335: (AIR 1965 SC 342). The contrary view expressed by the Full Bench of the Allahabad High Court in Lakshman Prakash v. Commr. of Income Tax. (1963) 48 ITR 705: (AIR 1963 AH 172 (FB)) 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 may 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 the context is that that income does not belong to 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 under Section 31. Under that section he can give directions inter alia under Section 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 then 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 word '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."
9. The expression "any persons" in the subsequent paragraph occurring at p. 346 (of ITR): (at p. 349 of AIR) 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 to nomine parties to the appeal their assessments depend upon the assessments of the firm or, the Hindu undivided family. It was, therefore, held 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, persons who might or could be affected by the orders passed by the Appellate Assistant Commissioner in exercise of his powers under Section 31(3) and Section 31(4) of the Act.
In my opinion the Supreme Court decision in the case of Murlidhar Bhagwan Das, (1964) 52 ITR 335: (AIR 1965 SC 342) 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 from that order the Income Tax Officer could be justified in initiating the proceeding under Section 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.
10. Mr. Datta then placed reliance upon a learned single Judge decision of the Allahabad High Court in Mukund Lal v. Income Tax Officer, A-Ward, Varanasi (1963) 49 ITR 354 (All). 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 direction given in the proceeding 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 (1963) 48 ITR 705: (AIR 1963 All 172 (FB)) which was not approved by the Supreme Court in (1964) 52 ITR 335: (AIR 1965 SC 342). Three more cases were cited by Mr. Tarkeshwar Pd., 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. Muthukarup-pan Chettiar v. Commr. of Income-tax Madras, (1965) 56 ITR 674 (Mad.); Commr. of Income-tax, Gujarat v. Shantilal Punjabhai, (1965) 57 ITR 58: (AIR 1966 Guj 106) and Rameshwar-lal Sanwarmal v. Commr. of Income-tax, Assam, (1965) 58 ITR 271 (Assam). Out of the decisions aforesaid the decisions of the Madras High Court in (1965) 56 ITR 674 (Mad.) and the decision of the Gujarat High Court in (1965) 57 ITR 58: (AIR 1966 Guj 106) 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 (1963) 49 ITR 354 (All.) was not followed by the Bench of the Gujarat High Court in (1965) 57 ITR 58: (AIR 1966 Guj 106).
11. Mr. Brajeshwar Pd. 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 13-12-1955 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 Vasanlsen Dwarkadas, (1956) 29 [TR 857: (AIR 1.956 Bom 530) and (1963) 49 ITR (SC) 1: (AIR 1963 SC 1356) as also upon a Bench decision of this court in Lakshmir Singh v. Commr. of Income Tax, B. and O., (1958) 33 ITR 856: (AIR 1957 Pat 538) that the order of the Appellate Asst, Commissioner made in the appeal of the Hindu undivided family on the 13th of December 1955 being beyond the expiry of the period of four years i.e. 31-3-1955 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 Commr. of Income-lax, 15. and O. v. Sardar Lakhmir Singh, (1963) 49 ITR 70: (AIR 1963 SC 1394). 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 the 1st of April, 1952 and if it could be held that this was a case governed by the proviso to Section 34(3) of the orders envisaged under the proviso could have limitation only if they were made before the expiry of the requisite period. Obviously, the contention does not find any support from the language of the proviso.
12. For the reasons given above I hold that on the facts and in the circumstances of the case the proceeding under Section 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 cost of; this reference to the assessee. Hearing fee Rs. 250 only.
G.N. Prasad, J.
13. I agree.