Daffadar Bhagat Singh & Sons v. the Income-Tax Officer, A-Ward, Ferozepore

Judgment

The Judgment of the Court was delivered by Grover, J. This is an appeal by special leave against. ~he judgment of the Punjab High Court dismissing the writ pent;on of appellant Firm herein under Arts. 226 and 227 of the COjl)Sntution by which it was prayed that a writ of prohibition directing the income tax authorities not to proceed with the assessment for the year 1952-53 be issued. A prayer was als? made (or the issue of a writ of certiorari for quashing the notices under ss. 23 ( 2) and 22 ( 4), of the Income tax Act, 1922, hereinafter called the Act, which had been issued by the Income tax Officer in that connection. The appellant firm filed a return for the assessment year 1952-53 on March ~l, 1953. It also applied that it may be registered as a firm under s. 26A of the Act, the partners being Bhagat Singh and his two sons Kartar Singh & Dhian Singh, their shares being in the proportion of 4/16, 6/16 and 6/16 respectively.

The Income tax Officer passed an or<ler on March 26, 1957 holding that the assessee constituted a Hindu Undivided Family and not a firm. The registration under s. 26A was also refused. The appellant approached the Appellate Assistant Commissioner in appeal who made an order on August 11, 1959 allowing registration of the partnership firm under s. 26A. He further held that the business belonged to the firm and therefore its income must be excluded from that of the family. The Income tax Officer was directed to assess the income of the business in the hands of the firm. The Income tax Officer issued fresh notice to the appellant u'lder s. 22 ( 4) and s. 23 (2) of the Act. The appellant refused to comply with these notices and moved the Inspecting Assistant Commissioner of income tax for giving a direction that the assessment should not be proceeded with owing to the statutory bar created by s. 34(3) of the Act.

As the income tax authorities did not accede to the request of the appellants a petition under Arts. 226 and 227 was filed in the High Court. The High Court dismissed the petition on the ground that in view of the decision of this Court in lncome tax Officer A-Ward, Sitapur v. Murlidhar Bhagwandas(') the second proviso to s. 34 ( 3) would be applicable because the members of the appellant firm could not be regarded as strangers to the proceedings which resulted in the assessment order made in respect of them and others on the basis of their constituting a Hindu Undivided Family along with others and that they were intimately connected with the "person" whose assessment was made by the (1) 5' I.T.R. 335. 8 30 SUPREME COl:RT REPORTS (1969J i SCR In.come tax Ofliccr and set aside by the Appellate Assistant Commissioner on whose dirc~tion fresh assessment proceedings were taken. The second proviso to s. 34(3) of the Act reads:

"'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 under section 27 or to an assessment or reassessment made on the assessec 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".' In S. C. Prashar and Others Vasa111sc11 Dwarkadas & Ors. ( 1 ), this Court, by majority, held that the provisions of the second proviso to s. 34(3) in so far as they authorised the assessment or reassessment of any person other than the assessee beyond the period of limitation specified in s. 34 in consequence of or to give effect to a finding or direction given in an appeal, revision or reference arising out of proceedings in relation to the a1scsscc. violated the provisions of Art. 14 of the Constitution and were invalid to that extent.

The scope and ambit of the second proviso came up for consiileration again in Income tax Officff. A-H1artl, Sitapur v. Murlidhar BhaR11 1andas(::). ,i:\.ccording to the majority decision the expression "finding., and "directio1!" in the said proviso means respectively a finding necessary for giving relief in respect of the assessment for the year in quc,1ion and a direction which th~ appellate or revisional authority. as the case may be, was empowered to give under the sections mentioned in that proviso. A "finding" therefore could only he that which was neccssa1y for the disposal of an appeal in respect of an as;cssmcnt of a particular year. If the Appellate Assistant Commissioner found that the income shown by the assessee was not the income for the relevant year but was income which belonged to another year that was not a finding necessary for the disposal of the appeal and was only incidental to it.

The meaning of the words "any person" was also conside"ed and it was said at page 346 that a combined rcadini( of s. 30 (I ) and s. 31 ( 3) indicated the case where persons other than the appealing assessec might he affected by the orders passed by the Appellate Commissioner. It was observed : "Modification or setting aside of assessment made on a firm, joint Hindu Family, association of persons, for a particular year may affect the assessment for the said year on a partner or partners of the firm, member or members of the Hindu Cndividcd Family or the fll .19 IT.R_1.1S<"1 BHAGAT SINGH v. I.T.O. (Grover,!.) 8 31 individual as the case may be. In such ca~es though the latter are not eo nomine parties to the appeal, their assessments depend upon the assessments on .the former. The said instances are only illustrative. It, is not necessary to pursue the matter further.

We would, therefore, hold 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". The argument of Mr. Veda Vyasa for the appellants has been two1 fold. He contends firstly that the finding or direction which the Appellate Assistant Commissioner gave in the present case in his order dated August 11, 1959 that the business belonged to the partnership and not the Hindu Undivided Family and the further direction which was given by him that the Income tax Officer should assess the income in the hands of the partnership firm were not necessary for the disposal of the appeal. According to Mr. Veda Vyasa the crux of the matter was that the Appellate Assistant Commissioner gave a decision that the income was to be excluded from the assessment of the Hindu Undivided Famjly thereby reversing the decision of the Income tax Officer that it was assessable in the hands of the family.

It is contended that, in these circumstances, the direction to the Income tax Officer that he should assess the income in the hands of the firm was neither necessary nor called for and therefore the law laid down in Murlidhar Bhagwan Da,;'s case(') was clearly applic-able. In this connection it may be mentioned that according to Mr. Veda Vyasa two returns had been filed by the appellant for the assessment year 1952-53, one relating to the Hindu Undivided Family and the other, of the partnership firm. But the statements contained in the writ petition of the appellant do not support this submission. In para 3 of that petition it is stated that the finn and all the three partners filed their returns of profit and Joss on March 31, 1953 with the Income tax Officer and also made an application under s. 26A of the Act for registration of the firm.

It is true that in the assessment order of the Income tax Officer the status of the assessee is shown to be Hindu Undivided Family but that has been apparently shown in the order because the Income tax Officer gave an express decision about the status of the assessee and held that it constituted a Hindu Undivided Family. It, however, stands proved that the assessee filed the return claiming the status of a firm together with an application under s. 26A for its registration which was disallowed by the Income tax Officer but was allowed by the Appellate Assistant Commissioner. The substantial issue before the Appellate Assistant Commissioner was one of status of the assessee and he held (!) 52 1.T.R. 335. [1969) IS.CR that it was a partnership firm and not a Hindu Undivided Family. This finding was necessary for deciding the appeal before the Appellate Assistant Commissioner and it is not possible to understand how it can be regarded as having been made only incidentally.

Once a finding Is given which was necessary for the disposal of the appeal the second proviso to s. 34( 3) of the Act would be attracted and the bar of limitation would be lifted. In N. K. Sivali11gam Chettiar v. The Commissio11er of l11c'l'!nc tax. Madras( 1 ), this Court after referring to the relevant observations in Murlidhar /lhagwa11da1's(') case reiterated that a finding within the second proviso to s. 34 ( 3) must be necessary for giving relief in respect of the assessment of the year in question. It was further observed that this Court in an earlier case lent approval to the observations of the Allahabad High Court in Pt. Hazari Lal v. Income tax Officer, Kanpur( 3 ) that the word "finding" only covers "material questions which arise in a particular case for decision by the authority hearing the case or the appeal which, being necessary for passing the 'final order or giving the final decision in the appeal has been the subject of controversy between the interested parties or on which the parties concerned have been given a hearing'."

The first submission of Mr. Veda Vyasa therefore cannot be accepted. The second limb of the argument of Mr. Veda Vyasa is based ·on the premise that the appellant which was a partnership finn was a distinct legal entity and was thus a total stranger to the Hindu Undivided Family the assessment of which came up for <:onsideration before the Appellate Assistant Commissioner in which the orders already referred were made by him. It is suggested that the appellant could not fall within the meaning of the expression "any person" in the second proviso to s. 34(3) of the Act. If the observations made in Murlidhar Bha{:wan Das's(') case are borne in mind it is again not possible to understand how the appellant can be taken out of the category of person oo persons intimately connected with the assessment of the year under appeal. The returns, as stated before, were originally filed by the partnership firm comprising Bhagat Singh and his two sons.

The question was of the assessment of the income of the business of the firm. The Income tax Officer treated the father and the sons as Hindu Undivided Family. On appeal, however, the Assistant Commissioner accepted their contention that they formed a partnership firm .. It is difficult, in these circumstances, to agree that the appellant was a total stranger to the assessment which was under appeal before the Appellate Assistant Commissioner and had no intimate connection with the per.;on whose assessment was .1 ! 'i (.(, IT R ~~6. BHAGAT SINGH v. l.T.O. (Grover, J.) 8 3:J. made by the Income tax Officer and was set aside in appeal by the Appellate Assistant Commissioner. For all these reasons, the appeal fails and is dismissed with costs. Y.P. Appeal dismissea .