1. This is a reference under section 66(1) of the Income-tax Act, 1922. The assessment year relevant to this reference is 1946-47, the corresponding previous year being the year which ended on Diwali of 1945.
2. One Sodradevi, widow of Narsinghdas Daga, and her three major sons constituted certain partnerships and her three minor sons were admitted to the benefits of those partnerships. Narsinghdas Daga died some time in 1945. The eldest son is Dwarkadas and the three minor sons are Gowardhandas, Hiralal and Sunderlal. On 2nd January, 1948, each of the three minor sons filed a voluntary return of income for the above assessment year. The return was signed by Dwarkdas. The return showed the income received by the minor as his share of profits in the said partnerships. The Income-tax Officer made his order dated the 30th March, 1948, under section 23(3) and closed the case of the three assessees as included in the income of his mother, Sodradevi, under section 16(3) (a) (ii) and assessed Sodradevi accordingly. Sodradevi challanged such inclusion within her income. Ultimately the Supreme Court held that section 16(3) (a) (ii) would apply only to a father and not to a mother and that the inclusion of the shares of income of the 3 minor assessees in the income of Sodradevi was not justified. The necessary proceeding was taken under section 66(5) and such income of each of the three minor assessees was excluded from the assessment of Sodradevi for the relevant assessment year.
3. In order to bring to tax the said incomes of the three minor assessees received by them towards their respective shares in the partnerships, the Income-tax Officer initiated action under section 34(1) (a), obtained the necessary sanction of the Commissioner of Income-tax for taking action under section 34(1) (a) and served the requisite notice on each of the 3 assessees on the 29th March 1955. The assessment was then completed on 28th March, 1956. In such assessment, the Income-tax Officer brought the said amounts to tax. For certain reasons, which are not relevant, the Appellate Assistant Commissioner cancelled the assessment. In appeal, the Income-tax Appellate Tribunal, hereinafter referred to as 'the Tribunal', upheld the order of the Appellate Assistant Commissioner.
4. Before the Tribunal, the following contentions were urged on the behalf of the revenue :
(1) That the return filed on behalf of each of the 3 minor assessees was an invalid return, because it was signed by Dwarkadas, who was only the eldest brother of the assessees, although it would have been signed by Sodradevi, as after the death of Narsingdas, as their mother, she was their natural guarding under Hindu law. It was further contended that, as no valid return had been filed, action could be taken under clause (a) of sub-section (1) of section 34.
(2) If, however, it be held that it was clause (b) of sub-section (1) of section 34 which could apply, the bar of limitation of 4 years would not be applicable because of the provisions of the second proviso to section 34(3), because the assessment was made in consequence of or to give effect to the finding given by the Tribunal in its order passed under section 66(5) in the appeal filed by Sodradevi.
(3) In any event, the inclusion of the income of each of the 3 minor assessees received as their respective shares from the partnerships could be justified under section 35.
5. So far as the said first contention of the revenue is concerned, the Tribunal held that it was totally a new case which the department sought to set up for the first time at the second appeal stage before the Tribunal and that it was, therefore, not permissible for the revenue to urge the same. The Tribunal, however, thereafter considered the contention and formed an opinion that the return was a valid return.
6. So far as the said second contention is concerned, the Tribunal held that the income chargeable to tax had escaped assessment, not on account of any omission on the part of the assessee to file a return, but on account of an erroneous view taken by the Income-tax Officer on the minor assessee's income under section 16(3) (a) (ii) by including it in his mother's income and that, therefore, the assessment could be reopened only under clause (b) of section 34(1). The Tribunal, however, further held that in the matter of the mother's assessment the Tribunal had not given any finding or direction in its order passed under section 66(5), and that, therefore, the time limit of 4 years provided for under the second proviso to section 34(3) was not raised. The Tribunal held that, therefore, the initiation of action under section 34 was bad and illegal.
7. As regards the said third contention urged on behalf on the revenue, the Tribunal held that action was taken only under section 34 and not under section 35 and that, as no action had been taken under section 35, it was futile for the Tribunal to go into the question whether action under section 34 could be justified under section 35.
8. In view of its said findings, the Tribunal upheld the order of the Appellate Assistant Commissioner and cancelled the assessments on the three minor assessees.
9. The revenue thereafter made an application under section 66(1) for a reference being made on the following 3 questions, namely :
'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the return of income filed by the assessee and signed by the major brother was a valid return
(2) Assuming that action has been taken under section 34(1) (b) as held by the Tribunal, whether on the facts and in the circumstances of the case, the Tribunal was correct in holding that the proceedings were not validly initiated
(3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessment could not be justified under section 35 of the Income-tax Act, 1922 ?'
10. It is stated in the order which the Tribunal made on that application for reference as appearing in the agreed statement of the case, in its paragraph 12 :
'The first question is merely of academic importance. The assessee filed a return for the assessment year in question. The Income-tax Officer acted upon it and passed an order and has duly disposed of that return in accordance with law. He did not consider that return as an invalid return, nor did he in his proposal to the Commissioner of Income-tax for obtaining the sanction for reopening the assessment, suggest that the return filed for the assesse was an invalid return and that is why income chargeable to tax had return was sought to be set up for the first time before the Tribunal at the second appeal stage. The Tribunal did not permit the department to set up such a case. Therefore, the first question which is sought to be raised does not arise out of the Tribunal's order. Similarly, when the share incomes of the assessee have not been included in the assessment under section 35, the question of justification of the inclusion under section 35, did not arise. The refore, the third question is not a question that arises from the Tribunal's order. It cannot, therefore, be referred to the High Court.'
11. The Tribunal has by its said order referred the following question :
'Whether, on the facts and in the circumstances of the case, was the reopening of the assessment for the assessment year 1946-47 by the notice issued by the Income-tax Officer under section 34(1) (a) and served on the assessee on March 29, 1955, legal, valid and in accordance with law ?'
12. In the proceedings up to the stage when the Tribunal made its order on the applications for reference, the matter relating to each of the said three minor assessees was dealt with separately. So far as this reference is concerned, the material facts and circumstances, as also the points of law relating to the questions falling for our consideration, are identical. The Tribunal has, therefore, made this reference as a single reference and has submitted a single statement of the case. We propose to deal with the case of all the three minors as a single case and will hereafter proceed as if there was but one assessee, but whatever we say will apply to each of the said three minor assessees.
13. That the return of the assessee was filed by and under the signature of Dwarkadas is not all disputed nor is it disputed that Dwarkadas was the elder brother of the assessee. Mr. Hajarnavis, the learned counsel appearing on behalf of the revenue, contended that after the death of the assessees' father, his mother, Sodradevi, was the minor's natural guardian according to Hindu law, that Dwarkadas had, therefore, no right or authority to sign and file the return on behalf of the assessee, his minor brother, and that the return filed by Dwarkadas is invalid and must be treated as non-existing. The question referred, however, does not specifically or directly raise this point of law. Mr. Hajarnavis, however, contended that his present contention is but a mere aspect of the question of law which was been actually referred. He contended that the question whether the return is valid or not, is not only implicit, but is the very basis of the question referred and that if it is not open to this court to consider the question about the validity of the return, the question referred is emptied of all its contents. He emphasised that the question as referred in its present terms includes the consideration of the issue whether the return is valid or not.
14. Before proceeding to consider the present contention of Mr. Harjarnavis, it is necessary to see the legal position in a reference made under section 66(1). The Supreme Court has in its judgment in Commissioner of Income-tax v. Scindia Steam Navigation Co. Ltd. summed up the propositions of law, which, as appearing at page 611 of the report, are :
'The result of the above discussion may thus be summed up :
(1) When a question is raised before the Tribunal and is dealt with by it, it is clearly one arising out of its order.
(2) When a question of law is raised before the Tribunal but the Tribunal fails to deal with it, it must be deemed to have been dealt with by it, and is, therefore, one arising out of its order.
(3) When a question is not raised before the Tribunal but the Tribunal deals with it, that will also be a question arising out of its order.
(4) When a question of law is neither raised before the Tribunal nor considered by it, it will not be a question arising out of its order, notwithstanding that it may arise on the finding given by it.
Stating the position compendiously, it is only a question that has been raised before or decided by the Tribunal that could be held to arise out of its order.'
15. The Supreme Court has in its judgment in Commissioner of Income-tax v. Indian Molasses Co. Ltd. reiterated the proposition contained in the last paragraph of the above quotation from its said judgment in the case of Scindia Steam Navigation Co. Ltd. when it states :
'If a question of law is raised before the Tribunal, even if an aspect of that question is not raised, in our judgment, that aspect may be urged before the High Court.'
16. Bearing these principles in mind, we must examine the position in the reference before us. In its application to the Tribunal for a reference under section 66(1), the revenue specifically applied that the question No. 1, referred to earlier, be referred under section 66(1), and that question specifically and directly raised a point about the validity of the return as filed by and under the signature of Dwarkadas. The contention covered by that question was sought to be argued before the Tribunal. The Tribunal refused to permit that point being agitated on behalf of the revenue on the ground that it was sought to be argued at the second appellate stage for the first time. The refusal of that permission is, in our opinion, a distinct and clear decision of the Tribunal. It is, however, true, as pointed out by Mr. Hajarnavis and as also appearing from not only the statement of the case but also from the original order of the Tribunal, which dealt with that contention, that the Tribunal, after refusing permission, proceeded to express its opinion on that point. In our opinion, having refused permission, it was no longer necessary for the Tribunal to express any opinion of that point. If in fact it has expressed an opinion it is simply obiter dictum. Even if this point of law can be said to be a mere aspect of the point of law raised in the question actually referred, that aspect was specifically and separately made the subject-matter of the said question No. 1 and it was specifically rejected by the Tribunal. Moreover, in rejecting the application to refer that question No. 1, the Tribunal has given its own reasons which are set out in paragraph 12 of the statement of the case. If the revenue desired that question to be referred to this court, the revenue ought to have made an application to this court under sub-section (2) of section 66 for a direction to the Tribunal to refer that question. The revenue, howerver, did not follow that procedure. In this situation, we must bear in mind the observations of the Supreme Court in its judgment in Commissioner of Income-tax v. Smt. Kasturbai Walchand Trust which, as appearing at pages 660 and 661 of the report, are :
'It may be mentioned that, at one stage, an attempt was made on behalf of the Commissioner of Income-tax to raise the question about the validity of this deed of surrender, but, when the Commissioner asked the Tribunal to refer a question about the competence of Bai Kasturbai to renounce her beneficial interest under the trust settlement, that request was refused by the Tribunal. The Commissioner did not, thereafter, move the High Court to obtain a statement of the case from the Tribunal on that question, so that, in these appeals, it is no longer open to the Commissioner to contend that Bai Kasturbai was not competent to renounce her beneficial interest.'
17. In the circumstances and as what may be said to be an aspect of the question actually referred was sought to be made the subject-matter of a specific question in the application for reference under section 66(1) and as it was rejected and yet the revenue did not make an application under section 66(2), we hold that it is not open to the revenue to canvas the subject-matter of the said question No. 1 as an aspect of the question actually referred. It must also be pointed out that the Tribunal held that it would not permit the revenue to canvass that point before the Tribunal for the first time at the late stage of the second appeal before it. In our opinion, the Tribunal's decision refusing permission could itself be made the subject-matter of another question of law. Such a question of law was not even invited to be referred in the application under section 66(1), much less made the subject-matter of an application under section 66(2). It is clear that, unless the ruling of the Tribunal refusing to grant permission is held to be in any way incorrect or wrong, it would not even be open to the revenue to agitate the question as to the invalidity of the return as filed. In this connection, it is not difficult to envisage that the point about invalidity of the return may necessitate investigation of more facts; for example, but only by way of a hypothetical example, the assessee could have pointed out the proved facts to show that in spite of the mother being the natural guardian, there were reasons which would justify Dwarkadas signing and filing the return on behalf of the minor assessee. Without investigation into facts, it would not be correct to rule out a possibility, may be a mere possibility, that Dwarkadas had at the relevant time been appointed the legal guardian of the minor assessee by some court. To state briefly, the relevant facts not having been investigate, the assessee has not had the refusing permission has not been challenged by being made the subject-matter of any question either under sub-section (1) or sub-section (2) of the said question No. 1 even as only an aspect of the question referred.
18. Mr. Hajarnavis then invited our attention to the decision in Narain Swadeshi Weaving Mills v. Commissioner of Excess Profits Tax and contended that this court should, in exercise of its powers under sub-section (4) of section 66, reframe the question so as to bring out the real controversy between the parties. The Supreme Court has, however, in its judgment in Kamlapat Motilal v. Commissioner of Income-tax pointed out, as appearing at page 270 of the report, that sub-section (4) of section 66 does not imply that the High Court can ask the Tribunal to state a case on a question which the Tribunal has not referred to the High Court and which on the contrary the Tribunal has refused to refer on the ground that it relates to a finding of fact only and that it is obvious that sub-section (4) of section 66 cannot do service for sub-section (2) thereof and that if the assessee was to move the High Court under sub-section (2) of section 66 within the time allowed by law. In our opinion, what the Supreme Court has stated qua an assessee applies with equal force qua the revenue also and the facts of the present case are the very facts to which the proposition laid down by the Supreme Court is applicable.
19. Mr. Hajarnavis also invited our attention to another decision of the Supreme Court in the case of Narain Swadeshi Weaving Mills v. Commissioner of Excess Profits Tax. In our opinion, the decision of the Supreme Court in the case of Narain Swadeshi Mills is not directly on the point arising before us. It is true that in that case, the Supreme Court reframed a question and answered it. A particular question, being question No. 3, in that case had been referred to the High Court. The High Court did not answer that question. The Supreme Court held that the High Court should not only have answered that question No. 3 in the negative, but should also have raised as a corollary to that answer to question No. 3, a further question of law on the lines indicated in question No. 1 of the assessee's petition. The Supreme Court then reframed question No. 1 and proceeded to answer it. What the Supreme Court, therefore, did was to answer question No. 3 which had in fact been referred and to reframe question No. 1 which also had in fact been referred, but what is to be noticed is that it reframed that question for the reason expressly stated by the Supreme Court itself that it was only by way of a corollary to the answer to question No. 3. In our opinion this is only a further instance of the proposition laid down as noticed earlier in the two cases of Scindia Steam Navigation Co. Ltd. and of Indian Molasses Co. P. Ltd. and it does not in any way militate against or create an exception to what the Supreme Court itself has laid down in the case of Kamlapat. We, therefore, hold that we cannot, and we, therefore, do not, reframe the question as suggested by Mr. Hajarnavis.
20. Now the question referred specifically refers to notice issued under section 34(1) (a). Clause (a) of section 34(1) can apply only when there is an omission or failure on the part of the assessee either to make a return of his income under section 22 or to disclose fully and truly all material facts necessary for his assessment for that year. In this case, the assessee did file a return and we have to proceed on the basis that that return was a valid return. Further, it has not even been alleged on behalf of the revenue that there was any omission or failure on the part of the assessee to disclose fully and truly all or any material facts necessary for his assessment for the relevant year. Under the circumstances, the very precondition for taking action under clause (a) did exist. The necessary result which would follow is that question No. 1 must answered in the negative.
21. Mr. Hajarnavis, however, pointed out that the Tribunal has fully considered in its judgment which dismissed the appeal whether action should have been taken under clause (b) of section 34(1). He further pointed out that the judgment of the Tribunal shows that both parties had even fully argued the appeal before the Tribunal from this particular point of view. Moreover, question No. 2 as proposed for reference on behalf of the revenue in its application for reference under section 66(1), specifically raised the point about the validity of the initiation of action under section 34 in view of the provisions of clause (b) of section 34(1). In spite of that question having been proposed, the Tribunal has referred the question not under clause (b), but under clause (a) of section 34(1). In view of what we have stated in respect of questions Nos. 1 and 3, Mr. Harjarnavis, realising the difficulty which may possibly arise in the way of the revenue, advanced certain argument. He argued that the necessary consequence of the refusal to refer the proposed question No. 1 would be that the return filed by Dwarkadas would have to be treated as valid and complete and it would then necessarily follow that no action could be taken under clause (a) and that the Tribunal could not have intended to refer a question under clause (a) because answering that question would be a mere idle formality. He contended that, therefore, the mention of 'clause (a)' in the question referred is a mere misdescription and it should be read to be what the Tribunal really intended it to be, namely, 'clause (b)'. He further contended that, in the alternative, this court should reframe the question referred in a suitable way so as to bring out the real controversy between the parties so that this court may be able to consider the position and answer the question on the basis of the position under clause (b).
22. We have already referred to the judgment of the Supreme Court in Kamlapat's case relating to reframing of a question in a reference under section 66. The position, however, in the instant case in connection with this point is materially different from that in respect of proposed question No. 2. In the instant case, both the parties fully argued the position before the Tribunal and the Tribunal gave its decision. A specific question on the point was invited to be referred to behalf of the revenue in its application for reference under section 66(1). It is true that the specific question No. 2 has not been referred by the Tribunal, but in its order made on the application for reference, the Tribunal, unlike as in the case of question Nos. 1 and 3, has not even referred to question No. 2, much less given any reason for not referring that question. The Tribunal refused to refer questions Nos. 1 and 3 after stating its reasons for doing so. Su rely, if question No. 2 also was not intended by the Tribunal to be referred, there would have remained no question whatever out of the questions proposed on behalf of the revenue for being referred to this court under section 66(1). Surely, it could not have been the intention of the Tribunal to refer. We will also consider another possiblity. It often happens that the party applying for a reference being made suggests certain questions, but the Tribunal refers a different question, but in doing so the Tribunal states, firstly, why it does not refer the question or questions as suggested by the applicant for reference and, secondly, also gives it reasons why it refers the question or questions which it does in fact refer. In this case, as very fairly conceded by Mr. Thakur, the Tribunal has said nothing whatever, either as to why it did not refer question No. 2 or why it referred the question which it has in fact referred. The only reason which we can think of is the one to be found in a statement contained in the statement of the case, namely, that the Income-tax Officer had issued notice under clause (a) of section 34(1). We accept the contention of Mr. Hajarnavis that the Tribunal could never have intended to refer a question which entails a decision which must automatically follow on the language of clause (a) of section 34(1), once the Tribunal held the return to be valid and refused to refer the question as to its validity.
23. In the peculiar facts and circumstances of the case, we will reframe the question so as to being out the real controversy between the parties. When reframed, the question will remain as it is referred save that it shall include 'section 34(1)' in the place and stead of 'section 34(1) (a)', that is, in other words, by deleting the reference to clause (a) from the question so as to make it wider and applicable to the position under both the clauses (a) and (b).
24. Now, so far as the question relates to the position under clause (a), as already stated, on the return having to be treated as valid, the question in so far as it relates to clause (a) must be answered, and we answer it, in the negative.
25. So fare as the question pertains to clause (b), Mr. Hajarnavis stated that he advanced the same arguments and contentions which he had advanced in Commissioner of Income-tax v. Sunderlal Daga (Income-tax Reference No. 66 of 1965). The decision in the latter case was reserved and had not been delivered when the arguments in this case concluded. He naturally stated that the judgment in that earlier case would be binding on this court in respect of those arguments and contentions. Those arguments and contentions have been rejected in the judgment delivered in that case on 27th January, 1971. It is unnecessary for us to set out those arguments and contentions here over again and to deal with them. Those arguments and contentions of Mr. Hajarnavis are to be treated as having been advanced in this case also and we reject them on the basis of the ration of the said other judgment and answer the question in so far as it relates to clause (b) also in the negative.
26. The revenue to pay the costs of the reference of the assessees.