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Commissioner of Income-tax Vs. Ghanta Bapaniah and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAndhra Pradesh High Court
Decided On
Case NumberCase Referred Nos. 54 to 58 of 1965
Judge
Reported in[1969]74ITR605(AP)
ActsIncome Tax Act, 1922 - Sections 22(1), 25A, 31, 34 and 34(3)
AppellantCommissioner of Income-tax
RespondentGhanta Bapaniah and ors.
Appellant AdvocateT. Ananta Babu, Adv.
Respondent AdvocateP. Rama Rao, Adv.
Excerpt:
.....partition of hindu undivided family took place and prayer made to pass order under section 25 a - income tax officer assessed petitioner under second proviso to sections 31 and 34 (3) - issue whether second proviso to section 34 (3) applicable - as per precedent case decided by supreme court second proviso to section 34 (3) applicable. - - 14. in prashar's case, the supreme court held the reassessment proceedings started under section 34 to be bad. at page 14 he said :therefore, i am clearly of the view that on april 30, 1954, the income-tax officer had no jurisdiction to issue the notice which he did on the firm purushottam laxmidas under the second proviso to sub-section (3) of section 34, because the time limit fixed by sub-section (1) of section 34 had expired long before the..........by the appellate commissioner. 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 undivided family or the individual, as the case may be. in such cases, though the latter are not eo nomine parties to the appeal, their assessments depend upon the assessments on the former. the said instancesare 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.'18. it would appear from the.....
Judgment:

Jaganmohan Reddy, C.J.

1. In all these references, the common question that has been referred for our opinion, which arises out of assessment proceedings for the years 1953-54 and 1954-55 made on February 2, 1962, relating to a father and his four sons constituting a Hindu undivided family is as follows :

'Whether the assessments made for the years 1953-54 and 1954-55 on February 2, 1962, are valid in law ?'

2. The assessees were coparceners of a Hindu undivided family, which was assessed through its karta, Ghanta Bapaniah, the assessee in R. C. No. 54/55. The family owned certain buses and ran a bus service. In the course of the assessment for the year 1953-54, it was claimed that a partition had taken place on January 1, 1952, and accordingly it was prayed that that fact may be recorded and an order passed under Section 25A of the Income-tax Act, 1922 (hereinafter called 'the Act'). About the same time, each of the individual coparceners, on the basis that the joint family was divided, filed for the assessment years 1953-54 and 1954-55 individual returns on March 31, 1954, and December 21, 1954, respectively. Separate files were opened for the assessees, the erstwhile karta and the other coparceners, for those two years and the receipt of the returns of income was recorded therein. The claim of the Hindu undivided family to record the partition under Section 25A was rejected by the Income-tax Officer by his order dated March 27, 1958, in these words :

'I have held that the family did not become divided on January 1, 1952. Club with 22B.'

(It may be noted that '22B' refers to the assessment file of the Hindu undivided family). He eventually made the assessment on the undivided family.

3. Against the order of the Income-tax Officer under Section 23(3) and Section 25A, the Hindu undivided family went in appeal to the Appellate Assistant Commissioner, who set aside the order of the Income-tax Officer on the ground that the assessee had not been granted sufficient opportunity. Against this order of the Appellate Assistant Commissioner, the Hinduundivided family went up in appeal to the Tribunal. The Tribunal held that the order of the Income-tax Officer under Section 25A was correct, but it set aside the order of the Appellate Assistant Commissioner relating to the assessment, on the ground that he had not gone into the question as to whether there had been partial partition of the family's assets. The Appellate Assistant Commissioner then went into this question and passed an order on August 26, 1961, accepting the contention of the assessee-Hindu undivided family that there was a partial partition in respect of the bus service, and also giving the following directions :

'The Income-tax Officer is directed to consider the same in the individual assessments of the coparceners in respect of the buses plied by each.'

4. It may be pointed out that in the file relating to the assessment year 1954-55, no orders were passed. The matters rested at this stage till the Appellate Assistant Commissioner passed his order dated August 26, 1961, in the case of the Hindu undivided family. After the receipt of this order, the Income-tax Officer did not issue any fresh notice either under Section 34 or any other section, but completed the individual assessments of the assessees --erstwhile karta and the other members of the family, on February 2, 1962, and the assessment orders mentioned that they were made under Sections 31 and 34(3), second proviso.

5. All the assessees then went up in appeal to the Appellate Assistant Commissioner and, before him, their main contentions were :

(1) that the second proviso to Section 34(3) read with Section 31 was not attracted ;

(2) that the assessees were not given any notice or opportunity for representation prior to the passing of the orders; and

(3) that the quantum of income determined was excessive. On the first contention, the Appellate Assistant Commissioner held '...............it isclear that the substantive provisions of Section 34(3) do not apply and the second proviso comes into operation and therefore the assessments can be made on the basis of the orignal returns submitted by the appellant.'

6. Regarding the second contention, he held that the procedure adopted by the Income-tax Officer did not render natural justice to the assessee, for which reason the assessments were set aside and the Income-tax Officer was asked to 'redo them according to law'. He however did not express any views on the third contention regarding the quantum of income, as he was setting aside the assessments.

7. Against this order, the assessees appealed to the Tribunal, before which it was contended, inter alia :

(1) that both the assessments were barred by limitation, and therefore the orders passed by the Income-tax Officer were illegal ; and

(2) that the second proviso to Section 34(3) was not applicable as the Appellate Assistant Commissioner was not entitled to give the direction which he did.

8. The Tribunal dealing with the first objection pointed out that the assessees had filed their individual returns under Section 22(1) of the Act during the financial years 1953-54 and 1954-55, respectively, that under the substantive provisions of Section 34(3), the assessments based on those returns should have been completed at the latest by March 31, 1958, and March 31, 1959, respectively, that the assessments were completed only in 1962 and that they were therefore barred by limitation. It was contended before the Tribunal by the department that the four-year limitation would not apply, if the provisions of Section 28(1)(c) were applicable, but the Tribunal rejected this contention holding that at no time was it stated that there was a concealment which would attract the application of Section 28(1)(c). Accordingly, in respect of the assessment year 1953-54, the Tribunal held that there was an additional reason why the assessments were illegal, because the Income-tax Officer liad closed the assessment for that year on March 27, 1958, and such an assessment Bould be reopened only after the issue of a notice under Section 34. In this view, the assessments for both the years were set aside in respsct of each of the assessees.

9. The learned advocate for the department, Sri Ananta Babu, contends that the Income-tax Officer had not at any time invoked the jurisdiction under Section 34 to reopen the assessments which have already been made and there was therefore no necessity for him to give a notice under that section. The Income-tax Officer squarely relied upon the second proviso to Section 34(3) which, having regard to the directions given by the Appellate Assistant Commissioner, would lift the bar of limitation. The Tribunal was therefore not right in treating the case as if it is barred by limitation. It should have considered the question whether, having regard to the direction given by the Appellate Assistant Commissioner, the case fell under the second proviso to Section 34(3) and whether there was any illegality in the order of the Appellate Assistant Commissioner in holding that view. The Tribunal was also wrong, according to the learned advocate, in assuming that the Income-tax Officer had closed the assessments for the said years which could only be reopened on a notice being given under Section 34.

10. We think there is validity in this contention. The order of the Income-tax Officer when he rejected the application for recording partition of the Hindu undivided family under Section 25A shows that as he had held that the family did not become divided on January 1, 1952, the case of each of the assessees may be clubbed with the file of the Hindu undivided family. In other words, the Income-tax Officer anticipated an appeal and, by way of abundant caution, clubbed these files together in the event of there being anadverse order to that passed by him and any directionr given by the appellate authorities. That is not to say that the assessments were closed. It may be noticed that in so far as the order passed under Section 25A in the joint family assessment accepting the partial partition and directing the Income-tax Officer to consider the income from the assets which were allotted in the partial partition in the individual assessments of the coparceners is concerned, the finding in respect thereof has become conclusive as there was no appeal by the department as against that order.

11. In this reference, the question, as we have said earlier, is whether the second proviso to section 34(3) is applicable. Section 34(3) and the second proviso are as follows :

Section 34(3) :

'No order of assessment or reassessment, other than an order of assessment under Section 23 to which Clause (c) of Sub-section (1) of Section 28 applies or an order of assessment or reassessment in cases falling within Clause (a) of Sub-section (1) or Sub-section (1A) of this section shall be made after the expiry of four years from the end of the year in which the income, profits or gains were first assessable : . . . . 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 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.'

12. Sri Ananta Babu relies upon a decision of the Supreme Court in Income-tax Officer, 'A' Ward, Sitapur v. Murlidhar Bhagwan Das, : [1964]52ITR335(SC) . which held that there was an intimate connection between the members of the coparcenary and the Hindu undivided family or between the partners of a firm and the partnership firm so as not to consider them as strangers or 'any person' within the meaning of the second proviso to Section 34(3) which proviso, it was contended by Sri Rama Rao, learned counsel for the assessees, was struck down by an earlier decision in S. C. Prashar v. Vasantsen Dwarkadas, : [1963]49ITR1(SC) by a majority of their Lordships of the Supreme Court. Sri Ananta Babu contends that, in view of the directions given by the Appellate Assistant Commissioner in the appeal under Section 31, the ban under Section 34 was lifted by virtue of the second proviso and, therefore, the Appellate Assistant Commissioner's order setting aside the assessment and directing the Income-tax Officer to give the assessees a hearing before assessing each of them was valid and proper.

13. Sri Rama Rao has cited several decisions of other courts which considered both the decisions in Prashar's case and Murlidhar Bhagwan Das's case in support of his contention that the latter case of the Supreme Court left untouched the decision in the former case where their Lordships had struck down the second proviso of Section 34(3) as offending Article 14, and, as such, the proviso must be considered to be non est and the ban imposed under Section 34(3) cannot in any case be lifted. This argument, in manner of speaking, really amounts to inviting us not to give effect to the latter decision which, in our view, categorically and without doubt deals with a situation of the kind which we are called upon to consider in this case.

14. In Prashar's case, the Supreme Court held the reassessment proceedings started under Section 34 to be bad. Each one of the majority judges S.K. Das, Kapur and Sarkar JJ., delivered separate judgments, while Hidayatullah J. (as he then was) delivered the dissenting judgment of himself and Raghubar Dayal J. Das J., no doubt, gave expression to the view that the second proviso to Section 34(3) would be invalid entirely, i.e., even in relation to proceedings taken as against an assessee who was a party to the previous proceeding in which a finding or direction was given, but nonetheless, found it unnecessary to go so far for the purpose of disposal of the case before him. In fact, he had held that by the time the second proviso was added by an amendment on April 1, 1952, the right io reopen the assessment had become time-barred and, therefore, the amendment could not revive it. At page 14 he said :

'Therefore, I am clearly of the view that on April 30, 1954, the Income-tax Officer had no jurisdiction to issue the notice which he did on the firm Purushottam Laxmidas under the second proviso to Sub-section (3) of Section 34, because the time limit fixed by Sub-section (1) of Section 34 had expired long before the said proviso came into effect and the proviso does not in express terms or by necessary implication revive a remedy which has been lost before April 1, 1952.'

15. In view of this finding, with which the other two judges agreed, the view expressed by him on the constitutionality would be obiter. Sarkar J., however, clearly stated that the second proviso to Section 34(3) was bad in so far as it affected persons who were not assessees. But those observations were made in Commissioner of Income-tax v. Sardar Lakhmir Singh, : [1963]49ITR70(SC) judgment in which was pronounced on the same day as in Prashar's case, while stating that the proviso puts in a class the assessee and other person against whom an order of assessment is made in consequence of an order under Section 31, and discriminates them from evaders of tax against whom an order of assessment can be made only within the time prescribed in the substantive part of Sub-section (3) of Section 34. Their Lordships observed at page 79 :

'I think, therefore, that the second proviso to Sub-section (3) of Section 34, as amended by the Amending Act of 1953, in so far as it affects persons other than assessees is void as violating Article 14 of the Constitution .... The respondent, Lakhmir Singh, was not the assessee in the Section 31 proceedings in consequence of which the assessment order against him was made. The assessee was his father as the karta of a non-existent family. The proviso is invalid against the respondent, Lakhmir Singh.'

16. It may be observed that the assessment was on the joint family which had been divided, and once that fact was held to be true, there is no intimate connection between the erstwhile coparceners and the joint family or the karta and each one of them were strangers to the non-existent joint family. To that extent alone the assessment was considered to be invalid. The judgment of Kapur J. in Prashar's case should also be read in that light. The question of intimate connection between partners and the partnership firm and coparceners with an existing joint family was never considered in that case. In the second of the cases decided along with Prashar's case, namely, Commissioner of Income-tax v. Sardar Lakhmir Singh, the assessee, Lakhmir Sirigh, and his father, who once constituted a Hindu undivided family, filed separate returns of their income for the year 1946-47 on the ground that they had become divided. The Income-tax Officer overruled the case of partition and assessed the total income of the two persons as income of a Hindu undivided family. Subsequently, the Appellate Assistant Commissioner, before whom an appeal in regard to the assessment of the earlier year 1945-46 was pending, upheld the plea of the assessee that they had become divided even prior to that year and set .aside the assessment for that year. On November 27, 1953, the Income-tax Officer proceeded to assess Lakhmir Singh on the basis of his return made fo:' the year 1946-47. Although such an assessment was made more than four years after March 31, 1947, it was argued that the second proviso to Section 34(3) would save the assessment from the bar of limitation. Das, Kapur and Sarkar JJ., by the majority judgment, held that the assessment was invalid, though they have given different reasons. Das and Kapur JJ. held that the assessment was invalid because it had become barred even before the second proviso to Section 34(3) came into force on April 1, 1952. Sarkar J., as already pointed out, held that Lakhmir Singh was a stranger in the assessment proceedings in which his father was sought to be assessed for the year 1945-46. Hidayatullah and Kaghubar Dayal JJ. took a contrary view.

17. In Murlidhar Bhagwan Das case Subba Rao J. (as he then was), delivering the judgment of the majority, consisting of himself, Sinha C.J., andRajagopala Ayyangar J., Mudholkar and Raghubhar Dayal JJ. dissenting, spelled out certain limitations on the applicability of the second proviso to Section 34(3) among which the following may be noted as relevant for our purposes, viz., (i) that that proviso did not save the time limit prescribed under Section 34(1) in respect of an escaped assessment of a year other than that which was the subject-matter of the appeal or revision, as the case may be, (ii) that the expression 'any person' in that proviso referred to one who would be liable to be assessed for the whole or a part of the income that went into the assessment of the year under appeal or revision ; and (iii) the expressions 'finding' and 'direction' in that proviso meant, respectively, a finding necessary for giving relief in respect of the assessment for the year in question, and a direction which the appellate or revisional authority, as the case may be, was empowered to give under the section mentioned in that proviso. A 'finding', therefore, could only be that which was necessary for the disposal of an appeal in respect of an assesssment of a particular year. If the Appellate Assistant Commissioner finds that the income did not belong to that year, that was not a finding necessary for the disposal of an appeal in respect of the year of assessment in question. In so far as the expression 'any person' is concerned, which is what we have to determine in this case, Subba Rao J. observed at page 346 :

'The words 'any person', it is said, conclude the matter in favour of the department. The expression 'any person' in its widest connotation may take in any person, whether connected or not with the assessee, whose income for any year has escaped assessment ; but this construction cannot be accepted, for the said expression is necessarily circumscribed by the scope of the subject-matter of the appeal or revision, as the case may be. That is to say, that person must be one who would be liable to be assessed for the whole or a part of the income that went into the assessment of the year under appeal or revision. If so construed, we must turn to Section 31 to ascertain who is that person other than the appealing assessee who can be liable to be assessed for the income of the said assessment year. A combined reading of Section 30(1) and Section 31(3) of the Act indicates the cases where persons other than the appealing assessees might be affected by orders passed by the Appellate Commissioner. 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 undivided family or the individual, as the case may be. In such cases, though the latter are not eo nomine parties to the appeal, their assessments depend upon the assessments on the former. The said instancesare 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.'

18. It would appear from the judgment of Mudholkar J. in Murlidhar Bhagwan Das's case that Prashar's case was also cited before the Supreme Court. Though it was not referred to specifically by Subba Rao J., there can be little doubt that that case also was considered, because Mudholkar J., at page 354, said :

'As regards the other decision relied upon, it is sufficient to point out that the majority of the learned judges have only struck down that part of the proviso which enables a notice to issue 'to any person' on the ground that it is violative of Article 14. The precise question which we have before us does not appear to have been the subject-matter of decision in the case. We are, therefore, unable to accept the contention of the learned counsel.'

19. There is nothing in the subsequent decisions of the High Courts, to which we have been referred, which in any way militates against the categorical and explicit statement of law made by Subba Rao J. (as he then was) for the majority, viz., that the members of a coparcenary or the partners of a firm are intimately connected with the joint family or the partnership firm as the case may be. In M. K. K. R. Muthukaruppan Chettiar v. Commissioner of Income-tax, [1965] 56 I.T.R. 674 Ramachandra Iyer C.J., delivering the judgment of the Bench, referred to the previous cases and after citing the observations of Subba Rao J. in Murlidhar Bhagwan Das's case, said at page 682 :

'This interpretation of the proviso renders it really unnecessary to consider the vires of the second proviso to Section 34(3), as the section itself was not intended to cover those cases.'

20. He pointed out that the decision of the Supreme Court in that case has placed two limitations, namely, that it limited the application of the proviso to the year of assessment which formed the subject of appeal before the appellate authority, and, secondly, that if the assessee in whose appeal the appellate authority gave a finding, has a representative capacity, it can reasonably be taken that any finding so given in such assessment would be binding on those whom he represented. If the individual assessments of those persons are sought to be modified by resort to Section 34(1) in consequence of such a finding, even after the period of limitation had run out, it can be said that the proviso would apply to them. In the case before the Madras High Court, however, it was unnecessary for them to consider this question.

21. In Commissioner of Income-tax v. Shantilal Punjabhai, [1965] 57 I.T.R. 58. the Gujarat High Court has pointed out at page 77 that in Prashar's case, the limit laid down by the Supreme Court as to the constitutional invalidity of the proviso and the distinction them made between asscssees and non-assessees remains intact. After pointing out the observations of Subba Rao J., in Murlidhar Bhagwan Das's case, Shelat C.J. said that, in so far as the case before them was concerned, there were no separate and distinct assessment proceedings, one in respect of the assessee in his status as an individual and the other in respect of the Hindu undivided family. The assessment proceedings in respect of the assessee, Shantilal, were in respect of his income arising from his self-acquired and separate property. The assessment proceedings against the Hindu undivided family were proceedings against the entire entity, and was on the income derived by the Hindu undivided family from the property or business of that Hindu undivided family. In that assessment, the income accruing or arising from the separate property of the assessee, Shantilal, conld not be assessed, as the business carried on by the assessee, Shantilal, was not the business of the Hindu undivided family. The Income-tax Officer held that Shantilal was the nominee of the Hindu undivided family, meaning thereby that the business belonged to the Hindu undivided family, and it was that conclusion of the Income-tax Officer which was reversed by the Tribunal, the Tribunal holding that the department had failed to prove that the assessee, Shantilal, was the nominee of the family, in other words, that the income arising from the firm's business was the income of the Hindu undivided family. The direction given by the Tribunal was on the question which was between the department and the Hindu undivided family and the only finding that could be given by the Tribunal was between the two parties, namely, the Hindu undivided family and the department, and not between the department and the assessee, Shantilal, who was not an assessee nor a party to those assessment proceedings. It was observed by the learned Chief Justice at pages 80-81:

'It may be that the assessee, Shantilal, may fall within the scope of the expression ' any person ' in the second proviso according to the decision of the Supreme Court in Income-tax Officer v. Murlidhar Bhagwan Das, : [1964]52ITR335(SC) but, as stated earlier, not as an assessee but as a person other than the assessee who might be affected by the order of the Tribunal. That being so, the assessee, Shantilal, was not an assessee but a stranger to the proceedings before the Tribunal and consequently, in his case, the second proviso to Section 34(3) ofthe Act cannot be invoked by the revenue.'

22. It is unnecessary for us to consider other cases, because in a recent judgment of their Lordships of the Supreme Court reported in Supreme Court Notes, 1968, page 362 (Case No. 512), the full report of which (circulated to the members of the Supreme Court Bar) Sri P. A. Choudary was good enough to make available to us, viz., Civil Appeal No. 962/66 dated, 22v8-1968 (Daffadar Bhagat Singh & Sons v. Income-tax Officer, A-Ward, Ferozepure, : [1969]71ITR417(SC) ), the observations of Subba Rao J. (as ne then was) in Murlidhar Bhagwan Das were reiterated and it was held that it was difficult to hold the partner of a partnership firm as a total stranger to the assessment which was under appeal before the Appellate Assistant Commissioner or that he had no intimate connection with the person whose assessment was made by the Income-tax Officer and was set aside in appeal by the Appellate Assistant Commissioner. In that case, the appellant-firm filed a return for the assessment year 1952-53 on March 31,1953. It also applied for being registered as a firm under Section 26A, the partners being Bhagat Singh and his two sons, Kartar Singh and Dhian Singh. The Income-tax Officer by his order dated March 26, 1957, held that the assessee constituted a Hindu undivided family and not a firm, and had also refused registration under Section 26A. On appeal, the Appellate Assistant Commissioner by his order dated August 11, 1959, allowed registration of the partnership firm under Section 26A, and 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 appellants under Section 22(4) and 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 Section 34(3) of the Act. As the income-tax authorities did not accede to the request of the appellants, a petition under Articles 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 the Supreme Court in Murlidhar Bhagwan Das case, the second proviso to Section 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 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 Income-tax Officer and set aside by the Appellate Assistant Commissioner on whose direction fresh assessment proceedings were taken. The Bench, consisting of Ramaswami and Grover JJ., agreed with the view taken by the High Court and rejected the appeal.

23. We find little difficulty, having regard to the judgment in Murlidhar Bhagwan Das case and the subsequent judgment of the Supreme Court in Daffadar Bhagat Singh v. Income-tax Officer, A-Ward, Ferozepure (Civil Appeal No. 962/66) in answering the question referred for our opinion in the affirmative and in favour of the department, with costs. Advocate's fee in each of the R. C. Rs. 75.


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