1. Allah Bux and Zahur Bux carried on business in tobacco at Mauranipur. Allah Bux died in 1938. Zahur Bux carried on the business with his sons. In 1942 he gifted the business to his two sons, Mohd. Shakoor and Mohd. Bashir. He died in 1948.
2. For the assessment years 1943-44 onwards, Mohd. Shakoor and Mohd. Bashir filed returns of the income from the Mauranipur business showing that the business was being carried on by them. The Income-tax Officer, however; assessed the business profits in the hands of an association of persons, Allah Bux and Zahur Bux, even after the death of Allah Bux. He was, of the view that the association included the sons and grandsons of Zahur Bux. He did not make any assessment on the basis of the returns filed by Mohd. Shakoor and Mohd. Bashir. This continued year after year. In appeals for the assessment years 1945-46 to 1956-57 the Appellate Assistant Commissioner held that for those assessment years there was no such association of persons as contemplated by the Income-tax Officer and on October 31, 1957, he made an order setting aside the assessment made on the association of persons, Allah Bux and Zahur Bux, and directed the Income-tax Officer 'to assess the income from the various sources in the hands of the respective persons to whom they arose bearing in mind the provisions of the second proviso to Sub-section (3) of Section 34 of the Indian Income-tax Act.' Pursuant to that direction, the Income-tax Officer initiated proceedings under Section 34(1)(a) on December 3, 1958, for the purpose of assessing the income of the Mauranipur business in the hands of Mohd. Shakoor and Mohd. Bashir for the assessment years 1945-46 to 1953-54. Simultaneously, the Income-tax Officer appealed to the Income-tax Appellate Tribunal against the finding of the Appellate Assistant Commissioner that the assessee was not an association of persons. Those appeals were dismissed by the Tribunal on October 7, 1959, Meanwhile, the proceedings under Section 34 taken by the Income-tax Officer culminated in assessments on Mohd. Shakoor and Mohd. Bashir on August 31, 1959. The Income-tax Officer specifically pointed out that, although he had appealed to the Tribunal against the decision of the Appellate Assistant Commissioner, the assessments were made on the basis of the direction contained in the order of the Appellate Assistant Commissioner. The assessments under Section 34 were challenged in appeal by the assessee before the Appellate Assistant Commissioner and, thereafter, in second appeal, before the Tribunal. The validity of the action under Section 34 was assailed before the Tribunal and a number of different contentions were raised. The Tribunal rejected those contentions and affirmed that the assessment proceedings under Section 34 were valid. On the merits, it granted some relief to the assessee.
3. The Tribunal held that income had escaped assessment, because, as the period of limitation for making the assessment had expired, it was not open to the Income-tax Officer to act upon the voluntary returns filed by Mohd. Shakoor and Mohd. Bashir and, therefore, Section 34 was attracted. It accepted the contention of the assessee that Section 34(1)(a) did not apply but held that Section 34(1)(b) should have been invoked. Then treating the assessment as valid on the basis of the provisions of Section 34(1)(b), it held that, although the period of limitation prescribed in Section 34(1)(b) had expired, the bar of limitation was raised by the second proviso to Section 34(3). It also rejected the contention of the assessee that Mohd. Shakoor and Mohd. Bashir, constituting a partnership firm, were not (sic) strangers to the association of persons, Allah Bux and Zahur Bux, and, therefore, the second proviso to Section 34(3) was not attracted.
4. Upon this, at the instance of the assessee, the Tribunal has referred the following questions to this court for its opinion :
'1. Whether, on the facts and in the circumstances of the case, income had escaped assessment, within the meaning of Section 34, when the Income-tax Officer did not take cognizance of the return filed by the assessee, and allowed the assessments to lapse ?
2. Whether the Appellate Assistant Commissioner in dealing with appeals of the association of persons, Zahur Bux and Allah Bux, could give a direction under Section 34(3) to take action against the assessee ?
3. Whether the second proviso to Section 34(3), which came into force on April 1, 1952, could be invoked in the case of the assessments, for the years 1945-46 to 1951-52?
4. If the answer to question No. 3 is in the negative, whether, on the facts and in the circumstances of this case, and on a true interpretation of the relevant terms of Sections 31 and 34 as they stood at the material time, the assessments for the years 1945-46 to 1951-52 were valid '
5. Mohd. Shakoor and Mohd. Bashir submitted their income-tax returns declaring the income from the Mauranipur business. The Income-tax Officer was of the view that the business belonged to an association of persons, Allah Bux and Zahur Bux. He did not assess Mohd. Shakoor and Mohd. Bashir on the basis of the returns submitted by them, but 'filed' these returns. He assessed the income in the hands of an association of persons. Upon appeal, the Appellate Assistant Commissioner took the view that no such association of persons was in existence during the relevant assessment year. He found that the business had been gifted by Zahur Bux to his sons, Mohd. Shakoor and Mohd. Bashir, in equal shares and that, thereafter, they carried on the business jointly. In the order disposing of the appeals he included the direction that the business profits should be assessed in the hands of the two persons jointly. Pursuant to the direction of the Appellate Assistant Commissioner, the Income-tax Officer served a notice under Section 34 on December 3, 1958, on Mohd. Shakoor and Mohd. Bashir, for each of the assessment years 1945-46 to 1953-54. For the assessment years 1945-46 to 1951-52 they were assessed as an association of persons, and for the assessment years 1952-53 and 1953-54 as an unregistered firm. But, on appeal, the Appellate Assistant Commissioner accorded them the status of a firm from 1946-47 onwards. The Tribunal, in second appeal, has held--whether it could or not is not the question here--that the notices under Section 34 must be treated as issued under Section 34(1)(b).
6. Of the questions framed by the Tribunal, the first question is whether the income has escaped assessment within the meaning of Section 34. There is no dispute that the assessee filed income-tax returns for the several assessment years. The Income-tax Officer took no action upon those returns. The period of limitation for making an assessment is four years from the end of the assessment year. The Tribunal says that the period having expired, it was not open to the Income-tax Officer to take action upon the returns filed by the assessee and make an assessment thereon, and, therefore, because the Income-tax Officer was precluded from doing so, income must be said to have escaped assessment.
7. Income may escape assessment for any of several reasons. It may escape because of an omission or failure on the part of the assessee. He may not have filed a return of the income. He may have omitted to disclose fully and truly all material facts necessary for his assessment. There may be no default on the part of the assessee and yet income may escape assessment. It may escape assessment because the Income-tax Officer may erroneously decline to accept an item returned by the assessee as his income and treat it as the income of another assessee. Having made the assessment order, it is not open to the Income-tax Officer, in the exercise of his powers under Section 23 of the Act, to reopen the assessment and correct his mistake by including the item in the assessee's total income. He may also erroneously decline to act upon the return filed by the assessee in the view that the entire income disclosed in the return is liable to tax in the hands of another. The return filed by the assessee remains undisposed of and the Income-tax Officer is precluded by the bar of limitation from making the assessment on the basis of that return. In every case, whenever the Income-tax Officer seeks to invoke the jurisdiction under Section 34(1), he must ask himself the question whether it is open to him to bring the income to assessment by exercising his powers under Section 23. If he cannot, either because the assessment order under Section 23 has been made and is, therefore, final, so far as he is concerned or, although no assessment order has been made, he is precluded from making an assessment because of the bar of limitation, income which was liable to assessment must be said to have escaped assessment. The original jurisdiction of the Income-tax Officer, if that might be an apt description of the Income-tax Officer's powers under Sections 22 and 23, is subject to the bar of limitation prescribed under Section 34(3). By reason of Section 34(3) no assessment order under Section 23, other than an order to which Section 28(1)(c) applies, can be made after the expiry of four years from the end of the assessment year. For the purpose of this point we need not refer to the special provision raising the bar of limitation contained in the second proviso to Section 34(3). At the relevant point of time the Income-tax Officer will consider whether he can make an assessment order under Section 23 in view of the bar of limitation under Section 34(3), and if he cannot make such an assessment order, it is clear that income which should have been assessed has escaped assessment. Reliance has been placed upon a decision of the Supreme Court in Commissioner of Income-tax v. Ranchhoddas Karsondas,  36 I.T.R. 569 (S.C.) There, however, the Income-tax Officer issued a notice under Section 34 when the assessee had filed a return and the period of limitation for making an assessment order had not yet expired. Clearly, it was open to the Income-tax Officer to act upon the return and make an assessment order because the period of limitation had not expired. A case where such period had expired, such as the case before us, is, we think, not affected by the law declared by the Supreme Court in that case. In our opinion, the first question must be answered in the affirmative.
8. For the purpose of the second question, we will assume that the second proviso to Section 34(3), as amended by Act No. 25 of 1953, operates in relation to the assessment years under consideration. That proviso reads as follows:
'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'.
9. The association of persons, Allah Bux and Zahur Bux, assessed by the Income-tax Officer was an entity distinct and separate from the entity which is the assessee before us. It may be that the members constituting the assessee were also among the members of the association of persons, Allah Bux and Zahur Bux, but it cannot be said that there was any relationship between the two entities so as to attract the second proviso of Section 34(3). By virtue of the second proviso to Section 34(3), notwithstanding that the period of limitation for taking any action or making an assessment has expired, the Income-tax Officer may take assessment proceedings against any person in consequence of or to give effect to any finding or direction contained in an order under Sections 31, 33, 33A, 33B, 66 and 66A. The expression 'any person' has been considered by the Supreme Court in Income-tax Officer, A-Ward, Sitapur v. Murlidhar Bhagwan Das,  52 I.T.R. 335, 346 (S.C.) where it pointed out :
' 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 Assistant 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 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. '
10. When making the aforesaid observations the Supreme Court had before it the judgment of this court in Pandit Hari Lal v. Income-tax Officer,  39 I.T.R. 265 in which Bhargava J. pointed out that the expression 'any person' refers to a person who, while not himself directly a party to the assessment, was so related to the assessee that it could be presumed that he had had sufficient opportunity of being represented in the proceedings through the assessee. He referred to various examples which demonstrate that there must be a direct and immediate relationship between the income in the hands of the assessee and in the hands of the other persons, and where, as a result of interference with the assessment of the assessee by a superior authority, corresponding effect had to be given in the assessment of another person. In Onkar Nath v. Commissioner of Income-tax,  64 I.T.R. 347 this court adopted the reasoning in Pandit Hazari Lal's case and held that the power to direct an amendment of an assessment made on a partner conferred by Section 31(4) does not include the issuing of a direction to reopen the assessment of a partner on any matter other than what directly arose as a result of any change made in the assessment order of the firm by the Appellate Assistant Commissioner. In that case certain cash credits stood in the accounts of the partner of a firm. The Appellate Assistant Commissioner, on appeal, found that the credits did not constitute the income of the firm, but of the individual partner. He set aside the assessment of the firm with a direction to the Income-tax Officer to take action against the partners under the second proviso to Section 34(3). This court held that the Appellate Assistant Commissioner had no jurisdiction to give such a direction and the second proviso to Section 34(3) could not be invoked. In this view of the law, it is apparent that the assessee before us cannot be said to be connected with the association of persons, Allah Bux and Zahur Bux, in the sense in which that expression has been used by the Supreme Court in Murlidhar Bhagwan Das. That being so, the Income-tax Officer is not entitled to the benefit of the second proviso to Section 34(3) and the notices under Section 34(1) reopening the assessments must be held to be barred by limitation. The second question is answered in the negative. In the circumstances, we consider it unnecessary to express our opinion on the third and fourth questions.
11. We accordingly answer the questions referred to this court as follows:
Question No. 1 : Affirmative.
Question No. 2 : Negative.
Question No. 3 : Need not be answered.
Question No. 4 : Need not be answered,
12. We direct the parties to bear their own costs. Counsel's fee is assessed at Rs. 200.