These three writ petitions raise a common point and are therefore consolidated for the sake of convenience. The first two writ petitions, Nos. 1995 and 3069 of 1960, are by Mukand Lal Damodar Das, sons of L. Kanhaiya Lal Sarraf, and they are concerned with the assessment years 1947-48, 1948-49 and 1949-50. The third with petition No. 3068 of 1960 is by Hiralal, son of the aforesaid Mukand Lal Sarraf, and it is concerned only with the assessment years 1948-49 and 1949-50.
The question which arise in these petitions is whether the petitioners can be assessed under section 34(1)(b) read with the second proviso to section 34(3) of the Indian Income-tax Act, 1922, hereinafter referred to as the Act, for the aforesaid relevant years in the status of an individual in respect of the share income of the first two petitioners from the firm of Kanhaiya Lal Mukand Lal Sarraf, Raja Darwaza, Varanasi, and the third petitioner, Hira Lal, in respect of his share income from the firm, Kanhaiya Lal Damodar Das Sarraf and Company, Raja Darwaza, Varanasi.
The contention of Mr. Karkhanis, the learned counsel for the petitioners, in substance was that for the assessment year 1947-48, the second proviso to section 34(3) as it stood before its amendment in 1953 with retrospective effect only till April 1, 1952, would be applicable and as no assessment had previously been made for 1947-48 and 1948-49 on the petitioners the issue of section 34 notice would be barred by the prescribed limitation of four years and in any event the unamended second proviso to section 34(3) would have no application as that only applied to a 'reassessment' and not to an assessment which was being made for the first time.
In respect of the assessment years 1948-49 and 1949-50 it was contended that though the second proviso to section 34(3), as amended, would be applicable and an assessment made for the first time could be made there under yet as the High Court had not given any finding or direction in its order under section 66 the action taken under the second amended proviso to section 34(3) was misconceived; it was further contended that the High Court could not ever give any findings or directions, as its jurisdiction was only advisory and, therefore, the time-limit could never be extended by virtue of any finding or consequence of any direction given by the High Court under section 66 of the Act.
The departments contention on the other hand is simply this that for the assessment year 1947-48, on the date when the notice were issued, i.e., on the 30th June, 1960, the amended second proviso to section 34(3) was already on the statute book and it would have retrospective effect even beyond April 1, 1952. Even if the unamended second proviso to section 34(3) applied what the Income-tax Officer sought to do was not to assess the petitioner but to reassess them as they were all members of the Hindu undivided family in the reference proceedings under section 66 of the Act. For this latter proposition reliance was placed on the unreported decision of the Full Bench of this court in the case of Sri Lakshman Prakash v. Commissioner of Income-tax (Income-tax Miscellaneous case No. 413 of 1954, decided on the 27the July, 1962) and further that though the High Courts jurisdiction was advisory it could always give findings which could be given effect to even against strangers after the period of limitation provided under section 34(3) had expired.
In order to appreciate the contentions raised it is necessary to state the relevant facts. L. Kanhaiya Lal, who was the karta of his undivided family had to sons, L. Damodar Das and L. Mukand Lal, and their sons. L. Kanhaiya Lal died on the 29th September, 1947, and the Hindu undivided family, thereafter, consisted of the aforesaid two brothers and their sons. Hiral Lal was the son of Mukand Lal. The firm, Kanhaiya Lal Mukand Lal, was constituted on November 2, 1945, and the partners there of were Mukand Lal with Rs. 0-8-0 share two outsiders, Purshottam Das and Badri Das, with Rs. 0-4-0 each. Mukand Lal claimed that he was a partner in the said firm in his individual capacity and not as the representative of the Hindu undivided family. On the individual returns filed by him, the following orders were passed by, the Income-tax Officer.
Assessment Year 1947-48
'Case discussed personally with the E. P. T. O. Second the records to him for amalgamation with the H. U. F. records.'
Vide order dated January 13, 1948.
Assessment year 1948-49
'Income returned by the assessee is being considered in the assessment of G. I. R. No. 10K. There will therefore be no assessment.'
Assessment year 1949-50
'Income returned by the assessee is being considered in the assessment of G. I. R. No. 10K. There will therefore be no assessment.'
(Vide order dated March 29, 1951).
Similarly, the firm of Kanhaiya Lal Damodar Das Sarraf and Co. came into existence on the 20th January, 1946, and the partners thereof were Damodar Das, Petitioner, with Rs. 0-11-0 share and two strangers, Purshottam Das and Ashok Chandra, with Rs. 0-3-0 and Rs. 0-2-0 shares respectively. The constitution of this firm was changed and ultimately Damodar Das, the petitioner, had only Rs. 0-9-0 share and one more outsider having been brought in they had between them the Rs. 0-7-0 as their share. Damodar Das, petitioner, claimed also that he was a partner in his individual capacity and not as representative of the family.
The firm of Kanhaiya Lal Hira Lal came into existence on October 5, 1946, and the partners thereof were the petitioner, Hira Lal, with Rs. 0-9-0 share and three outsiders with Rs. 0-4-0, Rs. 0-2-0 and Rs. 0-1-0 shares respectively. Hira Lal also claimed that he was a partner in his individual capacity and not as representative of his Hindu undivided family.
Each one of the three petitioners, for the relevant assessment years in which their shares of income from the aforesaid firms was assessable, was returned by them in the status of individual. Bal Mukand had made the returns on the 6th of November, 1947, 30th of December, 1948, and 24th of February, 1950, respectively for the three relevant assessment years in the status of an individual. Similarly, Damodar Das had made three returns on November 6, 1947, January 3, 1949, and January 12, 1950, respectively, for the assessment years. The orders passed on these returns were exactly the same as the said order passed on the three returns made by Bal Mukand in the status of an individual.
Hira Lal had also filed returns for the assessment years 1947-48, 1948-49 and 1949-50 in his status as individual showing his share of income from the firm of Kanhaiya Lal Hira Lal Sarraf & Co. The department took the view that three petitioners who are members of the Hindu undivided family of Kanhaiya Lal had become partners as representatives of the Hindu undivided family and not in their individual capacity and therefore ignored the individual returns filed by the petitioners and assessed the income which was returned by them in their returns as the income of the Hindu undivided family.
The assessment having been made on the Hindu undivided family, in respect of the share income of the three petitioners from the aforesaid three firms, the Hindu undivided family appealed to the Appellate Assistant Commissioner through its karta, i.e., Mukand Lal, petitioner, and further to the Tribunal, where it was contended that the share income was the individual income of the aforesaid three petitioners and the share income had wrongly been added to the income of the Hindu undivided family. The Tribunal by its order dated September 29, 1950, upheld the order of the Appellate Assistant Commissioner. The matter came before the High Court on a reference made under section 66(2) and the question that was referred was :
'Whether there was material on which the Tribunal could hold that L. Mukand Lal was a partner in the firm of Messrs. Kanhaiya Lal Mukand Lal Sarraf as a representative of the assessee family and not in his individual capacity ?'
The High Court carefully examined all the materials on the record and it found as follows :
'All the circumstances in the case, therefore, can only lead to the conclusion that Mukand Lal and Damodar Das were partners in their individual capacities whereas there is no material at all for the reverse finding that they were partners as representing the Hindu undivided family. Consequently, the income received by them as partners could only be taxed as their individual income and not as income earned by the assessee. The conclusion has been arrived at by us with reference to the facts relating to the assessment year 1947-48. So far as the remaining two assessment years 1948-49 and 1949-50 are concerned the position is very similar with only difference that the income that was sought to be assessed as income of the assessee was the share of the profits received by Hira Lal being the son of Mukand Lal. In this case also the factors which have to be considered are exactly of the same nature as those which have been considered by us in dealing with questions Nos. 1 and 2 which relate to the assessment year 1947-48. As a result our answer to all the question referred to us for opinion by the Income-tax Appellate Tribunal is that Mukand Lal Damodar Das and Hira Lal were partners respectively in the firms, Messrs. Kanhaiya Lal Mukand Lal Sarraf & Co. in their individual capacities and not as representatives of the assessee family.'
There cannot be the slightest doubt apart from the question whether the High Court could or could not give any such finding, that it did in fact give a finding, that 'consequently the income received by them as partners could only be taxed as their individual income and not as income earned by the assessee', and further in answering the question the opinion given was that the petitioners were partners in their individual capacities and not as representatives of the assessee family. There was thus a clear finding that the petitioners could have been taxed on the share income in their individual capacity.
Pursuant to this finding of High Court while answering the reference under section 66 of the Income-tax Act the Income-tax Officer issued notices under section 34 read with section 34(3) of the Income-tax Act. In respect of the notice for 1947-48, 1948-49 and 1949-50 in the case of Mukand Lal the sub-section of section 34 is not mentioned nor is there any mention of the second proviso to section 34(3) of the Act. But in the notices to the other two petitioners the notices were specifically issued under section 34(1)(b) read with the second proviso to section 34(3) of the Act. Mukand Lal has not, in any way, been prejudiced by the failure to mention the sub-section of section 34 or the second proviso to section 34(3) as he was the Karta and had fought the case right up to the High Court on behalf of the Hindu undivided family successfully. No advantage therefore can be taken by Mukand Lal of any such technicality particularly in a writ petition.
The finding having been given by the High Court that the share income of the petitioners from the said firms could only be taxed as the individual income and not as income earned by the assessee, the question that arises is whether such a finding could be given effect to be the department by invoking the aid of the second proviso to section 34(3) of the Act. In other words whether such a finding could be given effect to against the assessee who was not before the High Court in the reference proceedings as a party as such (the assessee before the High Court was the Hindu undivided family) and whether any finding given in the reference made at the instance of the family could be made effective against all the individual coparceners thereof in respect of their individual assessments. The question was one which would have presented great difficulty as there are conflicting rulings as to whether the amended second proviso to section 34(3) goes to the length of abolishing the period of limitation even against strangers who were not parties to the proceedings before the departmental authorities, the Tribunal or the High Court. The matter, however, so ar as this court is concerned, stands concluded by the aforesaid recent Full Bench decision of this court in the case of Lakshman Prakash v. Commissioner of Income-tax, where it was held that members of a Hindu undivided family are not strangers to income-tax proceedings taken in respect of assessment of the family and any direction given in the proceedings in respect of the family could be given effect to against the individual members thereof. The facts of that case in brief were that Lakshman Prakash who was a member of Hindu undivided family had submitted a return in the status of an individual, but the Income-tax Officer has assessed the income shown by Lakshman Prakash in the hands of the Hindu undivided family. The latter had preferred an appeal before the Appellate Assistant Commissioner on the ground that the assessment was invalid in the absence of a determination of the question by the Income-tax Officer as to whether the income belonged to the individual, i.e., Lakshman Prakash. The Appellate Assistant Commissioner accepted the contention of the Hindu undivided family and set aside the assessment and remanded the case to the Income-tax Officer to make an assessment 'de novo in accordance with law after determination of the status of the appellant'. The appellant in that case was the Hindu undivided family. It was contended that the Income-tax Officer could make a fresh enquiry and reassess the Hindu undivided family which was the appellant before the appellate Assistant Commissioner but could not make an assessment on Lakshman Prakash in his individual capacity. In repelling, this contention, Jagdish Sahai J., in the leading judgment of the Full Bench, noticed that Lakshman Prakash had himself filed the return in the status of an individual. It was he who as karta on behalf of the Hindu undivided family had taken up position that the income should be assessed in his hands in the status of an individual and that the assessment on the Hindu undivided family was wrong. On these basis facts, it was held :
'The Hindu undivided family is not a separate legal entity from those who constitute it as is a company from its shareholders or a corporation from its members. Consequently, in the appeal that was filed on behalf of the Hindu undivided family by Lakshman Prakash as Karta he and all the other members who constituted the joint Hindu family were the appellants. It cannot, therefore, be said that Lakshman Prakash was not an appellant before the Appellate Assistant Commissioner.......... Consequently, I have no difficulty in coming to the conclusion that Sri Lakshman Prakash was one of the appellants in the appeal filed by the Hindu undivided family. Notions of different capacities of Lakshman Prakash, i.e., one as an individual and the other as a member of Hindu undivided family, are misconceived in this case.....
An alternative approach to the matter is that in any case the bar of estoppel against Lakshman Prakash clearly operates. He himself having taken up the position in the return submitted by him that the income was liable to be assessed in his hands as an individual and having in the capacity of an appellant in the appeal filed by the Hindu undivided family reiterated that position, it is in my judgment no longer possible for him to urge that the assessment on him as an individual is illegal....
There is another doctrine which, to my mind, is applicable against Lakshman Prakash, the same being that a party cannot approbate or reprobate in the same or connected proceedings...... It cannot be said that while exercising powers under section 31 of the Act the Income-tax Officer had no choice in the matter....... He was bound by the order of the Appellate Assistant Commissioner and had to comply with it...... It has got to be held that neither the Appellate Assistant Commissioner nor the Income-tax Officer acted without jurisdiction or in excess of the powers conferred upon them in this case.....
The next question requiring our attention is whether the assessment on Lakshman Prakash in his individual capacity by means of an order dated 24th January, 1952, was barred by time..... On behalf of the department reliance was placed.... upon the second proviso to section 34(3) which at the relevant time (before its amendment in 1953) read as follows :
Provided further that nothing contained in this sub-section shall apply to a reassessment made under section 27 or in pursuance of an order under section 31, section 33, section 33A section 33B, section 66 or section 66A.
In 1953, the second proviso to sub-section (3) was amended and now it 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 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.
This amendment has come into force 1st April, 1962. A perusal of the language of this proviso before and after the amendment reveals, firstly, that the second proviso was no longer a proviso to sub-section (3) but to the whole section and, secondly, no limitation was to apply in a case falling under the second proviso with regard to an assessment made on the assessee and also against any person or against a person who was a stranger to the assessment and whereas the original proviso limited its operation to an order made under the various sections enumerated above the amended proviso extended its sweep by providing that the assessment or a reassessment may be made in consequence of or to give effect to any finding or direction contained in the order under the various section. Even though limitation is a procedural law and amendments can be applied retrospectively, in the present case, on all the material dates the amended second proviso did not exist..... Obviously, the amended second proviso could not be posthumously applied to cases which had already been decided as was the instant case. The Income-tax Officer of the Appellate Assistant Commissioner could have acted only under the unamended second proviso. Consequently, the validity of their orders has got to be determined on the basis of unamended second proviso... For this reason I am satisfied that the assessment order dated the 24th January, 1952, is protected by the unamended section 34(3) of the Act. It was contended by Mr. Pathak that if this view of section 34(3) is taken, it would result in the infringement of the rights of a third person (in the present case Lakshman Prakash) and the proviso would be invalid under article 14 of the Constitution. In my judgment it would be a misdescription to call Lakshman Prakash, a stranger. When the income was assessed in the hands of the Hindu undivided family it was assessed in his hands along with other coparceners. Similarly, when he was assessed in the status of an individual the income was assessed in his hands. In any case, Lakshman Prakash was the appellant in the appeal filed by the Hindu undivided family and it was on his express request that the Appellate Assistant Commissioner passed the order directing the Income-tax Officer to make a fresh inquiry and assess the income either in the hands of the Hindu undivided family or that of Lakshman Prakash in the status of an individual to whomsoever the income was found to belong... Inasmuch as Lakshman Prakash cannot be treated to be a third party or a stranger in the appeal filed by the Hindu undivided family, no question of the unamended second proviso being unconstitutional arises.'
In the view that Jagdish Sahai J. took, he did not consider it necessary either to agree or disagree with the decisions in Prashar v. Vasantsen Dwarkadas; Hazari Lal v. Income-tax Officer; Indurkar v. Pravinchandra Hemchand; Simrathmull v. Additional Income-tax Officer and General Construction and Supply Company v. Income-tax Officer.
The learned chief Justice, however, considered some of these cases and found himself unable to agree with the decision of Chagla C.J. in Prashars case, where it was held that the amended second proviso to section 34(3) was ultra vires the constitution inasmuch as it gave a direction or a finding against a stranger to the proceedings. He also considered that Hazari Lals case had unnecessarily restricted the meaning of the word 'finding' as used in the second proviso to a finding only on a material issue and that there was no law to the effect that decisions or findings by court should be confined to the irreducible minimum; there is no rationing of decisions or findings to be given by courts. The learned Chief justice in considering the amended second proviso which applies to the present case considered that two classes of persons would be comprehended in the phrase 'any person' occurring in the said proviso : '(1) All those who are connected in some manner with the assessee, or with the income which is to be assessed, and (2) all others, who may be called total strangers. In an appeal by an assessee an order of the Appellate Assistant Commissioner will contain a direction either about the assessee or about any person belonging to the former class. It will naturally not contain any direction with regard to any person belonging to the latter class. The result would be that any person belonging to the former class will be liable to be assessed regardless of any time-limit, whereas any person belonging to the latter class will not be liable to be assessed after four years because on account of there being a total absence of any finding or direction in respect of him nothing would be required to be done in regard to him in consequence of, or to give effect to, any finding or direction... The appellant himself claimed that the income was derived by him as an individual and he could be assessed as an individual.'
The ratio of the Full Bench decision is clearly applicable to the facts of the present case and that decision is binding on me. The three petitioners who were members of the Hindu undivided family and each one of whom had returned the share income of the partnership in their individual capacity were clamouring that it should be assessed in their hands but the department erroneously had proceeded to assess the individual share income of the three petitioners in the hands of the Hindu undivided family. In the subsequent appeals filed by the Hindu undivided family and the ultimate reference to the High Court the three petitioners who are admittedly coparceners must be held to have been parties thereto. It would not be open to them, in view of the Full Bench decision, to claim that they were strangers to those proceedings. They were intimately connected with those proceedings and any finding given therein can be given effect to against them by invoking the second proviso to section 34(3) both in its unamended and amended forms. Though the unamended proviso was restricted to reassessments yet in the aforesaid Full Bench decision, although no assessment originally had been made on Lakshman Prakash but only on the Hindu undivided family, yet the subsequent notice under section 34 read with the unamended second proviso to section 34(3) was held to be a notice for 'reassessment' on Lakshman Prakash. In the view that has been taken by the Full Bench the distinction sought to be drawn by Mr. Karkhanis, the learned counsel for the petitioners, between the notice issued for the assessment year 1947-48 to which the unamended second proviso to section 34(3) would apply becomes a distinction without a difference. The amended second proviso admittedly is much wider and if the validity of the notices for the assessment year 1947-48 cannot be impugned the position of the petitioners for the assessment years 1948-49 and 1949-50 is much worse.
It only remains to consider the last and rather ingenious contentions of Mr. Karkhanis, the learned counsel for the petitioners, who laboured valiantly to say everything that could possibly be said in favour of the petitioners, that the High Court in the exercise of its advisory jurisdiction under section 66 of the Act could not give any findings or directions within the meaning of the unamended or amended second proviso to sub-section (3) of section 34 of the Act. It is no doubt true that the jurisdiction under section 66 of the Act is advisory but in giving a decision the High Court inevitably must first arrive at its findings and only after doing so can it formulate and give its opinion on the question or questions referred to it. There cannot also be any doubt that although the High Court only gives its opinion under section 66 it passes an order and delivers its judgment on the basis of which the Tribunal is obliged to pass such orders as are necessary to dispose of the case conformably to such judgment. To hold that under section 66 of the Act, the High Court merely gives advice and never gives any finding, nor does it pass any order would be in the teeth of the provisions of sub-section (5) of section 66 of the Act, which reads as follows :
'66. (5) The High Court upon the hearing of any such case shall decide the questions of law raised thereby and shall deliver its judgment thereon containing the grounds on which such decision is founded and shall send a copy of such judgment under the seal of the court and the signature of the Registrar to the Appellate Tribunal which shall pass such orders as are necessary to dispose of the case conformably to such judgment.'
It is no doubt primarily the duty of the Tribunals to pass such orders as are necessary to dispose of the case in accordance with the judgment of the High Court and in the instant case the Tribunal could have given specific directions on the basis of and in conformity with the judgment delivered by the High Court that the share income was assessable only in the hands of the petitioners in their individual assessment; but even if this was not done, the second proviso to section 34(3) would appear to give a right to the department to proceed under that sub-section provided such a finding is available in the judgment delivered by the High Court under section 66 of the Act; it is to make doubly sure, so to speak, that in the second proviso to section 34(3), 'findings or directions under section 66' were specifically mentioned. If it was only the Tribunal or the Appellate Assistant Commissioner who could give findings or pass any order pursuant to which section 34 proceedings could be taken then the legislature would not have found it necessary at all to mention section 66 specifically both in the unamended and amended provisos to section 34(3) of the Act. It is, therefore, not correct to say that no direction can ever be given by the High Court while passing an order under section 66 of the Act, which could be given effect to by invoking the second proviso to section 34 of the Act.
The case relied upon by Mr. Karkhanis is the Supreme Court decision in Nathmal Tola Ram v. Superintendent of Taxes, Dhubri : This case, however, is clearly distinguishable and had no application to the facts of the present case. The facts of that case were that the appellants before the Supreme Court were dealers registered under the Assam Sales Tax Act (XVII of 1947) and they had submitted a return for the accounting period 1st April, 1948, to 30th September, 1948, which included sales in Assam of all goods other than jute. The Superintendent of Taxes however summarily assessed the appellants under sub-section (4) of section 17 of the Act to pay him taxes on sales of jute dispatched by them to Calcutta during the account period. The order of assessment was confirmed by the Commissioner or Taxes. The appellants then applied to the Commissioner of Taxes to refer certain questions arising out of the assessment to the High Court in Assam under section 34 of the Sales Tax Act. The Commissioner referred three questions. In respect of each of these three questions the High Court recorded the following answer :
'Not being a sale within the meaning of sub-section (12) of section 2 of the Act, the consignments are not taxable.'
The High Court however went on to observe :
'As to whether these consignments can hereafter be assessed if they fall within the purview of the Explanation to sub-section (12) of section 2, we express no opinion.'
On receipt of the opinion the Commissioner directed the Superintendent of taxes to dispose of the case in accordance with the judgment of the High Court. The Superintendent of Taxes then set aside the order of assessment dated 30th September, 1950, and issued a notice to the appellant to produce the necessary evidence in order to enable him to ascertain whether the contract of sale involved in the case came within the purview of the Explanation to sub-section (12) of section 2 of the Act. The appellants claimed that the Superintendent had no jurisdiction to commence any further proceedings for assessment as the notice issued to him was beyond three years of the assessment as provided by section 19 of the Sales Tax Act. The Supreme Court in these circumstances upheld the objection of the appellants and held that as the High Court did not give any directions to the sales tax authorities to assess or not to assess the appellants to sales tax and it had merely given its opinion that the transactions were not sales within the meaning of section 2, sub-section (12), of the Sales Tax Act and were accordingly not taxable. The factual position was that the High Court had issued no direction and in fact had expressly stated that they would express no opinion as to whether those consignments could thereafter be assessed if they fell within the purview of the Explanation to sub-section (12) of section 2. In these circumstances it was observed that :
'The High Court, in answering the questions submitted to it, was exercising an advisory jurisdiction and could not and did not give any direction to the sales tax authorities to proceed to assess or not to assess the appellants to sales tax...'
This case therefore cannot help the assessee.
For the reasons aforesaid these petitions are dismissed. In the circumstances of the case the parties are left to bear their own costs. Counsels fee is assessed Rs. 100 in each petition.