M. C. DESAI C.J. - The Income-tax Appellate Tribunal, Allahabad, has referred to this court the question : 'Whether on the facts and circumstances of the case the proceedings under section 34 of the Income-tax Act were within time and legal', in the following circumstances :
The assessee at whose instance the question has been referred is Raghunath Prasad Tandon, an individual. He also is a karta of a Hindu undivided family. There is a firm known as Kishore Chand Shiv Charan Lal, in which he is a partner as karta. He is also paid a salary by the firm. For the assessment year 1950-51 there arose a question whether the salary received by him from the firm was his income as an individual or an income of the Hindu undivided family and the Income-tax Appellate Tribunal held by its order dated November 4, 1956, that it was his income as an individual and not of the Hindu undivided family. In this reference we are concerned with the next two assessment years 1951-52 and 1952-53. For these two assessment years the Income-tax Officer issued a notice under section 22(2) to the Hindu undivided family and in response to them two returns were filed in each of the two years; no notice under section 22(2) was issued to Raghunath Prasad Tandon as an individual, and this was because previously the Income-tax Officer had been issuing a notice under section 22(2) only to the Hindu undivided family and not to the individual. For the assessment year 1951-52, one return was filed by the Hindu undivided family represented by Raghunath Prasad Tandon on August 16, 1951, and the other by himself as an individual on September 29, 1955. The former was filed under section 22(2) and the latter could be a return under section 22(3), because prior to that date no assessment order had been passed against the individual and no notice under section 22 had been had been issued against him. In the return filed by the individual the only income shown was of Rs. 12,000 received by him as salary from the firm and this amount was not included in the income of the Hindu undivided family in the return filed on its behalf. For the assessment year 1952-53 also two returns were filed, one on September 15, 1952, by the Hindu undivided family in response to the notice issued under section 22(2) and the other on January 24, 1956, by Raghunath Prasad Tandon as an individual under section 22(3). The individual showed in his return the income of Rs. 14,280 on account of the salary received by him from the firm and this amount was not included in the income in the other return filed on behalf of the Hindu undivided family. On September 30, 1955, the Income-tax Officer assessed the Hindu undivided family on the total of the incomes shown in the two returns filed for the assessment year 1951-52, treating the income shown in the return of the individual as the income of the Hindu undivided family. He did not assess the individual at all because he found that he had earned no income during the year. He passed similar orders in respect of the assessment year 1952-53, assessing the Hindu undivided family on the total of the incomes shown in the two returns and treating the income shown in the individual returns as the income of the Hindu undivided family. Before these assessment orders were passed, the individual had never been assessed to tax. There were two appeals from the two assessment orders by the Hindu undivided family and both were disposed of by the Appellate Assistant Commissioner on March 14, 1957. By this date he had in his possession the order passed by the Income-tax Appellate Tribunal in respect of the assessment of 1950-51, to the effect that the salary received by the assessee was his income as an individual and was not the income of the Hindu undivided family. In accordance with the decision, the Appellate Assistant Commissioner allowed the appeals and assessed the Hindu undivided family on the income shown by it in its return, holding that the income from the salary was to be taxed only in the hands of the assessee as an individual. Thereupon, the Income-tax Officer issued notices under section 34 against the assessee as an individual on May 31, 1957. The assessee appeared before him and filed two returns for the two assessment years, each showing nil income, and contended that no notice could be issued against him under section 34. On September 9, 1957, the Income-tax Officer assessed him on the income of Rs. 12,000 for the assessment year 1951-52 and the income of Rs. 14,280 for the next assessment year. These assessment have been confirmed by the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal. At the assessees instance the Income-tax Appellate Tribunal has referred the question, set out above, for answer by this court.
The notice that was issued by the Income-tax Officer of May 31, 1957, was certainly not a notice issued under section 34(1)(a). As the assessee had filed returns in respect of the incomes on which he has now been assessed, the notices could not have been issued under that provision, and this was conceded by Sri Gopal Behari on behalf of the department.
It was contended by Sri G. P. Bhargava that the notices were not issued also under section 34(1)(b) because they were not based on any information which was not in the Income-tax Officers possession previously. The provision is to the effect that 'if..... notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income...... chargeable to income-tax have escaped assessment for any year, ... he may in cases falling under ..... clause (b) at any time within four years of the end of that year, serve on the assessee... a notice...... and may proceed to assess..... such income....' The assessee had not been assessed for the two assessment years before the Income-tax Officer assessed him on September 9, 1957. He had undisputedly earned income in the two assessment years and was undisputedly assessable to tax. Therefore, when the Income-tax Officer proceeded to assess him as an individual on September 9, 1957, it was a case of his acting under section 34(1)(b), if it could be said that in consequence of information in his possession he had reason to believe that his income had escaped assessment for the two years. What gives him jurisdiction so to act is the possession of information about the income having escaped assessment. Possession of knowledge of a claim is not the same thing as possession of information. During the earlier assessment proceedings completed on September 30, 1955, the Income-tax Officer had in his possession the claim of the assessee that he had earned the income in the two years, but he did not believe the claim and thought that the income had been earned not by him but by the Hindu undivided family. He assessed the income but as in the hands of the Hindu undivided family. Consequently it was not then a case of income escaping assessment and there could be no question of his being then in possession of information about its having escaped assessment. What is required under section 34(1)(b) is escape of a certain income from assessment and not escape of a certain person from being assessed. So long as an income has been assessed, no matter in whose hands, it cannot be said by the assessing officer himself that there is a case of escape of income. The return filed by the assessee showing the income as his income was only a claim or an allegation and not an information. Before an assessment order can be passed on a return, it must be accepted as correct. On September 30, 1955, the Income-tax Officer did not believe that the returns were correct and, therefore, he could not be said to have had information in his possession that the incomes were earned by the assessee. This information was acquired by him later when he received a copy of the Appellate Assistant Commissioners order dated March 14, 1957. It was through this order that he learnt that the incomes were really of the assessee and that they had escaped assessment on account of the Appellate Assistant Commissioners having reduced the assessable income of the Hindu undivided family. The income escaped assessment in consequence of the order of the Appellate Assistant Commissioner and it was only after the order was passed that the Income-tax Officer could possibly have any information about the escape. There is, therefore, no substance in the contention that the Income-tax Officer had no information in his possession on September 9, 1957, which had not been in his possession on September 30, 1955. He had full jurisdiction to serve on the assessee at any time within four years of the end of the assessment years a notice and proceed to assess him. Four years from the end of the two assessment years ended on March 31, 1956, and March 31, 1957. The notices issued by the Income-tax Officer on him on May 31, 1957, were, therefore, after the expiry of four years from the end of the assessment years. Section 34(3) requires that no order of assessment (barring certain orders of reassessment with which we are not concerned) can be made after the expiry of four years from the end of the assessment year. Both the assessment orders passed on September 9, 1957, were admittedly passed more than four years after the end of the two assessment years. But the provisions in sub-section (1) (b) and sub-section (3) of section 34 are subject to the proviso that the provisions limiting the time within which any action may be taken or any order of assessment may be made are not to apply to assessment made on the assessee in consequence of, or to give effect to, any finding or direction contained in an order under section 31. The Appellate Assistant Commissioner in his order under section 31 had given a definite direction that the salary received by the assessee from the firm was to be assessed as his income. When he had directed that it was to be assessed as his income, it meant that the Income-tax officer was to proceed to assess it as his income. The income, being assessable, had to be assessed in the hands of one person or another. Originally, it was assessed in the hands of the Hindu undivided family, but the consequence of the Appellate Assistant Commissioners order under section 31 was that it escaped assessment. The subsequent assessment by the Income-tax Officer of the income as that of the assessee could be said to have been made in consequence of, and to give effect to, the finding of the Appellate Assistant Commissioner that it was the assessees income. The second proviso to section 34(3) clearly applied and neither the issue of the notices nor the making of the assessment order could be said to have been time-barred.
Sri G. P. Bhargava argued in the alternative that even if the case was governed by the second proviso to section 34(3), the assessment order for 1951-52 at least was time-barred. This argument was based upon the fact that by March 14, 1957, the date of the Appellate Assistant Commissioners order under section 31, more than four years had passed since the end of the assessment year. The contention was that after the expiry of the four years from the end of the assessment year the Appellate Assistant Commissioner had no jurisdiction to give any direction for assessment or reassessment of the income earned in the relevant accounting year. We do not find this contention supported by any statutory provision or authority. Section 31(3), which states what orders can be passed by an Appellate Assistant Commissioner, does not contain any limitation on his power mentioned in clause (b) to direct the Income-tax Officer to make a fresh assessment. He is not required by any provision to dispose of an appeal within four years of the end of the assessment year. His power to direct a fresh assessment is general, capable of being exercised in every appeal. Since he may dispose of an appeal after the expiry of four years from the end of the assessment year, it follows that he had the power to give the direction even if four years had expired. The second proviso to section 34(3) does not contain anything to suggest that the order under section 31 must have been passed within four years of the end of the assessment year. The proviso is general and applies whenever an assessment is to be made in consequence of, or to give effect to, any finding or direction contained in an order under section 31 regardless of whether it was passed before or after the expiry of four years from the end of the assessment year. It is not within the province of the court to read in the proviso a qualification that the order must have been made within four years.
We further find that the assessee submitted himself to the direction contained in the Appellate Assistant Commissioners order that the income in question should be assessed as his income by not appealing from it. He cannot challenge the legality of the direction now. If the Appellate Assistant Commissioner had no jurisdiction to give the direction because four years had elapsed since the end of the assessment year, he should have challenged the direction by means of an appeal.
If it be conceded that the direction was not illegal, the Income-tax Officer was bound to comply with it regardless of any question of limitation. The second proviso to section 34 was enacted with the express object to meeting such cases as the instant one. Any direction legally given by an Appellate Assistant Commissioner must be complied with or given effect to, regardless of any question of time.
We, therefore, see no substance even in the alternative argument in respect of the assessment year 1951-52.
We were referred to Commissioner of Income-tax v. Ranchhoddas Karsondas, but the facts there were quite different. There the Income-tax Officer, in spite of a return having been filed before him in response to his general notice, issued a notice against him under section 34(1). He had not rejected the return but had simply ignored it and the Supreme Court held that the notice could not be issued under section 34(1)(a) because the return had already been filed, or under section 34(1)(b) because while the return was pending it could not be said that the income had escaped assessment. In the instant case the Income-tax Officer had virtually rejected the return of the assessee and it was not pending when the issued the notices under section 34(1). So long as a return is pending before the Income-tax Officer he may not say that any income mentioned in it has escaped assessment, but virtual rejection of a return may amount to escape of the income mentioned in it from assessment. The return of the assessee cannot be said to have been pending merely because the Income-tax Officer did not pass a specific order rejecting it. When he assessed all the incomes mentioned in it as the income of the Hindu undivided family and did not assess the assessee at all on it, it meant that he had rejected the return and not kept it pending. He must be deemed to have found, as required by section 23(3), that the assessees total income was nil.
Accordingly we answer the question in the affirmative and direct that a copy of the judgment be sent to the Income-tax Appellate Tribunal under the seal of the court and the signature of the Registrar as required by section 66(5). We further direct that the assessee shall pay to the Commissioner of Income-tax the costs of this reference, which we assess at Rs. 200.
Question answered in the affirmative.