This is a reference under section 66(1) of the Income-tax Act by the Income-tax Appellate Tribunal, Bombay. The question referred is "whether the assessment made by the Income-tax Officer on 28th March, 1950, is in accordance with law".
2. The assessee Inderjit Singh is the son of Shri P. S. Sial. The assessment year is 1944-45. The assessee submitted a return for the year ending on 31st March, 1944, in which he declared his income to be Rs. 22,185-8-0. According to him, the amount of Rs. 21,100 represented his share of profits made by the partnership entitled the Chhindwara Military Hutting Contract of which he and his father were partners. The details of the income were shown as follows :- The Income-tax Officer filed the case as the total income was below the taxable limit. The reason for excluding the amount of Rs. 21,100 was that he had in the previous assessment year held that there was no partnership between the father and the son and that the business belonged to P. S. Sial alone. The entire profits were included in the income of P. S. Sial and assessed accordingly. P. S. Sial appealed to the Appellate Assistant Commissioner, but he was unsuccessful. The Appellate Tribunal, however, accepted his contention and held that there was a partnership between the father and the son and that P. S.Sial was liable to pay tax only on his share of profits. The material part of the order passed on 3rd May, 1949, is as follows :- "We would, therefore, direct that only the assessees share from this partnership be included in his assessment. The sons share should be assessed in the hands of the son." 3. On receipt of the order, the Income-tax Officer passed an ex parte order on 28th March, 1950, assessing Inderjit Singh on an income of Rs. 29,206 on the following basis :- The assessment, however, was made without issuing any notice under section 34 or under any other section of the Act. His appeals were dismissed by the Appellate Assistant Commissioner and the Tribunal.
4. The contention of the learned counsel for the assessee is that the order passed by the Income-tax Officer on 28th March, 1950, was not in accordance with the provisions of the Act.
5. Section 33(5) of the Act on which reliance is placed by learned counsel for the Commissioner of Income-tax is as follows :- "Where as the result of an appeal any change is made in the assessment of a firm or association of persons or a new assessment of a firm or association of person is ordered to be made, the Appellate Tribunal may authorise the Income-tax Officer to amend accordingly any assessment made on any partner of the firm or any member of the association." This sub-section which was inserted by section 11 of the Indian Income-tax (Amendment) Act, 1944, has not been the subject of any reported or unreported decision and the question is of first impression. The assessee did not appeal. As the counsel for the assessee says, the firm applied for registration and submitted a return of its income. The application was rejected and the firm was not assessed to any income-tax. There was no appeal against this order.
There was thus no appeal either by the department or by the assessee or his firm before the Tribunal. The observation of the Income-tax Officer that "it is obvious that Inderjit Singh Sial, the other partner in the contract, impliedly joined his father in the appeal, as the contention was that the business in question was a partnership between the father and son" is not warranted by the facts of the case. The order of the Tribunal was made in the appeal of P. S. Sial. We do not think that it was the intention of the Legislature to empower the Tribunal to give directions to the Income-tax Officer in respect of assessment of persons who were not before the Tribunal as a party. This would be contrary to the principle enunciated in the maxim "audi alteram partem".
6. The appeal mentioned in sub-section (5) of section 33 of the Act, in our opinion, refers to an appeal by the firm or the department. The decision reached in some other appeal cannot bind a person who was not a party to the proceedings before the Tribunal. We do not accept the contention of Shri Adhikari that the appeal may be by any person. He emphasies the words "the result of an appeal". In the instant case, there was no appeal by or against the firm, and no change was made in the assessment of the firm nor was a new assessment of the firm ordered to be made by the Tribunal. What happened was that the contention of P.S. Sial that the partnership was genuine and that he was liable to be assessed on his half share in the profits of the disputed business was accepted by the Tribunal. Therefore, the direction of the Tribunal that "the sons share should be assessed in the hands of the son" was not an authorization within the meaning of sub-section (5) of section 33 of the Act. The Income-tax Officer was manifestly in error in passing the order of assessment without issuing a notice to the assessee and without giving him an opportunity to show cause against the assessment.
It will be noticed that in his return, the assessee showed Rs. 21,100 as his share of profits, while the Income-tax Officer determined his share of profits at Rs. 28,121. We, therefore, hold that section 33(5) has no application to the instant case.
7. The learned counsel for the Commissioner, however, submits that the assessment is in accordance with section 34(1) (b) of the Act which was substituted by section 8 of the Income-tax and Business Profits Tax (Amendment) Act (XLVIII of 1948). This contention was not raised before the Appellate Tribunal and the facts necessary to examine it do not appear in the statement of the case. The learned counsel for the assessee contends that section 34, if applicable, would be the section in force on the date the Finance Act for 1944-45 came into force and not the section as introduced by the Act of 1948. Again, no action under section 34, whether before amendment or after the amendment, can be taken unless notice is served on the assessee within four years of the close of the assessment year, i.e., in the instant case, on or before 31st March, 1949. That was admittedly not done. The order was thus not passed under section 34 and that section cannot now be invoked by the income-tax authorities.
8. We, therefore, hold that the order of assessment dated 28th March, 1950, is not warranted by any provision of the Act and is not in accordance with law. Our answer to the question is in the negative. The department must pay the costs of this reference including the costs of the paper-book. Counsels fee Rs. 100. A copy of this judgment be sent to the Appellate Tribunal in accordance with section 66(5) of the Act.