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Commissioner of Income-tax Vs. Ambala Flour Mills - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtPunjab and Haryana High Court
Decided On
Case NumberIncome-tax Reference No. 16 of 1962
Judge
Reported in[1970]78ITR262(P& H)
ActsIncome Tax Act, 1922 - Sections 31(3), 33 and 66
AppellantCommissioner of Income-tax
RespondentAmbala Flour Mills
Cases ReferredSitapur v. Murlidhar Bhagwan Das
Excerpt:
.....filing an appeal would commence from the date when the parties concerned acquire knowledge of passing of the said order. - returns on behalf of the assessee were filed by debi parshad and he conducted proceedings on behalf of the assessee, we fail to understand as to how the appeals filed on behalf of the assessee by debi parshad in respect of the assessment could be held to be not maintainable in law. he can do what the income-tax officer can do and also direct him to do what he has failed to do. the direction in so far as it related to the family of debi parshad was clearly unwarranted and could relate only to debi parshad in his individual capacity......have been referred to this court under section 66 of the income-tax act, 1922: '(1) whether l. debi parshad was a stranger in respect of theincome-tax proceedings against ambala flour mills? (2) whether the appellate assistant commissioner could give adirection in the case of ambala flour mills to the effect that the incomeshould be assessed in the hands of l. debi parshad after annulling theassessment in the case of ambala flour mills ? (3) whether, on the facts and in the circumstances of the case, the appeals filed by shri debi parshad were maintainable in law?' 2. the first two questions were referred as per the statement of the case dated 24th november, 1961, while the third question was referred in pursuance of an order made by this court. 3. the statement relates to the.....
Judgment:

H.R. Khanna, J.

1. The following three questions have been referred to this court under Section 66 of the Income-tax Act, 1922:

'(1) Whether L. Debi Parshad was a stranger in respect of theincome-tax proceedings against Ambala Flour Mills?

(2) Whether the Appellate Assistant Commissioner could give adirection in the case of Ambala Flour Mills to the effect that the incomeshould be assessed in the hands of L. Debi Parshad after annulling theassessment in the case of Ambala Flour Mills ?

(3) Whether, on the facts and in the circumstances of the case, the appeals filed by Shri Debi Parshad were maintainable in law?'

2. The first two questions were referred as per the statement of the case dated 24th November, 1961, while the third question was referred in pursuance of an order made by this court.

3. The statement relates to the assessment years 1950-51, 1951-52 and 1952-53, and the assessee is the Ambala Flour Mills, Ambala. The Ambala Flour Mills was previously a partnership concern consisting of three partners Balkishan, Debi Parshad and Jairam Dass. On 29th April, 1948, Jairam Dass filed a suit for dissolution of partnership and rendition of accounts against the other two partners. The trial court awarded a decree in favour of the plaintiff and on appeal the district judge dismissed the suit. On second appeal the learned single judge restored the judgment and decree of the trial court. On appeal under Clause X of the Letters Patent the Division Bench held that the partnership being at will it stood dissolved on the date of the institution of the suit. It was further observed:

'... but notwithstanding the dissolution of the firm Debi Parshad and Balkishan Dass carried on the business of the firm with the property of the firm. On these facts, Jairam Dass, plaintiff is entitled at the option, of himself to such share of the profits made since he ceased to be a partner as may be attributable to the use of his share of the property of the firm or interest at the rate of six per cent. per annum on the amount of his share in the property of the firm.'

4. Balkishan also went out of the business on 1st January, 1949, and since that date the business of Ambala Flour Mills was carried on by Debi Parshad alone.

5. When the assessment proceedings were started for the assessment year 1950-51, Debi Parshad filed the following three returns on:

(i) 4th October, 1950, in the status of a firm;

(ii) 14th February, 1951, in the status of an individual;

(iii) 9th July, 1951, in the status of a firm with Debi Parshad as having 12 annas share and Jairam Dass having 4 annas share.

6. After an initial ex parte assessment made by the Income-tax Officer had been set aside, the Income-tax Officer made an assessment on 15th August, 1958, on a total income of Rs. 1,12,962. The status of the assessee was mentioned 'as an association of persons'. For the year 1951-52, a return of income was filed by Debi Parshad in the status of 'an unregistered firm'. The Income-tax Officer made an assessment in the status of 'an association of persons' and assessed the income at Rs. 2,62,768. For the year 1952-53, the return of income was filed by Debi Parshad on 7th January, 1953, in the status of a 'Hindu undivided family'. The assessment was made by the Income-tax Officer in the status of 'an associationof persons' and the income was assessed at Rs. 57,815. The Income-tax Officer, while holding that the status of the assesses was of an association of persons, observed that the assessee had described the status differently in the various returns because of the differing judgments of the trial court, the district judge and the High Court. The assessee was also called upon to explain his position and in his reply dated 28th September, 1953, he stated that his status should be taken to be that of an individual. The Income-tax Officer took the view that a definite business relationship existed between Jairain Dass and Debi Parshad, and Jairam Dass was entitled to the share in the profits or interest. He, accordingly, held that it was an association of persons which was running the business of Ambala Flour Mills. When the matter came up in appeal before the Appellate Assistant Commissioner, it was held that Jairam Dass could not be said to have any interest in the business of Ambala Flour Mills, and as such could not be described as an associate of Debi Parshad in the conduct of this business so as to form an 'association of persons'. The entire business of Ambala Flour Mills was held to belong to the family of Debi Parshad and not to an association of persons. The assessment on the 'association of persons' was, accordingly, annulled. It was further observed as follows:

'After the exit of Shri Jairam Dass from the business of Ambala Flour Mills, the income, therefore, belonged to the family of Shri Debi Parshad exclusively. It is therefore directed that the income from this business should be assessed in this year in the hands of the family of Shri Debi Parshad. As the assessment has been annulled on the question of status it is not necessary for me to go into the merits of the case about the additions made by the Income-tax Officer.'

7. An appeal was then filed on behalf of Ambala Flour Mills by Debi Parshad before the Income-tax Appellate Tribunal, and it was contended in the appeal that the Appellate Assistant Commissioner had no jurisdiction to hold that the entire business of Ambala Flour Mills belonged to Debi Parshad. It was further urged that the Appellate Assistant Commissioner could not give a direction to the Income-tax Officer to make the assessment on Debi Parshad when the original assessment was in the status of an association of persons. This argument was accepted by the Tribunal and it was held that the Appellate Assistant Commissioner could not pass an order in appeal which would affect Debi Parshad in the status of an individual. The order of the Assistant Commissioner in so far as he annulled the assessment made by the Income-tax Officer was allowed to stand but the direction regarding the taxability of the income in the hands of Debi Parshad was set aside. All the same it was observed that the assessment on Debi Parshad would remain unaffected and unaugmented as if no direction had been given by the Appellate Assistant Commissioner.

8. We have heard Mr. Awasthy on behalf of the Commissioner of Income-tax and Mr. Tuli on behalf of the assessee, and find that so fan as the first and third questions are concerned, they hardly present any difficulty. The various income-lax returns on behalf of Ambala Flour Mills were filed by Debi Parshad and it was he who conducted the proceedings on behalf of the assessee. Debi Parshad was initially a partner of the firm carrying on the business of Ambala Flour Mills. The firm was dissolved as a result of the suit brought by Jairam Dass. After that, Debi Parshad carried on the business along with Balkishan. Balkishan too left that business and it became the sole business of Debi Parshad. As such, Debi Parshad cannot be considered to be a stranger in respect of the income-tax proceedings against Ambala Flour Mills. . Further, as. the. returns on behalf of the assessee were filed by Debi Parshad and he conducted proceedings on behalf of the assessee, we fail to understand as to how the appeals filed on behalf of the assessee by Debi Parshad in respect of the assessment could be held to be not maintainable in law. We would, therefore, answer. the first question in the negative and the third question in the affirmative.

9. So far as the second question is concerned the matter is concluded by a recent decision of the Supreme Court in Commissioner of Income-tax v. Kanpur Coat Syndicate, [1964] 53 I.T.R. 225, 229, 230; [1964] 8 S.C.R. 85 (S.C.). The question, which arose for determination in that case, was whether when the Income-tax Officer in his discretion assessed an association of persons to income-tax; the Appellate Assistant Commissioner in appeal or the Income-tax Appellate Tribunal in further appeal can set aside that order and direct him to assess the members of that association individually. It arose in the, following circumstances :

The assessee consisted of several persons combined together for thepurpose of purchasing coat in order to supply the same to customers fordomestic purposes and other small scale industries. The Income-tax Officerlevied tax upon the total income in the hands of the association of persons.The assessee claimed that in the circumstances of the case it should not beassessed to tax as an association: of persons, but the proportion of the incomein the hands of each of the members of the association might be assessedto tax instead. As the Income-tax Officer did not comply with this request,the :assessee preferred an appeal to the Appellate Assistant Commissioner,but it was dismissed. On a further appeal to the Income-tax AppellateTribunal, the Tribunal held that though the Income-tax Officer had the powerto assess the income of the association of persons as such or in the alternativeon the individual members: thereof in respect of their proportionate sharein the income, it (the Tribunal) had no power under the Act to direct theIncome-tax Officer to exercise his power in one way or the other. The matterwas then referred under Section 66 of the Income-tax Act to the High Court of Allahabad and a Division Bench of that court held that the Appellate Tribunal had power to set aside the Income-tax Officer's assessment against the association and to give consequential and ancillary directions to the said officer to assess the individuals. On appeal to the Supreme Court, Subba Rao J., who spoke for the court, referred to Section 31 of the Income-tax Act, which deals with the powers of the: Appellate Assistant Commissioner in appeal, and observed: 'Under Section 31(3)(a) in disposing of such an appeal the Appellate Assistant Commissioner may, in the case of an order of assessment, confirm, reduce, enhance or annul the assessment; under Clause (b) thereof he may set aside the assessment and direct the Income-tax Officer to make a fresh assessment. The Appellate Assistant Commissioner has, therefore, plenary powers in disposing, of an appeal. The scope of his power is conterminous with that of the Income-tax Officer. He can do what the Income-tax Officer can do and also direct him to do what he has failed to do. If the Income-tax Officer has the option to assess one or other of the entities in the alternative, the Appellate Assistant Commissioner can direct him to do what he should have done in the circumstances of a case.'

10. Reference was further made to Section 33 of the Act, which deals with appeals to the Income-tax Appellate Tribunal, and it was observed:

'The comprehensive phraseology used both in Section 31 and Section 33of the Act does not countenance ,the attempt of the revenue to restrict thepowers of the Appellate Assistant Commissioner or of the AppellateTribunal : both of them have power, to direct the appropriate authority toassess the members individually instead of the association of persons as aunit.'

11. The decision of the High Court was, accordingly, upheld and it was held that the direction could be issued in appeal to the appropriate authority to cancel the assessment made on the association of persons and to make fresh assessment on the members of that association individually.

12. Mr. Tuli has tried to distinguish the above authority on the ground that the association of persons in that case had not ceased to exist, while in the present case there in fact did not exist an association of persons. This circumstance, in our opinion, would not make any difference to the applicability of the dictum laid down in the above case about the nature and extent of the powers of the Appellate Assistant Commissioner in appeal. As those powers are of a comprehensive and plenary nature and are conterminous with those of an Income-tax Officer, there is, in our opinion, no bar to an Appellate Assistant Commissioner making a 'direction while setting aside an order of assessment of an association of persons, that the members should be assessed individually.

13. Reference has also been made by Mr. Tuli to the case of N. Naganatha Iyer v. Commissioner of Income-tax, [1965] 57 I.T.R. 326 (Mad.) wherein it was held that a junior member of a Hindu undivided family should be deemed constructively to be a party to a decision to which the, karta of the family is a party. The above dictum has no bearing on the present case, and, in our opinion, the assessee can derive no help from it. Reference has also been made by Mr. Tuli to the observations on page 342 in the case, Income-tax. Officer, A-Ward, Sitapur v. Murlidhar Bhagwan Das, [1964] 52 I.T.R. 335, [1964] 6 S.C.R. 411 (S.C.). What was observed by their Lordships in that case was that the jurisdiction of the tribunals in the hierarchy created by the Act was no higher than that of the Income-tax Officer, and it was confined only to the year of assessment. The assessee in the present case can hardly derive any assistance from the above-mentioned observation because the direction of the Appellate Assistant Commissioner was not with respect to a year different from that in respect of which the assessment had been made by the Income-tax Officer.

14. We may add that though the second question as. referred to this court pre-supposes that the direction of the Appellate Assistant Commissioner was that the income from the business, of Ambala Flour Mills should be assessed in the hands of Debi Parshad, in actual fact the direction was that the aforesaid income should be assessed in the hands of the family of Debi Parshad. The direction in so far as it related to the family of Debi Parshad was clearly unwarranted and could relate only to Debi Parshad in his individual capacity. With the above qualification we would answer the second question in the affirmative.

15. The parties, in the circumstances of the case, are left to bear their owncosts.

D. Falshaw, C.J.

16. I agree.


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