S. Ramachandra Iyer, C.J.
1. The assessee, who had left India about the year 1938 for Malaya, carried on business there for about eight years. He returned to this country on 21st March, 1946, bringing with him a sum of Rs. 16,000. That sum, according to him, formed part of the profits earned by him in the past in his business at Malaya. In the accounts of one K.V.RM. Ramanathan Chettiar at Bombay there was a deposit in assessee's name as on 13th April, 1946. The sum deposited was Rs. 10,000. The Income-tax Officer, who enquired into the matter of the assessment, was told that that sum of Rs. 10,000 invested with Ramanathan Chettiar was part of the larger sum of Rs. 16,000 which he brought from Malaya. The Officer did not accept that version. He treated the entire sum of Rs. 16,000 admitted by the assessee to have been brought from Malaya, as undisclosed business profits and included that sum in the income of the assessee for the assessment year 1947-48, the relevant year of account having ended with 31st March, 1947. This assessment proceeded upon the footing that the income was received by the assessee on the date disclosed in the account books of K.V. RM. Ramanathan Chettiar, that is, 13th April, 1946. The assessee appealed to the Appellate Assistant Commissioner, who held that, as the actual amount disclosed by the account books of K. V. RM. Ramanathan Chettiar was only the deposit of Rs. 10,000 the inclusion of a sum of Rs. 16,000 in the assessment for the year 1947-48 could not be sustained, and he accordingly restricted the addition to Rs. 10,000. About the balance, he observed:
Therefore, it must be accepted that if there was a sum of Rs. 6,000, it could only be treated as an income arising in the ' previous year' for the assessment year 1946-47 or as income remitted in that assessment year.
2. This order was dated 25th November, 1957. Thereafter, on 23rd October, 1958 the Income-tax Officer commenced proceedings under Section 34 on the assessee for the assessment year 1946-47. Meanwhile, the assessee had appealed to the Appellate Tribunal against the order of the Appellate Commissioner, including in his assessment the sum of Rs. 10,000. The Tribunal, by its order dated 15th December, 1958, accepted the version of the assessee that the deposit with Ramanathan Chettiar was made out of the sum of Rs. 16,000 brought by the assessee from Malaya, and held that as that amount had been brought into the taxable territories on 21st March, 1946, the entire sum of Rs. 16,000 should be regarded as having been received during the period of account relevant to the assessment year 1946-47, and, in that view cancelled the assessment altogether.
3. The Income-tax Officer who had initiated proceedings under Section 34, had the benefit of this order of the Appellate Tribunal before he concluded the assessment proceedings. The assessee contested the validity of the proceedings on two grounds (i) that the proceedings having been initiated more than eight years after the ending of the year of assessment, were barred by limitation ; and (ii) that he was not a resident in the taxable territories during the year of account, as it could not be said that when he arrived here on 21st March, 1946, he was likely to remain in the taxable territories for not less than three years. The Income-tax Officer overruled these contentions, and assessed the entirety of the sum of Rs. 16,000 as income received by the assessee during the period relevant to the assessment year 1946-47. This assessment has been affirmed by the Appellate Assistant Commissioner as well as by the Appellate Tribunal.
4. Two questions have been referred to us in connection with this assessment. They are:
1. Whether the re-assessment under Section 34 of the Act is valid in law ?
2. Whether the treatment of the assessee as a resident but not ordinarily resident by applying the provisions of Section 4-A(a)(iv) is correct ?
5. The second question does not require detailed consideration by us, in view of our decision in R.C. No. 48 of 1957. This is conceded by the Counsel appearing for the assessee in this case. Following that decision, we answer the question in the affirmative and against the assessee.
6. On the first question, the contention of learned Counsel for the assessee is that inasmuch as no proper notice had been issued to the assessee under Section 34, after the Appellate Tribunal passed its order on 15th December, 1958, in relation to the assessment for the year 1947-48, the issue of notice on the basis of the Appellate Assistant Commissioner's order in that year's assessment, should be considered as invalid, as that order had later merged into the one passed by the Appellate Tribunal. It is, therefore, argued that the proceedings in the present case should be regarded as having been commenced independent of the order of the Appellate Assistant Commissioner and that having been initiated more than eight years after the close of the assessment year 1946-47, the proceedings should be held to be barred by limitation. Both the Officers of the Department as well as the Appellate Tribunal held that, notwithstanding the subsequent order of the Appellate Tribunal, the finding given by the Appellate Assistant Commissioner that a sum of Rs. 6,000 might have been received by the assessee during the previous year of account was sufficient to give jurisdiction to the Income-tax Officer to initiate proceedings under Section 34 for the assessment year 1946-47. The Tribunal states:
On the date on which the Income-tax Officer reopened the assessment, it was only the Appellate Assistant Commissioner's order that was before him containing, as it did, the finding in question. If subsequently this order had been vacated, it cannot thereby cease to give necessary authority to the Income-tax Officer under the second proviso to Section 34(3), which had been already invoked. Even otherwise, the Tribunal's order, proceeding as it did, on entirely a different line of approach to the matter on hand, left this finding of the Appellate Assistant Commissioner severely alone. The Tribunal did not find it necessary to upset the finding which, therefore, even after the Tribunal's order must stand out by itself even after both of them coalesced into one as claimed by Mr. Srinivasan.
7. Learned Counsel for the assessee has repeated before us the same contention that he urged before the Tribunal. To put it briefly, the argument is that, in order to entitle the Income-tax Officer to rely upon the second proviso to Section 34(3), the finding given must have been a final one. In support of this contention learned Counsel has relied upon the familiar principle of merger of a judicial order of the subordinate officer into the order of the superior authority deciding the appeal against the former. The Supreme Court in Collector of Customs, Calcutta v. The East India Commercial Co., Ltd. C.A. No. 383 of 1961 has stated the rule as to merger in a comprehensive form thus:
In all cases after the appellate authority had disposed of the appeal, the operative order was that of the final authority whether it had reversed, modified or confirmed the original order.
8. This principle has been applied to cases arising under the Income-tax Act in Commissioner of Income-tax v. Amritlal Bhogilal & Co. : 34ITR130(SC) where it was observed:
If an appeal is provided against an order passed by a Tribunal, the decision of the appellate authority is the operative decision in law. If the appellate authority modifies or reverses the decision of the Tribunal, it is obvious that it is the appellate decision that is effective and can be enforced. In law the position would be just the same even if the appellate decision merely confirms the decision of the tribunal. As a result of the confirmation or affirmance of the decision of the tribunal by the appellate authority, the original decision emerges in the appellate decision and it is the appellate decision alone which subsists and is operative and capable of enforcement...
9. It will, however, be noticed that the principle of merger stated above can only be in regard to the operation of the decision relating to the subject-matter thereof : it cannot extend to proceedings taken independently of it. To explain what we mean, the order of the Appellate Tribunal can be regarded as the operative decision in respect of the assessment for the year 1947-48 alone. That cannot apply to the finding of the Appellate Assistant Commissioner, in regard to the sum of Rs. 6,000 in so far as it formed the foundation for starting assessment proceedings under Section 34 for the year 1946-47. What the second proviso to Section 34(3) contemplates is a different period of account of the same assessee or a different assessee.
10. Again in regard to matters covered by Section 34(1)(a), the reopening of the assessment should have been made within eight years of the close of the year of assessment. Proviso (2) to Section 34(3) enacts an exception to that provision and it enables a re-assessment to be made in such cases, if it arises in consequence of, or to give effect to, any finding or direction contained in an order under Section 31, Section 33, Section 33-A, Section 33-B, Section 66 or Section 66-A. A plain reading of the section would show that the Income-tax Officer can commence proceedings if there has been a finding by the authority concerned under any one of the sections mentioned above. The statute does not contemplate any case of merger. On the other hand, the contention that the re-opening of the assessment under Section 34 can be made only after the decision of the final statutory authority, would lead to considerable inconvenience and will also be contrary to a principle recognised in the application of the statute of limitation, namely, that where there is more than one period of time for commencing proceedings, limitation has to be reckoned from the earliest point of time. For the two reasons stated above, namely (i) that the principle of merger of the order of the subordinate authority into the order of the appellate authority applies only with regard to the actual subject-matter of the decision and (ii) that the plain terms of the section would make it competent for the Income-tax Officer to commence proceedings under Section 34 whenever any of the orders specified in the sections mentioned above has been passed, we are of opinion that it would be competent for the Income-tax Officer to commence proceedings under Section 34 of the Act immediately after the order of the Appellate Assistant Commissioner. The fact that subsequent to the initiation of such proceedings, the order of the Appellate Tribunal had superseded that of the Appellate Assistant Commissioner, cannot take away the jurisdiction of the Income-tax Officer to initiate the proceedings.
11. It must be remembered that the second proviso to Section 34(3) will enable the Income-tax Officer to reopen the assessment even of third parties in consequence of a finding given against an assessee. The finding in such a case under the sections enumerated in that provision can, therefore, be only an incidental one. There can be no question of merger of an incidental finding in the ultimate assessment order which relates to a different assessee.
12. Of course there may be cases where the Appellate Tribunal or other authority sets aside the incidental finding, which has given rise for an action being taken under Section 34. Whether, in such cases, the jurisdiction of the Income-tax Officer to continue the proceedings under Section 34 subsists, is a question with which we are not concerned here. In the present case, the order of the Appellate Tribunal did not say that the sum of Rs. 6,000 was not received by the assessee during the year relevant to the assessment year 1946-47. Therefore, the finding reached by the Appellate Assistant Commissioner, would give the necessary power to the Income-tax Officer to initiate the proceedings under Section 34 of the Act.
13. It has been argued that the maintainability of the proceedings under Section 34, depended on the continued existence of the Appellate Assistant Commissioner's order, and that as that order had been superseded by that of the Appellate Tribunal, the jurisdiction of the Income-tax Officer to sustain the said proceedings should be held to have ceased. In other words, the argument is that inasmuch as the proceedings initiated under Section 34, to take up the assessment for the year 1946-47, were on the basis of the Appellate Assistant Commissioner's order of the year 1947-48, the foundation thereof must be held to have disappeared when once that order had merged in the order of the Appellate Tribunal. A fallacy underlies this contention. The assessment proceedings for the year 1946-47 were no doubt initiated as a result of the finding given by the Appellate Assistant Commissioner in the course of the proceedings relating to the assessment for the year 1947-48. But apart from that circumstance, it is an independent proceeding. The fact that the order in those proceedings merged in the final order of the Appellate Tribunal relating to that year, cannot mean that the proceedings taken for the assessment year 1946-47 are rendered invalid. This will be clear from the decision of the Privy Council in Bommadevara Naganna Naidu v. Ravi Venkatappayya 45 M.L.J. 657 : L.R. 50 IndAp 301 : I.L.R. 46 Mad. 895. In that case there was a dispute between the landlord and his tenant as to the extent of rent payable. In respect of a certain period, the landlord filed a suit to recover a certain amount of rent. The original Court passed a decree accepting the case of the tenant as to the amount due. That was reversed, on appeal, by the High Court. The judgment of the High Court was later set aside and that of the original Court restored by the Privy Council. Before the Privy Council gave its decision, the landlord had filed suits for the subsequent periods. Those suits were decided on the authority of the decision of the High Court, which was then under appeal to the Privy Council. No appeal was filed by the tenants as against the decree in the subsequent suits. But a suit was filed for recovery of the excess collection on the basis of the decision of the Privy Council. This Court held in Sir Raja Bommadevara Venkata Narasimha Naidu v. Rani Venkatappayya : (1919)37MLJ591 that it would be competent for the tenants to enforce their rights even with regard to the subsequent periods as the judgment for their recovery depended on the decision of the High Court which was later set aside by the Privy Council. This decision was over-ruled by the Privy Council in the decision to which we have made reference earlier on the ground that the decree in regard to the subsequent years' rent must be taken to be subsisting and valid till it has been reversed or superseded by some ulterior proceedings and not on any theory of a dependant judgment ceasing to have effect on the earlier one being set aside.
14. It would follow from the principle accepted in the decision stated above, that the assessment proceedings initiated under Section 34 for the year 1946-47 being independent proceedings, cannot be made to depend upon what subsequently happened to the assessment proceedings relating to the year 1947-48.
15. In Commissioner of Income-tax v. Amritlal Bhogilal Co. : 34ITR130(SC) the Income-tax Officer, while assessing a partnership firm, granted a renewal of registration of the firm under Section 26-A of the Act and made the assessment on individual partners. There was an appeal against the order of assessment to the Appellate Assistant Commissioner. Pending that appeal, the Commissioner of Income-tax, purporting to act under Section 33-B (1), cancelled the registration of the firm and directed the Income-tax Officer to make a fresh assessment. It was contended that as a result of the decision in the appeal preferred by the assessee against the Income-tax Officer's order of assessment, the order of registration passed by that Officer had ceased to be the order of the Income-tax Officer and became, by reason of the principle of merger, the order of the appellate authority, which it was not competent for the Commissioner to cancel. The Supreme Court pointed out that the order of registration passed by the Income tax Officer was independnt of the assessment and did not form the subject-matter of the appeal against the order of assessment and that, therefore, there could be no merger of the order of registration in the appellate order. They observed:
Even after the appeal is decided and in consequence the appellate order is the only order which is valid and enforceable in law, what merges in the appellate order is the Income-tax Officer's order under appeal and not his order of registration which was not and could never become the subject-matter of an appeal before the appellate authority.
16. Applying that principle to the present case, we hold that the conclusion reached by the Appellate Assistant Commissioner in the assessment proceedings relating to the year 1947-48 that a sum of Rs. 6,000 was received by the assessee in the year previous to the relevant year of account, did not form the subject-matter of the appeal before the Appellate Tribunal, as the Income-tax Department did not file any appeal in regard to that. That finding cannot, therefore, merge in the order of the Appellate Tribunal regarding the assessment to the effect that even the remaining sum of Rs. 10,000 which alone formed the subject-matter of appeal, was not received by the assessee during the year of account with which it was concerned.
17. We are, of opinion that the finding of the Appellate Assistant Commissioner would form a valid basis for the initiation of proceedings under Section 34 of the Act in the present case, and we therefore answer the first question in the affirmative and against the assessee. The assessee will pay the costs of the Department Counsel's fee Rs. 250.