TMI Blog1970 (3) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... himself, his sons and his wife. This family disrupted on the 10th of April, 1953. The assets of the family were partitioned. S. Raghbir Singh received 400 shares of Simbhaoli Sugar Mills P. Ltd. among other assets of the joint Hindu family, as his share. He was also assigned the obligation to pay off a debt of nearly four lakhs of rupees which had been contracted by the joint Hindu family and was due to Rai Bahadur Seth Jessa Ram Fateh Chand. On the 14th of April, 1953, the assessee executed a deed of trust, whereby he constituted a trust of 300 out of 400 shares of Simbhaoli Sugar Mills. The trustees appointed under the trust deed undertook to accept the obligations and to carry out the same in accordance with the objects of the trust. The relevant objects of the trust were, to pay the debts in the first place and, thereafter, to provide funds for the maintenance and education of the assessee's children and grand-children. 80 per cent. of the income of the trust was to be spent on the children and grand-children ; and the remaining 20 per cent, was to be spent on various charitable purposes enumerated in the deed of trust. Thus the trust deed came into being during the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was that the provisions of section 34(1)(b) read with the second proviso to sub-section (3) of section 34 were not applicable to his case. This contention was not accepted by the Income-tax Officer. Against this decision the trust preferred an appeal to the Appellate Assistant Comniissioner, and it was urged that the assessment was barred by limitation. The contention of the trust was repelled by the Appellate Assistant Commissioner, and he affirmed the order of the Income-tax Officer. The trust then preferred an appeal to the Tribunal. Before the Tribunal, the contention of the trust was that the assessment was barred by limitation. The revenue, on the other hand, contended that the time-limit had been extended by the second proviso to section 341(3), because the assessment was merely a consequence of the judgment of the Punjab High Court in S. Raghbir Sigh case. This contention was further fortified by the fact that S. Raghbir Singh was the author of the trust. The contentions of the trust, on the other hand, were that section 34(1)(b) was ultra vires the Constitution; that the assessment was barred by Iimitation; and that the trust did not fall within the expression " any perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the status of 'individual'. Q. (ii)-Who filed the return of income ? A.-S. B. S. Raghbir Singh. Q. (iii)-We presume that the interest payment of Rs. 19,856 was disallowed in the case of Shri Raghbir Singh. If this presumption is correct, then : (a) Was it appealed against ? (b) Who filed the appeal on behalf of the assessee before the Tribunal ? (c) Who authorised the advocate on behalf of the assessee ? A.-(a) Yes. (b) Shri Deva Singh Randhawa, Advocate. (c) S. B. S. Raghbir Singh. (B) Re. Case of Raghbir Singh Trust, Raja Sansi. Q. (i)-Did the trust file a return of income under section 22(1), 22(2) or 22(3) ? A.-The return was filed under section 22(1) on July 15, 1954. Q. (ii)-If a return was filed along with an application under section 48, then who signed the return ? A.-Signed by S. Raghbir Singh on behalf of the trust. Q. (iii)-(a) What happened to the application under section 48 ? (b) Was a regular assessment order passed ? If so, furnish copy thereof. A.-(a) Assessment was made in this case under section 23(3) and the income accruing to the trust was held to be the income of S. Raghbir Singh. (b) Regular assessment was made under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed counsel for the respondent-assessee is concerned, his contention is that both the requirements of the second proviso to section 34(3) are not satisfied. It is maintained that there is no finding within the meaning of the second proviso as to give jurisdiction to the Income-tax Officer to act under section 34(1)(b) and that the trust was a total stranger to the proceedings that ended in the High Court in Raghbir Singh's case. At this stage, it will, therefore, be necessary to reproduce the relevant statutory provisions, namely, section 34(1)(b) and sub-section (3) and the second proviso to it, which read as under: "34. Income escaping assessment.- (1) If- ............. (b) 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, profits or gains chargeable to income-tax have escaped assessment for any year, or have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under this Act, or that excessive loss or depreciation allowance has been computed, he may in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered by the Income-tax Officer will not necessarily amount to disclosure within the meaning of this section ..... (3) No order of assessment or reassessment, other than an order of assessment under section 23 to which clause (c) of sub-section (1) of section 28 applies or an order of assessment or reassessment in cases falling within clause (a) of sub-section (1) or sub-section (1A) of this section shall be made after the expiry of four years from the end of the year in which the income, profits or gains were first assessable.......: 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 a 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 ........" The second proviso has been specifically dealt with by the Supreme Court in Income-tax Officer, A-Ward, Sitapur v. Murlidhar Bhagwan Das. In order to see whether the case falls within the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .' If that be the correct meaning, any finding on an irrelevant or extraneous matter would be a finding. That certainly cannot be the intention of the legislature. The Madras High Court also in A. S. Khader Ismail v. Income-tax Officer, Salem gave a very wide interpretation to that word, though it did not go so far as the Full Bench of the Allahabad High Court. Ramachandra Iyer J., as he then was, speaking for the court, observed that the word 'finding' in the proviso must be given a wide significance so as to include not only findings necessary for the disposal of the appeal but also findings which were incidental to it. With respect, this interpretation also is inconsistent with the well-known meaning of that expression in the legal terminology. Indeed, learned counsel for the respondent himself will not go so far, for he concedes that the expression 'finding' cannot be an incidental finding, but says that it must be a conclusion on a material question necessary for the disposal of the appeal, though it need not necessarily conclude the appeal. This concession does not materially differ from the definition we have given, but the difference lies in the application of that defini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... take in any person, whether connected or not with the assessee, whose income for any year has escaped assessment; but this construction cannot be accepted for the said expression is necessarily circumscribed by the scope of the subject-matter of the appeal or revision, as the case may be. That is to say, that person must be one who would be liable to be assessed for the whole or a part of the income that went into the assessment of the year under appeal or revision. If so construed, we must turn to section 31 to ascertain who is that person other than the appealing assessee who can be liable to be assessed for the income of the said assessment year. A combined reading of section 30(1) and section 31(3) of the Act indicates the cases where persons other than the appealing assessees might be affected by orders passed by the Appellate Commissioner. Modification or setting aside of assessment made on a firm, joint Hindu family association of persons, for a particular year, may affect the assessment for the said year on a partner or partners of the firm, member or members of the Hindu undivided family or the individual, as the case may be. In such cases, though the latter are not eonomi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at High Court in Commissioner Income-tax v. Shantilal Punjabhai. Murlidhar's case was considered in that case. The facts of that case were as follows: " The assessee was being assessed in the status of an individual. For the assessment year 1944-45, he filed his return in which he included his share of profit in a firm. In the course of the assessment of the Hindu undivided family, of which the assessee was a member, for the same assessment year, viz., 1944-45, the Income-tax Officer found that the assessee was the nominee of the Hindu undivided family in the said firm and, therefore, included the share of profits of the assessee in the said firm, in the total income of the Hindu undivided family. On an appeal by the family to the Tribunal, by an order dated May 5, 1953, the Tribunal held that there was not sufficient evidence to show that the asssesee was the nominee of the Hindu undivided family in the firm and directed that the share of profits of the assessee should be deleted from the assessment of the Hindu undivided family. The Income-tax Officer issued a notice to the assessee on 30th March, 1954, under section 34 of the Income-tax Act for including in the assessee's asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r's case has been fully discussed therein, and the interpretation placed by that court is more in consonance with the decision in Murlidhar's case. There is no dispute now that, in case the trust is held to be a stranger, vis-a-vis Raghbir Singh as an individual, the decision of the Tribunal would be correct in view of the decisions in S. C. Prashar v. Vasantsen Dwarkadas and Commissioner of Income-tax v. Sarday Lakhmir Singh. For the reasons recorded above, I must return the answer to the question referred in the affirmative. The assessment for the year 1954-55 was barred by time and it as not saved by the second proviso to section 34(3) of the Income-tax Act, 1922. In the circumstances of the case, there will be no order as to costs. S. S. SANDHAWALIA J.- I have had the privilege of perusing the judgment proposed by my learned brother but, with respect, I must express my inability to agree. The facts which are not in dispute appear fully in the judgment of Mahajan J. and it is, therefore, unnecessary to recapitulate them. As the case turns primarily upon the scope and language of the second proviso to section 34(3) of the Indian Income-tax Act, 1922 (hereinafter referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same was to be assessed in the hands of the trust as its income. It is thus profitable to set down the two questions which had been referred to the High Court in Raghbir Singh's case which were in the following terms: "1. Whether the dividend income of the 300 shares of the Simbhaoli Sugar Mills Private Ltd. transferred by the assessee to S. Raghbir Singh Trust was the income of the assessee liable to tax ? 2. Whether the assessee was entitled to claim deduction of Rs. 19,856 paid as interest to R. B. Seth Jessa Ram Fateh Chand against the dividend income of the aforesaid shares ? " The Division Bench declined to answer the second question as, according to it, it did not arise and confined itself to only question No. 1 and answered the same in the negative. In doing so it arrived at the following finding: "I, therefore, find that in this case there has been no retransfer of the income from the trust property to the author of the trust, nor does the trust make any provision whatsoever which entitles him at any time named or in the future to reassume power over the income of the assets directly or indirectly. That being so, the case does not fall within the mischief of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the hands of the trust or whether the same was to be assessed in the hands of S. Raghbir Singh as an individual. The material question which, therefore, arose and was to be resolved was to find whether the income fell in the hands of one or the other of the only two contenders for the same, namely, S. Raghbir Singh as an individual or the trust as a legal entity. There was no third party to which the income could go and be assessed in its hands. The test, therefore, was whether, in order to give relief to S. Ragbhir Singh, whose case was before the Division Bench, it was necessary to arrive at the finding whether the income belonged to him or the income was of the trust. It was in this context that the learned judges of the Division Bench gave the finding in the clearest terms that the income from the said 300 shares was the income of the trust and, consequently, S. Raghbir Singh was not to be assessed therefore as an individual. This finding, therefore, was on the material and the sole question which was raised before the Division Bench and a finding thereon was necessary to accord relief to the party before it. Consequently, the finding given by the Bench was a necessary finding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us patent that their Lordships found that a finding as regards an assessment year other than one under appeal, reference or revision was not, therefore, a necessary finding and classed it as an incidental one. As already noticed in the opening part of this judgment, in the present case the finding relates to the identical and the relevant assessment year and as such is a necessary finding for the decision of the case and cannot be classified as a merely incidental finding. The clear point of distinction, therefore, is that in Murlidhar's case the finding related to the assessment year other than the one under appeal, revision or reference whereas in the present case the finding relates to the identical assessment years. The second contention which now falls for determination is whether the "trust" falls within the meaning of the expression "any person" as used in the second proviso. In order to clear the ground forthwith it may be stated at the very outset that it was never the case of the department before us that the trust and S. Ragbbir Singh as a private individual are one and the same person. It was forcefully argued by Mr. Awasthy that the trust and S. Raghbir Singh, though ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the firm, member or members of the Hindu undivided family or the individual, as the case may be. In such cases though the latter are not eo nomine parties to the appeal, their assessments depend upon the assessments on the former. The said instances are only illustrative. It is not necessary to pursue the matter further. We would, therefore, hold that the expression 'any person' in the setting in which it appears must be confined to a person intimately connected in the aforesaid sense with the assessments of the year under appeal." A close analysis of this passage shows that their Lordships mentioned three cases, namely, a firm, a joint Hindu family, and an association of persons who may well be deemed to be intimately connected qua a partner, or partners of the firms, member or members of the Hindu undivided family or an individual as the case may be. However, it is made clear that these cases are merely illustrative and not exhaustive of the categories of persons who may be so intimately connected as to come within the expression "any person" as used in the second proviso. To my mind, from the above passage, three tests seem to emerge-- (i) Is the person one who would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imacy of connection as regards tax assessment. It is undisputed that in the present case S. Raghbir Singh was the settlor and the creator of the said trust. It may well be noticed that the whole corpus of the trust property, namely, 300 shares of the Simbhaoli Sugar Mills, was wholly the property of S. Raghbir Singh which was gifted by him to the trust for constituting the same. Coming to the purposes of the trust the primary object of the same admittedly was to wipe off the considerable and heavy debt due by S. Raglhbir Singh as an individual to R. B. Seth Tessa Ram Fateh Chand. Even after this debt had been wiped out 80 per cent. of the income from the corpus of the trust was perpetually directed to the education of the children and the grand-children of the settlor, namely, S. Raghbir Singh, The latter was also the chairman of this trust and this appointment was for life and irrevocable. In fact it is patent that the trust functioned primarily through S. Raghbir Singh and even in the present case qua the tax assessments, the returns thereof and the conduct of the relevant appeals and revisions was being done by it through him. In the light of all these circumstances, the irresis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o sons. The question was of the assessment of the income of the business of the firm. The Income-tax Officer treated the father and the sons as a Hindu undivided family. On appeal, however, the Appellate Assistant Commissioner accepted their contention that they formed a partnership firm. It is difficult, in these circumstances, to agree that the appellant was a total stranger to the assessment which was under appeal before the Appellate Assistant Commissioner and had no intimate connection with the person whose assessment was made by the Income-tax Officer and was set aside in appeal by the Appellate Assistant Commissioner." In view of the above, both the contentions raised on behalf of the revenue must succeed, and, consequently, I would answer the question referred to us in the negative and in favour of the revenue. BY THE COURT.- In view of the difference of opinion, the case is now submitted to the Hon'ble the Chief Justice under section 66A of the Income-tax Act read with clause 26 of the Letters Patent, and section 98(3) of the Code of Civil Procedure, for nominating a judge to hear the case and to decide it in accordance with law. [Pursuant to the above order the refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed, and the judgment of the Supreme Court is reported as Commissioner of Income-tax v. S. Raghbir Singh. It appears that after the decision, of this court the Income-tax Officer, on 19th September, 1961, issued a notice to the trust under section 34(1)(b) of the Indian Income-tax Act, 1922 (hereinafter referred to as "the Act"), with a view to assess the income arising out of 300 shares above-mentioned in respect of which the trust had filed its return on 15th of July, 1954. The assessment was completed by the Income-tax Officer on 23rd of February, 1962. The objection taken on behalf of the trust that the notice issued, as stated above, beyond the time prescribed in sub-section (1)(b) of section 34 of the Act was without jurisdiction, was not accepted by the Income-tax Officer or by the Appellate Assistant Commissioner. The Tribunal, however, in appeal preferred by the trust, accepted this contention and on an application made by the department the following question was referred to this court: "Whether, on the facts and in the circumstances of the case, the assessment made under section 34(1)(b) for the assessment year 1954-55 was barred by time and was not saved by the seco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment made; consequently, the limitation of four years was not applicable to the present case. Two conditions have to be satisfied before this pioviso can apply to a particular case of reassessment, viz., (a) that the reassessment should be made "on the assessee on any person", and (b) such a reassessment should be in consequence of or to give effect to any finding contained in an order under section 66. It is now to be examined whether these two conditions are satisfied in the present case. In the previous order, in consequence of which action is said to have been taken, the assesses was S. Ragbhir Singh in his individual capacity. The assessee in the present case is admittedly not S. Raghbir Singh in any capacity whatever. In the present case the assessee is the trust. The mere fact that S. Raghbir Singh is one of the four trustees of this trust or that be filed a return on behalf of the trust in his capacity as such in the year 1954, would not make any difference. This was not disputed on behalf of the department. The trust may, however, fall within the meaning of "any person". However, their Lordships of the Supreme Court in S. C. Prashar v. Vasantsen Dwarkadas considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al proceedings, etc., might take a long time and the assessee being a party to the appeal could not complain of such delay; therefore, assessees did not occupy the same position as strangers. But the learned judge held that there was no rational distinction so far as strangers were concerned and there was no reason why they should be deprived of the benefit of the time-limit prescribed by sub-section (1). He, therefore, held that the proviso, so far as it affected persons other than assessees not parties to the proceedings enumerated in it, must be field to be ultra vires the legislature." Even on the basis of this narrower view, the majority of the Supreme Court judges held that the case was not covered by the proviso. The argument of the department, which has been accepted by Sandhawalia J. was that, although the trust was not a party to the previous proceedings, in which the order or the direction had been given, yet S. Raghbir Singh, who was the assessee, was so intimately connected with the trust that the trust should be treated as covered by the word "assessee". For this reliance was placed on certain observations of their Lordships of the Supreme Court in Income-tax Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y more than we are with losses which may occur in the future.' " Their Lordships then went on to consider the meaning of the words "any person" and "any finding or direction" as used in the proviso. As regards the meaning of the word "finding", it was observed as follows at page 345: " A 'finding', therefore, can be only that which is necessary for the disposal of an appeal in respect of an assessment of a particular year. The Appellate Assistant Commissioner may hold, on the evidence, that the income shown by the assessee is not the income for the relevant year and thereby exclude that income from the assessment of the year under appeal. The finding in that context is that that income does not belong to the relevant year. He may incidentally find that the income belongs to another year, but that is not a finding necessary for the disposal of an appeal in respect of the year of assessment in question. " In view of this it was held that the finding given by the Appellate Assistant Commissioner that the income could not be assessed in the relevant year 1949-50 was the only finding within the meaning of the proviso, and the other finding that this income was properly assessable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had definitely been held that the proviso so far as it relates to persons other than the assessee was unconstitutional. Moreover, on a careful reading of these observations it is clear that, according to their Lordships, only those persons were covered by the proviso, even if they were not strictly parties to the appeal or revision, who in view of sections 30(1) and 31(3) would be affected by the order passed by the Appellate Assistant Commissioner. The illustrations given are clearly indicative of the type of persons who would be covered. A firm, a Hindu undivided family, and an association of persons, no doubt are treated as separate entities under the Income-tax Act, but in the case of a firm, the burden of the tax imposed on it has ultimately to be borne by its partners and, consequently, any order passed by the appellate authority would, in a way, affect the partners and in a sense they may be treated as assessees. Again in the case of a Hindu undivided family, ultimately the tax is to be paid by the members of the family, and in the case of an association of persons, by the individual members, and, therefore, in a sense, they may be treated as parties or intimately affected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Appellate Assistant Commissioner and it is not possible to understand how it can be regarded as having been made only incidentally." With regard to the second point, after referring to Murlidhar Bhagwan Das's case, it was observed : ".....it is again not possible to understand how the appellant can be taken out of the category of person or persons intimately connected with the assessment of the year under appeal. The returns, as stated before, were originally filed by the partnership firm comprising Bhagat Singh and his two sons. The question was of the assessment of the income of the business of the firm. The Income-tax Officer treated the father and the sons as a Hindu undivided family. On appeal, however, the Appellate Assistant Commissioner accepted their contention that they formed a partnership firm. It is difficult, in these circumstances, to agree that the appellant was a total stranger to the assessment which was under appeal before the Appellate Assistant Commissioner and had no intimate connection with the person whose assessment was made by the Income-tax Officer and was set aside in appeal by the Appellate Assistant Commissioner." It has to be borne in mind th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i Prasad, the third partner, alone carried on the business. In the assessment year 1950-51, Debi Prasad filed three returns of income in the status of a firm, in the status of an individual and in the status of a firm consisting of Jai Ram Das and Debi Prasad. For the assessment year 1951-52, he filed a return in the status of an unregistered firm and for the assement year 1952-53 in the status of a Hindu undivided family. The Income-tax Officer assessed the mills in three years of assessment in the status of " an association of persons ". In appeals filed by Debi Prasad, the Appellate Assistant Commissioner annulled the orders of assessment and remanded the case to the Income-tax Officer, who assessed the income as the income of the family of Debi Prasad. The Tribunal while upholding the order directed deletion of direction of remand. The High Court held that Debi Prasad was not a stranger in respect of the income-tax proceedings against Ambala Flour Mills; that the Appellate Assistant Commissioner could give a direction, with the rider that the assessment against Debi Prasad could only be in the individual capacity and that the appeals filed by Debi Prasad were maintainable in la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h those proceedings as not to be treated as a stranger but in a way covered by the word " assessee "? The trust itself had not been assessed and the litigation was being fought by S. Raghbir Singh, and his sole contention and interest was that the income of the 300 shares could not be added to his income. In those proceedings the trust was not a party and, therefore, it could not be covered by the second proviso in view of the decision of the Supreme Court in Prashar's case. Moreover, as regards the second point, the only finding that was necessary for the decision of the reference to the High Court made at the instance of S. Raghbir Singh was whether the trust was validly constituted and whether the income of the 300 shares could be treated as the income of S. Raghbir Singh individually. The other finding as to who should be treated to be the recipient of the income of these 300 shares was merely an incidental finding not necessary at all for the decision of the reference. I am, therefore, in agreement with Mahajan J. that this finding was merely incidental and not a finding necessary for the decision of the case and, therefore, this would not be a finding within the meaning of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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