1985 (1) TMI 23 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Tribunal was correct in law in holding that the assessment for the assessment year 1966-67 on the firm was barred by limitation.

Issue-wise Detailed Analysis:

1. Barred by Limitation:
The primary issue revolves around whether the assessment for the assessment year 1966-67 on the firm was barred by limitation. The relevant facts indicate that the assessee filed two returns on September 26, 1966, one as a registered firm and another as a Hindu undivided family (HUF). The Income-tax Officer (ITO) initially did not accept the claim of partition and assessed the HUF. However, the Appellate Assistant Commissioner (AAC) accepted the partition claim and directed a fresh assessment in the correct status, which led to the ITO assessing the firm on February 14, 1972.

The Tribunal upheld the assessee's contention that no assessment had been made on the firm despite the return filed on September 26, 1966, and thus, the assessment on the firm was barred by limitation on February 14, 1972. The Tribunal relied on the case CIT v. Rameshwarlal Sanwarmal [1971] 82 ITR 628 (SC), which held that if no assessment is made on the return filed, the assessment is time-barred.

2. Legal Provisions and Interpretation:
Section 153(1)(a)(i) of the Income-tax Act, 1961, stipulates a four-year period for completing assessments from the end of the relevant assessment year. For the assessment year 1966-67, this period would end on March 31, 1971. However, Section 153(3)(ii) exempts this limitation if the assessment is made in consequence of or to give effect to any finding or direction contained in an order under Section 250 of the Act. Explanation 3 to Section 153 further clarifies that if income is excluded from one person's total income and held to be the income of another, the assessment on the latter is deemed to be in consequence of the order, provided they were given an opportunity to be heard.

3. Different Entities and Necessary Findings:
The court emphasized that the HUF and the firm are distinct entities and different assessees. The AAC's direction to assess the income in the status of a firm was a necessary finding for the assessment year 1966-67. The AAC's decision was crucial for determining whether the income should be assessed in the hands of the HUF or the firm.

4. Precedents and Their Applicability:
The judgment analyzed several precedents:
- CIT v. Rameshwarlal Sanwarmal [1971] 82 ITR 628 (SC) was distinguished as it dealt with different facts where the return was filed by the HUF, and the assessment was made on an individual.
- CIT v. Vadde Pullaiah & Co. [1973] 89 ITR 240 (SC) was found applicable as it involved an assessment initially made on an individual, later directed to be assessed on a firm by the AAC.
- Daffadar Bhagat Singh & Sons v. ITO [1969] 71 ITR 417 (SC) was also relevant as it dealt with the AAC directing the assessment on a firm after initially being assessed as an HUF.

5. Conclusion and Judgment:
The court concluded that the assessment on the firm was not barred by limitation due to the AAC's direction, which was necessary for the disposal of the appeal. The Tribunal's reliance on CIT v. Rameshwarlal Sanwarmal was misplaced. The court held that the assessment on the firm was valid and within the permissible time frame under Section 153(3)(ii) and Explanation 3.

Final Decision:
The court answered the question in the negative, stating that the Tribunal was not correct in law in holding that the assessment for the assessment year 1966-67 on the firm was barred by limitation. The judgment was in favor of the Revenue petitioner and against the assessee-opposite party. Both parties were directed to bear their own costs.