1979 (8) TMI 4 - SC - Income Tax

Whether the reassessment sought to be made by the ITO on the assessee-trust under s. 34(1)(b) was time barred - assessee-trust was clearly a stranger to the assessment proceedings of S. Raghubir Singh and it was not any person within the meaning of the second proviso to s. 34(3). The High Court was therefore right in taking the view that the second proviso to s. 34(3) was not attracted and the reassessment proceedings against the assessee-trust were barred by time.

Summary

Issues:
1. Determination of the time-barred reassessment under section 34(1)(b) of the Indian Income Tax Act, 1922 for an assessee-trust.

Analysis:
The judgment involved an appeal regarding the time limitation for a reassessment by the Income Tax Officer (ITO) on an assessee-trust under section 34(1)(b) of the Indian Income Tax Act, 1922. The case originated from the creation of the assessee-trust by Shri S. Raghubir Singh, with the relevant assessment year being 1954-55. Initially, the ITO considered the trust as sham and included its income in the individual assessment of S. Raghubir Singh. However, upon appeal, the Punjab High Court ruled that the trust was valid, leading the ITO to issue a notice seeking to reopen the assessment of the trust under section 34(1)(b) on 19th September 1961. The assessee-trust contended that the reassessment was time-barred, but the ITO proceeded with the reassessment, resulting in an appeal to the Appellate Assistant Commissioner (AAC) and then to the Tribunal.

The Tribunal, after obtaining a remand report, concluded that the assessee-trust was not intimately connected with the assessment of S. Raghubir Singh, and the second proviso to section 34(3) did not save the reassessment from the limitation period. Subsequently, the matter was referred to the High Court, which upheld the Tribunal's decision, stating that the assessee-trust and S. Raghubir Singh were distinct entities, and the second proviso to section 34(3) did not apply. The revenue then appealed to the Supreme Court after obtaining a certificate of fitness from the High Court.

The Supreme Court referred to the conditions for the applicability of the second proviso to section 34(3 as established in previous judgments. It highlighted that for the second proviso to apply, the reassessment must be a consequence of a finding in an earlier order and must be sought on the assessee or any person intimately connected with the assessment. The Court noted that the finding by the Punjab High Court that the income belonged to the assessee-trust was necessary for disposing of the reference in favor of S. Raghubir Singh. However, it emphasized that the assessee-trust was a stranger to the assessment proceedings of S. Raghubir Singh and not intimately connected, thus not falling under the definition of "any person" within the second proviso to section 34(3).

Ultimately, the Supreme Court dismissed the appeal, affirming the High Court's decision that the reassessment proceedings against the assessee-trust were time-barred as the second proviso to section 34(3) did not apply due to the lack of intimate connection between the trust and the assessment of S. Raghubir Singh.