TMI Blog1964 (10) TMI 84X X X X Extracts X X X X X X X X Extracts X X X X ..... these reassessments by taking recourse to the provisions of section 34(3). The appeals before the Tribunal proceeded on the footing that all the materials and relevant facts for all the three years were similar and hence we would state the facts in relation to the assessment year 1944-45. The Tribunal's main order relates to that assessment year and is in I.T.A. No. 7315 of 1954-55. 3. The assessee, Mr. Shantilal, is being assessed in the status of individual . For the assessment year 1944-45, he made his return and declared therein his share of profit from the firm of Messrs. Bharat Cloth Agency. At the material time, the assessee was a member of the Hindu undivided family, known as Punjabhai Deepchand. In the course of assessment proceedings of that family for the assessment year 1944-45, the Income-tax Officer came to the conclusion that the present assessee, i.e., Mr. Shantilal, was merely a nominee of the said family in the said firm and hence he included the share income, falling to the lot of Mr. Shantilal from the firm of Messrs. Bharat Cloth Agency, in the computation of the total income of the said family. The family came in appeal to the Tribunal and by its order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the assessment year 1944-45 and the following two years. The contentions raised before it were: (i) that the provisions of section 34(3) of the Income-tax Act are ultra vires the Indian Constitution; and (ii) that the amended section 34(3) cannot overrule the main provisions of section 34 and hence the reassessment made is time-barred and bad in law. In support of these contentions, Shri S.P. Mehta, counsel for the assessee, strongly relied upon the then unreported judgment of the Bombay High Court in the case of Vasantsen Dwarkadas (Appeal No. 1 of 1955). It is now reported in [1956] 29 I.T.R. 857 under the name of S.C. Prashar v. Vasantsen Dwarkadas. 6. In support of the second of those two contentions, it was urged, relying upon Vasantsen's case* that since the remedy of the right to issue a notice under section 34 was already barred at the date when the amending legislation, i.e., section 34(3), came into force, the amending legislation could not revive the remedy by providing the extended period of limitation. In dealing with this contention, the Accountant Member held (for reasons given by him in paragraph 6 of his order dated December 31, 1955), that once ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed annexure D and forms part of the case. 10. On these facts, the Commissioner now requires the Tribunal to refer to the High Court the following two identical questions for each of the three years but for the assessment year involved. For the assessment year 1944-45, they are as follows: (i) Whether, on the facts and in the circumstances of the case, and having particular regard to the finding of the Tribunal that the business belonged to Shri Shantilal, or at any rate the business did not belong to the Hindu undivided family of Shri Punjabhai Deepchand the proceedings started under section 34 read with section 34(3), proviso (2), for assessment year 1944-45 on April 1, 1945, were bad in law, on the ground that the provisions of the present section 34(3), proviso (2) of the Act are ultra vires the Indian Constitution? (ii) Whether, on the facts and in the circumstances of the case, Shri Shantilal was a stranger to the proceedings under section 34 read with section 34(3), proviso (2), started on April 1, 1945, by his own assessing Income-tax Officer. 11. By his reply, the respondent urged that the following question also arose out of the Tribunal's order for eac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gment of the court was delivered by J.M. SHELAT C.J.--This reference arises out of reassessment of the assessee for the assessment years 1944-45, 1945-46 and 1946-47, the relevant previous years being Samvat years 1999, 2000 and 2001 respectively. The reassessment proceedings were adopted having recourse to the second proviso to section 34(3) of the Income-tax Act of 1922. The facts for all the three assessment years are similar and hence it is possible to take the facts relevant to the assessment year 1944-45 as typical. That was also the way in which the case was presented to us by the learned Advocate-General. The assessee, Shantilal Punjabhai, used to be assessed in the status of an individual. For the assessment year 1944-1945, he filed his returns in which he included his share of profit in the firm of Messrs. Bharat Cloth Agency. The assessee, at the material time, was a member of the Hindu undivided family known as Punjabhai Deepchand. In the course of the assessment proceedings of that family also for the assessment year 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to issue notice under section 34 for the assessment year 1944-45 was already barred when the Amendment Act of 1953 came into force. As regards the question of constitutional invalidity, the President was doubtful whether article 14 applied and said that he would leave the matter at that. On these facts, three questions have been referred to us, namely: (1) Whether, on the facts and in the circumstances of the case, and having particular regard to the finding of the Tribunal that the business belonged to Shri Shantilal, or at any rate the business did not belong to the Hindu undivided family of Shri Punjabhai Deepchand the proceeding started under section 34 read with section 34(3), proviso (2), for assessment year 1944-45 on April 1, 1954, were bad in law, on the ground that the provisions of the present section 34(3), proviso (2), of the Act, are ultra vires the Indian Constitution? (2) Whether, on the facts and in the circumstances of the case, Shri Shantilal was a stranger to the proceedings under section 34 read with section 34(3), proviso (2), started on April 1, 1954, by his own assessing Income- tax Officer? and (3) Whether, on the facts and in the circumsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd a period of four years. The first would apply to cases in which the Income-tax Officer has reason to believe that the assessee has concealed income or furnished inaccurate particulars thereof, and the second was to apply in all other cases. This section remained in force until March 30, 1948, when the Income-tax and Business Profits Tax (Amendment) Act, 1948, passed on September 8, 1948, substituted a new section in the place of the old. That section, inter alia, provided that if the Income-tax Officer has reason to believe that by reason of the omission or failure on the part of an assessee to make a return of his income under section 22 for any year or to disclose fully and truly all material facts necessary for his assessment for that year, income, profits or gains chargeable to income-tax have escaped assessment for that year, or have been under-assessed, etc., or notwithstanding that there has been no omission or failure on the part of the assessee, the 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 even under-assessed, etc., he may, in cases fall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Amendment Act also contained section 31, which provided: For the removal of doubts, it is hereby declared that the provisions of sub-sections (1), (2) and (3) of section 34 of the principal Act shall apply and shall be deemed always to have applied to any assessment or reassessment for any year ending before the first day of April, 1948, in any case where the proceedings in respect of such assessment or reassessment were commenced under the said sub-sections after the eighth day of September, 1948, and any notice issued in accordance with sub-section (1) or any assessment completed in pursuance of such notice within the time specified in sub-section (3), whether before or after the commencement of the Indian In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of Vasantsen Dwarkadas. An appeal was also filed by the firm of Purshottam Laxmidas against its assessment and there was also an appeal for the assessment year 1942-43 by petitioner No. 1 as the heir and legal representative of his father against the decision that the income of Vasantsen Dwarkadas should be included in the income of Dwarkadas. After the decision in Vasantsen's case*, in the assessment year 1942-43, the Income- tax Officer gave a finding that the firm of Vasantsen Dwarkadas was only a branch of the firm of Purshottam Laxmidas, and he added the income of Vasantsen Dwarkadas to the income of Purshottam Laxmidas, and this question also came up before the Tribunal in appeals filed by Purshottam Laxmidas against their assessment and the Tribunal, by a consolidated order dated August 14, 1951, disposed of all these appeals and its decision was that there was overwhelming evidence to come to the conclusion that the business done in the name of Vasantsen Dwarkadas belonged to the firm of Purshottam Laxmidas. With regard to the appeal filed by Vasantsen, as the representative of his father for the assessment year 1942-1943, the Tribunal's conclusion was that the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not intend to give any retrospective operation further back than April 1, 1952. The remedy and the right of the officer to reassess were lost before April 1, 1952 and, therefore, the notice was invalid. They also held that although limitation was a procedural law and although it was open to the legislature to extend the period of limitation, an important right accrued to a party when the remedy against him was barred by the existing law of limitation and that vested right could not be affected except by the clearest and most express terms used by the legislature. As regards the second proviso to section 34(3), they held that the proviso offended article 14 of the Constitution in so far as it affected third parties, and was, therefore, invalid to that extent. It is important to notice that the contention raised before the appellate bench on behalf of the assessee was in a limited form and the answer to that contention was also in a limited form. The contention reproduced at page 900 of the report was that although the amended proviso might be valid to the extent that it affected an assessee, it was bad to the extent that it affected a stranger. The answer which the Appellate Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and no limitation would apply in their case, and in the case of others, the limitation laid down by sub-section (1) of section 34 would apply. This, he said, in my opinion is unequal treatment which is not based on any rational ground. He also held that the finding which the Tribunal gave in its consolidated order dated April 14, 1951, was a finding given in appeal filed by Vasantsen as the legal representative of his father for the assessment year 1942-43. In that appeal, the firm of Purshottam Laxmidas was not a party, though Purshottam Laxmidas was a party to certain other appeals before the Tribunal. He said that he found some difficulty in appreciating how Purshottam Laxmidas could be treated as an assessee within the meaning of the second proviso to sub-section (3) of section 34 for the assessment year 1942-43. If, therefore, the firm could not be so treated, then within the narrow ground stated by Desai J., the proviso would be of no assistance to the appellant. Regarding the second facet of the question, he first held that there was nothing in the proviso which would give it retrospective effect beyond April 1, 1952. Even before that date, the period of eight years from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned Chief Justice of the Calcutta High Court in the aforesaid case was the correct view and that the amended section 34 applied to assessment years prior to 1948-49, but it did not say that an assessment which had become final and in respect of which reassessment proceedings had become time-barred before the amended section came into force, could be reopened. He also stated that section 31 did not say that the periods of limitation laid down in sub-sections (1) and (3) of section 34 were being done away with, but that, on the contrary, the first part of section 31 stated that the proceedings must have been commenced after September 8, 1948, (the date on which the Amending Act of 1948 came into force), under the said sub-section and the notice must have been issued in accordance with sub-section (1). The Income-tax Officer, therefore, could commence proceedings under the said sub-sections or issue a notice in accordance with sub-section (1) only when he obeyed the injunction as to time laid down therein. Then only he could be said to have commenced the proceedings or issued a notice in accordance with the sub-sections. If he has done that and commenced proceedings after September 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otice. Hidayatullah and Raghubar Dayal JJ. reached conclusions on this question different from those of S.K. Das and Kapur JJ. As can be seen from page 46 [1963] 49 I.T.R. (S.C.) 1 of the report, Sarkar J. held on the facts of the case that the notice was validated by section 4 of the Income-tax (Amendment) Act, 1959, and on that question, being in agreement with Hidayatullah and Raghubar Dayal JJ., the appeal was allowed. But, as already stated, we are not concerned in this case with the effect of section 4 of Act 1 of 1959, but are concerned only with the question as to the constitutional validity of the second proviso to section 34(3) and the effect of the validating section 31 of the 1953 Act. On the question of the constitutional validity of the proviso, Sarkar J. plainly agreed with S.K. Das and Kapur JJ. for the reasons given by him in another case, namely, Commissioner of Income-tax v. Sardar Lakhmir Singh [1963] 49 I.T.R. (S.C.) 70, also reported in the same volume. In the case of Sardar Lakhmir Singh [1963] 49 I.T.R. (S.C.) 70 too, there was division of opinion, S.K. Das, Kapur and Sarkar JJ. forming the majority and holding that the second proviso to section 34(3) was in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given, and other persons who were not assessees, and upheld the objection on the score of unconstitutionality in the case of the latter class. In appeal, the Division Bench upheld the decision of the learned trial judge, but not on the point of unconstitutionality, but upon an interpretation of the relevant provisions of the Income-tax Act itself. They then observe: When the matter came before the Supreme Court, it seems to us that though a decision was taken only by a majority there is a clear pronouncement that the second proviso to section 34(3) offends against article 14. The decision is to be found clearly stated in the judgment of A.K. Sarkar J. in the last but one paragraph where he referred to the decision which he was about to deliver on that very day in Commissioner of Income-tax v. Sardar Lakhmir Singh. On this basis, the learned judges held that the decision of the Supreme Court clearly ruled out any possibility of the second proviso to section 34(3) being invoked in the case before them because that decision was binding upon the court. We may, with respect, point out that it would not be strictly correct to say that the Division Bench which heard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der appeal or revision. The learned judge has then observed: 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment of the year under appeal, revision or reference, as the case may be. But it was contended that the words any person used in the proviso concluded the matter in favour of the department and it was in the light of this contention that the Supreme Court construed the meaning of these words. But the question before the Supreme Court was regarding the scope and extent of those words, that is to say, against whom a finding or a direction can be said to be a finding or a direction within the meaning of the proviso, and not the question as to the constitutional validity of the proviso or the extent of such invalidity. The decision on that question in Prashar v. Vasantsen* was never called into question and had not to be considered. That being the position, the limit laid down in Prashar v. Vasantsen* as to the constitutional invalidity of the proviso and the distinction there made between assessees and non-assessees remains intact. The observations made at page 346 of the report clearly show that the words any person as used in the proviso mean a person other than an assessee and, therefore, under Vasantsen's case*, the proviso would be invalid as against such a person, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e an individual and also a Hindu undivided family and, in that case, he will constitute two assessees, (1) he, as an individual, to be assessed on his individual income, and (2) he, as a Hindu undivided family, to be assessed on the income of the Hindu undivided family. At page 713 of the report, the learned Chief Justice, who spoke for the Bench, has also stated: I do not appreciate the argument of Sri R.S. Pathak that Lakshman Prakash before the Appellate Assistant Commissioner was a legal entity different from that against whom the second assessment order was passed by the Income-tax Officer. Lakshman Prakash was the appellant before the Appellate Assistant Commissioner and he is the person against whom the second assessment order has been passed; the only difference is that in the appeal he challenged his being assessed to tax on the basis of the income derived by him as a Hindu undivided family and now he has been assessed on the basis of the income derived by him as an individual. Really he was before the Appellate Assistant Commissioner in both capacities. He was before him as a Hindu undivided family, because he was assessed as such, but he was also t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment proceedings, the members of such a family are the real persons who are concerned. In support of this proposition, he gave an illustration wherein a Hindu undivided family would be possessed of immovable properties, the income of which would be taxed in the hands of the Hindu undivided family. He argued that after the tax has been paid on such income by the Hindu undivided family, the surplus income would go into the hands of the members but such surplus income would not be liable to be taxed in the hands of the members. That being so, he argued, it would not be possible to say that the members of such a family are not the assessees, for if they are nonassessees or strangers to the assessment proceedings against the family, the balance of income that would go into the hands of such members would have to be taxed. In our view, the learned Advocate-General is not right in the illustration which he gave, for the surplus balance which would go into the hands of the members of the family cannot be taxed in their hands because the same income is not liable to be taxed at two different points and in the case of a Hindu undivided family, such surplus income which goes into the hands of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income arising from the firm's business was the income of the Hindu undivided family. The direction given by the Tribunal was on the question which was between the department and the Hindu undivided family and the only finding that could be given by the Tribunal was between the two parties, namely, the Hindu undivided family and the department, and not between the department and the assessee, Shantilal, who was not an assessee nor a party to those assessment proceedings. Therefore, if any action had to be taken in consequence of the finding or the direction given by the Tribunal, that action could be taken not against the assessee, Shantilal, but against the Hindu undivided family. It may be that the assessee, Shantilal, may fall within the scope of the expression any person in the second proviso according to the decision of the Supreme Court in Income-tax Officer v. Murlidhar Bhagwan Das [1964] 52 I.T.R. 355 (S.C.), but, as stated earlier, not as an assessee but as a person other than the assessee who might be affected by the order of the Tribunal. That being so, the assessee, Shantilal, was not an assessee but a stranger to the proceedings before the Tribunal and conse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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