TMI Blog1962 (7) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee was assessed as a Hindu undivided family. For the assessment year in question the assessee filed a return in his capacity as an individual and not as a manager of a Hindu undivided family. On March 29, 1949, the Income-tax Officer assessed him as representing a Hindu undivided family, but without discussing his status and without noticing that the return had been filed by an individual. The assessee preferred an appeal which was allowed by the Appellate Assistant Commissioner because the Income-tax Officer had not discussed the question of his status. The operative part of his order ends with these words: ...the assessment proceedings, which have accordingly to be set aside to be made do novo in accordance with law after determination of the status of the appellant. In compliance with this order the Income-tax Officer on January 24, 1952, passed another assessment order against the assessee but as an individual. The assessee preferred an appeal from that order on the ground that in the remand proceedings he could be assessed only as representing a Hindu undivided family and that the assessment order was barred by time. The Appellate Assistant Commissioner dismi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce. If an Income-tax Officer in the course of assessment proceedings finds that the assessee failed to furnish the return, or failed to furnish it within the time allowed and in the prescribed manner, or failed to comply with a notice issued under section 22(4), or 23(2), or concealed the particulars of his income, or deliberately furnished inaccurate particulars of it, he is empowered by section 28 to impose upon him a penalty. An appeal from an assessment order made by an Income-tax Officer lies to the Appellate Assistant Commissioner: vide section 30. The powers of the Appellate Assistant Commissioner when exercising appellate jurisdiction are described in section 31(3). He may confirm, reduce, enhance or annul the assessment, or set aside the assessment and direct the Income-tax Officer to make a fresh one, after making such further enquiry as he thinks fit, or is directed to make. By setting aside the assessment and directing a de novo assessment to be made after determining the status of the appellant the Appellate Assistant Commissioner exercised the power conferred upon him by section 31(3)(b). The Income-tax Officer determined the status and assessed the appellant in co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso 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. Since the return in the instant case was filed by an individual, the assessee before the Income-tax Officer was an individual. The Income-tax Officer originally assessed him on the income derived by the Hindu undivided family, of which he was admittedly the manager, and not on the income derived by him as an individual from his self-acquired property. In other words, the Income-tax Officer assessed him as a Hindu undivided family and not as an individual. Since he was present before the Income-tax Officer in person, he could be assessed on the income derived by him in either capacity. The Income-tax Officer could hold him to be a Hindu undivided family, assess him income in that capacity and pass an assessment order accordingly. Or he could hold him to be an individual, assess his income as such and pass an assessment order accordingly, He could, therefore, pass an assessment order against him as a Hindu undivided family, but the error ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assistant Commissioner had to decide whether he was an individual or a Hindu undivided family and could have decided the question himself without remanding the case to the Income-tax Officer. He could have held that he was a Hindu undivided family, and, if he had so held, he would have been bound to confirm the assessment order and dismiss his appeal, because it was within the jurisdiction of the Income-tax Officer to hold that the income shown as the income of an individual was in fact the income of a Hindu undivided family represented by Lakshman Prakash. He could have also held that he was an individual, and, if he had done so, he would have set aside the assessment order and directed the Income-tax Officer to assess him on his income as an individual. What he could himself do could have been directed by him to be done by the Income-tax Officer. It is immaterial that the appeal before him was by a Hindu undivided family; he had to decide in the appeal whether the appellant was a Hindu undivided family or an individual. Lakshman Prakash, who had alleged that the income which was liable to assessment in his hands had been acquired by him as an individual, but who was assessed as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he difference is in the assessment year and in the other case it is in the capacity, does not make the two differences distinct from each other. Sri R.S. Pathak strongly relied upon S.C. Prashar v. Vasantsen Dwarkadas [1956] 29 I.T.R. 857, a judgment of the Bombay High Court given by Chagla C.J., Tendolkar J. concurring, and Hazari Lal v. Income-tax Officer [1960] 39 I.T.R. 265, a judgment of this court given by Bhargava J., Upadhya J. concurring. The essential facts in the Bombay case are these: There were two firms, (1) Purshottam Laxmidas owned by Dwarkadas and Parmanand and (2) Vasantsen Dwarkadas owned by three persons, Vasantsen s/o Dwarkadas, Narandas and Nanalal. In the assessment year 1942-43 the Income-tax Officer treated the income of the second firm, Vasantsen Dwarkadas, as the income of Dwarkadas as an individual and assessed him on it. The Tribunal later held, in an appeal by Dwarkadas from the assessment, that the second firm was nothing but a branch of the former firm, that its income was income of the former firm and not that of Dwarkadas individual and that it could be included in the income of the former firm if permitted by law. The Income-tax Officer on A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... give a direction or finding affecting a third party and jurisdiction to the income-tax authorities to act on such a direction or finding. The observations of the learned Chief Justice, therefore, do not support the contention of Sri R.S. Pathak that the Appellate Assistant Commissioner in an appeal by a Hindu undivided family could not give a direction or a finding with regard to an individual. The facts of Hazari Lal's case [1960] 39 I.T.R. 265 were as follows: Hazari Lal was assessed in his personal capacity for the assessment year 1947-48 and subsequently the Income-tax Officer discovered that he had earned undisclosed income from an undisclosed source. He, therefore, issued a notice to him under section 34(1)(a) on January 27, 1952, in respect of the assessment for 1946-47 and made a fresh assessment on March 27, 1952, by adding a certain amount to the income originally assessed for the assessment year 1947-48. He preferred an appeal and the Appellate Assistant Commissioner allowed it and deleted the addition made in the income for the assessment year 1947-48 and directed the Income-tax Officer to revise the assessment in the light of his order. He found that the inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.... With great respect I find myself unable to agree with these observations. There is no justification for confining finding , as used in the second proviso, to a finding only on a material issue. A decision on a material issue is undoubtedly a finding but this is no reason for saying that a decision on any other issue or question is not a finding. A finding is nothing but what one finds or decides and a decision on a question even though not absolutely necessary or not called for is a finding. It is not correct to say that in Hazari Lal's case [1960] 39 I.T.R. 265 the jurisdiction of Appellate Assistant Commissioner was confined to a finding that the income was not of the account year relevant to the assessment year and that he could not find that it was income of the earlier or succeeding year. There was nothing to prevent his finding that it was the income of a certain year and that being income of that year it could not be considered for assessment. Prashar v. Vasantsen Dwarkadas [1956] 29 I.T.R. 857, on which the learned judges relied, itself contemplates that a finding or direction can be given by the Tribunal affecting a stranger to the appeal before it and that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the judgment, preferred Simrathmull v. Additional Income-tax Officer [1959] 36 I.T.R. 41 to Hazari Lal v. Income-tax Officer [1960] 39 I.T.R. 265 and referred to Indurkar v. Pravinchandra [1958] 34 I.T.R. 397. In the case of Indurkar the Appellate Assistant Commissioner found that a certain income did not form part of the income for the assessment year 1945-46 and went on to observe that the assess could be assessed, if at all, for the tax year 1944-45 for which the Income-tax Officer may take necessary steps if so advised. Tendolkar J., with whom S.T. Desai J. agreed, held that this observation involved no finding or direction. Though he observed that the Appellate Assistant Commissioner was not called upon to determine whether the income was assessable in 1944-45, he held that there was no finding or direction, not because he had no jurisdiction to give such a finding or direction but because he was interpreted not to have given any such finding or direction. The Appellate Assistant Commissioner's saying that the Income-tax Officer might take necessary steps if so advised was not a direction to him to take steps. There would have been no question of the Income-tax Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7-48 but in 1946-47. He had to find as a matter of fact in which year the income had accrued and he had to find as a matter of law in which year it could be assessed. As the result of the two findings he could say not only that it was not assessable in 1947-48 but also that it was assessable in 1946-47. Even if he did not actually find that it was assessable in 1946-47 that was the undoubted effect of the findings that it was the income of the financial year 1945-46 from an undisclosed source and that this financial year was the account year for the purpose of assessment. Bhargava J. considered at page 274 that in certain cases the parties actually in appeal may not subsequently be liable to the tax and the tax may become due, as a result of the appellate decision, from others or vice versa and cited the example of a Hindu undivided family, pointing out that the tax assessed on a Hindu undivided family may become payable by an individual member of it or the tax assessed on an individual may, as a result of an appeal, be found payable by the Hindu undivided family. He said that this is the only case in which an Appellate Assistant Commissioner is competent to record a finding i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties and could not be questioned by the Income-tax Officer in any way. The view taken by Bhargava J. must be deemed to have been overruled by this decision of the Supreme Court. In the case before us there was a definite finding given by the Appellate Assistant Commissioner that the appellant could not be assessed as a Hindu undivided family without a finding that the income was that of a Hindu undivided family and not his as an individual's, and there was a clear instruction by him to the Income-tax Officer to determine his status first and then assess his income in that status. The assessment made by the Income-tax Officer was a reassessment of the income in pursuance of the order made under section 31. In Hazari Lal's case [1960] 39 I.T.R. 265, Bhargava J. observed that the connection between the finding record by the Appellate Assistant Commissioner and the notice issued under section 34 by the Income-tax Officer was a remote one and that an action taken on such a remote connection could not be said to be in consequence of the finding. Again, with great respect to the learned judge, I am unable to agree. The issue of a notice by the Income-tax Officer followed as a m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er class. The result would be that any person belonging to the former class will be liable to assessed regardless of any time limit whereas any person belonging to the latter class will not be liable to be assessed after four years because on account of there being a total absence of any finding or direction in respect of him nothing would be required to be done in regard to him in consequence of, or to give effect to, any finding or direction in the Appellate Assistant Commissioner's order. this distinction between the two classes of third parties has been held in Prashar's case [1956] 29 I.T.R. 857 to be unconstitutional. The question posed by Chagla C.J. was whether there is any basis for distinguish between persons who are liable to pay tax who have failed to pay tax and with regard to whom a finding or direction is given, and person who are liable to pay tax and who have failed to pay tax and with regard to whom no finding or direction is given (see page 901), and replied on the same page, there is no reason why the legislature should have excepted persons with regard to whom no finding or direction is given...We see no rational basis whatever for the distinction ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and given a finding or direction in regard to the person, the proviso to section 34(3) comes into the picture and provides that the person can be assessed without regard to the limit of time mentioned in section 34(3). It certainly could rationally say that the person in respect of whom a finding or direction has been by an appellate court may be assessed without regard to the limit of four years, so that the directions or finding is effectuated and does not remain a dead letter. The case of the person had been required into by the appellate authority and it found that he was liable to be assessed; it was not unreasonable for the legislature to distinguish his case from the case other tax evaders. It had to make provision for the appellate authority's order being complied with or given effect to, otherwise there would be no sense in allowing it to be made. If it was made after the expiry of four years from the end of the assessment year, it would be completely a useless order in the absence of the proviso. If it was made only a short time before the four years had expired it might rendered useless if the Income-tax Officer could not completed the assessment before the expiry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one between tax evaders discovered during an investigation conducted under section 5 of the Taxation on Income (Investigation Commission) Act and tax evaders discovered by an Income-tax Officer. The two classes of tax evaders were dealt with differently and the Supreme court held that the difference in the treatments had no bearing on the question whether they were discovered during an investigation or by an Income-tax Officer. Chagla C.J. said that the decision in Prashar's case [1956] 29 I.T.R. 857 was identical but, with great respect, I fail to see any identity. A person in regard to whom a direction or finding is given by an appellate authority is certainly discovered as a tax evader but not any other person. If action is taken against any other person, it is on suspicion or information in the possession of the Income-tax Office but there is a material difference between a finding given by an appellate authority and suspicion or information in the possession of an Income-tax Officer. The distinction is between a person who has been found by an authority to have evaded tax and another person who has not been so found before any action to assess him is taken. In Hazari La ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ash in the hands of the Hindu undivided family on 29th March, 1949. The Hindu undivided family preferred an appeal before the Appellate Assistant Commissioner, inter alia, on the ground that the assessment was invalid in the absence of the determination of the question by the Income-tax Officer whether the income belonged to the individual, that is, the applicant, or to the Hindu undivided family. The Appellate Assistant Commissioner accepted his contention and, finding that the entire proceeding for assessment had been vitiated by the non-determination of the status of Lakshman Prakash, set aside the assessment and directed fresh assignment to be made after an enquiry. The Income-tax Officer thereafter enquired into the matter afresh and by means of an order dated the 24th January, 1952, assessed the applicant in the status of an individual on the finding that the income did not belong to the Hindu undivided family but to Lakshman Prakash. Lakshman Prakash then filed an appeal before the Appellate Assistant Commissioner and two submissions were made on his behalf. The first submission was that under section 31 of the Act the Appellate Assistant Commissioner had no jurisdiction to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person who has appealed and not others who after an enquiry are found to be owning the income. In other words it is contended that the Appellate Assistant Commissioner could only direct the Income-tax Officer to make a fresh enquiry and reassess the Hindu undivided family and not Lakshman Prakash in his individual capacity. Before I come to consider the question of law and the true scope of section 31(3) of the Act, I would like to go into another question on which in my opinion the answer has to be given against the assessee in respect of Lakshman Prakash's liability to be taxed as an individual. I may recall that Lakshman Prakash had himself filed the return in the status of an individual. In the appeal which he filed as karta on behalf of the Hindu undivided family he had taken up the position that the income should be assessed in his hands in the status of an individual and the assessment on the Hindu undivided family was wrong. It is well established that a Hindu undivided family is neither a corporation nor is it a juridical entity distinct from members who constitute it. The coparceners who are members of the Hindu undivided family are undoubtedly owners of its property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties and disputes. The fact that in the present case the Hindu undivided family as such was taxed does not however mean that the appeal by the Hindu undivided family was an appeal by any one else than the members who constituted it. Consequently, I have no difficulty in coming to the conclusion that Sri Lakshman Prakash was one of the appellants in the appeal filed by the Hindu undivided family. Notions of different capacities of Lakshman Prakash, i.e., one as an individual and the other as a member of the Hindu undivided family, are misconceived in this case. When he was one of the appellants in the appeal filed by the Hindu undivided family it was he himself who was the appellant as was the case in the appeal filed against his individual assessment. In that view of the matter even if we accept the restricted interpretation of the words fresh enquiry and assessment occurring in section 31(3)(b) of the Act the Income-tax Officer would have as a consequence of the remand order passed by the Appellate Assistant Commissioner jurisdiction to assess Lakshman Prakash in his individual status. An alternative approach to the matter is that in any case the bar of estoppel against Laksh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being the position at the first sight it may have appeared that clause(b) of section 31(3) was wide enough to include the direction of an inquiry and a fresh assessment in hands of whomsoever (whether the person who had appealed or a stranger) was found to own the income. It also occurs to me that if the idea was to confine the fresh inquiry and fresh assessment against the person who had appealed there was no necessity of having an independent clause (b) and the matter could have been made free from all difficulty if clause (a) of section 31(3) would have been made to read as follows: Clause (a). Confirm, reduce, enhance or annul the assessment or after setting aside the assessment remand the case inquiry and assessment. The words remand the case would necessarily have had the effect of making the enquiry and fresh assessment only in respect of the person who had appealed. But the legislature is the best judge as to how and in what language it would express its intention. Having carefully considered all the clauses of section 31 it appears to me that even though clause (b) has been very widely worded it would be subversive of the scheme of section 31 to hold that orders pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to interfere with the discretion of the Appellate Assistant Commissioner in the exercise of his appellate functions . It is clear from a perusal of the various provision of the Act that the powers exercised by the Appellate Assistant Commissioner are confined to the parties before him in appeal and he has no such general powers as to pass orders against strangers. But I have already said above that in the appeal filed by the Hindu undivided family the point raised was that the income was liable to be taxed in the hands of Lakshman Prakash in the status of an individual and not in that of the Hindu undivided family. The Appellate Assistant Commissioner, therefore, had the jurisdiction to decide this matter. Under sub-section (2) of section 31 the Appellate Assistant Commissioner could have such further inquiry as he thought fit or cause that inquiry to be made by the Income-tax Officer. It cannot be said that while exercising powers under section 31 of the Act the Appellate Assistant Commissioner could not have decoded as to whether the income should be assessed in the hands of the Hindu undivided family or Lakshman Prakash in the status of an individual. If he could decide that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment is likely to be at least one lake of rupees in the aggregate for one more years prior to the eightyear period the Income-tax Officer can issue a notice after obtaining the previous sanction of the Central Board of Revenue. In cases where there is no failure on the part of the assessee to make a return of his income and there is no concealment of his income, notice for the escaped income can be issued only within a period of four years from the end of the relevant assessment year. Except as provided above no assessment order can be passed after the period of limitation has expired. On behalf of the assessee it is contended that inasmuch as the subsequent assessment was made on the 24th January, 1952, that is, more than four years after the expiry of the year 1943-44, it was an assessment barred by time and consequently invalid. On behalf of the department reliance is placed by Mr. Gopal Behari upon the second proviso to section 34(3) which at the relevant time read as follows: Provided further that nothing contained in this sub-section shall apply to a reassessment made under section 27 or in pursuance of an order under section 31, section 33, section 33A, section 33B, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order under section 31 of the Act.. the assessment would be valid irrespective of the expiry of the period of limitation. In the Shorter Oxford Dictionary amongst others the following meaning have given to the word pursuance : An action or following out; continuation; an action or proceeding in accordance with a plan, direction or order. The Appellate Assistant Commissioner had directed the Income-tax Officer to hold a fresh inquiry and decide whether the income shown in the return was liable to be assessed in the hands of the Hindu undivided family or of Lakshman Prakash in the status of an individual and to assess it in the hands of whosoever was found to own the income. There was a direct connection between the order under section 31 of the Act and the impugned assessment. It cannot, therefore be denied that the Income-tax Officer passed the assessment order dated the 24th January, 1952, in pursuance of an order made under section 31 of the Act. For this reason I am satisfied that the assessment order dated the 24th January, 1952, is protected by the unamended section 34(3) of the Act. It was contended by Mr. Pathak that if this view of section 34(3) is taken, it would result ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst the assessee. I would also award costs against him which I would assess at a sum of ₹ 200. I may state that I have not felt the necessity of either agreeing or disagreeing with the decision in Prashar v. Vasantsen Dwarkadas [1956] 29 I.T.R. 857, Hazari Lal v. Income-tax Officer [1960] 39 I.T.R. 265, Indurkar v. Pravinchandra Hemchand [1958] 34 I.T.R. 397, Simrathmull v. Additional Income-tax Officer [1959] 36 I.T.R. 41 and General Construction and Supply Company v. Income-tax Officer [1962] 44 I.T.R. 16,which were cited at the Bar, for the simple reason that they are cases dealing with the amended second proviso to section 34 of the Act and not to the unamended one and we are not in this case concerned with the amended second proviso. Brij Lal Gupta J.-- I have had the advantage of reading the judgments prepared by my Lord the Chief Justice and by Jagdish Sahai J. I agree that the answer to the question referred should be in the affirmative. I also agree with the order regarding costs. The case was referred to a full bench on the request of Sri Gopal Behari, learned counsel for the income-tax department, as he had stated that a question of the constitutionalit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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