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TMI Blog1966 (10) TMI 157X X X X Extracts X X X X X X X X Extracts X X X X ..... n 28th of October, 1943. The assessee in Onkar Nath, an individual. He was a partner in the partnership firm of M/s Onkar Nath Raj Narain of Agra. This firm was duly registered under section 26A of the Act. The firm also owned and worked a mill know a "Prem Dal Mills" (hereinafter referred to as the mills). The accounts of the latter were separately maintained. There were various cash deposits aggregating ₹ 12,454 in the accounts of the different partners. The deposits were all on the 1st October, 1943. They included a deposit of ₹ 6,151 in the name of the assessee. The entire sum of ₹ 12,454 including the cash credit of ₹ 6,151 in the account of the assessee was treated by the Income-tax Officer as the income of the partnership firm of "Onkar Nath Raj Narain" from an undisclosed source in the assessment year 1945-46 which is a year subsequent to the relevant assessment year for purposes of this reference, notwithstanding the fact that the deposits stood in the capital account of the individual partners. The firm appealed against the order of the Income-tax Officer, and the Appellate Assistant Commissioner by his order dated 31st March, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ired for taking any further action under section 34 against any one of the partners and, therefore, unless such a direction was issued no action could have been taken by the Income-tax Officer. Pursuant to the direction so given, the Income-tax Officer took action under section 34 against the individual partners to show cause why the respective deposits in their capital account should not be brought to assessment as escaped income for the relevant year of assessment. This time the partners took the objection that the proceedings were barred by time and the direction issued by the Appellate Assistant Commissioner was beyond his jurisdiction. The notice issued is not on the record nut it is clear from a reading of the assessment order that action was taken by the Income-tax Officer under proviso 2 to section 34(3). There is no indication as to whether the provisions of section 34(1) (a) or (b) were applied by the Income-tax Officer. There is also no indication that, if action was taken under section 34(1) (a), whether the necessary prior statutory sanction of the Commissioner of Income-tax taken before the proceedings were initiated. The opening paragraph of the assessment order rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... int had already been decided by him in the case of one of the other three partners of the firm of Onkar Nath Raj Narain. The said earlier order of the Appellate Assistant Commissioner in respect of the other partner was taken, on appeal, by the department, to the Income-tax Appellate Tribunal which had endorsed the view taken by the Appellate Assistant Commissioner and held that the proceedings initiated against the partners beyond the period of limitation by invoking the aid of the second proviso to section 34(3) were contrary to law and void, notwithstanding the earlier decision of the Tribunal which the Appellate Assistant Commissioner had followed. The department again went up in appeal to the Tribunal. This time another Bench heard the appeal and allowed it purporting to follow the decision of this court in Pt. Hazari Lal v. Income-tax Officer, Dist. II (ii), Kanpur, where it was held that "any person" in the second proviso to section 34(3) would cover that class of persons who were intimately connected with and interested in the proceedings taken against an assessee and whose assessments under the Act are affected by the orders passed in those proceedings. In other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section (2) of section 25 or sub-section (1) of section 23A, or sub-section (2) of section 26 or section 48, 49 or 49F, (d) confirm, cancel or vary such order, or, in the case of an order under sub-section (1) of section 25A, (e) confirm such order or cancel it..... (4) Where as the result of an appeal any change is made in the assessment of a firm or association of persons or a new assessment of a firm or association of persons is ordered to be made, the Appellate Assistant Commissioner may authorise the Income-tax Officer to amend accordingly any assessment made on any partner of the firm or any member of the association." A close reading of these provisions of section 31 shows that the legislature has made provision for almost every possible order that the Appellate Assistant Commissioner can pass when deciding an appeal. Sub-section (4) of section 31 is not an independent provision. It merely provides for certain consequential orders or directions which can be made by the Appellate Assistant Commissioner when he decides an appeal against the firm. If there is a change made in the assessment of the firm, the Appellate Assistant Commissioner is given the power to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the firm when deleted from the assessment of the later can be directed to be assessed in the hands of a partner. The facts in the Supreme Court case in Murlidhar Bhagwan Das were that the assessee was assessed to income-tax under section 23(4) of the Act for the assessment year 1949-50 on the ground that a certain interest income of ₹ 88,737 was brought to tax for the assessment year 1949-50. The assessee appealed and the Appellate Assistant Commissioner held that the income was received in the previous accounting year and directed that the amount should be deleted from the assessment for the year ending 1949-50, and should be include in the assessment year 1948-49. Pursuant to the direction given by the Appellate Assistant Commissioner, the Income-tax Officer initiated reassessment proceedings under section 34(1) of the Act in respect of the assessment year 1948-49 and served a notice on the assessee on December 5, 1957. The question was whether the second proviso to section 34(3) applied to every notice which was served beyond the time prescribed by section 34(1). Subba Rao J., as he then was, speaking for the majority, held that the direction given by the Appellate Assis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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 do nominee 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." The decision of this court in Pt. Hazari Lals case, as already observed was approved. In Pt. Hazari Lals case, Bhargava J., as he then was, speaking for the Bench, repelled the argument of the department that the use of the expression "any person was intended to enlarge the scop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the share of each partner in the income of the firm in the assessment proceeding of that partner. Such partners would only be covered by the expression any person as they cannot be held to be assessees in the particular appeal which had to be filed by the firm against the order passed in its assessment proceedings under section 23(4) of the Income- tax Act. Another similar case may be where an Income-tax Officer passes an order under section 23A for the assessment of a company, deeming certain dividends to have been declared, though they were not actually declared. Subsequently, on appeal, the amount declared as deemed to have been distributed as dividends might be reduced by the Appellate Assistant Commissioner of Income-tax under clause (a) of sub-section (3) of section 31. In the meantime, there is the possibility that the shareholders might have been assessed to tax by including in their incomes dividends deemed to have been received by them being the dividends declared as deemed to have been distributed under section 23A. Naturally, it would be necessary to grant to the shareholders the appropriate relief when the order under section 23A is subsequently varied by the Appellat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome, and nothing beyond that. He could either have sustained the addition made by the Income-tax Officer or directed the deletion thereof. That was the subject-matter of the appeal and beyond that the Appellate Assistant Commissioner could not have travelled. It is not the function of the Appellate Assistant Commissioner or for that matter of any appellate court to come to the rescue of an erring or recalcitrant party, who has allowed the period of limitation to run out, to give some directions which might enable such party to overcome the statute of limitation which has been described as a statute of repose. The directions must be such a could be given within the very wide powers given under section 31 of the Act and not beyond them. The Income-tax Officer, as already observed, need not have persisted in including the deposits which clearly stood in the individual names of each of the partners in the assessment of the firm or at least he could have taken the elementary precaution of making protective assessments both against the firm and the individual partners. He did nothing of the sort and persisted in assessing the cash credits again and again in the hands of the firm, and t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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