9911796707
TMI Blog1970 (3) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... was due to Rai Bahadur Seth Jessa Ram Fateh Chand. On the 14th of April, 1953, the assessee executed a deed of trust, whereby he constituted a trust of 300 out of 400 shares of Simbhaoli Sugar Mills. The trustees appointed under the trust deed undertook to accept the obligations and to carry out the same in accordance with the objects of the trust. The relevant objects of the trust were, to pay the debts in the first place and, thereafter, to provide funds for the maintenance and education of the assessee's children and grand-children. 80 per cent. of the income of the trust was to be spent on the children and grand-children ; and the remaining 20 per cent, was to be spent on various charitable purposes enumerated in the deed of trust. Thus the trust deed came into being during the assessment year 1954-55. For that assessment year, the assessee filed a return of his income excluding the income for 300 shares which had been transferred to the trust. He also filed a return, as a president of the trust, regarding the income of the 300 shares belonging to the trust as assessable in the hands of the trust. Both these returns came up before the same Income-tax Officer. The Income-tax Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellate Assistant Commissioner, and he affirmed the order of the Income-tax Officer. The trust then preferred an appeal to the Tribunal. Before the Tribunal, the contention of the trust was that the assessment was barred by limitation. The revenue, on the other hand, contended that the time-limit had been extended by the second proviso to section 341(3), because the assessment was merely a consequence of the judgment of the Punjab High Court in S. Raghbir Sigh case. This contention was further fortified by the fact that S. Raghbir Singh was the author of the trust. The contentions of the trust, on the other hand, were that section 34(1)(b) was ultra vires the Constitution; that the assessment was barred by Iimitation; and that the trust did not fall within the expression " any person " in the second proviso to section 34(3), in view of the decision of the Supreme Court in S. C. Pyashar v. Vasantsen Dwarkadas. Therefore, the proceedings in S. Raghbir Singh's case had no effect and did not render the assessment valid. The Tribunal allowed the trust's appeal. It found that section 34(1)(b) was not ultra vires the Constitution and that section 34(1)(b) was applicable. The divide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee ? A.-(a) Yes. (b) Shri Deva Singh Randhawa, Advocate. (c) S. B. S. Raghbir Singh. (B) Re. Case of Raghbir Singh Trust, Raja Sansi. Q. (i)-Did the trust file a return of income under section 22(1), 22(2) or 22(3) ? A.-The return was filed under section 22(1) on July 15, 1954. Q. (ii)-If a return was filed along with an application under section 48, then who signed the return ? A.-Signed by S. Raghbir Singh on behalf of the trust. Q. (iii)-(a) What happened to the application under section 48 ? (b) Was a regular assessment order passed ? If so, furnish copy thereof. A.-(a) Assessment was made in this case under section 23(3) and the income accruing to the trust was held to be the income of S. Raghbir Singh. (b) Regular assessment was made under section 23(3). Copy of the assessment order is enclosed herewith. (iv)(a)--When the present assessment proceedings were commenced ? (b) Was the notice under section 34 issued ? If so, was it issued with the sanction of the Commissioner under section 34(1)(b) or with his sanction under section 34(1)(a) ? A. -(a) The Income-tax Officer had solicited the approval of the Commissioner of Income-tax, Patiala, under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is stage, it will, therefore, be necessary to reproduce the relevant statutory provisions, namely, section 34(1)(b) and sub-section (3) and the second proviso to it, which read as under: "34. Income escaping assessment.- (1) If- ............. (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax 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 have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under this Act, or that excessive loss or depreciation allowance has been computed, he may in cases failing under clause (a) at any time . . . . and in cases falling under clause (b) at any time within four years of the end of that year, serve on the assessee, or, if the assessee is a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 22 and may proceed to assess or reassess such income, profits or gains or recompute the lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the end of the year in which the income, profits or gains were first assessable.......: Provided 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 second proviso has been specifically dealt with by the Supreme Court in Income-tax Officer, A-Ward, Sitapur v. Murlidhar Bhagwan Das. In order to see whether the case falls within the rule laid down by the Supreme Court in Murlidhar's case it will be necessary, at this stage, to state the finding that was recorded by this court, in S. Raghbir Singh's case,which is as follows : "....... that .... there has been no retransfer of the income, from the trust property to the author of the trust, nor does the trust make any provision whatsoever which entitles him at any time named or in the future to reassume power over the income or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the proviso must be given a wide significance so as to include not only findings necessary for the disposal of the appeal but also findings which were incidental to it. With respect, this interpretation also is inconsistent with the well-known meaning of that expression in the legal terminology. Indeed, learned counsel for the respondent himself will not go so far, for he concedes that the expression 'finding' cannot be an incidental finding, but says that it must be a conclusion on a material question necessary for the disposal of the appeal, though it need not necessarily conclude the appeal. This concession does not materially differ from the definition we have given, but the difference lies in the application of that definition to the finding given in the present case. A 'finding', therefore, can be only that which is necessary for the disposal of an appeal in respect of an assessment of a particular year. The Appellate Assistant Commissioner may hold, on the evidence, that the income shown by the assessee is not the income for the relevant year and thereby exclude that income from the assessment of the year under appeal. The finding in that context is that that income does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evision. 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 eonomine 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." It will have to be determined, whether the assessment of the trust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5, the Income-tax Officer found that the assessee was the nominee of the Hindu undivided family in the said firm and, therefore, included the share of profits of the assessee in the said firm, in the total income of the Hindu undivided family. On an appeal by the family to the Tribunal, by an order dated May 5, 1953, the Tribunal held that there was not sufficient evidence to show that the asssesee was the nominee of the Hindu undivided family in the firm and directed that the share of profits of the assessee should be deleted from the assessment of the Hindu undivided family. The Income-tax Officer issued a notice to the assessee on 30th March, 1954, under section 34 of the Income-tax Act for including in the assessee's assessment as an individual his share of profits in the firm and revised the assessment by adding Rs. 11,159 to the total income of the assessee.... (It was held) that the assessee, though he was a member of the Hindu undivided family which was a party to the appeal, was not a party to the appeal but a stranger; the second proviso to section 34(3) was ultra vires so far as he was concerned and the right to reopen which had become time-barred before the 1st April, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t return the answer to the question referred in the affirmative. The assessment for the year 1954-55 was barred by time and it as not saved by the second proviso to section 34(3) of the Income-tax Act, 1922. In the circumstances of the case, there will be no order as to costs. S. S. SANDHAWALIA J.- I have had the privilege of perusing the judgment proposed by my learned brother but, with respect, I must express my inability to agree. The facts which are not in dispute appear fully in the judgment of Mahajan J. and it is, therefore, unnecessary to recapitulate them. As the case turns primarily upon the scope and language of the second proviso to section 34(3) of the Indian Income-tax Act, 1922 (hereinafter referred to as "the second proviso"), it may at the very outset be set down in extenso. " 34. (3) No order of assessment or reassessment, other than an order of assessment under section 23 to which clause (c) of sub-section (1) of section 28 applies or an order of assessment or reassessment in cases falling within clause (a) of sub-section (1) or sub-section (1A) of this section shall be made after the expiry of four years from the end of the year in which the income, profits o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19,856 paid as interest to R. B. Seth Jessa Ram Fateh Chand against the dividend income of the aforesaid shares ? " The Division Bench declined to answer the second question as, according to it, it did not arise and confined itself to only question No. 1 and answered the same in the negative. In doing so it arrived at the following finding: "I, therefore, find that in this case there has been no retransfer of the income from the trust property to the author of the trust, nor does the trust make any provision whatsoever which entitles him at any time named or in the future to reassume power over the income of the assets directly or indirectly. That being so, the case does not fall within the mischief of the first proviso, nor is the case covered by section 16(1)(c); the income from the shares must be deemed to be the income of the trust and not of the assessee." It has been strenously contended that the above-quoted finding of the Division Bench was, in fact and law, a necessary finding for the decision of the matter referred to it and is hence within the ambit of the word " finding " as used in the second proviso. I find merit in this contention of the learned counsel. The true ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order to give relief to S. Ragbhir Singh, whose case was before the Division Bench, it was necessary to arrive at the finding whether the income belonged to him or the income was of the trust. It was in this context that the learned judges of the Division Bench gave the finding in the clearest terms that the income from the said 300 shares was the income of the trust and, consequently, S. Raghbir Singh was not to be assessed therefore as an individual. This finding, therefore, was on the material and the sole question which was raised before the Division Bench and a finding thereon was necessary to accord relief to the party before it. Consequently, the finding given by the Bench was a necessary finding and with respect, if I may say so, appears to be the only finding which the Bench arrived at for answering the question referred to in the negative. In my view this clearly falls within the ambit of the word " finding " as used in the second proviso and the contention of the revenue that the judgment of the Division Bench in S. Raghbir Singh's case contains a finding qua the income of the present assessee, namely, the trust pertaining to the identical assessment year must be accept ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of distinction, therefore, is that in Murlidhar's case the finding related to the assessment year other than the one under appeal, revision or reference whereas in the present case the finding relates to the identical assessment years. The second contention which now falls for determination is whether the "trust" falls within the meaning of the expression "any person" as used in the second proviso. In order to clear the ground forthwith it may be stated at the very outset that it was never the case of the department before us that the trust and S. Ragbbir Singh as a private individual are one and the same person. It was forcefully argued by Mr. Awasthy that the trust and S. Raghbir Singh, though necessarily deemed to be separate and distinct entities, are nevertheless closely connected together. The sole contention in this regard was that, though separate and distinct, they are so intimately connected with each other as to fall clearly within the rule laid down by their Lordships in Murlidhar's case and, consequently, within the meaning of " any person " as used in the second proviso. It deserves notice in this context that the Income-tax Appellate Tribunal primarily based its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the assessments of the year under appeal." A close analysis of this passage shows that their Lordships mentioned three cases, namely, a firm, a joint Hindu family, and an association of persons who may well be deemed to be intimately connected qua a partner, or partners of the firms, member or members of the Hindu undivided family or an individual as the case may be. However, it is made clear that these cases are merely illustrative and not exhaustive of the categories of persons who may be so intimately connected as to come within the expression "any person" as used in the second proviso. To my mind, from the above passage, three tests seem to emerge-- (i) Is the person one who would be liable to be assessed for the whole or a part of the income that went into the assessment of the year under appeal or revision ? (ii) Would a modification or setting aside of assessment made on one person for a particular year affect the assessment for the said year of the other ? (iii) Is the assessment of the two persons dependent upon the assessments of each other ? Without attempting to be exhaustive, it appears to me that the crucial test which their Lordships wanted to indicate was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y debt due by S. Raglhbir Singh as an individual to R. B. Seth Tessa Ram Fateh Chand. Even after this debt had been wiped out 80 per cent. of the income from the corpus of the trust was perpetually directed to the education of the children and the grand-children of the settlor, namely, S. Raghbir Singh, The latter was also the chairman of this trust and this appointment was for life and irrevocable. In fact it is patent that the trust functioned primarily through S. Raghbir Singh and even in the present case qua the tax assessments, the returns thereof and the conduct of the relevant appeals and revisions was being done by it through him. In the light of all these circumstances, the irresistible conclusion that appears to be possible is that the trust and S. Raghbir Singh as an individual were indeed more than intimately connected with each other and fall within the rule laid down in Murlidhar's case. Thus the rule in Murilidhar's case has been reaffirmed and appears to be enlarged by the observations of their Lordships of the Supreme Court in Daffadar Bhagat Singh and Sons v. Income-tax Officer. In that case the assessee-firm comprising of a father and his two sons had filed a re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e person whose assessment was made by the Income-tax Officer and was set aside in appeal by the Appellate Assistant Commissioner." In view of the above, both the contentions raised on behalf of the revenue must succeed, and, consequently, I would answer the question referred to us in the negative and in favour of the revenue. BY THE COURT.- In view of the difference of opinion, the case is now submitted to the Hon'ble the Chief Justice under section 66A of the Income-tax Act read with clause 26 of the Letters Patent, and section 98(3) of the Code of Civil Procedure, for nominating a judge to hear the case and to decide it in accordance with law. [Pursuant to the above order the reference came on for hearing before a third judge, HARBANS SINGH C.J.] HARBANS SINGH C.J.--This income-tax reference has been placed before me in view of difference of the opinion between Mahajan J. and Sandhawalia J. The relevant facts have been given in considerable detail in the order of Mahajan J. and it is hardly necessary to repeat them in extenso. The family consisting of S. Raghbir Singh, his sons and his wife, disrupted on 10th of April, 1953, and the assets of the family were partitioned. Int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Income-tax Officer on 23rd of February, 1962. The objection taken on behalf of the trust that the notice issued, as stated above, beyond the time prescribed in sub-section (1)(b) of section 34 of the Act was without jurisdiction, was not accepted by the Income-tax Officer or by the Appellate Assistant Commissioner. The Tribunal, however, in appeal preferred by the trust, accepted this contention and on an application made by the department the following question was referred to this court: "Whether, on the facts and in the circumstances of the case, the assessment made under section 34(1)(b) for the assessment year 1954-55 was barred by time and was not saved by the second proviso to section 34(3) of the Income-tax Act, 1922 ?" Mahajan J. came to the conclusion that the decision of the Tribunal was correct and the assessment was barred by time and was not saved by the second proviso to sub-section (3) of section 34 of the Act. Sandhawalia J., however, took a conitrary view, and it is in these circumstances that the matter has been placed before me. The only question involved in the present case is whether the second proviso to sub-section (3) of section 34 applies to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder, in consequence of which action is said to have been taken, the assesses was S. Ragbhir Singh in his individual capacity. The assessee in the present case is admittedly not S. Raghbir Singh in any capacity whatever. In the present case the assessee is the trust. The mere fact that S. Raghbir Singh is one of the four trustees of this trust or that be filed a return on behalf of the trust in his capacity as such in the year 1954, would not make any difference. This was not disputed on behalf of the department. The trust may, however, fall within the meaning of "any person". However, their Lordships of the Supreme Court in S. C. Prashar v. Vasantsen Dwarkadas considered at length the argument put before them that this second proviso, so far as it relates to the reassessment of any person other than the assessee, was ultra vires the Constitution, and it was held by majority that this proviso was valid so valid so far as the case of "an assessee" as concerned, but it was invalid so far as its application to "any person" is concerned. At page 11 onwards of the report, S. K Das J. observed as follows: "........Chagla C.J. had pointed out, rightly in my opinion, that the persons with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edings enumerated in it, must be field to be ultra vires the legislature." Even on the basis of this narrower view, the majority of the Supreme Court judges held that the case was not covered by the proviso. The argument of the department, which has been accepted by Sandhawalia J. was that, although the trust was not a party to the previous proceedings, in which the order or the direction had been given, yet S. Raghbir Singh, who was the assessee, was so intimately connected with the trust that the trust should be treated as covered by the word "assessee". For this reliance was placed on certain observations of their Lordships of the Supreme Court in Income-tax Officer, A-Ward, Sitapur v. Murlidhar Bhagwan Das. In that case the respondent-firm was assessed to income-tax under section 23(4) of the Act for the assessment year 1949-50 on the ground that the notice issued under sub-sections (2) and (4) of section 22 of the Act had not been complied with. This assessment was cancelled under section 27 on 27th of September, 1955, but, before the said cancellation, it was found that some income received had escaped assessment as the assessee failed to disclose the same. The Income-tax O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see is not the income for the relevant year and thereby exclude that income from the assessment of the year under appeal. The finding in that context is that that income does not belong to the relevant year. He may incidentally find that the income belongs to another year, but that is not a finding necessary for the disposal of an appeal in respect of the year of assessment in question. " In view of this it was held that the finding given by the Appellate Assistant Commissioner that the income could not be assessed in the relevant year 1949-50 was the only finding within the meaning of the proviso, and the other finding that this income was properly assessable in the previous year was merely incidental and not a finding within the meaning of the proviso in consequence of which action could be taken without any care for the limitation. This was sufficient for the disposal of the case. However, their Lordships also dealt with the meaning of the words " any person ", and the observations ade in this respect are the ones on which great reliance was placed on behalf of the department. I would reproduce the relevant portion of these observations at page 346 of the report: "The words 'a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be covered. A firm, a Hindu undivided family, and an association of persons, no doubt are treated as separate entities under the Income-tax Act, but in the case of a firm, the burden of the tax imposed on it has ultimately to be borne by its partners and, consequently, any order passed by the appellate authority would, in a way, affect the partners and in a sense they may be treated as assessees. Again in the case of a Hindu undivided family, ultimately the tax is to be paid by the members of the family, and in the case of an association of persons, by the individual members, and, therefore, in a sense, they may be treated as parties or intimately affected by the result of the appeal. In a later case reported as Daffadar Bhagat Singh and Sons v. Income-tax Officer, A-Ward. Ferozepur, the Supreme Court had to deal with the case of a partnership firm. The appellant-firm filed a return for the assessment year 1952-53 on March 31, 1953, and also applied for its registration under section 26A of the Act, the partners of the firm being Bhagat Singh and his two sons. The Income-tax Officer refused to register the firm or to assess it as a firm, and treating as a Hindu undivided family, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o sons. The question was of the assessment of the income of the business of the firm. The Income-tax Officer treated the father and the sons as a Hindu undivided family. On appeal, however, the Appellate Assistant Commissioner accepted their contention that they formed a partnership firm. It is difficult, in these circumstances, to agree that the appellant was a total stranger to the assessment which was under appeal before the Appellate Assistant Commissioner and had no intimate connection with the person whose assessment was made by the Income-tax Officer and was set aside in appeal by the Appellate Assistant Commissioner." It has to be borne in mind that the father and two sons were the persons who had filed the return. They had filed the return in their capacity as partners of the firm of which they sought registration. The Income-tax Officer held that the status of the father and the sons was not that of a partnership firm as claimed by them, but was that of a Hindu undivided family, and in appeal their original contention that they formed a partnership was upheld. So that Bhagat Singh and his two sons were the person who filed the return and they were before the Appellate As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons ". In appeals filed by Debi Prasad, the Appellate Assistant Commissioner annulled the orders of assessment and remanded the case to the Income-tax Officer, who assessed the income as the income of the family of Debi Prasad. The Tribunal while upholding the order directed deletion of direction of remand. The High Court held that Debi Prasad was not a stranger in respect of the income-tax proceedings against Ambala Flour Mills; that the Appellate Assistant Commissioner could give a direction, with the rider that the assessment against Debi Prasad could only be in the individual capacity and that the appeals filed by Debi Prasad were maintainable in law. On appeal by the Commissioner to the Supreme Court, it was held as follows : " (i) Debi Prasad had submitted the returns, and Debi Prasad appealed against the order of assessment. He could, in the circumstances of the case, not be called a stranger to the assessment. The income earned by the assessee was assessed to tax as income of an association of persons, of which on the finding of the Income-tax Officer, Debi Prasad was a member. In making a direction against Debi Prasad the Tribunal did not exercise his powers qua a strange ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as necessary for the decision of the reference to the High Court made at the instance of S. Raghbir Singh was whether the trust was validly constituted and whether the income of the 300 shares could be treated as the income of S. Raghbir Singh individually. The other finding as to who should be treated to be the recipient of the income of these 300 shares was merely an incidental finding not necessary at all for the decision of the reference. I am, therefore, in agreement with Mahajan J. that this finding was merely incidental and not a finding necessary for the decision of the case and, therefore, this would not be a finding within the meaning of the proviso in pursuance of which any action could be taken.
In view of the above, I find that both the tests which are necessary for bringing the case within the second proviso fail in this case, and, agreeing with Mahajan J., I hold that the Tribunal was correct in its decision that the proceedings initiated and the assessment made were barred by time. The question, therefore, referred to this court is answered in the affirmative and against the department. I also agree with Mahajan J. that there should be no order as to costs. X X X X Extracts X X X X X X X X Extracts X X X X
|
