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TMI Blog1971 (9) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... ee and completed the assessment on the basis of the share income so disclosed by the assessee. It was expressly stated by the Income-tax Officer in the order of assessment that the share of the assessee in these firms was being "taken as declared subject to rectification under section 35 of the Act", The assessment of the three firms was thereafter completed by the respective Income-tax Officers having jurisdiction over them and the Income-tax Officer dealing with the case of the assessee received allocation reports from these Income-tax Officers stating the share income of the assessee as determined in the assessment of those firms. On receipt of the allocation reports the Income-tax Officer could have rectified the assessment of the assessee by correcting the share income of the assessee in the three firms under section 35(5) of the Indian Income-tax Act, 1922 (hereinafter referred to as "the old Act"), but the Income-tax Officer failed to do so within the period limited by the section, viz., four years from the date of the final orders passed in the case of the firms. The result was that the rectification proceedings under section 35(5) became time-barred. But, the time for taki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section. The assessee thereupon preferred an appeal to the Tribunal. In that appeal the assessee was successful in persuading the Tribunal to hold that sections 35(5) And 147(b) were mutually exclusive ; and if a case falls within section 35(5), action can be taken only under that section and if the time-limit prescribed by that section for taking action has expired, the Income-tax Officer cannot circumvent the bar of limitation by taking resort to section 147(b). The Tribunal observed : "Section 155 (that being the section of the new Act corresponding to section 35(5) of the old Act) is a special provision and has been enacted only to facilitate the variations and alterations of the partners" shares in the firm and for that purpose it has also prescribed a period of limitation within which the income-tax Officer has to carry out the rectification. In our view section 147(b) cannot abrogate the tenure of section 155. Therefore, we hold that the initiation of proceedings under section 147(b) is bad in law and in this view of the matter, the Tribunal allowed the appeal and set aside the order of reassessment. The Commissioner was obviously aggrieved by this decision of the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplication and it is one month from the date of service of the notice of demand issued in consequence of the assessment. Section 147, which is an oft-quoted section, permits the Income-tax Officer to reopen an assessment, if the conditions specified in clause (a) or clause (b) are satisfied. Where the Income-tax Officer seeks to reopen the assessment under-clause (a), he must issue a notice within 8 years or 16 years from the end of the relevant assessment year, according as the case falls within sub-clause (i) or (ii) of section 149(1)(a) ; and where he seeks to reopen the assessment under clause (b) he is required to issue a notice within four years from the end of the relevant assessment year as provided in section 149(1)(b). Then there is power conferred on the Income-tax Officer under section 154 to rectify any mistake apparent from the record of the assessment. This power can be exercised only if there is a mistake apparent from the record and there is a time-limit prescribed under the section for exercise of the power and that time-limit is four years from the date of the order sought to be amended. Section 155 confers power on the Income-tax Officer to rectify an order of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 154 merely because the time-limit specified in section 146 having expired, no action can be taken to disturb the finality of the assessment under that section ? Similarly, can it be urged in such a case that even if the Income-tax Officer finds that income of the assessee has escaped assessment while making the best judgment assessment, he cannot reopen the assessment under section 147, clause (a) or (b)? If action under a particular section is not taken within the time-limit prescribed by that section, it would not be possible to disturb the finality of the assessment by action under that section but if the conditions of another section are satisfied and the time-limit specified in that section is still available, there is no reason why resort to that section should be held to be not available to the revenue. Where there are several distinct powers conferred on the Income-tax Officer to disturb the finality of an assessment, the Income-tax Officer may exercise any one of them provided the conditions for its exercise are satisfied and it is sought to be exercised within the time prescribed for it. It is, therefore, not possible to accept the contention of the assessee that section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court in Hira Lal Sutwala v. Commissioner of Income-tax, which is more directly in point. The case there was very much similar to the present case before us with only this difference that the position was the reverse. There the assessment of a partner was sought to be rectified by the Income-tax Officer under section 35(1) on completion of the assessment of the firm. The argument advanced on behalf of the assessee was that action for including the correct share of the assessee could be taken by the Income-tax Officer, only under section 34(1) since the provisions of that section were applicable and that section excluded the applicability of section 35(1). The High Court of Allahabad negatived this contention of the assessee observing : The circumstances in which an order under section 34(1) and an order under section 35(1) can be passed are not mutually exclusive and may overlap. There is nothing in the provisions of the two sections to suggest any conflict between them of such a nature that the provisions of one section will not apply if those of the others will apply ......... Therefore, it cannot be said that if a case is governed by section 34(1) it may not be governed by se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment and, subsequently, tried to bring it to tax by seeking to avail of the provisions of section 34 of the old Act. The Punjab High Court held on these facts that the Income-tax Officer had no jurisdiction to reopen the assessment of the assessee for the purpose of including his share in the profits of the firm under section 34 of the old Act. So also in Debi Prasad Malviya v. Commissioner of Income-tax, the Income-tax Officer, while making the assessment, knew that the assessee had a one-third share in a partnership firm and the profits from that firm had to be included in his total income and yet he completed the assessment without including the share of the assessee in the income of the firm, stating that necessary action for revising the assessment by inclusion of the assessee's share in the profits of the firm would be taken later, on receipt of the report of the Income-tax Officer assessing the firm and, in the context of these facts, the Allahabad High Court observed : "Section 23 of the Indian Income-tax Act contemplates that the Income-tax Officer should make a complete assessment on the basis of the total income of an assessee. It is not open to him to make assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrect share of the partner in the income of the firm is determined. This would be a case of piecemeal assessment but the Income-tax Officer would be competent to bring the share of the partner in the income of the firm to tax by reason of the provision enacted in section 35(5). If the Income-tax Officer fails to take action for rectifying the assessment within the time limited by section 35(5), it may be possible to say that it would not be open to the Income-tax Officer to reopen the assessment of the partner for the purpose of including the share of the partner in the income of the firm under section 147 because of the principle that section 147 cannot be availed of for the purpose of completing a deferred or piecemeal assessment. But, the Income-tax Officer may, instead of leaving out of consideration the share of the partner in the income of the firm, proceed to assess it on the basis of such material as is available before him. The Income-tax Officer may estimate the share of the partner in the income of the firm on the basis of the material before him or he may accept the share in the income of the firm as declared by the partner and include it in the assessment of the partne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income-tax Officer or as declared by the partner. That is something which the Income-tax Officer could, always do as part of the process of assessment and such an assessment would not be deferred or piecemeal assessment. The principle that section 147 cannot be availed of for the purpose of completing a deferred or piecemeal assessment cannot, therefore, have any application in such a case. Some reliance was placed on behalf of the assessee on the words "subject to rectification under section 35(5)" used in the order of assessment. But, we fail to see how these words can throw any light on the nature of the power which the Income-tax Officer possesses to make an order of assessment on the partner by including his share in the income of the firm, before the assessment of the firm is completed. Even if the words "subject to rectification under section 35(5)" had not been used, the Income-tax Officer could have still rectified the assessment under section 35(5) when he found, on the assessment of the three firms being completed, that the correct share of the assessee in the three firms was more than that declared by him. We are, therefore, of the view that the Income-tax Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrect. But the fiction created by section 35(5) is a limited fiction, the purpose of which is merely to say that what was not a mistake apparent from the record of the assessee shall be deemed to be a mistake apparent from the record of the assessee. We cannot carry the fiction further and say that the record of the firm must also, therefore, be deemed to be the record of the assessee. The information contained in the allocation reports must, in the circumstances, be regarded as information received from an extraneous source so as to justify initiation of proceedings under section 147(b). It was then contended on behalf of the assessee that this was not a case of escapement of income from assessment but it was a case of income suffering non-assessment. The argument of the assessee was that the correct share of the assessee in the three firms could not be brought to tax owing to inaction of the Income-tax Officer in taking proceedings for rectification within the time limited by section 35(5) and, therefore, it could not be said that the income of the assessee had escaped assessment. It did not suffer assessment because of the inaction of the Income-tax Officer to take proceedings ..... 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