TMI Blog1986 (4) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... e the following: " (1) Whether on an appeal by the Hindu undivided family, the Appellate Assistant Commissioner was competent to give a finding and direction to assess the individual so as to lift the bar of limitation under section 34(1) and proviso ? (2) Whether the Tribunal was right in holding that action under section 147(b) had not become barred at the point of time when the Appellate Assistant Commissioner gave directions? (3) Whether the Tribunal was right in holding that action under section 34(1)(a) of the Indian Income-tax Act, 1922, had been taken in the name of the deceased and no such proceeding initiated under section 34 against the assessee was pending at the commencement of the new Act? " The assessee is an individual being the legal heir of late Jhari Ram Bhadani. The concerned assessment year is 1953-54. For the aforesaid assessment year, M/s Jhari Ram Bhadani and Sons was originally assessed in the status of a Hindu undivided family on a total income of Rs. 8,217 on October 27, 1953. The assessment was later rectified under section 154 as Rs. 8,893. That was again rectified under section 154 and assessment was completed on a total income of Rs. 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assistant Commissioner upheld the contention urged on behalf of the assessee holding that the reassessment proceedings were ab initio void. In his view, the Appellate Assistant Commissioner having pronounced that the registered shareholder should be taxed in respect of the deemed dividend, the Income-tax Officer should have proceeded only under section 34(1)(b) and not under section 34(1)(a). The view of the Appellate Assistant Commissioner, in appeal against the reassessment order was that there had been no omission or failure on the part of the assessee and, therefore, the case would not fall within the ambit of section 34(1)(a) and so the shorter period of limitation in terms of section 34(1)(b) would be applicable. The matter was then taken in appeal by the Revenue to the Tribunal. The Tribunal posed the following questions : " (i) Whether the findings and direction given by the Appellate Assistant Commissioner were valid in law ? (ii) Whether the reassessment proceeding for assessing the deemed dividend was to be taken under section 147(a) or under section 147(b) of the 1961 Act, corresponding to section 34(1)(a) and section 34(l)(b) of the Indian Income-tax Act, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b). The order of the Tribunal gave umbrage to both the parties. Questions have, therefore, been referred to us, as stated earlier, at the instance of both the parties. I shall first consider whether the Tribunal was right in holding that the action not having been initiated in terms of section 147(b), the proceeding was invalid. In my view, the Tribunal was not right in the view that it took in the matter for reasons which I shall set out hereinafter. Section 147 of the Act empowers the Revenue to initiate and take steps to assess income which has escaped assessment. The escapement has been divided into two categories-where the assessee is in default and where the Revenue is in default. Section 147(a) covers cases where the escapement has been occasioned on account of omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment. Section 147(b) covers cases where there has been no omission or failure on the part of the assessee but the Income-tax Officer has reason to believe that income chargeable to tax has escaped assessment. In either situation, the Income-tax Officer has the jurisdiction to initiate reassessment p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undivided family and, therefore, it was not liable to be assessed as the income of the Hindu undivided family. The Hindu undivided family failed before the Income-tax Officer. The stand of Jhari Ram Bhadani, karta of the Hindu undivided family, however, succeeded before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner in exercise of his appellate power directed that Jhari Ram Bhadani, the " individual ", i.e., the present assessee, should be assessed in regard to the deemed income from the Hindu undivided family. In accordance with the direction, the reassessment proceeding in regard to Jhari Ram Bhadani, the individual, was taken. It will thus be seen that proceeding for reassessment under section 147 was initiated to give effect to the finding and the direction of the Appellate Assistant Commissioner. The instant case, therefore, comes within the periphery of section 153(3)(ii). It is thus obvious that no question of limitation would arise. The direction of the Appellate Assistant Commissioner had to be given effect to and, therefore, the provision in regard to limitation set down by sub-sections (1) and (2) of section 153 had to be put on the shelf. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an unanimous judgment, held that where a reassessment under section 34(a) (section 17(1)(a) of the Wealth-tax Act) (since the case related to Indian Income-tax Act, 1922), is set aside by the Appellate Tribunal, it would be open to the Tribunal to treat the reassessment as one properly made under section 34(1)(b) (section 17(1)(b) of the Wealth-tax Act) provided that, on the materials on record, all the necessary conditions under section 34(1)(b) (section 17(l)(b) of the Wealth-tax Act) were satisfied. To quote the words of Mitra C.J. (page 496): " It is, therefore, clear that there is no bar to a notice under clause (a) being treated as a notice under clause (b)." The Full Bench in that behalf endorsed the view taken in Mriganka Mohan Sur v. CIT [1974] 95 ITR 503 (Cal). In this connection, it would also be useful to refer to a decision of the Punjab and Haryana High Court in CIT v. Ess Ess Kay Engineering Co. Pvt. Ltd. [1982] 137 ITR 446, where Goyal J. held that clause (a) or (b) of section 147 does not deal with two separate jurisdictions. His Lordship observed that it was not necessary to specify in the notice the particular clause of section 147 under which it was being i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected with the assessees, i. e., the Hindu undivided families, as there was no Hindu undivided family. In the instant case, Jhari Ram Bhadani was the karta of the Hindu undivided family and in his presence, the Appellate Assistant Commissioner had issued the direction of reassessment of Jhari Ram Bhadani in respect of the " deemed income ". It cannot, therefore, be denied that Jhari Ram Bhadani, the " individual was intimately connected with Jhari Ram Bhadani, the karta of the Hindu undivided family. The instant assessee, Surendra Kumar Bhadani, has been proceeded against as the sole legal heir of Jhari Ram Bhadani. He has not been proceeded against in his personal capacity as one of the co-sharers of the Hindu undivided family, but as heir of Jhari Ram Bhadani, since the latter was dead at the time of initiation of the proceeding. Learned counsel for the assessee strongly relied upon the decision of the Supreme Court in John Lal (HUF) v. CIT [1973] 88 ITR 439 (SC), in support of his proposition that where action had been taken under section 34(1)(a), it was not open to the Revenue to treat it as a proceeding under section 34(1)(b). In my view, the reliance placed upon the Suprem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hin the ambit of section 147(b) and not section 147(a), yet the initiation of the reassessment proceeding was valid. The Tribunal was not justified in cancelling the proceeding on the ground that the proceeding had been initiated under section 147(a) and not section 147(b). The last question referred at the instance of the Commissioner is whether the Tribunal was justified in cancelling the order under section 154 of the Income-tax Act. I regret, the Tribunal was not correct in setting aside the order under section 154 of the Act. The position is that the Appellate Assistant Commissioner had directed that the deemed income had to be assessed in the hands of Jhari Ram Bhadani, the " individual ". That direction had to be given effect to. The assessment of the assessee had, therefore, to be consequently rectified. Now that I have held that the Tribunal was not correct in cancelling the order of assessment, the order for rectification under section 154 must be upheld. In that view of the matter, the third question at the instance of the Revenue must be decided in favour of the Revenue and against the assessee. We now come to the questions referred at the instance of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in I.T.A. No. 1942 of 1961-62. The objection of the assessee seems to be to the last sentence in the order of the Appellate Assistant Commissioner quoted above where it was said that the Income-tax Officer would be entitled to assess in terms of the second proviso to sub-section (3) of section 34. There would have been no difference in the legal position, even if that sentence had not been there. The Appellate Assistant Commissioner was only setting down the law in terms of the Act. Even if that sentence had not been there, the Income-tax Officer in terms of section 34(3), second proviso, would be entitled to initiate proceedings under section 147 for reassessment of the assessee. The direction was a sequel to the stand of Jhari Ram Bhadani, the karta, that the sum in question was not the income of the Hindu undivided family. The stand of the karta of the Hindu undivided family having been accepted by the Appellate Assistant Commissioner, the rest would be a natural concomitant of the acceptance of the stand of the assessee as karta. The position in law is absolutely clear and, therefore, it would be futile to encumber this judgment by reference to the authorities on this point. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reassessment ought to have been taken on or before March 31, 1965. It was, in fact, taken on October 15, 1965. In terms of section 153(2), it was certainly beyond time, but precisely for such a situation, section 153(3) was enacted which reads as under: " (3) The provisions of sub-sections (1) and (2) shall not apply to the following classes of assessments, reassessments and recomputations which may, subject to the provisions of sub-section (2A), be completed at any time-... (ii) where the assessment, reassessment or recomputation is 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 250, 254, 260, 262, 263 or 264 or in an order of any court in a proceeding otherwise than by way of appeal or reference under this Act; ..." Thus the bar of limitation for initiating proceedings under sections 147 was lifted. In that view of the matter, there can be no question of the matter having become barred by time when the Appellate Assistant Commissioner gave the direction. The last question referred at the instance of the assessee is whether the Tribunal was right in holding that action under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usion must be that no proceeding under section 34 was pending on April 1, 1962, when the new Act came into force. I am unable to find any error in the conclusion of the Tribunal in this behalf. A proceeding may be bad or barred by limitation, but it is invalid. A proceeding against dead person is no proceeding. It has no existence in the eye of law. Lastly, learned counsel for the assessee submitted that the proceeding under section 34 of the 1922 Act was initiated and notice was issued to Surendra Kumar Bhadani, legal heir of the late Jhari Ram Bhadani. In support of this fact, Mr. K. N. Jain showed to us a photostat copy of a notice purporting to be of some notice issued to Surendra Kumar Bhadani. I regret, I am unable to take any notice of the document shown to us. This court is not permitted to take additional evidence. The orders of the Appellate Assistant Commissioner and the Tribunal do not show that any notice was issued to Surendra Kumar Bhadani in any proceeding under section 34 of the 1922 Act on August 11, 1961. The order of the Appellate Assistant Commissioner shows that the proceeding was initiated against Jhari Ram Bhadani. The notice must, therefore, have been is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn the law by stating that since the correct status of the respondent was that of a Hindu undivided family, the first notice issued in the status of individual was illegal and without jurisdiction and, therefore, the Income-tax Officer was entitled to ignore the return filed by the assessee as non est in law. The second notice was held to be valid and the return filed in response to that notice and the assessment thereon were valid. Applying the law laid down by the Supreme Court to the instant case, the position which emerges is, assuming that a proceeding under section 34 had been initiated and during its pendency a proceeding under section 147 was initiated on the basis of the law laid down by the Supreme Court in CIT v. K. Adinarayana Murthy [1967] 65 ITR 607 (SC), it must follow that the Income-tax Officer and the Tribunal were within their rights in ignoring the first proceeding and proceeding to reassess on the basis of the proceeding initiated under section 147. They were entitled to treat the first proceeding as non est. For those reasons, I am of the view that the Tribunal was right in holding that no proceeding under section 34(1)(a) was pending at the commencement of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treating it as proceeding under section 147(b). Once the bar of limitation was lifted, there was no other bar to it. The assessee, in short, has no case to agitate. To sum up, my conclusions in regard to question No. 1, referred to at the instance of the Revenue is that the Tribunal was correct in holding that the proceeding should have been under section 147(b) and not under section 147(a). My answer in regard to question No. 2, referred to at the instance of the Revenue, however, is that the initiation of proceeding under section 147(a) and not under section 147(b) did not make any difference in passing the order of reassessment. The Tribunal was thus not justified in cancelling the proceeding on that ground. In regard to question No. 3 at the instance of the Revenue, it must be held that the Tribunal was not justified in cancelling the order under section 154 of the Act. In regard to the questions referred to at the instance of the assessee, my view on the first question is that the Appellate Assistant Commissioner was competent to give a finding and direction to the Income-tax Officer to assess the "individual", so as to lift the bar of limitation under section 34(1), secon ..... X X X X Extracts X X X X X X X X Extracts X X X X
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