TMI Blog1981 (4) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... life and on and after her death hand over my residuary estate to Homi Mehta and Sons Private Limited, absolutely." Lady Goolbai died in April, 1953. The executors of the estate of late Sir Homi Mehta filed returns for the three assessment years 1949-50, 1950-51 and 1951-52, on 4th August, 1953, and the assessments on the basis of those returns for the respective years, were made on 30th January, 1954, 29th November, 1954, and 10th December, 1954, respectively. The executors had in the return disclosed the income of the estate. However, the ITO took the view that Of since the sole beneficiary of the residuary estate is Lady Goolbai Mehta, the income of the, estate which is computed here would be assessable in the hands of Lady Goolbai Mehta". Thus, the ITO declined to include the income of the estate in the assessment of the executors of the estate as " the total income determined will be included in the assessment of Lady Goolbai Mehta ". Prior to her death, Lady Goolbai had filed returns for the assessment years 1949-50, 1950-51 and 1951-52, and in the returns, a note was added at the bottom as follows: " Note : The above income is subject to further addition of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see took the matter in appeal to the AAC before whom the two main contentions raised were that the AAC could not give any direction in respect of a case other than the case before him and, in any event, he was not competent to give a direction in respect of any year or any assessee other than the year and the assessee under appeal before him. The second contention was that the second proviso to s. 34(3) was unconstitutional as held by the Supreme Court in the case of Prashar v. Vasantsen Dwarkadas. [1963] 49 ITR 1 (SC), in so far as it authorised the assessment or reassessment of any person other than the assessee beyond the period of limitation specified in s. 34. The AAC accepted both these contentions, and quashed the notices under s. 34 of the Act and the assessments made by the ITO. The matter was taken in appeal by the revenue to the Tribunal. The Tribunal found that the AAC, when he was seized of the matter of assessment of Lady Goolbai, had no jurisdiction to give any direction in the matter against the executors of Sir Homi Mehta. The Tribunal held that the parties were different and the AAC could not have given a direction against strangers in the manner he had done. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stances of the case, it was rightly held that the Appellate Assistant Commissioner in the assessment of Lady Goolbai, for the assessment years 1949-50, 1950-51 and 1951-52 had no jurisdiction to give any directions in the matter of the executors of Sir Homi Metha on the ground that these directions were given against strangers to the proceedings ? (ii) Whether, on the facts and in the circumstances of the case, the action taken by the Income-tax Officer under section 34(1)(b) read with the proviso to sub-section (3) of section 34 was bad in law ? (iii) Whether the Tribunal was justified in holding that the action of the Income-tax Officer could not be supported under section 34(1)(a) of the Income-tax Act for the assessment years 1949-50, 1950-51 and 1951-52 ? (vi) Whether, on the facts and in the circumstances of the case, it was rightly held that for the assessment years 1950-51 and 1951-52, the action of the Income-tax Officer could not be supported under section 35 of the Income-tax Act ? " For the purpose of argument, the first two questions can be dealt with together. Mr. Joshi, learned counsel appearing on behalf of the revenue, had urged before us that when the AAC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a is wholly unnecessary to be recorded in the appeal filed by the executors of the estate of Lady Goolbai. It was, therefore, argued that if the finding was not necessary for the disposal of the appeal filed by the executors of the estate of Lady Goolbai, then such a finding could not be relied upon by the ITO for the purpose of exercising jurisdiction under s. 34(1)(b) for issuing notices for reopening the assessment. It was also contended that there was no connection whatsoever between Lady Goolbai, who was an assessee in her own right, and the executors of the estate of Sir Homi Mehta, because the assessees were wholly independent of one another. Thus, according to the learned counsel, even on the ratio of the decision in Murlidhar Bhagwan Das' case [1964] 52 ITR 335(SC), the notices could not be sustained nor could the reassessment proceedings be valid. The decision on the first two questions and the contentions raised by the learned counsel for the revenue and the assessee, would really turn on the decision on the question as to whether the second proviso to s. 34(3) could really be invoked by the ITO in order to reopen the assessment proceedings in respect of the income of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y person' in its widest connotation may take in any person, whether connected or not with the assessee, whose income for any year has escaped assessment", the court observed as follows: " The expression 'any person' in its widest connotation may take in any person, whether connected or not with the assessee, whose income for any year has escaped assessment; but this construction cannot be accepted, for, the said expression is necessarily circumscribed by the scope of the subject-matter of the appeal or revision, as the case may be. That is to say, that person must be 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. If so construed, we must turn to section 31 to ascertain who is that person other than the appealing assessees 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 AAC. Modification or setting aside of assessment made on a firm, joint Hindu family, association of persons, for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to refer in some detail to the observations of the Supreme Court in that behalf. . While dealing with this question as to what is the finding and the direction contemplated by the second proviso to s. 34(3) of the Act, the Supreme Court quoted with approval the following observations of the Allahabad High Court, in Pt. Hazari Lal v. ITO [1960] 39 ITR 265 " The word "finding ", interpreted in the sense indicated by us above, will only cover material questions which arise in a particular case for decision by the authority hearing the case or the, appeal which, being necessary for passing the final order or giving the final decision in the appeal, has been the subject of controversy between the interested parties or on which the parties concerned have been given a hearing. The Supreme Court also pointed out that the finding referred to in the second proviso to s. 34(3) does not take in any incidental finding. The following observations may be reproduced, "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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1969] 71 ITR 417 (SC), the assessee-firm consisting of a father and his two sons filed a return for assessment year 1952-53 on 31st March, 1953, and applied for registration under s. 26A of the Indian I.T. Act, 1922. The ITO refused registration and assessed the father and two sons as an HUF. The AAC, on appeal, allowed the registration of the firm holding that the business belonged to the firm and the income ought to be excluded from that of the family and further directed the ITO to assess the income of the business in the hands of the father. The ITO issued fresh notices under ss. 22(4) and 23(2) whereupon the firm filed a petition under arts. 226 and 227 of the Constitution of India for a writ prohibiting the I.T. authorities from proceeding with the assessment. The writ petition was dismissed by the High Court holding that the second proviso to section 34(3) was applicable because the members of the firm could not be regarded as strangers to the proceedings which resulted in the assessment order made in respect of them on the basis of their constituting an HUF along with others. The Supreme Court held that the finding recorded by the AAC that it was a partnership and not an H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary for deciding both the appeals before him and that the firm was not a stranger to the assessment made on P. It was intimately connected with P and the assessment made on him and, therefore, the assessments made on the firm were saved from the bar of limitation by the second proviso to s. 34(3). This decision was cited by the learned counsel for the revenue as an illustration of the fact that as between a firm and a partner, a partner had been held to be intimately connected with the firm for the purposes of the second proviso and assistance was sought from this decision to contend that the executors of the estate must be said to be intimately connected with the legatee. Two of the later decisions which deal with the law with regard to the meaning of the words " finding " and " direction " have been cited before us. In Rajinder Nath v. CIT [1979] 120 ITR 14, the Supreme Court was dealing with the provisions of s. 153(3) of the I.T. Act, 1961, and observed that the expressions " finding " and " direction " in s. 153(3) are limited in meaning and a finding given in an appeal, revision or reference arising out of an assessment must be a finding necessary for the disposal of the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the assessee appealed before the Tribunal. The Tribunal accepted the claim and held that the trust was a stranger to the proceedings for the assessment of the settlor and the second proviso to s. 34(3) did not save the reassessment proceedings initiated against the trust from the bar of limitation. The High Court agreed with the view of the Tribunal and in appeal by the revenue, the Supreme Court confirmed the decision of the High Court, holding that the finding of the High Court that the income belonged to the trust and not to the settlor was a finding necessary for disposing of the reference in favour of the settlor and that the trust was a stranger to the assessment proceedings of the settlor and was not " any person " within the meaning of the second proviso to s. 34(3) and, therefore, the second proviso to s. 34(3) was not attracted and the reassessment proceedings against the trust were barred by time. It is in the light of the legal position as expounded by the authorities referred to above, that we must find out whether, firstly, the finding recorded by the AAC in the assessment proceedings of Lady Goolbai was finding which was material for the decision of the controver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le deciding the case before it. The AAC was exercising jurisdiction under s. 31 of the Act when be was hearing the appeal filed by Lady Goolbai. If at all any direction could be given by the AAC, that could be only within the scope of the provisions of s. 31(3) which deals with the scope of the jurisdiction of the AAC while disposing of an appeal before him in different categories of cases. We have not been pointed out any part of s. 31 under which the direction could validly be given by the AAC to the ITO directing that the income should be assessed in the hands of the executors while disposing of the appeal of Lady Goolbai. It is clear to us that there is no finding in the order of the AAC within the meaning of that word used in the second proviso to s. 34(3) nor could the direction be held to be valid as being within the scope of the appellate jurisdiction of the AAC under s. 31. Now, so far as the question as to whether the executors could be "any person " for the purposes of the second proviso, it is difficult for us to see how the test of the intimate connection could really be satisfied in the instant case. In view of the decision in Murlidhar Bhagwan Das' case, [1964] 52 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iability of that income to be assessed in the hands of the one or the other which gives rise to either proceedings for assessment or reassessment. So far as the instant case is concerned, Lady Goolbai in her individual capacity was a person altogether different from the executors who were liable to account only for the income of the estate of Sir Homi Mehta. The assessees were only independent of one another for the purpose of their respective assessments. Lady Goolbai could not claim to represent the executors of the estate of Sir Homi Mehta nor the executors of the estate of Sir Homi Mehta could claim to represent Lady Goolbai in her individual capacity. We are; therefore, not inclined to accept the contention on behalf of the revenue, that the executors satisfy the description of any person " as construed by the Supreme Court in Murlidhar Bhagwan Das' case [1964] 52 ITR 335 (SC). Once we hold that either there was in law no finding given in the assessment proceedings of Goolbai or if there was a finding it was only an incidental finding, that the direction was not within the jurisdiction of the AAC and that the executors of the estate were total strangers to the assessment p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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