Case: Commissioner of Income Tax, Bombay Vs. Onkarmal Meghraj

other eight persons are concerned, they did not have anything further to do after the Income-tax Officer in spite of their filing returns as individuals made an order of No Assessment. They were not before the Appellate Assistant Commissioner or the Tribunal, They were not assessees nor were they intimately connected with the assessee that is the HUF as there was no HUF. Therefore, the second proviso to Section 34 (3) is not applicable in their cases. The right of the Income-tax Officer to assess these persons can be upheld only if the notice under the substantive part of Section 34 can be said to be a valid notice. The assessment year being 1944-45 the notice under Section 34 issued in April 1954 was beyond the period of 4 years under S. 34 (1) (b) which we have held applies to them. For the reasons just set forth the second proviso to Section 54 (3) does not apply to them. 12. That raises the question whether that proviso could be applied without reference to any period of limitation. It is a well settled principle that no action can be commenced where the period within which it can be commenced has expired. It is unnecessary to cite authorities in support of this position. Does the fact that the second proviso says that there is no period of limitation make a difference? The first thing to be, noticed is that that provision was given retrospective effect only from 1. 4. 52 though the Income-tax (Amendment) Act came into effect from 24-5-1953. Where it is intended that the retrospective effect should be without any limit it is usual and proper to provide that the amendment would have effect and would be deemed always to have had effect as if it had been part of the Act from its inception. That that was not done shows that the intention was only to give limited retrospective effect, that is to say, there would be no bar of limitation if it had not expired before 1- 4-1952. 13. We will now refer to some of the decisions which were relied upon. In S. C. Prashar v. Vasantsen Dwarkadas 11956) 29 ITR 857 = (AIR 1956 Bom 530 ) the effects of the amendment made to Section 34 were considered by the Bombay High Court. A Bench of that High Court consisting of Chagla, C. J. and Tendolkar, J. held that where the period mentioned in the substantive part of Section 34 had expired before the amendment in 1953 i. e. before 1st April 1952 no action can be taken under that section. The court also took the view that second proviso to Section 34 (3) offended Article 14 of the Constitution in so far as it affected third parties. That question has now been set at rest by the decision of this Court in (1964) 52 ITR 335 2 (AIR 1965 SC 342 ) (supra) as already noticed. In this Court out of the five Judges who heard the appeal in S. C. Prashar v. Vasantsen Dwarkadas (1963) 49 ITR (SC) 1 = (AIR 1963 SC 1356 ) two of the Judges, Das, J. and Kapur, J. held that Section 31 of the Income-tax (Amendment) Act 1953 did not operate as regards assessment years for which assessment or reassessment was barred before April 1, 1952, in accordance with Section 34 before it was amended in 1948. Hidayatullah J. and Raghubar Dayal, J. took the contrary view. Sarkar, J. expressed no opinion on the point. In J. P. Jani v. Induprasad Devshanker Bhatt (l969) 72 ITR 595 = (AIR 1969 SC 773) this Court held that the Income-tax Officer cannot issue a notice under Section 148 of the Income-tax Act, 1961 in order to reopen the assessment of an assessee in a case where the right to reopen the assessment was barred under the l922 Act at the date when the new Act came into force. It was held that Section 297 (2) (d) (ii) of 1961 Act was applicable only to those cases where the right of the Income-tax Officer to reopen an assessment was not barred under the repealed Act. This decision is broadly in line with the opinion of Das and Kapur, JJ. in Prashars case.. The decision of this Court relied upon by the appellant, in Income-tax Officer v. T. S. Devinatha Nadar, (1968) 68 ITR 252 = (AIR 1968 SC 623 ) which was a case under Section 35 (5), which was introduced into the Income-tax Act by the 1953 amendment at the same time as the amendment to Section 34 does not really affect this position. This Court observed:"As we have already said, sub-section (5) becomes operative as soon as it is found on the assessment or reassessment of the firm or on any reduction or enhancement made in the income of the firm that the share of the partners in the profit or loss of the firm had not been included in the assessment of the partner or if included was not correct. The completion of the assessment of the partner as an individual need not happen after April 1, 1952. The completed assessment of the partner is the subject matter of rectification and this may have preceded the above-mentioned date. Such completion does not control the operation of the sub-section. In the result we find ourselves unable to concur in the decision or the reasoning in Atmala Nagarajs case (1962) 46 ITR 609 (SC)." The position can, therefore be said to have been satisfactorily established that the effect of the amendment of Section 34 in 1953 is not to enable the Income-tax Officer to take action under that section where the period mentioned therein had expired before 1-4-1952. That would apply in these cases to persons other than Narayandas Pokarmal, Meghraj Pokarmal and Hanumandas Sewakram. In their cases the second proviso to Section 34 (3) would apply, whether it is the old proviso or the proviso introduced in 1953.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]8. It appears to us that the conclusion reached by the High Court in respect of the question whether cl. (a) or cl. (b) of Section 34 (1) applies is correct. Neither the proposal submitted by the Income-tax Officer to the Commissioner for taking action under Sec. 34 nor the sanction of the Commissioner, nor the notices issued in these cases nor the returns filed by the parties, nor even the assessment orders of the Income-tax Officer point to the conclusion that action was either contemplated or taken under clause (a). It has to be kept in mind that all the eleven persons had filed their returns in their status as individuals. The fact that seven of them filed as smaller HUFs, makes no difference to this fact. The larger HUF of Narayandas, Meghraj and Hanumandas was neither in existence nor did it file a return as such. Indeed from the year 1930 it never existed. The assessment for 1939-40 to 1941-42 of the three HUFs was only by agreement between the parties and the Department and was not questioned The assessment for 1942-43 was somehow not taken up on appeal. The direction given by the Tribunal on 31-7-1953 was in respect of the assessment for 1943-44. The Income-tax Officer had even before that date assessed the three units as HUF for 1944-45 and passed an order of No Assessment" in respect of the individuals. For that year also all of them had filed their returns as individuals. Clearly, therefore, there was no question of omission or failure to make a return or to disclose fully and truly all material facts necessary for their assessment and the escapement of assessment was not due to any such fact but due to the action of the Income-tax Officer assessing non-existent HUFs and passing an order of No Assessment in respect of individuals. Section 34 (1) (a) cannot, therefore, apply and only Section 34 (1) (b) can apply9. The second proviso to Section 34 (3) does not apply to eight of the 11 respondents in the appeals regarding the assessment year 1944-45 as they were not parties to the proceedings in which the direction of the Tribunal was given, and the same consideration applies to the respondent Onkarmal Meghraj for the assessment year 1943-44It appears to us that it could be so availed of in respect of persons in whose cases reassessments are made under Section 27 or in pursuance of an order under Sections 31, 33-A, 33-B, 66 or 66A, that is Narayandas Pokarmal, Meghraj Pokarmal and Hanumandas Sewakram. There is no difficulty in holding that the second proviso applies to them. They had filed their returns as individuals and been assessed as HUFs It is open to persons in that situation to contend, as indeed they did, that they should be assessed as individuals and not as HUFs. And when the Appellate Assistant Commissioner and the Tribunal make an order that they should not be assessed as HUFs but as individuals they are only giving effect to the contention of the parties. Their cases come directly under the principle of the decision in (1964) 52 ITR 335   = (AIR 1965 SC 342  ) (supra). Even if they are not assessees, they are intimately connected with the assessee, that is the HUF. The earlier order of No Assessment made by the Income-tax Officer in their case does not affect this situation11. But as far as the other eight persons are concerned, they did not have anything further to do after the Income-tax Officer in spite of their filing returns as individuals made an order of No Assessment. They were not before the Appellate Assistant Commissioner or the Tribunal, They were not assessees nor were they intimately connected with the assessee that is the HUF as there was no HUF. Therefore, the second proviso to Section 34 (3) is not applicable in their cases. The right of the Income-tax Officer to assess these persons can be upheld only if the notice under the substantive part of Section 34 can be said to be a valid notice. The assessment year being 1944-45 the notice under Section 34 issued in April 1954 was beyond the period of 4 years under S. 34 (1) (b) which we have held applies to them. For the reasons just set forth the second proviso to Section 54 (3) does not apply to themIt is a well settled principle that no action can be commenced where the period within which it can be commenced has expired. It is unnecessary to cite authorities in support of this positionThe position can, therefore be said to have been satisfactorily established that the effect of the amendment of Section 34 in 1953 is not to enable the Income-tax Officer to take action under that section where the period mentioned therein had expired before 1-4-1952. That would apply in these cases to persons other than Narayandas Pokarmal, Meghraj Pokarmal and Hanumandas Sewakram. In their cases the second proviso to Section 34 (3) would apply, whether it is the old proviso or the proviso introduced in 1953.