Case: M/s. Daffadar Bhagat Singh &amp; Sons Vs. The Income Tax Officer, A-Ward, Ferozepure

The appellant firm filed a return for the assessment yearon March 31, 1953. It also applied that it may be registered as a firm under Section 26A of the Act, the partners being Bhagat Singh and his two sons Katar Singh and Dhian Singh, their shares being in the proportion of 4/16, 6/16 and 6/16 respectively. TheOfficer passed an order on March 26, 1957 holding that the assessee constituted a Hindu Undivided Family and not a firm. The registration under Section 26A was also refused. The appellants approached the Appellate Assistant Commissioner in appeal who made an order on August 11, 1959 allowing registration of the partnership firm under Section 26A. He further held that the business belonged to the firm and therefore its income must be excluded from that of the family. The Income Tax Officer was directed to assess the income of the business in the hands of the firm. TheOfficer issued fresh notice to the appellants under Sections 22 (4) and 23 (2) of the Act. The appellant refused to comply with these notices and moved the Inspecting Assistant Commissioner offor giving a direction that the assessment should not be proceeded with owing to the statutory bar created by Section 34 (3) of the Act. As theauthorities did not accede to the request of the appellants a petition under Articles 226 an 227 was filed in the High Court.The High Court dismissed the petition on the ground that in view of the decision of this Court in Income tax Officer,Sitapur v. Murlidhar BhagwandasITR 335= (AIR 1965 SC 342  ) the second proviso to S. 34(3) would be applicable because the members of the appellant 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 a Hindu Undivided Family along with others and that they were intimately connected with the "person" whose assessment was made by theOfficer and set aside by the Appellate Assistant Commissioner on whose direction fresh assessment proceedings were taken.

Court's reasoning:
In this connection it may be mentioned that according to Mr. Veda Vyasa two returns had been filed by the appellant for the assessment yearone relating to the Hindu Undivided Family and the other, of the partnership firm. But the statements contained in the writ petition of the appellant do not support this submission. In para 3 of that petition it is stated that the firm and all the three partners filed their returns of profit and loss on March 31, 1953 with the Income tax Officer and also made in applicable under S. 26A of the Act for registration of the firm. It is true that in the assessment order of the Income tax Officer the status of the assessee is shown to be Hindu Undivided Family but that has been apparently shown in the order because the Income tax Officer gave an express decision about the status of the assessee and held that it constituted a Hindu Undivided Family.It, however, stands proved that the assessee filed the return claiming the status of a firm together with an application under S. 26A or its registration which was disallowed by the Income tax Officer but was allowed by the Appellate Assistant Commissioner. The substantial issue before the Appellate Assistant Commissioner was one of status of the assessee and he held that it was a partner firm and not a Hindu Undivided Family. This finding was necessary for deciding the appeal before the Appellate Assistant Commissioner and it is not possible to understand how it can be regarded as having been made only incidentally. Once a finding is given which was necessary for the disposal of the appeal the second proviso to S. 34(3) of the Act would be attracted and the bar of limitation would bewas further observed that this Court in an earlier case lent approval to the observations of the Allahabad High Court in Hazari Lal v. Income tax Officer, Kanpur,ITR 265 = (AIR 1960 All 97  ) "that the word "finding" only covers "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 first submission of Mr. Veda Vyasa therefore cannot bethe observations made in Murlidhar Bhagwan Dass caseIRT 335=(AIR 1965 SC 342  ) are borne in mind it is again not possible to understand how the appellant can be taken out of the category of person or persons intimately connected with the assessment of the year under appeal. The returns, as stated before, were originally filed by the partnership firm comprising Bhagat Singh and his two 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 Hindu Undivided Family. On appeal, however. the Assistant Commissioner accepted their contention that they formed a partnership firm. It is difficult, in these circumstance, 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.