Case: Bhagwan Das Sita Ram Vs. Commissioner of Income Tax

The matter came up before a Division Bench of the High Court and as there was a previous bench decision of that Court in the case of Sool Chand Ram Sewak v. Com missioner of Income-tax, U.P. which supported the revenues case and as the division bench before whom this case came was unable to accept that view, the division bench referred the case to a larger Bench. This reference thereafter came before a Full Bench consisting of Gulati, H. N. Seth &C.S.P. Singh, JJ. Gulati and C. S. P. Singh, JJ. answered the question in the affirmative in favour of the revenue and against the assessee. Seth J. however, was in favour of assessee. In view of the majority the question was answered in favour of the revenue and in affirmative.Before we deal with the question in controversy, it will be necessary to note some of the relevant facts. There were originally four appeals for the assessment years 1946- 47, 1947-48, 1948-49 and 1949-50. As the appeals for the assessment years 1946-47 and 1947-48 were withdrawn by the revenue, we are now concerned with appeals for the assessment years 1948-49 and 1949-50.The present assessee is a branch of a bigger Hindu undivided family known as Nathu Ram Jawahar Lal, Jhansi.The bigger Hindu undivided family of M/s Nathu Ram Jawahar Lal was partitioned on 19th May, 1945, and the present assessee along with another smaller H.U.F. came into existence and the said bigger H.U.F. had made a claim in respect of the partition under Section 25A of the Indian Income-Tax Act, 1922. While this claim was pending the present assessee filed voluntary returns under Section 22(1) of the Act for the assessment years 1946-47 to 1949-50 on 10th November, 1950. The said claim of partition by the bigger H.U.F. was rejected by the Income-tax Officer and also by the Appellate Assistant Commissioner. The said H .U.F. thereafter, filed appeals to the Appellate Tribunal in respect of the order under claim of partition under Section 25A of 1922 Act which by its order dated 31st August, 1954 accepted the claim under Section 25A of 1922 Act, and the Tribunal passed orders on that basis in the appeals relating to the assessment orders in respect of the bigger H.U.F. on 28th October, 1954. The Income-tax Officer, thereafter, initiated proceedings under Section 34 of the Income-tax Act of 1922 for assessing the smaller Hindu undivided family, the present assessee in view of the fact that the claim for disruption of the bigger H. U. F. had been accepted by the Tribunal. The present assessee filed fresh returns of income on 12.4.1955 in response to notices under Section 34 of 1922 Act. The returns originally filed were under Section 22(1) and were filed on 18th November, 1950. The assessees objection regarding the validity of the assessments being made under Section 34 on merits as well as on the point that time for making the assessment under Section 34 had already expired, were rejected by the Income- tax Officer. He, therefore, completed the assessments on 8.9.1955 under Section 23(3) read with Section 34 of the Income-tax Act, 1922. The assessee could not get any decision in his favour either from the Appellate Assistant Commissioner or from the Tribunal and being aggrieved by these orders, filed a Writ Petition to the High Court of Allahabad ch allenging the validity of the Appellate orders. The assessee was successful in the Writ and, therefore, the appellate orders were quashed by the High Court. The revenue having failed in its attempt to complete the assessees assessments under Section 34, made another attempt to assess the assessee on the basis of the voluntary returns originally filed by the assessee on 18.11.1950 by relying upon the order of the Tribunal dated 28.10.1954 and invoking the provisions of 2nd proviso to Section 34(3). The said assessments which were completed on 31st May, 1962 were the subject matters of appeals before the Tribunal.The point before the Tribunal was whether valid assessments could be made for the assessment years under consideration on 31st May, 1962 on the basis of the returns filed under Section 22(1) of the Act of 1922 on 18th November, 1950. The Appellate Assistant Commissioner by his order held that no valid assessments could be made on 31st May, 1962.It appears that on 28th October, 1950, relating to the assessment years 1946-47 to 1949-50 in case of bigger Hindu undivided family, M/s Nathu Ram Jawaharlal, Jhansi, order was passed by the Tribunal in the appeal relating to the assessments pending before it. It should be noted that originally on the basis that the bigger H.U.F. had not been disrupted assessments for these years had been made and appeals relating to those assessments were pending before the Tribunal. The Tribunal disposed of these appeals by the order dated 28th October, 1954 and the Tribunal in the said order had observed, inter alia, as follows;"The assessments for those years were (have) necessarily to be set aside with the direction that fresh assessments should be made, one for the period 19.5.1945 upto which the Hindu undivided family was in existence and the others on the component Hindu undivided families, namely M/s Jawaharlal Mani Ram and Bhagwan Das Sita Ram."The Tribunal in the instant appeal out of which the reference was made to the High Court and out of which these appeals arise, after discussing the relevant facts and the provisions of law confirmed the order of the Appellate Assistant Commissioner and dismissed the appeals. As mentioned hereinbefore after the Tribunal had directed the assessments should be made on the component units of the bigger Hindu undivided family, after partition was accepted, na mely, the assessee and Jawaharlal Mani Ram, the Income-tax Officer instead of proceeding on the basis of the voluntary returns already filed by the assessee proceeded to take action under Section 34(1) (b) of the Act of 1922 and completed the assess ments for all the four years on September 8, 1955. The assessee appealed against these assessments to the Appellate Assistant Commissioner of Income-tax, but before the appeals were taken up for hearing, the assessee moved the High Court of Allahabad under Article 226 of the Constitution. On March 30, 1960, the High Court quashed the assessment orders on the ground that as voluntary returns filed by the assessee were pending, no proceeding could be taken under Section 34 of the Act, 19 22. Thereafter the Income-tax Officer initiated proceedings on the basis of the voluntary returns. The assessee again filed a writ petition praying for quashing the proceedings on the ground that revenue could not proceed against it on the basis of the voluntary returns. This petition was rejected by the High Court and thereafter the Income-tax Officer proceeded to complete the assessments under Section 23(3) and passed assessment orders on 31st May, 1962, in respect of the four years.

Court's reasoning:
The High Court was of the opinion that sub-section (3) of Section 34 provides a period of limitation of four years for assessment under Section 23 of the Act, 1922. If the assessment proceedings commence by filing of voluntary return, as indeed these do, on the expiry of the period of four years from the end of the year in which the income, profits or gains were first assessable, such proceedings are suspended or interrupted. But neither the proceedings nor the returns become invalid. The High Court referred to the provisions of Section 34(3) and was of the view that since the order was passed by the Tribunal giving direction, the bar or limitation was lifted and the assessments could be made without any bar or limitation. Reference was made to the decision of this Court in the case of Commissioner of Income-tax Bombay City II v. Ranchhoddass Karsondas, and in the case of Estate of the late A.M.K.M. Karuppan Chettiar v. Commissioner of Income-tax, Madras and Commissioner of Income-tax Madras v. M.K.K.R. Muthukaruppan Chettiar.The High Court, on the basis of these decision s, was of the view that assessments could be made on the basis of voluntary returns already filed by the assessee. We are of the opinion that the High Court was rightIn the instant case before us, applying the test observed in that case this was a case where the facts showed that income can belong either to the bigger Hindu undivided family or to the smaller Hindu undivided family, the present assessee along with another smaller H.U.F. and to no one else. Therefore a finding that it belongs or it does not belong to the bigger Hindu undivided family which had disrupted on partition would determine the issue whether it could be taxed in the hands of the present assessee. Judged in the light of the test laid down in Murlidhar Bhagwan Das (supra) and as pointed out in Rajinder Naths case, it appears to us that the present assessee can be said to be a person who would be liable to be assessed for the whole or part of the income that went to the assessment of the bigger Hindu undivided family in years under appeal and is a person intimately connected with the assessments of the bigger Hindu undivided family. The income in this case cannot be the income of both bigger Hindu un divided family and the present assessee, it must be either of these two. We are, therefore, of the opinion that directions given in the appeals filed by the bigger Hindu undivided family would be applicable to the present assessee.On behalf of the assessee it was contended that only the categories of persons referred to in Sections 30(1) and 30(3) of 1922 Act would be governed by the said expression "any person"Sub-section (3) of Section 31, inter alia, authorises the Appellate Assistant Commissioner in case of an order cancelling registration of a firm under sub-section (42) of Section 23 or refusing to register a firm under sub-section (4) of Section 23 or Section 26A or to make fresh assessment or to confirm such order, or cancel it and direct the Income-tax officer to register the firm or to make a fresh assessment, as the case may be, or in the case of an order under sub-section (2) of Section 25 or sub-section (1) of Section 23A or sub-section (2) of Section 26 or Section 48, 49 or 49F, confirm cancel or vary such order. It also authorises in case of an order under sub-section (1) of Section 25A to confirm such order or cancel it and either direct the Income-tax officer to make further inquiry and pass a fresh order or to make an assessment in the manner laid down in sub-section (2) of section 25A. The other cases were cases of orders under Section 28 or sub-section (6) of Section 44E or sub-section (5) of Section 44F or sub-section (1) of Section 46, or in case of an appeal against a computation of loss under Section 24, confirm or vary such computation, or in case of an appeal under sub-section (1A) of Section 30 decide that the person is or is not liable to make the deduction and in the latter case direct the refund of the sum paid under sub-section (6) of Section 18Decision of this Court in the case of Commissioner of Income-tax, Punjab, Jammu &Kashmir and Himachal Pradesh v. S. Raghubir Singh Trust was relied on behalf of the assessee. There the respondent trust created by R. filed its return of income for the assessment year 1954-55. Holding that the trust was invalid, the Income-tax officer assessed the income of the trust in the hands of R.R. carried the matter in appeal and other proceedings and ultimately the High Court held that the trust was valid and the income was the income of the trust and not of R. The I.T.O. issued a notice on 19th September, 1961, under Section 34(1)(b) of the Indian I.T. Act, 1922, to reopen the assessment of the trust. The trust claimed that the notice was barred by limitation. The Tribunal accepted the claim and held that trust was a stranger to the proceedings for the assessment of R and the second proviso to Section 34(3) did not save the reassessment proceedings initiated against the trust from the bar of limitation and the High Court, on a reference, agreed with the Tribunal. On appeal to this Court it was held, affirming the decision of the High Court, that even though the finding of the High Court that the income belonged to the trust and not to R was a finding necessary for disposing of the reference in favour of R and it was a "finding", but the trust was a stranger to the assessment proceedings of R. and not "any person" within the meaning of the second proviso to Section 34(3) and, therefore, the second proviso to Section 34(3) was not attracted and the reassessment proceedings against the trust were barred by time. That decision must be understood in the facts of that case. The settler and the trust cannot be said so intimately connected as to come within the ratio of Murlidhar Bhagwan Dass case. The Court found that assessee trust could not be said to be intimately connected with the assessment of Raghubir Singh. As a result of the trust deed failing, there may be numerous situations viz., there might be resulting trust or it might be that the trust property would go to other beneficiaries. It is not necessary for u s to explore or explain those possibilities. But in the facts of this case, we are of the opinion that whether the income of the smaller Hindu undivided family, namely the present assessee is liable to be taxed is so intimately or inextricably linked up with the question of assessability of bigger Hindu undivided family, which again is dependent upon the question whether there was disruption of bigger Hindu undivided family and that being the very subject-matter of appeals in the four years in which this direction had been given, we are of the opinion that directions given in this case are valid and would save the assessments against the assessee for the two years in question.In the aforesaid view of the matter, we are of the opinion that the majority of the learned judges of the High Court were right in their conclusions and the question was correctly answered by the majority of the learned judges of the High Court.