C.I.T. Bombay Vx. Onkarmal Meghraj
(H.U.F.) & Ors  INSC 140 (16 August 1973)
KHANNA, HANS RAJ
CITATION: 1973 AIR 2585 1974 SCR (1) 391 1974
SCC (3) 349
Indian Income Tax (Amendment) Act 1953-J.
16 persons constituted a partnership firm
under an agreement dated 19-5-1930. Out of the 16 partners, 3 were outsiders
and 13 were members of 3 Hindu Undivided Families. Though the firm consisted of
3 Hindu Undivided Families, the income tax assessment till 1939-40 was on all
the 16 individuals.
From 1939-40 to 1941-42, the Income Tax
Department assessed the 13 persons not as individuals but as 3 Hindu Undivided
Families. on the basis of a settlement between, them and the department. After
1941-42, all the 16 persons were to be individually assessed. Nevertheless, the
Income Tax Officer proceeded to make the asessment as though the 3 Hindu
Undivided Families still continued. The members of the Hindu Undivided Families
disputed this and on appeal, the Income Tax Appellate Tribunal directed that
the assessment for the year 1943-44 had to be made or, each individual partner.
In respect of the year 1944-45, the I.T.O. had, meanwhile, assessed the 3 H.U.
Families as Hindu Undivided Families by declaring the cases of the individuals
as cases of "No assessment". These assessments were, however, set
aside by the Appellate Assistant Commissioner according to the directions given
by the Tribunal earlier.
After receipt of the orders of the Appellate
Assistant Commissioner the I.T.O. issued notices under s. 34 to all the 13
persons in April 1954. By that time, the Indian Income-tax (Amendment) Act
1953, which amended s. 34(a) became operative retrospectively from 1-4-1952.
The notices under s. 34 were served on 8th April 1954 and the assessments were
made on 31-1-1955 on the footing that under that Section, there was no time
limit. Both the Appellate Assistant Commissioner and Tribunal dismissed the
appeals filed by the assessees. These assessments were, however, set aside by
the Appellate Assistant Commis(i) whether, having regard to the directions
given by the Appellate Assistant Commissioner, and having regard to the second
proviso to Section 34(3) as amended, the reassessment made by the I.T.O. on
31-1-1955 is, governed by any limitation period, such as mentioned in s. 34(3).
(2)In respect of 4 other assessees, who
furnished individual returns, "whether the remedy available to the I.T.O.
had already become time-barred under s. 34 before that Section wag amended in
1953 with retrospective effect." The High Court answered the questions in
the affirmative and hence, the appeals before this Court.
HELD:(i) The direction given by the Tribunal
on 31-3-53 was in respect of the assessment for 1943-44. The I.T.O.
had even before that date, assessed the three
units as H.U.F., 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. Therefore, there was no question of omission or failure to make a
return or to disclose fully all material facts necessary for their assessment
and escapement of assessment was not due to any such fact but due to the action
of the I.T.O. assessing non-existent Hindu Undivided Families 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 apply. [395D-F] (i)As regards
the application of the second proviso to s.34(3), it applies only to the three
individuals (Narayandas, Meghraj and Hanumandas) who filed returns as
individuals but who had been assessed as Hindu Undivided Families and who were
before the Appellate Assistant Commissioner and the Tribunal 392 but not to
other eight respondents who were not parties to the proceedings and there was
no Hindu Undivided Families at that time-all these eight persons having filed
their returns as individuals. [395F-396C] I.T.O. v. Murlidhar Bhagwan Das,
 52 I.T.R. 325, referred to.
The right of the I.T.O. to assess these persons
can be upheld only if the notice under the substantive part of s. 34 can be
said to be a valid notice. The assessment year being 1944-45, the notice under
s. 34 issued in April 1954 was beyond the period of 4 years under s. 34(1)(b)
and so, the second proviso to s. 34(3) does not apply to them.
[397A-B] (iii)The effect of the amendment of
s. 34 in 1953 is not to enable the I.T.O. to take action under that Section
where the period mentioned therein had expired before 1.4.1952. In the case of
the 3 assessees, however s. 34(3) would apply, whether it is the old proviso or
the proviso introduced in 1953. [398D-F] S.C. Prashar v. Vasantsen Dwarkadas,
 29 I.T.R. 857 and J. P. Jani, I.T.O. v. Inuduprasad Devshanker Bhatt,
 72 I. T. R. 595 and Income Tax Officer v. T. S.
Devinathan Nadar,  68 I.T.R. 252,
CIVIL APPELLATE JURISDICTION :-Civil Appeals
Nos. 22632274 of 1969.
Appeals by certificate from the Judgment and
Order dated the 29th/30th January, 1968 of the High Court of Judicature at
Bombay in Income Tax Reference No. 54 of 1958.
T. A. Ramachandra and S. P. Nayar, for the
Respondents Nos. 1 to 9, 10(iii), 11 and 12
did not appear.
The Judgment of the Court was delivered by
ALAGIRISWAMI, J. Sixteen persons constituted a partnership firm known as M/s.
Narayandas Kedarnath under an agreement dated 19-5-1930. Out of the said 16
persons three were outsiders and thirteen were members of three Hindu undivided
families whose kartas were respectively Narayandas Pokarmal, Meghraj Pokarmal
and Hanumandas Sewakram. Narayandas Pokarmal had three sons Govindram,
Bhagwandas and Vasudeo;
Meghraj Pokarmal had also three
sons-OnKarmal, Banarsilal and Beniprasad; and Hanumandas Sewakram had four
sons- Kedarnath, Bnarsidas, Durgaprasad and Harkisondas. Though the firm
consisted of 3 undivided Hindu families the income tax assessment till the year
1939-40 was on all the sixteen individuals. From 1939-40 to 1941-42 the
Income-tax Officer assessed these 13 persons not as individuals but as three
Hindu undivided families on the basis of a settlement between them and the
Department. Thereafter all the sixteen persons were to be individually
assessed. Nevertheless, the Income-tax Officer proceeded to make the assessment
as though the three HUFs still continued. The members of the HUFs disputed this
and the Income-tax Appellate Tribunal by an order dated 31-7-1953, relating to
the appeals by the three families for the assessment year 1943-44, directed
that the assessment bad to be made on each individual partner. In respect of
the year 1944-45 the, Incometax Officer had meanwhile assessed the three HUFs
as HUFs by de- claring the cases of the individuals as cases of 'No
Assessment'. These 393 assessments were set aside by the. Appellate Assistant Commissioner
who followed the directions given by the Tribunal in respect of the year
1943-44, on 9-3-1954.
After the. receipt of the orders of the
Appellate Assistant Commissioner the Income-tax Officer issued notices under
section 34 to all the 13 persons in April 1954 after obtaining the
Commissioner's approval. By that time the Indian Income-tax (Amendment) Act,
1953, which among other things amended section 34(3), had come into effect on
24-5- 1953 but had retrospective effect from 1-4-1952. The notices under
section 34 were- served on or about 8th April, 1954 and the assessments were
made on 31-1-1955 on the footing that under that section there was no time
For the purpose of these assessments the
three Kartas of the Hindu undivided families, Narayandas, Meghraj and
Hanumandas, earlier referred to, and Beniprasad, son of Meghraj had already
filed their returns as individuals and the others as HuFs. It should be made
clear that these are the HUFs consisting of,, the other 7 individuals and their
decendants, to which we shall hereafter refer as the smaller HUFS. The
Appellate Assistant Commissioner having dismissed their appeals there were 11
appeals to the Tribunal.
Banarsidas and Harkisondas, sons of
Hanumandas did not file any appeal.
The Tribunal held that all the eleven cases
were governed by section 34(1)(a) and dismissed the appeals. The Tribunal
thereafter at the instance of the parties referred the following questions to
the High Court :
1. Whether, having regard to' the direction
given by the Appellate Assistant Commissioner in his order dated 9-3-1954 in
the case of the appropriate H.U.Fs. and having regard to the second proviso to
section 34(3) as amended by section 18 of the Indian Income-tax (Amend- ment)
Act, 1953 the reassessment made by the Incometax Officer on 31-1-1955 in the
case of any one or more of the assessees is governed by any limitation period
such as mentioned in the sugstantive part of section 34(3) ? In respect of
Narayandas Pokarmal, Meghrai Pokarmal. Beniprasad Meghraj and Hanumandas
Sewakram the further question- referred was :
2. Whether in the case of the assessees, the
remedy available to the Income-tax Officer had already become time barred under
section 34 before that section was amended in 1953 with retrospective effect
from 1-4-1952 ? Along with these 1 1 appeals one more appeal by Onkarmal
Meghraj regarding the assessment year 1943-44 also was heard by the Tribunal
and in that case also the second question was referred to the High Court.
Before the High Court a contention was raised
on the basis of the provisions of the Indian Income-tax (Amendment) Act (1 of
1959) that notices issued and the action taken in the present cases could not
be called in question on the ground that the period prescribed in that 394 behalf
had expired. The High Court thereupon called for a supplementary statement of
the case. That was forwarded by the Tribunal annexing thereto such record as
was indicated by the High Court in its order calling for the supplementary
statement. The High Court, thereupon, framed a further question as follows :
"Whether section 4 of the, Income-tax
(Amendment) Act (1 of 1959) was applicable to any one or more of these
assessments The High Court held against the Department on this question.
This was not argued before us and we need not
therefore spend any further time over it.
For the purpose of deciding whether section
34(3) applied, the Jr High Court went into the question whether the notices in
these cases were issued under clause (a) or clause (b) of section 34(1). After
considering all the facts and circumstances relevant to the determination of
the question the High Court came to the conclusion that the notices issued
should be deemed to have been issued under section 34(1)(b). This was based
upon the proposal made by the Income-tax Officer, the sanction given by the
Commissioner, the notice issued by the Income-tax Officer and the return made
by the assessees, as well as the assessment order of the Income-tax Officer.
The High Court also came to the same conclusion in respect of the case of
Onkarmal Meghraj for the assessment year 1943-44.
It then considered the question whether the
case came under the 2nd proviso to section 34(3). The High Court pointed out
that neither group could be regarded as falling under section 34(1) (a) and
held that the cases of the seven persons could not be treated as cases of no
return and that the order of 'no assessment' made in respect of these persons
was not because of a wrong or improper return having been submitted by these
assessees, but because of an erroneous view taken by the Income-tax Officer
that the income had to be assessed in the hands of the HUFS. As regards the
second group of four persons it observed that they had submitted their returns
as individuals and had IF fully and truly disclosed the income received by
them, which was liable to assessment. The Income-tax Officer had, however, made
the assessment on three HUFs represented by three of the four Persons and
assessed the income as the income of the HUFS. The result was not because of a
failure or omission on the part of these persons to make a return of their
respective income, but because the income was assessed in the hands of the
HUFS. Thus the escapement of assessment of income was not due to any failure or
omission on the part of the assessees but because of the erroneous view taken
by the Income-tax Officer. It thus held that the cases did not fall under
section 34(1)(a) and that they could not fall under the second proviso to
section 34(3) because that proviso became applicable only from the 1st day of
April- 1952 and the assessment under section 34 being in respect of the
assessment year 1944-45, the action to be taken under section 34 would be
barred. The same view was taken in the case of the solitary appeal of Onkarmal
Meghraj for the assessment year 1943-44. Even in respect of 395 Narayandas,
Meghraj and Hanumandas it observed that although they were undoubtedly parties
to the proceedings in which the, findings or orders were given, and the second
proviso to section 34(3) would not be inapplicable but it could be applied only
within the period of limitation that had expired before 1st April, 1952. In the
result the High Court answered two of the questions in the affirmative. The
Commissioner of Income-tax has, therefore, filed these 12 appeals.
It appears to us that the conclusion reached
by the High Court in respect of the question whether clause (a) or clause (b)
of section 34(1) applies is correct. Neither the proposal submitted by the,
Incometax Officer to the Commissioner for taking action under section 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 3 4 (1) (b) can apply.
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 1943-44. Only Narayandas,
Meghraj and Hanumandas who had filed returns as individuals but who had been
assessed as HUFs were parties thereto. The others had no occasion to go up in
appeal- because the Income-tax Officer had passed an order of 'No assessment'
in their cases. Regarding the :assessment for the year 1943-44, the assessments
were made in pursuance of the directions given by the Appellate Assistant
Commissioner in the three appeals preferred by the persons who were treated as
Kartas of the three HUFs in whose hands the income was assessed by the
Income-tax Officer. These were Narayaridas Pokarmal, Meghraj Pokarmal and
Hanumandas Sewakram. In these cases the settlement between the Department and
the parties earlier was on the basis that there was partial partition in the
HUFS. It has already been mentioned that before the year 1939-40 the various
partners of the firm had been assessed in their individual capacities.
Therefore, the appeals filed by Narayandas Pokarmal, Meghraj Pokarmal and
Hanumandas Sewakram cannot represent the separated members of the family. These
three persons, however, were parties to the said proceedings. They had filed
their returns as individuals and because they had been assessed as HUFS, had
carried the matter up on appeal. In respect of the other eight persons who also
filed returns as individuals the direction issued by the Assistant Appellate
Commissioner in the appeals filed by Narayandas, Onkarmal and Hanumandas cannot
be said to apply to them as there was no HUF and they were not members of a
HUF. The words "any person" in the second proviso to section 34(3)
has been interpreted by this Court in Income-tax Officer v. Murlidhar Bhagwan
Das(1) as any person intimately connected like members of a HUF, partners of a
firm or individuals forming an association of individuals because in such cases
though they are not eo nomine parties they could be deemed to be represented by
the HUF, partnership or association before the relevant Income-tax Authority.
Such is not the case with regard to these individuals because no HUF was before
the concerned Income-tax Authority-indeed there was no HUF- and therefore they
would not be bound by those orders. In the case of individuals who were
actually before the Appel- late Assistant Commissioner and the Tribunal the
orders would bind those three individuals. In their cases, therefore, the
second proviso can be rightly applied.
We have now held that the notices in these
cases should be deemed to have been issued under section 34(1) (b) and the
orders of the Tribunal and Assistant Appellate Commissioner would apply to the
three persons who were so nomine parties before them but not others. The next
question is whether the bar of limitation applies in any of the cases. A good
deal of argument was advanced before us as to whether the second proviso to
section 34(3) could be availed of at any time. It 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 section 31, 33A, 33B, 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
Their cases come directly under the principle
of the decision in Income-tax Officer v. Murlidhar Bhagwan Das (supra). Even if
they are not assessees, they are inti- mately 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 situation.
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 (1)  .52 I.T.R. 335.
397 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 s. 34(3) does not
apply to them.
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 makes a difference ? The first thing to be noticed
is that that provision was given retrospective effect only from 1-4-1952 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.
We will now refer to some of the decisions
which were relied upon. In S. C. Prashar v. Vasantsen Dwarkadas(1) 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 the 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 Income-tax Officer v.
Murlidhar Bhagwan Das (supra) as already
noticed. In this Court out of the 5 Judges who heard the appeal in Prashar v.
'Vasantsen Dwarkadas(2) 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 Rayal, J. took the
contrary view. Sarkar, J. expressed no opinion on the point. In J. P. Jani,
I.T.O. v. Induprasad Devshankar Bhatt(3) 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 1922 Act at, the date when the new
Act came into force.
It was held (1)  29 I.T.R. 857.
(2)  49 I. T. R. (S.C.) 1.
(3)  72 I.T.R. 595.
398 that S. 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 Prashar's case. The
decision of this Court relied upon by the appellant, in Income-tax Officer v.
Devistha Nadar,(1) 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 Nagaraj's case."(2) 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
In the result Civil Appeals Nos. 2264 of
1969, 22-68 of 1969 and 2272 of 1969 are allowed with costs. The other 9
appeals are dismissed with costs.
S.C. Appeals partly allowed.
(1)  68 I.T.R. 252.