C.I.T., Andhra Pradesh Vs. M/S. Vadde
Pallaiah & Co [1973] INSC 42 (8 March 1973)
HEGDE, K.S.
HEGDE, K.S.
REDDY, P. JAGANMOHAN KHANNA, HANS RAJ
CITATION: 1973 AIR 2434 1973 SCR (3) 655 1973
SCC (4) 121
CITATOR INFO :
RF 1979 SC1933 (15) R 1984 SC 993 (22)
ACT:
Income-tax Act (11 of 1922) s. 34(3), Second
Proviso-Scope of.
HEADNOTE:
Upto the assessment year 1953-54 a business
was being carried on by P as an individual. in March 1953, he entered into a
partnership consisting of himself and others. For the assessment years 1954-55,
1955-56 and 1956-57 the firm filed returns of income and applied for
registration under s. 26A of the Income-tax Act. 1922. The income-tax officer
rejected' the application holding that there was no genuine firm. He
accordingly assessed P as an individual in respect of the income earned in that
business. As against that order the firm as well as P appealed to the Appellate
Assistant Commissioner who allowed both the appeals. The Appellate Assistant
Commissioner held that the business was that of the firm and' not of P. When
the income-tax Officer proceeded to assess the firm for the assessment years
195455, 1955-56 and 1956-57, the firm resisted it taking the plea that the
proceedings were barred by limitation under s 34(3) of the Act. On the question
whether the assessment for each of the assessment years was valid the High
Court, on reference, held that the assessments were barred by time and were not
saved by the second' proviso to s. 34(3) of the Act.
Allowing the appeals to this Court.
HELD : Under the proviso the limitation of
time would not apply to an assessment or re-assessment made on the assessee or
any person in consequence of or to give effect to any finding or direction
contained in an order under s. 31, 33, 33A and 33B, 66 or 66A. A finding which
can be considered as relevant under the proviso must be one which was necessary
for deciding the appeal before the authority; and the expression ,any person'
refers to one who would be liable to be assessed for the whole or part of the
income that went into the assessment of the year under appeal or revision. The
person should be intimately connected with the proceedings in which the finding
was given. [658 CD; 660 A-B, E-F] In the present case, the order of the
Appellate Assistant Commissioner was made under s. 31. Though he had not given
any direction, the order made by the Income-tax Officer was in consequence of
the finding given by the Appellate Assistant Commissioner. The finding given by
the Appellate Assistant Commissioner that the business was that of the firm was
absolutely necessary for deciding both the appeals before him. P, who was the
dominant partner of the firm was not only interested in his own assessment but
was also interested, in the assessment of the firm. The partners and the firm
were intimately connected with him and hence, they are 'persons' coming within
the scope of the proviso.
[658 E-F; 660 C, F-G] Income-tax Officer,
A-Ward, Sitapur v. Murlidhar Bhagwan Das, 52 I.T.R. 335; 344, N.M. Sivalingam
Chettiar v.Commissioner of Income tax, Madras, 66 I.T.R. 586 and Daffadar
Bhagat Singh and Sons v. Income tax Officer, A-Ward Ferozepore, 71 I.T.R. 417,
followed.
CIVIL APPELLATE JURISDICTION Civil Appeals
Nos.1682 to 1684 of 1970.
656 Appeals by special leave from the
judgment and order dated October 3, 1969 of the Andhra Pradesh High Court in
R.C. No. 4 of 1966.
S. T. Desai, B. D. Sharma, S. P. Nayar, and
R. N. Sachthey, ,for the, appellant.
N. D. Karkhanis, and K. Rajendra Chowdhary,
for the respondent.
The Judgment of the Court was delivered by
HEGDE, J.These are appeals by Special Leave. They arise from a common judgment
of the Andhra Pradesh High Court in a reference under section 66(i) of the
Indian Income Tax Act, 1922, to be hereinafter referred to as the "Act".
The reference in question relates to the assessment of the assessee for the
assessment years 1954-55, 1955-56 and 1956
57. The question of law referred by the
Tribunal is "Whether on the facts and the circumstances of the case, the
assessment made on the firms, for each of the assessment years 1954-55, 1955-56
and 1956-57, are valid in law ?" Now we shall set out the material facts
as could be gathered 'from the case stated by the Tribunal. Up to and including
the assessment year 1953-54 business with which we are concerned in this case,
was carried on by Vadde Pallaiah.
He was assessed as an 'individual'. On March
20-3-1953 he entered into a partnership consisting of himself and three others.
That partnership was known as "M/s. Vadde Pulliah & Co." In that
partnership Pulliah had 8 as. share and out of the remaining three partners two
had 3 as. share each and o ne had 2 as. share. For the assessment years
1954-55, 1955-56 and 1956-57, this firm filed returns of income as a firm. It
also applied for registration under section 26A.
The Income-tax Officer rejected that
application holding that there was no genuine firm. He came to the conclusion
that the business was exclusive that of Pulliah. He accordingly assessed
Pulliah as an 'individual' in respect of the income earned in that business. As
against that order both the firm as well as Pulliah went up in appeal to the
Appellate Assistant Commissioner. Before the Appellate Assistant Commissioner,
the question for consideration was whether the firm in question was a genuine
firm. If the firm was a genuine firm, it necessarily followed that Pulliah was
wrongly assessed. If, on the other hand, the 'firm was not a genuine firm,
Pulliah was rightly assessed.
Therefore, the sole question that arose for
decision in the appeals filed by the firm as well as Pulliah was as to the
genuineness of the firm in question. The Appellate Assistant Commissioner after
examining the material before him came to the conclusion that the firm in
question was a genuine firm. Consequently, he allowed the 657 appeal of the
firm as well as that of Pulliah. In the firm's appeals, he directed the
Income-tax Officer to register, that firm and in Pulliah's appeal he set aside
the assessment made on him. In the operative portion of his order he stated
thus "The Income-tax Officer is directed to adopt the, correct, share of
income of the appellant from this firm." But in the body of his order he
specifically held that the business. in question was carried on by the firm and
not by Pulliah.
After this order was made, the Income-tax
Officer proceeded to assess the firm in respect of the income earned by that
firm during the assessment years 1954-55, 1955-56 and 195657 When the
Income-tax Officer initiated proceedings against the firm for the purpose of
assessment, the firm resisted the same taking the plea that the proceedings in
question is barred by limitation under section 34(3) of the Act. He rejected
that contention. Aggrieved by that order the firm went up in appeal to the
Appellate, Assistant Commissioner.
The Appellate Assistant Commissioner upheld
the contention of the, assessee and set 'aside the order of' the Income-tax
Officer. As against that order the Income tax Officer went up in appeal to the
Income-Tax Appellate Tribunal. The Tribunal partly accepted the appeal of the
Income-tax Officer.. It came to the conclusion that the assessment in respect
of assessment years 1955-56 and 1956-57 are not barred in view of the Second
Proviso to section 34(3) of the Act. But it opined that the assessment in
respect of the assessment year 1954-55 was barred by limitation.
Aggrieved by the decision of the Tribunal
both the Commissioner of Income-tax as well as the assessee moved the Tribunal
under section 66(i) of the Act to refer certain questions of law to the High
Court of Andhra Pradesh. The Tribunal submitted' the question set out earlier
to the High Court.' The High court has answered that question in favour of the
assessee. It came to the conclusion that the impugned assessments were barred
by time and they are not saved by the Second Proviso to sub-section(3) of
section 34 of the Act. Tit is as against that decision these appeals have been
brought by the Commissioner of Income-tax.
In order to decide the controversy before us
it is necessary to refer to the material portions of section 34. That section
deals with income escaping assessment. We are now concerned with sub-section
(3) of section 34 and the Second Proviso there to Sub-section (3) of section 34
reads :
"No order of assessment or reassessment,
other than an order of assessment tinder section 23 to which 'clause(c) of
sub-section (1) of section 28 applies or an order658 of assessment or
reassessment in cases falling within clause (a) of sub-section (1) or
sub-section (1A) of this section shall be made after the expiry of four years
from the end of the year in which the' income, profits or gains were first
assessable." The First Proviso is not relevant for our present purposes.
Hence we shall proceed to quote the Second
Proviso to subsection (3) of section 34. That Proviso gays "Provided
further that nothing contained in this section limiting the time within, which
any action may be taken or any order, assessment or re-assessment may be made,
shall apply to a re-assessment made under section 27 or to an assessment or
re-assessment made on the assessee or any person in consequence of or to give
effect to any finding or direction contained in an order under section 31,
section 33, section 33A, section 33B, section 66 or section 66A." The
question before us is whether the assessee's case is covered by the Second
Proviso to section 34(3) ? Before a case can be said to be covered by the said
Proviso certain requirements will have to be fulfilled. The first and foremost
requirement is that the order made must be one either under section 31 or
section 33 ,or section 33A or section 33B or section 66 or section 66A. In the
present case, admittedly, the order in question was made under section 31. The
present case does not fall within the scope of section 27 about which there is
no dispute.
The next requirement is that the order made
by the IncomeTax Officer must be to give effect to any finding or direction
given by the Appellate Authority. In this case, the Appellate Assistant
Commissioner had not given 'any direction to assess the assessee. Therefore,
all that we have to see is whether the order made by the Income tax Officer was
in consequence of a finding given by the Appellate Assistant Commissioner. The
further ,question that we have got to decide is whether the assessee can be
considered as one of the persons coming within the scope of the proviso in
question. There has been considerable controversy as to the meaning of the word
'finding' in the Second Proviso to section 34(3). This question came up before
this Court for consideration in Income-Tax Officer, A-Ward, Sitapur v.
Murlidhar Phagwan Das.(1) This is what this Court observed in that case
"The expression "finding or direction", the argument proceeds,
is wide enough to take in at any rate a finding that is necessary to dispose of
the appeal or direction which Appellate Assistant Commissioners have in (1) 52
I.T.R. 335 ; 344.
659 practice been issuing in respect of
'assessments of the years other than those before them in appeal. What does the
expression "finding" in proviso to sub-section (3) of section 34 of
the Act mean ? "Finding" has not been defined in the Income-tax Act.
Order XX, rule 5, of the Code of Civil
Procedure reads :
"In suits in which issues have been
framed, the court shall state its finding or decision, with the reasons
therefor, upon each separate issue, unless the finding upon any one or more of
the issues is sufficient for the decision of the suit." Under this Order,
a "finding" is, therefore, a decision on an issue framed in a suit.
The second part of the rule shows that such a finding shall be one which by its
own force or in combination with findings on other issues should lead to the
decision of the suit1 itself. That is to say, the finding shall be one which is
necessary for the disposal of the suit. The scope of the meaning of expression
"finding" is considered by a Division Bench of the Allahabad High
Court in Pt. Hazari Lal V. Income-Tax Officer, Kanpur,(',). There the learned
judges pointed out 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." We agree with
this contention of finding." The same view was taken by this Court in N.KT.
Sivalingam Chettiar v. Commissioner of Income-tax, Madras (2) .
.LM15 Therein this Court ruled that a finding
or direction by an appellate authority in an order relating to the assessment
of one year does not warrant the avoidance of the bar of limitation under section
34 of the Indian Incometax Act, 1922, against initiation of proceedings for
assessment for another year. A finding within the second proviso to section
34(3), must be a finding for giving relief in respect of the assessment for the
year in question. A finding may only be that which was necessary for the disposal
of an appeal in respect of an assessment of a particular year.
(1) 39 I.T.R. 265. (2) 66 I.T.R. 586.
660 The law on question was elaborately
examined by this Court again in Daffadar Bhagat Singh and Sow v. Income,-tax
Officer, A Ward Ferozepure(1). Therein this Court reiterated that a finding
which can be considered as relevant under the second proviso to section 34(3)
must be one which was necessary for deciding the appeal before the authority.
Having set out the law let us examine whether the finding given in this case is
one that was necessary for the decision of the case before the Appellate
Assistant Cornmissioner. As mentioned earlier the question that the Appellate
Assistant Commissioner had to decide in the two appeals is before him, which he
heard together, was whether the business in question was the business of the
firm or that of Pulliah. He had only two alternatives before him.
In order to decide the appeal of the firm as
well as that of Pulliah, he had to decide whether the business was that of the
firm or that of Pulliah. He came to the conclusion that the business was that
of the firm and not of Pulliah. There is no room for doubt that the finding
given by the Appellate Assistant Commissioner was absolutely necessary for
deciding both the appeals before him.
This takes us to the other branch of the
second proviso to section 34(3), namely, whether the firm can be considered as
coming within the expression 'any person' in the proviso in question. In
Murlidhar Bhagwan Das (Supra), this Court came to the conclusion that the
expression 'any person' in the second proviso to section 34(3) referred to 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. Further, that
person should be intimately connected with the proceedings in which the finding
was given. The same view was taken in other cases refierred to earlier. In the
instant case Pulliah was the dominant partner of the firm as found by the
Tribunal. He had 8 as.
share in ;the firm. He, was the original
owner of the firm.
He was not only interested in his own
assessment, he was also interested in the assessment of the firm. The partner
of Pulliah were ,intimately connected with him. Hence we were clearly of the
opinion that they are "persons" coming within the scope of the second
proviso to section 34(3). It may be noted that the Appellate Assistant
Commissioner had to deal with--the cases of Pulliah as well as that of the
firm.
In our opinion the High Court erred in coming
to the conclusion that the finding given by the Appellate Assistant
Commissioner, in the appeals filed by Pulliah as well as by the firm, that the
business was carried on by the firm was not a necessary .finding for deciding
the appeals before him. That finding was (1) 71 I.T.R, 417.
661 clearly necessary. But for that finding
he could not have decided the appeals before him in the way he decided. The
High Court was also wrong in its conclusion that the firm was a stranger to the
assessment made on Pulliah. The firm was intimately connected with Pulliah and
the assessment made on him.
For the reasons mentioned above we set aside
the order of the High Court. We vacate the answer given by the High Court and
answer the question referred to in the affirmative and in favour of the
Revenue. The appellant will get his costs from the Respondent. One hearing fee.
V.P.S. Appeal allowed.
Back
