1970 (3) TMI 31 - HC - Income Tax

Assessee, trust was originally a member of the joint Hindu family - family disrupted on the 10th of April, 1953. The assets of the family were partitioned- income of the trust was included in the individual assessment of the trustee - trust was not assessed and was not a party to the proceedings before HC - so it cannot said to be covered by the words any person in the second proviso to s. 34(3) - so, assessment u/s 34(1)(b) on the trust was time-barred

Summary

Issues Involved:
1. Whether the assessment made under section 34(1)(b) for the assessment year 1954-55 was barred by time.
2. Whether the assessment was saved by the second proviso to section 34(3) of the Income-tax Act, 1922.
3. The applicability and constitutionality of section 34(1)(b) and the second proviso to section 34(3).
4. The interpretation of the term "any person" in the second proviso to section 34(3).
5. The relevance and impact of the findings and directions in previous judicial orders on the current assessment.

Detailed Analysis:

1. Whether the assessment made under section 34(1)(b) for the assessment year 1954-55 was barred by time:
The assessment was initiated by a notice issued on September 19, 1961, under section 34(1)(b) of the Indian Income-tax Act, 1922. The trust contended that the assessment was barred by limitation as per section 34(3). The Tribunal agreed, holding that the assessment was time-barred as the notice was issued beyond the four-year period prescribed by section 34(3).

2. Whether the assessment was saved by the second proviso to section 34(3) of the Income-tax Act, 1922:
The department argued that the second proviso to section 34(3) extended the time limit for reassessment because the assessment was a consequence of the judgment in S. Raghbir Singh's case. The Tribunal, however, found that the second proviso did not apply. The Tribunal's reasoning was based on the Supreme Court's decision in S. C. Prashar's case, which held that the second proviso did not save the time limit for reassessment in cases involving persons other than the original assessee.

3. The applicability and constitutionality of section 34(1)(b) and the second proviso to section 34(3):
The Tribunal concluded that section 34(1)(b) was not ultra vires the Constitution. However, it found that the second proviso to section 34(3) did not apply to the trust, as the trust was a separate legal entity from S. Raghbir Singh, the original assessee. The Tribunal emphasized that the trust did not fall within the meaning of "any person" in the second proviso to section 34(3), as interpreted by the Supreme Court in S. C. Prashar's case.

4. The interpretation of the term "any person" in the second proviso to section 34(3):
The department contended that the trust fell within the meaning of "any person" in the second proviso to section 34(3). The Tribunal disagreed, citing the Supreme Court's decision in Murlidhar Bhagwan Das's case, which required an intimate connection between the assessee and the person whose income had escaped assessment. The Tribunal found that the trust and S. Raghbir Singh were separate entities, and thus, the trust could not be considered "any person" under the second proviso.

5. The relevance and impact of the findings and directions in previous judicial orders on the current assessment:
The Tribunal examined whether the finding in S. Raghbir Singh's case, which stated that the income from the 300 shares was the income of the trust, constituted a "finding" within the meaning of the second proviso to section 34(3). The Tribunal concluded that this finding was incidental and not necessary for the disposal of the appeal in S. Raghbir Singh's case. Therefore, it did not satisfy the requirements of the second proviso to section 34(3).

Separate Judgments:

Judgment by Mahajan J.:
Mahajan J. agreed with the Tribunal's findings, holding that the assessment was barred by time and not saved by the second proviso to section 34(3). He emphasized that the trust was a separate legal entity and that the finding in S. Raghbir Singh's case was incidental and not necessary for the decision.

Judgment by Sandhawalia J.:
Sandhawalia J. disagreed with Mahajan J. and the Tribunal. He held that the finding in S. Raghbir Singh's case was necessary for the decision and fell within the meaning of "finding" under the second proviso to section 34(3). He also found that the trust and S. Raghbir Singh were intimately connected, thus bringing the trust within the meaning of "any person" under the second proviso.

Judgment by Harbans Singh C.J.:
Harbans Singh C.J. sided with Mahajan J., concluding that the assessment was barred by time and not saved by the second proviso to section 34(3). He reiterated that the trust was a separate entity and that the finding in S. Raghbir Singh's case was incidental. He also noted the Supreme Court's decision in S. C. Prashar's case, which held that the second proviso was unconstitutional as it applied to persons other than the original assessee.