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TMI Blog1968 (8) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis of the returns filed by Mohd. Shakoor and Mohd. Bashir. This continued year after year. In appeals for the assessment years 1945-46 to 1956-57 the Appellate Assistant Commissioner held that for those assessment years there was no such association of persons as contemplated by the Income-tax Officer and on October 31, 1957, he made an order setting aside the assessment made on the association of persons, Allah Bux and Zahur Bux, and directed the Income-tax Officer " to assess the income from the various sources in the hands of the respective persons to whom they arose bearing in mind the provisions of the second proviso to sub-section (3) of section 34 of the Indian Income-tax Act." Pursuant to that direction, the Income-tax Officer initiated proceedings under section 34(1)(a) on December 3, 1958, for the purpose of assessing the income of the Mauranipur business in the hands of Mohd. Shakoor and Mohd. Bashir for the assessment years 1945-46 to 1953-54. Simultaneously, the Income-tax Officer appealed to the Income-tax Appellate Tribunal against the finding of the Appellate Assistant Commissioner that the assessee was not an association of persons. Those appeals were dismi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Allah Bux, could give a direction under section 34(3) to take action against the assessee? 3. Whether the second proviso to section 34(3), which came into force on April 1, 1952, could be invoked in the case of the assessments for the years 1945-46 to 1951-52 ? 4. If the answer to question No. 3 is in the negative, whether, on the facts and in the circumstances of this case, and on a true interpretation of the relevant terms of sections 31 and 34 as they stood at the material time, the assessments for the years 1945-46 to 1951-52 were valid?" Mohd. Shakoor and Mohd. Bashir submitted their income-tax returns declaring the income from the Mauranipur business. The Income-tax Officer was of the view that the business belonged to an association of persons, Allah Bux and Zahur Bux. He did not assess Mohd. Shakoor and Mohd. Bashir on the basis of the returns submitted by them, but " filed " these returns. He assessed the income in the hands of an association of persons. Upon appeal, the Appellate Assistant Commissioner took the view that no such association of persons was in existence during the relevant assessment year. He found that the business had been gifted by Zahur Bux, to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the item in the assessee's total income. He may also erroneously decline to act upon the return filed by the assessee in the view that the entire income disclosed in the return is liable to tax in the hands of another. The return filed by the assessee remains undisposed of and the Income-tax Officer is precluded by the bar of limitation from making the assessment on the basis of that return. In every case, whenever the Income-tax Officer seeks to invoke the jurisdiction under section 34(1), he must ask himself the question whether it is open to him to bring the income to assessment by exercising his powers under section 23. If he cannot, either because the assessment order under section 23 has been made and is, therefore, final, so far as he is concerned or, although no assessment order has been made, he is precluded from making an assessment because of the bar of limitation, income which was liable to assessment must be said to have escaped assessment. The original jurisdiction of the Income-tax Officer, if that might be an apt description of the Income-tax Officer's powers under sections 22 and 23, is subject to the bar of limitation prescribed under section 34(3). By reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntities so as to attract the second proviso of section 34(3). By virtue of the second proviso to section 34(3), notwithstanding that the period of limitation for taking any action or making an assessment has expired, the Income-tax Officer may take assessment proceedings against any person in consequence of or to give effect to any finding or direction contained in an order under sections 31, 33, 33A, 33B, 66 and 66A. The expression "any person" has been considered by the Supreme Court in Income-tax Officer, A- Ward, Sitapur v. Murlidhar Bhagwan Das where it pointed out : " The expression ' any person ' in its widest connotation may take in any person, whether connected or not with the assessee, whose, income for any year has escaped assessment; but this construction cannot be accepted, for the said expression is necessarily circumscribed by the scope of the subject-matter of the appeal or revision, as the case may be. That is to say, that person must be 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. If so construed, we must turn to section 31 to ascertain who is that person other th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Appellate Assistant Commissioner, on appeal, found that the credits did not constitute the income of the firm, but of the individual partner. He set aside the assessment of the firm with a direction to the Income-tax Officer to take action against the partners under the second proviso to section 34(3). This court held that the Appellate Assistant Commissioner had no jurisdiction to give such a direction and the second proviso to section 34(3) could not be invoked. In this view of the law, it is apparent that the assessee before us cannot be said to be connected with the association of persons, Allah Bux and Zahur Bux, in the sense in which that expression has been used by the Supreme Court in Murlidhar Bhagwan Das. That being so, the Income-tax Officer is not entitled to the benefit of the second proviso to section 34(3) and the notices under section 34(1) reopening the assessments must be held to be barred by limitation. The second question is answered in the negative. In the circumstances, we consider it unnecessary to express our opinion on the third and fourth questions. We accordingly answer the questions referred to this court as follows : Question No. 1: Affirmative. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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