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TMI Blog1971 (1) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... her three major sons entered into a partnership and the three minor sons were admitted to the benefits of the partnership. The present assessee was one of the minor sons of Sodradevi who was so admitted to the benefits of the partnership. On behalf of the assessee, voluntary returns of his income from the partnership were filed for all the assessment years through his major brother, Hiralal Daga. Sodradevi, the mother of the assessee, also filed her returns separately showing her own income during those years. In the assessment proceedings against the assessee the Income-tax Officer closed those proceedings recording " nil assessments " on the view taken by him that the income falling to the share of the assessee from the partnership to whose benefits he was admitted and in which partnership his mother, Sodradevi, was one of the partners, was assessable in the hands of his mother Sodradevi, under the provisions of section 16(3)(a)(ii) of the Income-tax Act 1922. In the assessment proceedings of Sodradevi her income together with the income of the assessee from the partnership was clubbed together and Sodradevi was assessed on these two incomes and taxed thereon. Sodradevi then cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revise the assessments accordingly by deleting the share incomes of Seth Sunderlal Daga from these assessments, and assess him separately on his incomes for the years in question. " It was after these orders that the Income-tax Officer initiated action against the assessee by issuing notices against him on October 4, 1960. These notices have been taken to be under section 34(1)(b) of the Income-tax Act, 1922, as appears from the question referred and have to be dealt with on that basis. The Income-tax Officer completed the assessments for all those 4 years under section 23(3) read with section 34(1)(b) on December 12, 1960. The Income-tax Officer assessed the present assessee on separate income which was only from the partnership. The assessment proceedings against the assessee were objected to before the Income-tax Officer on the ground that the initiation of these proceedings was bad and barred by time and the notices were illegal and invalid. The returns were filed under protest raising these objections. These objections were negatived by the Income-tax Officer. In appeal also, the Appellate Assistant Commissioner rejected these conventions and upheld the assessments against th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal's order for this year there is no such fin ling or direction in consequence of which the assessment or reassessment is sought to be made. The learned counsel for the revenue however contends that there is implicit in the order of the Tribunal a finding or direction in consequence of which the notice was issued to the assessee and the assessment was being made. We have reproduced earlier the relevant portion of the Tribunal's order and we are unable to read any such finding or direction in the said order as contended on behalf of the revenue. The only direction that has been given by the Tribunal to the Income-tax Officer is to exclude from the total income of the assessee the share income of the three minor sons of the assessee which was added under section 16(3)(a)(ii) of the Act. There is no further direction that for that share income the present assessee should be assessed or proceedings for making the assessment against the present assessee should be initiated. In order to attract the second proviso to section 34(3) there should be a clear finding or direction on the basis of which action is sought to be taken. The notice under section 34(1)(b) was issued against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... limitation and proceedings could be initiated against the present assessee at any time for assessing his incomes for those years. It was, however, urged on behalf of the assessees that since the second proviso with respect to any person other than the " assessees " is invalid and unconstitutional being violative of article 14 of the Constitution, the bar of limitation is not lifted and the initiation of the proceedings against the assessee for these assessment years would be beyond the period of limitation prescribed by section 34(1)(b) and hence illegal and invalid. If this contention is correct, then the whole proceedings against the present assessee for these three years are bad and illegal and would be required to be quashed. The learned counsel for the revenue, however, contends, in the first place, that the present assessee, namely, Sunderlal Daga, was in the position of an assessee in the assessment proceedings against Sodradevi, his mother ; in the second place, though the present assessee, Sunderlal Daga, was not eo nomine a party to the assessment proceedings against Sodradevi, he must be taken to be a party to that proceeding as he was a member admitted to the benefits o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Income-tax Act lays down the procedure how the income of the firm and the partners thereof should be computed. By virtue of the definition of the word " partner " in section 2(6B), a minor who has been admitted to the benefits of partnership is also termed as a partner for the purposes of the Act. Now, under sub-section (5) of section 23, as it then stood, when the assessee is a firm and its total income has been assessed under sub-section (1), sub-section (3) or sub-section (4), as the case may be, and if it is a registered firm, then the sum payable by the firm itself had not to be determined, but the total income of each partner of the firm including therein his share of its income, profits and gains of the previous year were to be assessed and the sum payable by him on the basis of such assessment had to be determined. We are dealing here with a registered firm. Where in a partnership a minor was admitted to its benefits and that minor's father is also a partner in that firm, then in the total income of the father the minor's share of income in the firm had also to be included. This is provided by section 16(3)(a)(ii) which reads (excluding the unnecessary portion) as under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... underlal Daga was concerned, it was already ordered to be a case of " no assessment ", and the proceedings so far as he was concerned came to an end. In Sodradevi's case there was not any assessee except Sodradevi. It is, therefore, not possible to accept the contention of the learned counsel for the revenue that in the assessment proceedings in which that direction has been given by the Appellate Assistant Commissioner for the three assessment years, the present assessee, Sunderlal Daga, could be said to be an assessee. We are also not inclined to accept the contention of the learned counsel for the revenue that, in proceedings under section 23(5) against a registered firm in which a minor and his mother are partners, grossing up of the two incomes was a proceeding in the assessment of the firm. It was then contended that section 16(3)(a)(ii) must be regarded as a proviso to section 23(5) of the Act. The contention is that in proceedings under section 23(5) where the assessee is a registered firm, the assessment is also against all the partners. That means the assessment against the firm for the computation of its total income and the subsequent assessment of the total income of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of section 16(3)(a)(ii). it is true that section 16 is not pointedly referred to in the question, but its affect has to be considered to consider the applicability of the second proviso to section 34(3) of the Act. As said earlier, the present assessee could not be taken to be an assessee in the proceedings against Sodradevi in which the direction has been given by the income-tax authorities. We have been referred to a few decisions on this question and they are : Maharajadhiraj of Darbhanga v. Commissioner of Income-tax, Commissioner of income-tax v. Mahaliram Ramjidas, Seth Badridas Daga v. Commissioner of Income-tax and Narayana Chetty v. Income-tax Officer, in which the words " assessee " and " assessment " have been considered. " Assessment " is held to be the whole process from the time of issuing of notice under section 22(2) until some order of assessment is made and " at the time of making the assessment " means in the course or process of the assessment. " Assessee " is held to mean primarily a person the amount of whose income is being computed. These decisions, however, do not render assistance in dealing with the question before us. In the proceedings agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment year 1946-47 was not necessary for the decision of the appeal before him under section 31 of the Act and the Appellate Assistant Commissioner could not have given a finding with respect to the assessment year 1946-47 and such a finding, if given, did not save the limitation. The Allahabad High Court also considered what the expression " any person " in the second proviso to section 34(3) meant, though it was not strictly necessary for the decision of the case before it and, in dealing with that question, the learned judges of the Allababad High Court observed that it would cover a person who, though not strictly a party, has sufficient opportunity of being represented in the proceedings through the actual party. The learned judges envisaged three types of cases in which persons other than the actual assessee could be covered within the expression " any person ". Those cases are : (1) a firm and its partners, (2) a company and its shareholders, and (3) a Hindu undivided family and its members. In the case of a firm if the registration of the firm is cancelled or registration of the firm is refused, then the Appellate Assistant Commissioner may allow the appeal and direct regi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly as they would be included in the expression " any person ". The Allahabad High Court took the view that the class of persons covered by the expression " any person " would not be a class who might be accidentally affected by a finding or decision recorded by an Appellate Assistant Commissioner of Income-tax. The class of persons covered by the expression " any person " would be persons belonging to those sections who, under the Income-tax Act, are intimately connected with and interested in the proceedings taken against the assessee and whose assessments under the Act are affected by the orders passed in those proceedings. In other words, the persons who are affected by the finding or a direction in the order of the Appellate Assistant Commissioner or the Tribunal are only such persons who are not only intimately connected with the assessee, but who are, according to the provisions of the Act, in the matter of their assessment, affected by the orders passed in the proceedings for the assessment of the assessee. In the Supreme Court decisions referred to above, namely, cases of Vasantsen Dwarkadas and Sardar Lakhmir Singh, the validity of the second proviso to section 34(3) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 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 than the appealing assessee who can be liable to be assessed for the income of the said assessment year. A combined reading of section 30(1) and section 31(3) of the Act indicates the cases where persons other than the appealing assessees might be affected by orders passed by the Appellate Commissioner. Modification or setting aside of assessment made on a firm, joint Hindu family, association of persons, for a particular year may affect the assessment for the said year on a partner or partners of the firm, member or members of the Hindu undivided family or the individual, as the case may be. In such cases though the latter are not eo nomine parties to the appeal, their assessments depend upon the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded family of which the assessee was a member for the same assessment year, the Income-tax Officer found that the assessee was a nominee of the Hindu undivided family in the said firm and, therefore, included the share of the profits of the assessee in the said firm in the total income of the Hindu undivided family. On appeal by the family to the Tribunal, the Tribunal held that there was not sufficient evidence to show that the assessee was a nominee of the Hindu undivided family in the firm and directed that the share of profits of the assessee should be deleted from assessment of the Hindu undivided family. Thereafter the Income-tax Officer issued a notice to the assessee under section 34 of the Income-tax Act for including in the assessee's assessment as an individual his share of profits in the firm and revised the assessment on that basis. It was held in that case that the second proviso to section 34(3) was ultra vires the Constitution as it contravened article 14 so far as it affected persons who were not parties to the appeal or revision or other proceeding in which the direction or finding contemplated by section 34(3) was made. It was further held that the assessee, thou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arta of the family it was claimed that a partition had taken place and an order under section 25A of the Income-tax Act was requested. Each of the coparceners also filed his individual return. The claim of the Hindu undivided family to record partition was rejected by the Income-tax Officer. The Tribunal and, on further remand, the Appellate Assistant Commissioner, held that there was a partial partition in respect of the bus service only and directed the Income-tax Officer to consider the same in the individual assessment of the coparceners in respect of the buses plied by each. In these circumstances, it was held that the assessees could not be regarded as strangers to the proceedings of the karta of the Hindu undivided family in which direction was given to assess the coparceners, and, therefore, the second proviso to section 34(3) was attracted. Next, we come to a group of cases in which the assessee was initially a Hindu undivided family in which there was a partition and the divided members thereof constituted a firm. The members of the firm which was being assessed claimed a partition and subsequent partnership, but the claim was rejected by the Income-tax Officer. In appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the decree of the trial court. The assessee, Deviprasad, had filed three returns in three different capacities for one year and for another year submitted a return in yet another capacity. The Income-tax Officer assessed the Ambala Flour Mills in the status of an association of persons. Deviprasad filed appeals and it was observed that he was competent to maintain the appeals filed by him to the Tribunal because by the order of the Appellate Assistant Commissioner it was directed that he may be personally assessed by the Income-tax Officer in respect of the income of the Ambala Flour Mills. The Appellate Assistant Commissioner, upon a view that the income belonged to Deviprasad and he was liable to be assessed personally in respect of the income, gave directions with regard to the assessment of the income. The question arose whether the second proviso to section 34(3) was attracted. It was held that, since Deviprasad had filed the returns and Deviprasad appealed against the order of assessment, he could not, in the circumstances, be called a stranger to the assessment. It was further observed that the income of the assessee was assessed to tax as the income of an association of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment of Sodradevi's total income neither the firm nor the present assessee was an assessee. The assessment of the present assessee did not also depend upon the assessment of his mother, Sodradevi, in the sense in which it has to be understood. In fact, under the law, the income of the present assessee from the partnership had not to be included in the total income of his mother. The present assessee was not and cannot be said to be a party to the proceeding against Sodradevi, nor was he represented in the assessment proceedings against Sodradevi. In no sense, therefore, the present assessee, Sunderlal, can be regarded as a party to the proceedings of Sodradevi. There is in fact no nexus between the assessment against Sodradevi and the present assessee. The present assessee could not have been heard in the assessment against Sodradevi. Under these circumstances, the present assessee, Sunderlal, cannot even be called a person intimately connected with the assessment against Sodradevi in which a direction has been given by the Appellate Assistant Commissioner. He is, therefore, a total stranger to the proceedings against Sodradevi and, as such, the bar of limitation cannot be lifted ..... X X X X Extracts X X X X X X X X Extracts X X X X
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