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TMI Blog2023 (3) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... erson who is intimately connected or interlinked or has a nexus to the parties in PRO Lab s case and not to anyone else, much less, the petitioner herein, who was neither a party to PRO Lab s case nor had any connection / link / nexus with the parties to the said case; to put it differently, in order to apply the judgment of the Apex Court in PRO Lab s case, which would enable the respondents to initiate the impugned re-assessment proceedings, pursuant thereto, it is absolutely essential that the petitioner herein has to be any person within the meaning of the proviso to Section 12-A(2); it follows there from that if the petitioner cannot be construed, considered or treated as any person in terms of the said proviso, the same would be inapplicable to the petitioner and the benefit of exclusion of the period of 8 years prescribed in Section 12-A(1) would not be available to the petitioner. In ITO, Sitapur vs. M/s.Muralidhar Bhagwan Das case [[ 1964 (1) TMI 5 - SUPREME COURT] ], the Apex Court held that the said proviso would not save the time limit prescribed under sub-section (1) of Section 34 of the Act in respect of an escaped assessment of a year other than that which is the sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioner from levy of sales tax. 2.1 Meanwhile, Entry No.25 was reintroduced vide Karnataka Act No. 3 of 2004 w.e.f. 29.01.2004 with retrospective effect. The said reintroduction of Entry No.25 was once again challenged before this Court and struck down vide judgment dated 19.08.2005 in the case of M/s. PRO Lab, Mangalore & others vs. State of Karnataka - 2005 (59) Kar.L.J.410. The State preferred Civil Appeal 1145/2006 before the Apex Court in which, an interim order dated 19.11.2007 was passed, whereby the revenue authorities were permitted to proceed with the assessment in terms of Entry No.25 but restrained from taking coercive steps against the respondents - assessees in the said appeals. In this context, it is relevant to state that the petitioner - assessee herein was not a party to the said proceedings. 2.2 By final judgment dated 30.01.2015 in the case of State of Karnataka vs. PRO Lab & others - (2015) 81 Kar.L.J. 377, the Apex Court allowed the appeals filed by the State and set aside the judgment of the Division Bench of this Court, thereby reversing the judgment of the Division Bench of this Court and restoring the aforesaid Entry No.25 to Sixth Schedule of the KST ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h - AIR 1963 SC 1394 (FB); (vi) CIT, Patiala vs. Ambala Flour Mills - AIR 1972 SC 82 (SC); (vii) CIT, UP vs. Mohd. Shakoor Bashir - AIR 1973 SC 2359 (SC); (viii) Rajinder Nath vs. CIT - AIR 1979 SC 1933; (ix) M. CT.Muthuraman vs. ITO Madras - (1968) 69 ITR 432 (Mad.HC); (x) DCIT vs. Simplex Concrete Piles (India) Ltd., - (2013) 11 SCC 373; (xi) Gauri Shankar Choudhary vs. Addl.Commissioner of IT - (1998) 234 ITR 856 (Pat.); (xii) Krishak Bharati Co-operative Limited vs. State of Gujarat - C/SCA/3708/2012 dated 10.01.2023 (Gujarat HC); (xiii) Neelam Motors vs. DCST - W.P.No.14486/2021 & others dated 26.08.2021 (Orissa HC); (xiv) Sky Automobiles vs. DCCT - WP (C) No.2225 / 2017 dated 01.10.2021 (Orissa HC); (xv) K.M.Sharma vs. ITO - (2002) 254 ITR 772 (SC); (xvi) Speces Hotels Pvt. Ltd., vs. DCIT - (2003) 263 ITR 263; (xvii) National Agricultural Co-operative Marketing Federation of India Ltd., vs. Union of India - (2003) 260 ITR 548; 5. Per contra, learned AGA for the respondents, in addition reiterating the various contentions urged in the statement of objections, would support of the impugned order and submits that there is no merit in the pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty may, notwithstanding the fact that the whole or part of such escaped turnover was already before the said authority at the time of the original assessment or reassessment but subject to the provisions of sub-section (2), at any time within a period of eight years from the expiry of the year to which the tax relates, proceed to assess or re-assess to the best of its judgment the tax payable by the dealer in respect of such turnover after issuing a notice to the dealer and after making such enquiry as it may consider necessary. (2) In computing the period of limitation for assessment of the escaped turnover under this section, the time during which an assessment has been deferred on account of any stay order granted by any Court or other authority in any case, or by reason of the fact that an appeal or other proceeding is pending before the Appellate Tribunal or the High Court or the Supreme Court, shall be excluded: Provided 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 an assessment or re-assessment made on the assessee or any person in consequence of, or t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issioner. This contention is obviously untenable. The Appellate Assistant Commissioner or the Appellate Tribunal may set aside the notice itself for one reason or other and in that event the Income Tax Officer may have to initiate the proceedings once again in which case Section 34(1) will be attracted. 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 practice been issuing in respect of assessments of the years other than those before them in appeal. What does the expression "finding" in the proviso to sub-section (3) of Section 34 of the Act mean? "Finding" has not been defined in the Income Tax Act. Order 20 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 tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ference lies in the application of that definition to the finding given in the present case. A "finding", therefore, can be only that which is necessary for the disposal of an appeal in respect of an assessment of a particular year. The Appellate Assistant Commissioner may hold, on the evidence, that the income shown by the assessee is not the income for the relevant year and thereby exclude that income from the assessment of the year under appeal. The finding in that context is that that income does not belong to the relevant year. He may incidentally find that the income belongs to another year, but that is not a finding necessary for the disposal of an appeal in respect of the year of assessment in question. The expression "direction" cannot be construed in vacuum, but must be collated to the directions which the Appellate Assistant Commissioner can give under Section 31. Under that section he can give directions, inter alia, under Section 31(3)(b), (c) or (e) or Section 31(4). The expression "direction" in the proviso could only refer to the directions which the Appellate Assistant Commissioner or other Tribunals can issue under the powers conferred on him or them under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esaid sense with the assessments of the year under appeal. 11. We shall now briefly touch upon the conflict of decisions on the question. The Full Bench of the Allahabad High Court in Lakshman Prakash case overruled the decision of the Division Bench in Pt. Hazari Lal case . A Division Bench of the Madras High Court, consisting of Rajagopalan and Balakrishna Ayyar, JJ., in Simrathmull v. Additional Income Tax Officers, Ootacamund, took the same view as the Full Bench of the Allahabad High Court in Lakshman Prakash case . But a Division Bench of the Calcutta High Court, consisting of Bose, C.J., and Mookerjee, J., in Brindaban Chandra Basak v. Income Tax Officer though it had not finally expressed any opinion that, was inclined to accept the view expressed by the Division Bench of the Allahabad High Court in Pt. Hazari Lal case. We have gone through the decision carefully, for the reasons given by us, we agree with the view expressed by the Division Bench of the Allahabad High Court in Pt. Hazari Lal case on the interpretation of the proviso to sub-section(3) of Section 34 of the Act. 12. In the result, we hold that the said proviso would not save the time limit prescribed und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agwan Das, [1964] 52 ITR 335 (SC), was accepted and applied. In Murlidhar's case, [1964] 52 ITR 335 (SC), the words "assessee or any other person" were interpreted to mean a person who would be liable to be assessed for a whole or part of the income under appeal or revision. 5. In the case of S. Zoraster & Company (Supplies) Pvt. Ltd. v. State of Rajasthan, [1995] 99 STC 281, the High Court of Rajasthan held that the extended time for reassessment to give effect to an order of competent court, would mean an order passed under the sales tax law and not under any other Act. 6. In S.C. Prashar v. Vasantsen Dwarkadas, [1963] 49 ITR 1 (SC), Godbole (P.V.), Income-tax Officer v. Jagannath Fakirchand, [1963] 49 ITR 88 (SC) and Commissioner of Income-tax v. Sardar Lakhmir Singh, [1963] 49 ITR 70, it was observed that the second proviso to section 34(3) of the Income-tax Act relating to any person other than the assessee is a stranger and has nothing to do with the assessment proceedings in which a finding or direction is given is ultra vires article 14 of the Constitution. 7. In Daffadar Bhagat Singh and Sons v. Income-tax Officer, [1969] 71 ITR 417 (SC), the view taken in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt or by the High Court of that very State, the judgment being binding could be a ground for reopening the assessment or making the assessment of escaped turnover. But if the judgment itself has been given, in some other case unconnected with the assessee, then it cannot be interpreted with the word "any person" referred under the proviso to section 12-A(2) should even extend the limitation of eight years as prescribed under section 12-A(1). It is stated that the appeal against the order passed under section 25-A are pending. Under the proviso to section 12(B) (sic), the time limit prescribed under section 12(1) or 12(2) is not applicable for an action to be taken or order assessment or reassessment to be made. The assessment has to be made of the assessee or any person; such assessment could be in consequence of or to give effect to any finding, direction or order as mentioned in the proviso. 15. Learned counsel for the respondent has relied on the decision given in the case of N.A. Jailabdeen v. State of Kerala, [1999] 113 STC 100 (Ker), wherein it was held that initiation of reassessment proceedings applying the decision given in another case by the Supreme Court is justifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 34(3) was examined by a Constitution Bench of this Court in the case of S.C. Prashar v. Vasantsen Dwarkadas [(1963) 49 ITR 1 : AIR 1963 SC 1356]. This Court, examining the second proviso to sub-section (3) of Section 34 which came into effect from 1-4-1952, said that it patently introduced an unequal treatment in respect of some out of the same class of persons. Those whose liability to pay tax was discovered by one method would be proceeded against at any time and no limitation would apply in their case and in the case of others the limitation laid down by sub-section (1) of Section 34 would apply. Referring to the distinction made by the High Court in that case on a somewhat narrower ground, this Court observed that so far as the assessees were concerned, there might be a rational ground of distinction because appeal, proceedings etc. might take a long time and the assessee being a party to the appeal could not complain of such delay. Therefore, an assessee did not occupy the same position as strangers. This Court, therefore, held that the proviso, insofar as it affected strangers, must be held to be ultra vires as violating Article 14 of the Constitution. 16. The same Ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessments on the former. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in fact an assessee. Therefore, the second proviso to Section 34(3) would apply. 22. In the case of CIT v. Mohd. Shakoor Mohd. Bashir [(1973) 4 SCC 107 : 1973 SCC (Tax) 393 : (1973) 89 ITR 57] one Zahur Bux who was the sole owner of the business gifted his business to his two sons Mohd. Shakoor and Mohd. Bashir. Zahur Bux died thereafter. The two sons submitted their returns of income in respect of the business. The Income Tax Officer, however, rejected their returns and proceeded to assess all the heirs of Zahur Bux as an association of persons. In appeal, the Appellate Assistant Commissioner held that the assessee, namely, the association of persons consisting of all the heirs of Zahur Bux was not liable to be taxed in respect of the business. He held that the business had been gifted to two sons, Mohd. Shakoor and Mohd Bashir. He set aside the order of the Income Tax Officer but directed him to assess the income from various sources in the hands of the respective persons to whom they arose. The Income Tax Officer thereafter issued notices to the two brothers. This Court held that the directions which were given by the Appellate Assistant Commissioner did not fall within the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 1] held that the second Proviso to Section 34(3) of the Income Tax Act, 1922, insofar as it authorised the assessment or reassessment of any person other than the assessee after the expiry of the period of limitation specified in Section 34 in consequence of or to give effect to a finding or direction given in an appeal, revision or reference arising out of the proceeding in relation to the assessee violated the provisions of Article 14 of the Constitution and was invalid to that extent. 12. In a later case Income Tax Officer, A-Ward, Sitapur v. Murlidhar Bhagwan Das [52 ITR 335] this Court explained the connotation of the expression "any person" as used in Section 34, sub-section (3), proviso 2 at p. 346: "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 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istant Commissioner had directed that the income in the three assessment years be assessed in the hands of the family of Debi Parshad, apparently on the view that Debi Parshad represented the Hindu Undivided family of which he was a member. The Tribunal set aside the direction to assess the income of the Ambala Flour Mills in the hands of Debi Parshad personally for in their view Debi Parshad was a stranger to the proceeding for assessment. The High Court held that the order of the Appellate Assistant Commissioner directing assessment of "the family of Debi Parshad" was "clearly unwarranted and could relate only to Debi Parshad in his individual capacity". 16. Appeals Nos. 1277 to 1279 of 1966 were filed against that part of the order of the High Court by which they sought to modify the order of the Appellate Assistant Commissioner. The High Court in exercising advisory jurisdiction was incompetent to amend the order of the Appellate Assistant Commissioner. But on the question referred to the High Court, no inquiry into the power of the Appellate Assistant Commissioner to make the impugned direction was competent. The second question only related to the assessment of the income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "The expression 'direction' in the proviso could only refer to the directions which the Appellate Assistant Commissioner or other Tribunals can issue under the powers conferred on him or them under the respective sections. Therefore, the expression 'finding' as well as the expression 'direction' can be given full meaning, namely, that the finding is a finding necessary for giving relief in respect of the assessment of the year in question and the direction is a direction which the appellate or revisional authority, as the case may be, is empowered to give under the sections mentioned therein. The words 'in consequence of or to give effect to' do not create any difficulty, for they have to be collated with, and cannot enlarge, the scope of the finding or direction under the proviso., If the scope is limited as aforesaid, the said words also must be related to the scope of the findings and directions." 6. Such a finding or direction should obviously be necessary for the disposal of the earliest proceedings. 7. In the decision cited above, the Supreme Court had to consider the meaning of the word "person" appearing in the proviso. Their Lordships say: "The words 'any person', ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion or reference arising out of proceedings in relation to the assessee, violated the provisions of article 14 of the Constitution of India and were invalid to that extent. As already stated by us, the ratio in the series of cases reported in 49 I.T.R. concerned itself to the consideration of the question whether an utter stranger in the sense an assessee who had no connection whatsoever with the earlier appeal or revisional proceedings, could be got in the net of taxation on the only ground that the expression used in the proviso is "any person". As will be seen hereinafter, the real intent of the law as laid down by the Supreme Court was considered later by a catena of decisions including the Supreme Court itself. These later cases do not countenance that the ratio in Prashar v. Vasantsen Dwarkadas [[1963] 49 I.T.R. (S.C.) 1.] lays down a totality of a ban on the jurisdiction of the Tribunal to reopen assessments under the proviso, but it is restrictive in its scope and definitely applicable to assessees who are connected with such earlier proceedings. 10. It has however become necessary for us to advert to the scope of the decision of the majority of the judges in Prashar v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot in to to be struck down as offending article 14. Though, no doubt, this view was expressed by the minority in Income-tax Officer v. Murlidkar Bhagwan Das [[1964] 52 I.T.R. 335 (S.C.).] , yet it has a special signification in that the learned judges of the Supreme Court were indeed interpreting what was the purport and scope of the decision in Prashar v. Vasantsen Dwarkadas [[1963] 49 I.T.R. (S.C.) 1.] . 12. That there has not been a striking down of the proviso unreservedly and without any limitation is also seen from the judgments of this court which had occasion to consider the effect of the ratio in Prashar v. Vasantsen [[1963] 49 I.T.R. (S.C.) 1.]. A reconciliation has been made and there are now clear pronouncements of this court, which we will advert to presently, to the effect that the proviso is applicable to a case where the assessee is intimately connected with the "finding" or "direction" given in the earlier proceedings. If, however, the assessee is not in any way concerned with the said "finding" or "direction", then it would squarely come within the rule laid down in Prashar v. Vasantsen Dwarkadas [[1963] 49 I.T.R. (S.C.) 1.] and any proceedings against such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, of the opinion that, having regard to the decisions of this court and the view expressed by the Supreme Court itself in the later decisions, it cannot be said that the proviso has been struck down by the Supreme Court without any reservation or limitation whatsoever. On the other hand, the dicta referred to by us earlier and the interpretation placed upon the decisions in the series of cases reported in 49 I.T.R. lends support to the view that the application of the proviso is linked only to persons who are not intimately connected with the proceedings. 15. We have already held that the petitioner in this case is a person who cannot be characterised as an utter stranger to the earlier proceedings prosecuted by his uncle Meyappa; on the other hand, his uncle did have the capacity at that time to represent him and, therefore, such proceedings do have a nexus to the affairs of the assessee and such intimate connection thus established would enable the revenue to exercise jurisdiction under the proviso. We are, therefore, unable to accept the contention of the learned counsel for the petitioner that the Proviso is violative of article 14 and that this is the law as laid down by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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