Full Judgment Text
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PETITIONER:
C.I.T. BOMBAY
Vs.
RESPONDENT:
ONKARMAL MEGHRAJ (H.U.F.) & ORS.
DATE OF JUDGMENT16/08/1973
BENCH:
ALAGIRISWAMI, A.
BENCH:
ALAGIRISWAMI, A.
KHANNA, HANS RAJ
CITATION:
1973 AIR 2585 1974 SCR (1) 391
1974 SCC (3) 349
ACT:
Indian Income Tax (Amendment) Act 1953-J. 34(3)-Its scope.
HEADNOTE:
16 persons constituted a partnership firm under an agreement
dated 19-5-1930. Out of the 16 partners, 3 were outsiders
and 13 were members of 3 Hindu Undivided Families. Though
the firm consisted of 3 Hindu Undivided Families, the income
tax assessment till 1939-40 was on all the 16 individuals.
From 1939-40 to 1941-42, the Income Tax Department assessed
the 13 persons not as individuals but as 3 Hindu Undivided
Families. on the basis of a settlement betweer, them and the
department. After 1941-42, all the 16 persons were to be
individually assessed. Nevertheless, the Income Tax Officer
proceeded to make the asessment as though the 3 Hindu
Undivided Families still continued. The members of the
Hindu Undivided Families disputed this and on appeal, the
Income Tax Appellate Tribunal directed that the assessment
for the year 1943-44 had to be made or, each individual
partner. In respect of the year 1944-45, the I.T.O. had,
meanwhile, assessed the 3 H.U. Families as Hindu Undivided
Families by declaring the cases of the individuals as cases
of "No assessment". These assessments were, however, set
aside by the Appellate Assistant Commissioner according to
the directions given by the Tribunal earlier.
After receipt of the orders of the Appellate Assistant
Commissioner the I.T.O. issued notices under s. 34 to all
the 13 persons in April 1954. By that time, the Indian
Income-tax (Amendment) Act 1953, which amended s. 34(a)
became operative retrospectively from 1-4-1952. The notices
under s. 34 were served on 8th April 1954 and the
assessments were made on 31-1-1955 on the footing that under
that Section, there was no time limit. Both the Appellate
Assistant Commissioner and Tribunal dismissed the appeals
filed by the assessees. These assessments were, however,
set aside by the Appellate Assistant Commis(i) whether,
having regard to the directions given by the Appellate
Assistant Commissioner, and having regard to the second
proviso to Section 34(3) as amended, the reassessment made
by the I.T.O. on 31-1-1955 is, governed by any limitation
period, such as mentioned in s. 34(3).
(2)In respect of 4 other assessees, who furnished
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individual returns, "whether the remedy available to the
I.T.O. had already become time-barred under s. 34 before
that Section wag amended in 1953 with retrospective effect."
The High Court answered the questions in the affirmative and
hence, the appeals before this Court.
HELD:(i) The direction given by the Tribunal on 31-3-53
was in respect of the assessment for 1943-44. The I.T.O.
had even before that date, assessed the three units as
H.U.F., for 1944-45 and passed an order of ’No assessment’
in respect of the individuals. For that year also, all of
them had filed their returns as individuals. Therefore,
there was no question of omission or failure to make a
return or to disclose fully all material facts necessary for
their assessment and escapement of assessment was not due to
any such fact but due to the action of the I.T.O. assessing
non-existent Hindu Undivided Families and passing an order
of ’No assessment’ in respect of individuals. Section
34(1)(a) cannot, therefore, apply and only section 34(1) (b)
can apply. [395D-F]
(i)As regards the application of the second proviso to s.
34(3), it applies only to the three individuals (Narayandas,
Meghraj and Hanumandas) who filed returns as individuals but
who had been assessed as Hindu Undivided Families and who
were before the Appellate Assistant Commissioner and the
Tribunal
392
but not to other eight respondents who were not parties to
the proceedings and there was no Hindu Undivided Families at
that time-all these eight persons having filed their returns
as individuals. [395F-396C]
I.T.O. v. Murlidhar Bhagwan Das, [1964] 52 I.T.R. 325,
referred to.
The right of the I.T.O. to assess these persons can be
upheld only if the notice under the substantive part of s.
34 can be said to be a valid notice. The assessment year
being 1944-45, the notice under s. 34 issued in April 1954
was beyond the period of 4 years under s. 34(1)(b) and so,
the second proviso to s. 34(3) does not apply to them.
[397A-B]
(iii)The effect of the amendment of s. 34 in 1953 is
not to enable the I.T.O. to take action under that Section
where the period mentioned therein had expired before
1.4.1952. In the case of the 3 assessees, however s. 34(3)
would apply, whether it is the old proviso or the proviso
introduced in 1953. [398D-F]
S.C. Prashar v. Vasantsen Dwarkadas, [1956] 29 I.T.R. 857
and J. P. Jani, I.T.O. v. Inuduprasad Devshanker Bhatt,
[1969] 72 I. T. R. 595 and Income Tax Officer v. T. S.
Devinathan Nadar, [1968] 68 I.T.R. 252, referred to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION :-Civil Appeals Nos. 22632274
of 1969.
Appeals by certificate from the Judgment and Order dated the
29th/30th January, 1968 of the High Court of Judicature at
Bombay in Income Tax Reference No. 54 of 1958.
T. A. Ramachandra and S. P. Nayar, for the appellant.
Respondents Nos. 1 to 9, 10(iii), 11 and 12 did not appear.
The Judgment of the Court was delivered by
ALAGIRISWAMI, J. Sixteen persons constituted a partnership
firm known as M/s. Narayandas Kedarnath under an agreement
dated 19-5-1930. Out of the said 16 persons three were
outsiders and thirteen were members of three Hindu undivided
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families whose kartas were respectively Narayandas Pokarmal,
Meghraj Pokarmal and Hanumandas Sewakram. Narayandas
Pokarmal had three sons Govindram, Bhagwandas and Vasudeo;
Meghraj Pokarmal had also three sons-OnKarmal, Banarsilal
and Beniprasad; and Hanumandas Sewakram had four sons-
Kedarnath, Bnarsidas, Durgaprasad and Harkisondas. Though
the firm consisted of 3 undivided Hindu families the income
tax assessment till the year 1939-40 was on all the sixteen
individuals. From 1939-40 to 1941-42 the Income-tax Officer
assessed these 13 persons not as individuals but as three
Hindu undivided families on the basis of a settlement
between them and the Department. Thereafter all the sixteen
persons were to be individually assessed. Nevertheless, the
Income-tax Officer proceeded to make the assessment as
though the three HUFs still continued. The members of the
HUFs disputed this and the Income-tax Appellate Tribunal by
an order dated 31-7-1953, relating to the appeals by the
three families for the assessment year 1943-44, directed
that the assessment bad to be made on each individual
partner. In respect of the year 1944-45 the, Incometax
Officer had meanwhile assessed the three HUFs as HUFs by de-
claring the cases of the individuals as cases of ’No
Assessment’. These
393
assessments were set aside by the. Appellate Assistant
Commissioner who followed the directions given by the
Tribunal in respect of the year 1943-44, on 9-3-1954.
After the. receipt of the orders of the Appellate Assistant
Commissioner the Income-tax Officer issued notices under
section 34 to all the 13 persons in April 1954 after
obtaining the Commissioner’s approval. By that time the
Indian Income-tax (Amendment) Act, 1953, which among other
things amended section 34(3), had come into effect on 24-5-
1953 but had retrospective effect from 1-4-1952. The
notices under section 34 were- served on or about 8th April,
1954 and the assessments were made on 31-1-1955 on the
footing that under that section there was no time limit.
For the purpose of these assessments the three Kartas of the
Hindu undivided families, Narayandas, Meghraj and
Hanumandas, earlier referred to, and Beniprasad, son of
Meghraj had already filed their returns as individuals and
the others as HuFs. It should be made clear that these are
the HUFs consisting of,, the other 7 individuals and their
decendants, to which we shall hereafter refer as the smaller
HUFS. The Appellate Assistant Commissioner having dismissed
their appeals there were 11 appeals to the Tribunal.
Banarsidas and Harkisondas, sons of Hanumandas did not file
any appeal.
The Tribunal held that all the eleven cases were governed by
section 34(1)(a) and dismissed the appeals. The Tribunal
thereafter at the instance of the parties referred the
following questions to the High Court :
1. Whether, having regard to’ the direction
given by the Appellate Assistant Commissioner
in his order dated 9-3-1954 in the case of the
appropriate H.U.Fs. and having regard to the
second proviso to section 34(3) as amended by
section 18 of the Indian Income-tax (Amend-
ment) Act, 1953 the reassessment made by the
Incometax Officer on 31-1-1955 in the case of
any one or more of the assessees is governed
by any limitation period such as mentioned in
the sugstantive part of section 34(3) ?
In respect of Narayandas Pokarmal, Meghrai
Pokarmal. Beniprasad Meghraj and Hanumandas
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Sewakram the further question- referred was :
2. Whether in the case of the assessees,
the remedy available to the Income-tax Officer
had already become time barred under section
34 before that section was amended in 1953
with retrospective effect from 1-4-1952 ?
Along with these 1 1 appeals one more appeal by Onkarmal
Meghraj regarding the assessment year 1943-44 also was heard
by the Tribunal and in that case also the second question
was referred to the High Court.
Before the High Court a contention was raised on the basis
of the provisions of the Indian Income-tax (Amendment) Act
(1 of 1959) that notices issued and the action taken in the
present cases could not be called in question on the ground
that the period prescribed in that
394
behalf had expired. The High Court thereupon called for a
supplementary statement of the case. That was forwarded by
the Tribunal annexing thereto such record as was indicated
by the High Court in its order calling for the supplementary
statement. The High Court, thereupon, framed a further
question as follows :
"Whether section 4 of the, Income-tax
(Amendment) Act (1 of 1959) was applicable to
any one or more of these assessments
The High Court held against the Department on this question.
This was not argued before us and we need not therefore
spend any further time over it.
For the purpose of deciding whether section 34(3) applied,
the Jr High Court went into the question whether the notices
in these cases were issued under clause (a) or clause (b) of
section 34(1). After considering all the facts and
circumstances relevant to the determination of the question
the High Court came to the conclusion that the notices
issued should be deemed to have been issued under section
34(1)(b). This was based upon the proposal made by the
Income-tax Officer, the sanction given by the Commissioner,
the notice issued by the Income-tax Officer and the return
made by the assessees, as well as the assessment order of
the Income-tax Officer. The High Court also came to the
same conclusion in respect of the case of Onkarmal Meghraj
for the assessment year 1943-44.
It then considered the question whether the case came under
the 2nd proviso to section 34(3). The High Court pointed
out that neither group could be regarded as falling under
section 34(1) (a) and held that the cases of the seven
persons could not be treated as cases of no return and that
the order of ’no assessment’ made in respect of these
persons was not because of a wrong or improper return having
been submitted by these assessees, but because of an
erroneous view taken by the Income-tax Officer that the
income had to be assessed in the hands of the HUFS. As
regards the second group of four persons it observed that
they had submitted their returns as individuals and had IF
fully and truly disclosed the income received by them, which
was liable to assessment. The Income-tax Officer had,
however, made the assessment on three HUFs represented by
three of the four Persons and assessed the income as the
income of the HUFS. The result was not because of a failure
or omission on the part of these persons to make a return of
their respective income, but because the income was assessed
in the hands of the HUFS. Thus the escapement of assessment
of income was not due to any failure or omission on the part
of the assessees but because of the erroneous view taken by
the Income-tax Officer. It thus held that the cases did not
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fall under section 34(1)(a) and that they could not fall
under the second proviso to section 34(3) because that
proviso became applicable only from the 1st day of April-
1952 and the assessment under section 34 being in respect of
the assessment year 1944-45, the action to be taken under
section 34 would be barred. The same view was taken in the
case of the solitary appeal of Onkarmal Meghraj for the
assessment year 1943-44. Even in respect of
395
Narayandas, Meghraj and Hanumandas it observed that although
they were undoubtedly parties to the proceedings in which
the, findings or orders were given, and the second proviso
to section 34(3) would not be inapplicable but it could be
applied only within the period of limitation that had
expired before 1st April, 1952. In the result the High
Court answered two of the questions in the affirmative. The
Commissioner of Income-tax has, therefore, filed these 12
appeals.
It appears to us that the conclusion reached by the High
Court in respect of the question whether clause (a) or
clause (b) of section 34(1) applies is correct. Neither the
proposal submitted by the, Incometax Officer to the
Commissioner for taking action under section 34 nor the
sanction of the Commissioner, nor the notices issued in
these cases nor the returns filed by the parties, nor even
the assessment orders of the Income-tax Officer point to the
conclusion that action was either contemplated or taken
under clause (a). It has to be kept in mind that all the
eleven persons had filed their returns in their status as
individuals. The fact that seven of them filed as smaller
HUFs makes no difference to this fact. The larger HUF of
Narayandas, Meghraj and Hanumandas was neither in existence
nor did it file a return as such. Indeed from the year 1930
it never existed. The assessment for 1939-40 to 1941-42 of
the three HUFs was only by agreement between the Parties and
the Department and was not questioned. The assessment for
1942-43 was somehow not taken up on appeal. The direction
given by the Tribunal on 31-7-1953 was in respect of the
assessment for 1943-44. The Income-tax Officer had even
before that date assessed the three units as HUF for 1944-45
and passed an order of ’No Assessment’ in respect of the
individuals. For that year also all of them had filed their
returns as individuals. Clearly, therefore, there was no
question of omission or failure to make a return or to
disclose fully and truly all material facts necessary for
their assessment and the escapement of assessment was not
due to any such fact but due to the action of the, Income-
tax Officer assessing non-existent HUFs and passing an order
of ’No Assessment’ in respect of individuals. Section 34
(1) (a) cannot, therefore, apply and only section 3 4 (1)
(b) can apply.
The second proviso to section 34(3) does not apply to eight
of the 11 respondents in the appeals regarding the
assessment year 1944-45, as they were not parties to the
proceedings in which the direction of the Tribunal was
given, and the same consideration applies to the respondent
Onkarmal Meghraj for the assessment year 1943-44. Only
Narayandas, Meghraj and Hanumandas who had filed returns as
individuals but who had been assessed as HUFs were parties
thereto. The others had no occasion to go up in appeal-
because the Income-tax Officer had passed an order of ’No
assessment’ in their cases. Regarding the :assessment for
the year 1943-44, the assessments were made in pursuance of
the directions given by the Appellate Assistant Commissioner
in the three appeals preferred by the persons who were
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treated as Kartas of the three HUFs in whose hands the
income was assessed by the Income-tax Officer. These were
Narayaridas Pokarmal, Meghraj Pokarmal and Hanumandas
Sewakram. In these cases the settlement between the
Department and the parties earlier was on the basis that
there was partial partition in the HUFS. It has already
been mentioned that be-
396
fore the year 1939-40 the various partners of the firm had
been assessed in their individual capacities. Therefore,
the appeals filed by Narayandas Pokarmal, Meghraj Pokarmal
and Hanumandas Sewakram cannot represent the separated
members of the family. These three persons, however, were
parties to the said proceedings. They had filed their
returns as individuals and because they had been assessed as
HUFS, had carried the matter up on appeal. In respect of
the other eight persons who also filed returns as
individuals the direction issued by the Assistant Appellate
Commissioner in the appeals filed by Narayandas, Onkarmal
and Hanumandas cannot be said to apply to them as there was
no HUF and they were not members of a HUF. The words "any
person" in the second proviso to section 34(3) has been
interpreted by this Court in Income-tax Officer v. Murlidhar
Bhagwan Das(1) as any person intimately connected like
members of a HUF, partners of a firm or individuals forming
an association of individuals because in such cases though
they are not eo nomine parties they could be deemed to be
represented by the HUF, partnership or association before
the relevant Income-tax Authority. Such is not the case
with regard to these individuals because no HUF was before
the concerned Income-tax Authority-indeed there was no HUF-
and therefore they would not be bound by those orders. In
the case of individuals who were actually before the Appel-
late Assistant Commissioner and the Tribunal the orders
would bind those three individuals. In their cases,
therefore, the second proviso can be rightly applied.
We have now held that the notices in these cases should be
deemed to have been issued under section 34(1) (b) and the
orders of the Tribunal and Assistant Appellate Commissioner
would apply to the three persons who were eo nomine parties
before them but not others. The next question is whether
the bar of limitation applies in any of the cases. A good
deal of argument was advanced before us as to whether the
second proviso to section 34(3) could be availed of at any
time. It appears to us that it could be so availed of in
respect of persons in whose cases reassessments are made
under section 27 or in pursuance of an order under section
31, 33A, 33B, 66 or 66A, that is Narayandas Pokarmal.
Meghraj Pokarmal and Hanumandas Sewakram. There is no
difficulty in holding that the second proviso applies to
them. They had filed their returns as individuals and been
assessed as HUFS. It is open to persons in that situation
to contend, as indeed they did, that they should be assessed
as individuals and not as HUFS. And when the Appellate
Assistant Commissioner and the Tribunal make an order that
they should not be assessed as HUFs but as individuals they
are only giving effect to the contention of the parties.
Their cases come directly under the principle of the
decision in Income-tax Officer v. Murlidhar Bhagwan Das
(supra). Even if they are not assessees, they are inti-
mately connected with the assessee, that is the HUF. The
earlier order of ’No Assessment’ made by the Income-tax
Officer in their case does not affect this situation.
But as far as the other eight persons are concerned, they
did not have anything further to do after the Income-tax
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Officer in spite of their filing returns as individuals made
an order of ’No Assessment’. They
(1) [1964] .52 I.T.R. 335.
397
were not before the Appellate Assistant Commissioner or the
Tribunal. They were not assessees nor were they intimately
connected with the assessee that is the HUF as there was no
HUF. Therefore, the second proviso to section 34(3) is not
applicable in their cases. The right of the Income-tax
Officer to assess these persons can be upheld only if the
notice under the substantive part of section 34 can be said
to be a valid notice. The assessment year being 1944-45 the
notice under section 34 issued in April 1954 was beyond the
period of 4 years under s. 34(1) (b) which we have held
applies to them. For the reasons just set forth the second
proviso to s. 34(3) does not apply to them.
That raises the question whether that proviso could be
applied without reference to any period of limitation. It
is a well settled principle that no action can be commenced
where the period within which it can be commenced has
expired. It is unnecessary to cite authorities in support
of this position. Does the fact that the second proviso
says that there is no period of limitation makes a
difference ? The first thing to be noticed is that that
provision was given retrospective effect only from 1-4-1952
though the Income Tax (Amendment-) Act came into effect from
24-5-1953. Where it is intended that the retrospective
effect should be without any limit it is usual and proper to
provide that the amendment would have effect and would be
deemed always to have had effect as if it had been part of
the Act from its inception. That that was not done shows
that the intention was only to give limited retrospective
effect, that is to say, there would be no bar of limitation
if it had not expired before 1-4-1952.
We will now refer to some of the decisions which were relied
upon. In S. C. Prashar v. Vasantsen Dwarkadas(1) the effects
of the amendment made to section 34 were considered by the
Bombay High Court. A Bench of that High Court consisting of
Chagla, C. J. and Tendolkar, J. held that where the period
mentioned in the substantive part of section 34 had expired
before the amendment in 1953 i.e., before 1st’ April 1952 no
action can be taken under that section. The court also took
the view that the second proviso to section 34(3) offended
article 14 of the Constitution in so far as it affected
third parties. That question has now been set at rest by
the decision of this Court in Income-tax Officer v.
Murlidhar Bhagwan Das (supra) as already noticed. In this
Court out of the 5 Judges who heard the appeal in Prashar v.
’Vasantsen Dwarkadas(2) two of the Judges, Das, J. and
Kapur, J. held that section 31 of the Income-tax (Amendment)
Act 1953 did not operate as regards assessment years for
which assessment or reassessment was barred before April 1,
1952, in accordance with section 34 before it was amended in
1948. Hidayatullah, J. and Raghubar Rayal, J. took the
contrary view. Sarkar, J. expressed no opinion on the
point. In J. P. Jani, I.T.O. v. Induprasad Devshankar
Bhatt(3) this Court held that the Income-tax Officer cannot
issue a notice under section 148 of the Income-tax Act, 1961
in order to reopen the assessment of an assessee in a case
where the right to reopen the assessment was barred under
the 1922 Act at, the date when the new Act came into force.
It was held
(1) [1956] 29 I.T.R. 857.
(2) [1963] 49 I. T. R. (S.C.) 1.
(3) [1969] 72 I.T.R. 595.
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398
that S. 297(2) (d) (ii) of 1961 Act was applicable only to
those cases where the right of the Income-tax officer to
reopen an assessment was not barred under the repealed Act.,
This decision is broadly in line with the opinion of Das and
Kapur, JJ. in Prashar’s case. The decision of this Court
relied upon by the appellant, in Income-tax Officer v. T. S.
Devistha Nadar,(1) which was a case under section 35(5),
which was introduced into the Income-tax Act by the 1953
amendment at the same time as the amendment to section 34,
does not really affect this position. This Court observed :
"As we have already said, sub-section (5)
becomes operative as soon as it is found on
the assessment or reassessment of the firm or
on any reduction or enhancement made in the
income of the firm that the share of the
partners in the profit or loss of the firm had
not been included in the assessment of the
partner or if included was not correct. The
completion of the assessment of the partner as
an individual need not happen after April 1,
1952. The completed assessment of the partner
is the subject matter of rectification and
this may have preceded the above
-mentioned date. Such completion does not
control the operation of the sub-section. In
the result we find ourselves unable to concur
in the decision or the reasoning in Atmala
Nagaraj’s case."(2)
The position can, therefore, be said to have been
satisfactorily established that the effect of the amendment
of section 34 in, 1953 is not to enable the Income-tax
Officer to take action under that section where the period
mentioned therein had expired before 1-4-1952. That would
apply in these cases to persons other than Narayandas
Pokarmal, Meghraj Pokarmal and Hanumandas Sewakram. In
their cases the second proviso to section 34(3) would apply,
whether it is the old proviso or, the proviso introduced in
1953.
In the result Civil Appeals Nos. 2264 of 1969, 22-68 of 1969
and 2272 of 1969 are allowed with costs. The other 9
appeals are dismissed with costs.
S.C. Appeals partly allowed.
(1) [1968] 68 I.T.R. 252.
(2) [1962] 46 I.T.R. 609(sc.)
399