Reassessment beyond limitation and against a non-party member of a Hindu undivided family could not be sustained under the proviso.

The Gujarat High Court considered whether the second proviso to section 34(3) of the Income-tax Act, 1922 could reopen a time-barred reassessment and found it ineffective to revive a remedy already barred by limitation unless the statute clearly so provided. It also treated the proviso as constitutionally objectionable to the extent that it singled out persons not already before the tax authority, raising an article 14 concern. Separately, it held that an individual member of a Hindu undivided family was not a party to earlier proceedings against the family merely by virtue of membership, so he remained outside the reach of the proviso. The reassessment could not be sustained against him.

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Issues: (i) Whether the second proviso to section 34(3) of the Income-tax Act, 1922, could validly authorise reassessment after the limitation under section 34(1) had expired and whether it offended article 14 of the Constitution of India; (ii) whether the assessee, though a member of the Hindu undivided family, was a stranger to the earlier proceedings against that family and therefore outside the reach of the proviso.

Issue (i): Whether the second proviso to section 34(3) of the Income-tax Act, 1922, could validly authorise reassessment after the limitation under section 34(1) had expired and whether it offended article 14 of the Constitution of India.

Analysis: The amended proviso was considered in the light of the earlier limitation under section 34(1) and the judicial construction of the 1953 amendment. A distinction was drawn between reassessment of an assessee already within the proceedings and reassessment of a person not previously before the taxing authority. The proviso was treated as constitutionally objectionable to the extent that it singled out persons other than assessees for reopening without a rational basis. The court also held that a remedy already barred by limitation could not be revived merely by the later amendment unless the statute clearly and expressly so provided.

Conclusion: The proviso could not validly revive a time-barred remedy against a stranger, and it was invalid to that extent.

Issue (ii): Whether the assessee, though a member of the Hindu undivided family, was a stranger to the earlier proceedings against that family and therefore outside the reach of the proviso.

Analysis: The proceedings against the Hindu undivided family and the proceedings against the assessee in his individual capacity were treated as distinct. The finding in the family's appeal operated only between the department and the family, and not against the assessee personally. Membership of the family did not make him a party to those proceedings, and service provisions could not convert him into an assessee in that separate matter. The court therefore treated him as a person other than the assessee in the earlier proceedings.

Conclusion: The assessee was a stranger to the family proceedings and the second proviso could not be invoked against him.

Final Conclusion: The reassessment proceedings could not be sustained against the assessee, and the reference was answered so as to uphold his challenge to the reopening.

Ratio Decidendi: A taxing provision that authorises reassessment beyond the normal limitation cannot be applied to a person who was not a party to the original proceedings unless the statute clearly and constitutionally permits such reopening; a barred remedy is not revived by implication.

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