Limitation on reassessment under the Income-tax Act applies only where a clear direction binds the assessee or closely connected proceedings.

The second proviso to section 34(3) of the Income-tax Act, 1922 lifted the limitation bar only where reassessment followed a clear finding or direction in proceedings involving the assessee or a person intimately connected with those proceedings. For one assessment year, there was no clear finding or direction authorising reassessment, so the notice issued beyond four years was time-barred. For the remaining years, although there was a direction to delete income from the mother's assessment and assess the assessee separately, the assessee was a stranger to those proceedings and the proviso could not be invoked against him. The reassessment notices and resultant assessments were therefore invalid.

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Issues: Whether reassessment action initiated under section 34(1)(b) read with the second proviso to section 34(3) of the Income-tax Act, 1922 was legal and valid for the relevant assessment years.

Analysis: For one assessment year, the appellate order did not contain any clear finding or direction authorising reassessment of the assessee, and the notice issued beyond four years from the end of the assessment year was therefore hit by limitation. For the remaining years, although a direction existed to delete the income from the mother's assessment and assess the assessee separately, the assessee was neither a party to nor intimately connected with the mother's assessment proceedings in the sense required for the second proviso to section 34(3). The income of the assessee could not legally be included in the mother's assessment under section 16(3)(a)(ii), and the assessee remained a stranger to those proceedings. The bar of limitation was therefore not lifted by the proviso, which could not be applied against such a person.

Conclusion: The reassessment notices and the consequent assessments were not legal and valid, and the answer to the referred question was in the negative.

Ratio Decidendi: The second proviso to section 34(3) lifts the limitation bar only where the reassessment is made in consequence of a clear finding or direction in proceedings involving the assessee or a person intimately connected with those proceedings; it does not apply to a total stranger to the assessment.

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