TaxTMI 
TaxTMI 
1964 (10) TMI 84
X X X X Extracts X X X X
X X X X Extracts X X X X
....ant account years are S.Ys. 1999, 2000 and 2001 respectively. The department made these reassessments by taking recourse to the provisions of section 34(3). The appeals before the Tribunal proceeded on the footing that all the materials and relevant facts for all the three years were similar and hence we would state the facts in relation to the assessment year 1944-45. The Tribunal's main order relates to that assessment year and is in I.T.A. No. 7315 of 1954-55. 3. The assessee, Mr. Shantilal, is being assessed in the status of "individual". For the assessment year 1944-45, he made his return and declared therein his share of profit from the firm of Messrs. Bharat Cloth Agency. At the material time, the assessee was a member of the Hindu undivided family, known as Punjabhai Deepchand. In the course of assessment proceedings of that family for the assessment year 1944-45, the Income-tax Officer came to the conclusion that the present assessee, i.e., Mr. Shantilal, was merely a nominee of the said family in the said firm and hence he included the share income, falling to the lot of Mr. Shantilal from the firm of Messrs. Bharat Cloth Agency, in the computation of the total inc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....owing two years. The contentions raised before it were: (i) that the provisions of section 34(3) of the Income-tax Act are ultra vires the Indian Constitution; and (ii) that the amended section 34(3) cannot overrule the main provisions of section 34 and hence the reassessment made is time-barred and bad in law. In support of these contentions, Shri S.P. Mehta, counsel for the assessee, strongly relied upon the then unreported judgment of the Bombay High Court in the case of Vasantsen Dwarkadas (Appeal No. 1 of 1955). It is now reported in [1956] 29 I.T.R. 857 under the name of S.C. Prashar v. Vasantsen Dwarkadas. 6. In support of the second of those two contentions, it was urged, relying upon Vasantsen's case* that since the remedy of the right to issue a notice under section 34 was already barred at the date when the amending legislation, i.e., section 34(3), came into force, the amending legislation could not revive the remedy by providing the extended period of limitation. In dealing with this contention, the Accountant Member held (for reasons given by him in paragraph 6 of his order dated December 31, 1955), that "once it is established that the provisions of s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essment year 1944-45 is marked annexure "D" and forms part of the case. 10. On these facts, the Commissioner now requires the Tribunal to refer to the High Court the following two identical questions for each of the three years but for the assessment year involved. For the assessment year 1944-45, they are as follows: "(i) Whether, on the facts and in the circumstances of the case, and having particular regard to the finding of the Tribunal that the business belonged to Shri Shantilal, or at any rate the business did not belong to the Hindu undivided family of Shri Punjabhai Deepchand the proceedings started under section 34 read with section 34(3), proviso (2), for assessment year 1944-45 on April 1, 1945, were bad in law, on the ground that the provisions of the present section 34(3), proviso (2) of the Act are ultra vires the Indian Constitution? (ii) Whether, on the facts and in the circumstances of the case, Shri Shantilal was a stranger to the proceedings under section 34 read with section 34(3), proviso (2), started on April 1, 1945, by his own assessing Income-tax Officer." 11. By his reply, the respondent urged that the following question also arose out of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... Divetia with M. D. Pandya and S. R. Divetia, for the assessee JUDGMENT Juudgment The judgment of the court was delivered by J.M. SHELAT C.J.--This reference arises out of reassessment of the assessee for the assessment years 1944-45, 1945-46 and 1946-47, the relevant previous years being Samvat years 1999, 2000 and 2001 respectively. The reassessment proceedings were adopted having recourse to the second proviso to section 34(3) of the Income-tax Act of 1922. The facts for all the three assessment years are similar and hence it is possible to take the facts relevant to the assessment year 1944-45 as typical. That was also the way in which the case was presented to us by the learned Advocate-General. The assessee, Shantilal Punjabhai, used to be assessed in the status of an individual. For the assessment year 1944-1945, he filed his returns in which he included his share of profit in the firm of Messrs. Bharat Cloth Agency. The assessee, at the material time, was a member of the Hindu undivided family known as Punjabhai Deepchand. In the course of the assessment proceedings of that family also for the assessment year 1944- 45, the Income-tax Officer found that th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and as the amendment of section 34(3) was not retrospective, he was inclined to hold that the right to issue notice under section 34 for the assessment year 1944-45 was already barred when the Amendment Act of 1953 came into force. As regards the question of constitutional invalidity, the President was doubtful whether article 14 applied and said that he "would leave the matter at that." On these facts, three questions have been referred to us, namely: "(1) Whether, on the facts and in the circumstances of the case, and having particular regard to the finding of the Tribunal that the business belonged to Shri Shantilal, or at any rate the business did not belong to the Hindu undivided family of Shri Punjabhai Deepchand the proceeding started under section 34 read with section 34(3), proviso (2), for assessment year 1944-45 on April 1, 1954, were bad in law, on the ground that the provisions of the present section 34(3), proviso (2), of the Act, are ultra vires the Indian Constitution? (2) Whether, on the facts and in the circumstances of the case, Shri Shantilal was a stranger to the proceedings under section 34 read with section 34(3), proviso (2), started on April 1, 195....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. The section thus provided two periods in which action could be taken, a period of eight years and a period of four years. The first would apply to cases in which the Income-tax Officer has reason to believe that the assessee has concealed income or furnished inaccurate particulars thereof, and the second was to apply in all other cases. This section remained in force until March 30, 1948, when the Income-tax and Business Profits Tax (Amendment) Act, 1948, passed on September 8, 1948, substituted a new section in the place of the old. That section, inter alia, provided that if the Income-tax Officer has reason to believe that by reason of the omission or failure on the part of an assessee to make a return of his income under section 22 for any year or to disclose fully and truly all material facts necessary for his assessment for that year, income, profits or gains chargeable to income-tax have escaped assessment for that year, or have been under-assessed, etc., or notwithstanding that there has been no omission or failure on the part of the assessee, the officer has, in consequence of information in his possession, reason to believe that income, profits or gains chargeable to in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on, came into force from April 1, 1952. Section 18 of this Amendment Act amended the second proviso to sub-section (3), and so amended the proviso reads as follows: "Provided further that nothing contained in this section limiting the time within which any action may be taken or any order, assessment or reassessment may be made, shall apply to a reassessment made under section 27 or to an assessment or reassessment made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order under section 31, section 33, section 33A, section 33B, section 66 or section 66A." The Amendment Act also contained section 31, which provided: "For the removal of doubts, it is hereby declared that the provisions of sub-sections (1), (2) and (3) of section 34 of the principal Act shall apply and shall be deemed always to have applied to any assessment or reassessment for any year ending before the first day of April, 1948, in any case where the proceedings in respect of such assessment or reassessment were commenced under the sa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....istration but that was refused. For the assessment years 1942-43 to 1948-49, several appeals were filed before the Income-tax Appellate Tribunal by the firm of Vasantsen Dwarkadas, both against the quantum of income assessed and also against the refusal to register the firm of Vasantsen Dwarkadas. An appeal was also filed by the firm of Purshottam Laxmidas against its assessment and there was also an appeal for the assessment year 1942-43 by petitioner No. 1 as the heir and legal representative of his father against the decision that the income of Vasantsen Dwarkadas should be included in the income of Dwarkadas. After the decision in Vasantsen's case*, in the assessment year 1942-43, the Income- tax Officer gave a finding that the firm of Vasantsen Dwarkadas was only a branch of the firm of Purshottam Laxmidas, and he added the income of Vasantsen Dwarkadas to the income of Purshottam Laxmidas, and this question also came up before the Tribunal in appeals filed by Purshottam Laxmidas against their assessment and the Tribunal, by a consolidated order dated August 14, 1951, disposed of all these appeals and its decision was that there was overwhelming evidence to come to the con....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Desai J., that the remedy available to the Income- tax Officer had already become barred under section 34 before the amendment in 1953. The vested right of the assessee could not be affected except by the clear and express terms used by the legislature. The legislature did not intend to give any retrospective operation further back than April 1, 1952. The remedy and the right of the officer to reassess were lost before April 1, 1952 and, therefore, the notice was invalid. They also held that although limitation was a procedural law and although it was open to the legislature to extend the period of limitation, an important right accrued to a party when the remedy against him was barred by the existing law of limitation and that vested right could not be affected except by the clearest and most express terms used by the legislature. As regards the second proviso to section 34(3), they held that the proviso offended article 14 of the Constitution in so far as it affected third parties, and was, therefore, invalid to that extent. It is important to notice that the contention raised before the appellate bench on behalf of the assessee was in a limited form and the answer to that conte....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Visvanatha Sastri [1954] 26 I.T.R. 1, applied. He held that the second proviso 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 could 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. This, he said, "in my opinion is unequal treatment which is not based on any rational ground." He also held that the finding which the Tribunal gave in its consolidated order dated April 14, 1951, was a finding given in appeal filed by Vasantsen as the legal representative of his father for the assessment year 1942-43. In that appeal, the firm of Purshottam Laxmidas was not a party, though Purshottam Laxmidas was a party to certain other appeals before the Tribunal. He said that he found some difficulty in appreciating how Purshottam Laxmidas could be treated as an assessee within the meaning of the second proviso to sub-section (3) of section 34 for the assessment year 1942-43. If, therefore, the firm could not be so treated, then within the narrow ground stated by Desai....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ering the judgment of the Calcutta High Court in Income-tax Officer v. Calcutta Discount Co. Ltd. [1953] 23 I.T.R. 471, the learned judge held that in its true scope and effect, section 31 of the Amendment Act of 1953 put beyond any doubt that the view expressed by the learned Chief Justice of the Calcutta High Court in the aforesaid case was the correct view and that the amended section 34 applied to assessment years prior to 1948-49, but it did not say that an assessment which had become final and in respect of which reassessment proceedings had become time-barred before the amended section came into force, could be reopened. He also stated that section 31 did not say that the periods of limitation laid down in sub-sections (1) and (3) of section 34 were being done away with, but that, on the contrary, the first part of section 31 stated that the proceedings must have been commenced after September 8, 1948, (the date on which the Amending Act of 1948 came into force), under the said sub-section and the notice must have been issued in accordance with sub-section (1). The Income-tax Officer, therefore, could commence proceedings under the said sub-sections or issue a notice in acco....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... Therefore, the notice had to be one within eight years' period and as the impugned notice in that case was beyond that period, it could not be called a notice "in accordance with" and, therefore, the deeming provision as to the validity was not applicable to such a notice. Hidayatullah and Raghubar Dayal JJ. reached conclusions on this question different from those of S.K. Das and Kapur JJ. As can be seen from page 46 [1963] 49 I.T.R. (S.C.) 1 of the report, Sarkar J. held on the facts of the case that the notice was validated by section 4 of the Income-tax (Amendment) Act, 1959, and on that question, being in agreement with Hidayatullah and Raghubar Dayal JJ., the appeal was allowed. But, as already stated, we are not concerned in this case with the effect of section 4 of Act 1 of 1959, but are concerned only with the question as to the constitutional validity of the second proviso to section 34(3) and the effect of the validating section 31 of the 1953 Act. On the question of the constitutional validity of the proviso, Sarkar J. plainly agreed with S.K. Das and Kapur JJ. for the reasons given by him in another case, namely, Commissioner of Income-tax v. Sardar Lakhmir Singh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ut that the learned trial judge upheld that objection and held that the second proviso infringed article 14. At page 175 of the report, they further point out that the learned trial judge distinguished between an assessee against whom a finding was recorded or a direction given, and other persons who were not assessees, and upheld the objection on the score of unconstitutionality in the case of the latter class. In appeal, the Division Bench upheld the decision of the learned trial judge, but not on the point of unconstitutionality, but upon an interpretation of the relevant provisions of the Income-tax Act itself. They then observe: "When the matter came before the Supreme Court, it seems to us that though a decision was taken only by a majority there is a clear pronouncement that the second proviso to section 34(3) offends against article 14. The decision is to be found clearly stated in the judgment of A.K. Sarkar J. in the last but one paragraph where he referred to the decision which he was about to deliver on that very day in Commissioner of Income-tax v. Sardar Lakhmir Singh." On this ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....epted for that such expression was necessarily circumscribed by the scope of the subject-matter of the appeal or revision, as the case may be. Therefore, a person within the meaning of that expression in proviso (2) must be one who would be liable to be assessed for the whole or part of the income that went into the assessment of the year under appeal or revision. The learned judge has then observed: "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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he said proceedings on the ground that the proceedings were initiated beyond the time prescribed by section 34 of the Act. The Supreme Court by a majority judgment held, first, that the year was a unit of assessment and therefore the assessment or reassessment made in consequence of or to give effect to any finding or direction contained in an order under any of the sections set out in the proviso must relate to the assessment of the year under appeal, revision or reference, as the case may be. But it was contended that the words "any person" used in the proviso concluded the matter in favour of the department and it was in the light of this contention that the Supreme Court construed the meaning of these words. But the question before the Supreme Court was regarding the scope and extent of those words, that is to say, against whom a finding or a direction can be said to be a finding or a direction within the meaning of the proviso, and not the question as to the constitutional validity of the proviso or the extent of such invalidity. The decision on that question in Prashar v. Vasantsen* was never called into question and had not to be considered. That being the position, the limi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n between an individual and a Hindu undivided family; though it is a human being who is being assessed, he can be assessed either as an individual or as a Hindu undivided family. If he is assessed as an individual, his income as an individual will be assessed, whereas, if he is assessed as a Hindu undivided family, the income of the Hindu undivided family will be assessed. A human being may have two capacities; he may be an individual and also a Hindu undivided family and, in that case, he will constitute two assessees, (1) he, as an individual, to be assessed on his individual income, and (2) he, as a Hindu undivided family, to be assessed on the income of the Hindu undivided family." At page 713 of the report, the learned Chief Justice, who spoke for the Bench, has also stated: "I do not appreciate the argument of Sri R.S. Pathak that Lakshman Prakash before the Appellate Assistant Commissioner was a legal entity different from that against whom the second assessment order was passed by the Income-tax Officer. Lakshman Prakash was the appellant before the Appellate Assistant Commissioner an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....be that there would be two assessees in respect of the taxable income of a Hindu undivided family, namely, the Hindu undivided family and a member of such family. The Income-tax Act, however, does not contemplate two different assessees in the same assessment year for the same taxable income. The learned Advocate-General then argued that apart from the observations made by the Allahabad High Court, a Hindu undivided family in reality consists of members, so that for the purposes of assessment proceedings, the members of such a family are the real persons who are concerned. In support of this proposition, he gave an illustration wherein a Hindu undivided family would be possessed of immovable properties, the income of which would be taxed in the hands of the Hindu undivided family. He argued that after the tax has been paid on such income by the Hindu undivided family, the surplus income would go into the hands of the members but such surplus income would not be liable to be taxed in the hands of the members. That being so, he argued, it would not be possible to say that the members of such a family are not the assessees, for if they are nonassessees or strangers to the assessment p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....siness carried on by the assessee, Shantilal, was not the business of the Hindu undivided family. The Income-tax Officer held that Shantilal was the nominee of the Hindu undivided family, meaning thereby that the business belonged to the Hindu undivided family, and it was that conclusion of the Income-tax Officer which was reversed by the Tribunal, the Tribunal holding that the department had failed to prove that the assessee, Shantilal, was the nominee of the family, in other words, that the income arising from the firm's business was the income of the Hindu undivided family. The direction given by the Tribunal was on the question which was between the department and the Hindu undivided family and the only finding that could be given by the Tribunal was between the two parties, namely, the Hindu undivided family and the department, and not between the department and the assessee, Shantilal, who was not an assessee nor a party to those assessment proceedings. Therefore, if any action had to be taken in consequence of the finding or the direction given by the Tribunal, that action could be taken not against the assessee, Shantilal, but against the Hindu undivided family. It may ....