PETITIONER: C.I.T., ANDHRA PRADESH Vs. RESPONDENT: M/S. VADDE PALLAIAH & CO. DATE OF JUDGMENT08/03/1973 BENCH: HEGDE, K.S. BENCH: HEGDE, K.S. REDDY, P. JAGANMOHAN KHANNA, HANS RAJ CITATION: 1973 AIR 2434 1973 SCR (3) 655 1973 SCC (4) 121 CITATOR INFO : RF 1979 SC1933 (15) R 1984 SC 993 (22) ACT: Income-tax Act (11 of 1922) s. 34(3), Second Proviso-Scope of. HEADNOTE: Upto the assessment year 1953-54 a business was being carried on by P as an individual. in March 1953, he entered into a partnership consisting of himself and others. For the assessment years 1954-55, 1955-56 and 1956-57 the firm filed returns of income and applied for registration under s. 26A of the Income-tax Act. 1922. The income-tax officer rejected' the application holding that there was no genuine firm. He accordingly assessed P as an individual in respect of the income earned in that business. As against that order the firm as well as P appealed to the Appellate Assistant Commissioner who allowed both the appeals. The Appellate Assistant Commissioner held that the business was that of the firm and' not of P. When the income-tax Officer proceeded to assess the firm for the assessment years 1954- 55, 1955-56 and 1956-57, the firm resisted it taking the plea that the proceedings were barred by limitation under s 34(3) of the Act. On the question whether the assessment for each of the assessment years was valid the High Court, on reference, held that the assessments were barred by time and were not saved by the second' proviso to s. 34(3) of the Act. Allowing the appeals to this Court. HELD : Under the proviso the limitation of time would not apply to an assessment or re-assessment made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order under s. 31, 33, 33A and 33B, 66 or 66A. A finding which can be considered as relevant under the proviso must be one which was necessary for deciding the appeal before the authority; and the expression ,any person' refers to 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 person should be intimately connected with the proceedings in which the finding was given. [658 CD; 660 A-B, E-F] In the present case, the order of the Appellate Assistant Commissioner was made under s. 31. Though he had not given any direction, the order made by the Income-tax Officer was in consequence of the finding given by the Appellate Assistant Commissioner. The finding given by the Appellate Assistant Commissioner that the business was that of the firm was absolutely necessary for deciding both the appeals before him. P, who was the dominant partner of the firm was not only interested in his own assessment but was also interested, in the assessment of the firm. The partners and the firm were intimately connected with him and hence, they are 'persons' coming within the scope of the proviso. [658 E-F; 660 C, F-G] Income-tax Officer, A-Ward, Sitapur v. Murlidhar Bhagwan Das, 52 I.T.R. 335; 344, N.M. Sivalingam Chettiar v. Commissioner of Incometax, Madras, 66 I.T.R. 586 and Daffadar Bhagat Singh and Sons v. Incometax Officer, A-Ward Ferozepore, 71 I.T.R. 417, followed. JUDGMENT:
CIVIL APPELLATE JURISDICTION Civil Appeals Nos.1682 to 1684
of 1970.
656
Appeals by special leave from the judgment and order dated
October 3, 1969 of the Andhra Pradesh High Court in R.C. No.
4 of 1966.
S. T. Desai, B. D. Sharma, S. P. Nayar, and R. N. Sachthey,
,for the, appellant.
N. D. Karkhanis, and K. Rajendra Chowdhary, for the
respondent.
The Judgment of the Court was delivered by
HEGDE, J.These are appeals by Special Leave. They arise
from a common judgment of the Andhra Pradesh High Court in a
reference under section 66(i) of the Indian Income Tax Act,
1922, to be hereinafter referred to as the “Act”. The
reference in question relates to the assessment of the
assessee for the assessment years 1954-55, 1955-56 and 1956-
57. The question of law referred by the Tribunal is
“Whether on the facts and the circumstances of the case, the
assessment made on the firms, for each of the assessment
years 1954-55, 1955-56 and 1956-57, are valid in law ?”
Now we shall set out the material facts as could be gathered
‘from the case stated by the Tribunal. Up to and including
the assessment year 1953-54 business with which we are
concerned in this case, was carried on by Vadde Pallaiah.
He was assessed as an ‘individual’. On March 20-3-1953 he
entered into a partnership consisting of himself and three
others. That partnership was known as “M/s. Vadde Pulliah
& Co.” In that partnership Pulliah had 8 as. share and out
of the remaining three partners two had 3 as. share each and o
ne had 2 as. share. For the assessment years 1954-55,
1955-56 and 1956-57, this firm filed returns of income as a
firm. It also applied for registration under section 26A.
The Income-tax Officer rejected that application holding
that there was no genuine firm. He came to the conclusion
that the business was exclusive that of Pulliah. He
accordingly assessed Pulliah as an ‘individual’ in respect
of the income earned in that business. As against that
order both the firm as well as Pulliah went up in appeal to
the Appellate Assistant Commissioner. Before the Appellate
Assistant Commissioner, the question for consideration was
whether the firm in question was a genuine firm. If the
firm was a genuine firm, it necessarily followed that
Pulliah was wrongly assessed. If, on the other hand, the
‘firm was not a genuine firm, Pulliah was rightly assessed.
Therefore, the sole question that arose for decision in the
appeals filed by the firm as well as Pulliah was as to the
genuineness of the firm in question. The Appellate
Assistant Commissioner after examining the material before
him came to the conclusion that the firm in question was a
genuine firm. Consequently, he allowed the
657
appeal of the firm as well as that of Pulliah. In the
firm’s appeals, he directed the Income-tax Officer to
register, that firm and in Pulliah’s appeal he set aside
the assessment made on him. In the operative portion of his
order he stated thus
“The Income-tax Officer is directed to adopt
the, correct, share of income of the appellant
from this firm.”
But in the body of his order he specifically held that the
business. in question was carried on by the firm and not by
Pulliah.
After this order was made, the Income-tax Officer proceeded
to assess the firm in respect of the income earned by that
firm during the assessment years 1954-55, 1955-56 and 1956-
57 When the Income-tax Officer initiated proceedings against
the firm for the purpose of assessment, the firm resisted
the same taking the plea that the proceedings in question is
barred by limitation under section 34(3) of the Act. He
rejected that contention. Aggrieved by that order the firm
went up in appeal to the Appellate, Assistant Commissioner.
The Appellate Assistant Commissioner upheld the contention
of the, assessee and set ‘aside the order of’ the Income-tax
Officer. As against that order the Income tax Officer went
up in appeal to the Income-Tax Appellate Tribunal. The
Tribunal partly accepted the appeal of the Income-tax
Officer.. It came to the conclusion that the assessment in
respect of assessment years 1955-56 and 1956-57 are not
barred in view of the Second Proviso to section 34(3) of the
Act. But it opined that the assessment in respect of the
assessment year 1954-55 was barred by limitation.
Aggrieved by the decision of the Tribunal both the Commis-
sioner of Income-tax as well as the assessee moved the
Tribunal under section 66(i) of the Act to refer certain
questions of law to the High Court of Andhra Pradesh. The
Tribunal submitted’ the question set out earlier to the High
Court.’ The High court has answered that question in favour
of the assessee. It came to the conclusion that the
impugned assessments were barred by time and they are not
saved by the Second Proviso to sub-section(3) of section 34
of the Act. Tit is as against that decision these appeals
have been brought by the Commissioner of Income-tax.
In order to decide the controversy before us it is necessary
to refer to the material portions of section 34. That
section deals with income escaping assessment. We are now
concerned with sub-section (3) of section 34 and the Second
Proviso there to Sub-section (3) of section 34 reads :
“No order of assessment or reassessment, other
than an order of assessment tinder section 23
to which ‘clause(c) of sub-section (1) of
section 28 applies or an order-
658
of assessment or reassessment in cases falling within clause
(a) of sub-section (1) or sub-section (1A) of this section
shall be made after the expiry of four years from the end of
the year in which the’ income, profits or gains were first
assessable.”
The First Proviso is not relevant for our present purposes.
Hence we shall proceed to quote the Second Proviso to sub-
section (3) of section 34. That Proviso gays
“Provided further 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 a re-assessment made under section 27
or to an assessment or re-assessment 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 question before us is whether the assessee’s case is
covered by the Second Proviso to section 34(3) ? Before a
case can be said to be covered by the said Proviso certain
requirements will have to be fulfilled. The first and
foremost requirement is that the order made must be one
either under section 31 or section 33 ,or section 33A or
section 33B or section 66 or section 66A. In the present
case, admittedly, the order in question was made under
section 31. The present case does not fall within the scope
of section 27 about which there is no dispute.
The next requirement is that the order made by the IncomeTax
Officer must be to give effect to any finding or direction
given by the Appellate Authority. In this case, the
Appellate Assistant Commissioner had not given ‘any
direction to assess the assessee. Therefore, all that we
have to see is whether the order made by the Income tax
Officer was in consequence of a finding given by the
Appellate Assistant Commissioner. The further ,question
that we have got to decide is whether the assessee can be
considered as one of the persons coming within the scope of
the proviso in question. There has been considerable
controversy as to the meaning of the word ‘finding’ in the
Second Proviso to section 34(3). This question came up
before this Court for consideration in Income-Tax Officer,
A-Ward, Sitapur v. Murlidhar Phagwan Das.(1) This is what
this Court observed in that case
“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
(1) 52 I.T.R. 335 ; 344.
659
practice been issuing in respect of
‘assessments of the years other than those
before them in appeal. What does the
expression “finding” in proviso to sub-section
(3) of section 34 of the Act mean ? “Finding”
has not been defined in the Income-tax Act.
Order XX, 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 that such a
finding shall be one which by its own force or
in combination with findings on other issues
should lead to the decision of the suit1
itself. That is to say, the finding shall be
one which is necessary for the disposal of the
suit. The scope of the meaning of expression
“finding” is considered by a Division Bench of
the Allahabad High Court in Pt. Hazari Lal V.
Income-Tax Officer, Kanpur,(‘,). There the
learned judges pointed out
The word ‘finding’, interpreted in the sense
indicated by us above, will only cover
material questions which arise in a particular
case for decision by the authority hearing the
case or, the appeal which, being necessary for
passing the final order or giving the final
decision in the appeal, has been the subject
of controversy between the interested parties
or on which the parties concerned have been
given a hearing.”
We agree with this contention of finding.” The same view was
taken by this Court in N.KT. Sivalingam Chettiar v.
Commissioner of Income-tax, Madras (2) .
.LM15
Therein this Court ruled that a finding or direction by an
appellate authority in an order relating to the assessment
of one year does not warrant the avoidance of the bar of
limitation under section 34 of the Indian Incometax Act,
1922, against initiation of proceedings for assessment for
another year. A finding within the second proviso to
section 34(3), must be a finding for giving relief in
respect of the assessment for the year in question. A
finding may only be that which was necessary for the dis-
posal of an appeal in respect of an assessment of a parti-
cular year.
(1) 39 I.T.R. 265. (2) 66 I.T.R. 586.
660
The law on question was elaborately examined by this Court
again in Daffadar Bhagat Singh and Sow v. Income,-tax
Officer, A Ward Ferozepure(1). Therein this Court
reiterated that a finding which can be considered as
relevant under the second proviso to section 34(3) must be
one which was necessary for deciding the appeal before the
authority. Having set out the law let us examine whether
the finding given in this case is one that was necessary for
the decision of the case before the Appellate Assistant
Cornmissioner. As mentioned earlier the question that the
Appellate Assistant Commissioner had to decide in the two appea
ls before him, which he heard together, was whether
the business in question was the business of the firm or
that of Pulliah. He had only two alternatives before him.
In order to decide the appeal of the firm as well as that of
Pulliah, he had to decide whether the business was that of
the firm or that of Pulliah. He came to the conclusion that
the business was that of the firm and not of Pulliah. There
is no room for doubt that the finding given by the Appellate
Assistant Commissioner was absolutely necessary for deciding
both the appeals before him.
This takes us to the other branch of the second proviso to
section 34(3), namely, whether the firm can be considered as
coming within the expression ‘any person’ in the proviso in
question. In Murlidhar Bhagwan Das (Supra), this Court came
to the conclusion that the expression ‘any person’ in the
second proviso to section 34(3) referred to 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. Further, that person should be intimately
connected with the proceedings in which the finding was
given. The same view was taken in other cases refierred to
earlier. In the instant case Pulliah was the dominant
partner of the firm as found by the Tribunal. He had 8 as.
share in ;the firm. He, was the original owner of the firm.
He was not only interested in his own assessment, he was
also interested in the assessment of the firm. The partner
of Pulliah were ,intimately connected with him. Hence we
were clearly of the opinion that they are “persons” coming
within the scope of the second proviso to section 34(3). It
may be noted that the Appellate Assistant Commissioner had
to deal with–the cases of Pulliah as well as that of the
firm.
In our opinion the High Court erred in coming to the con-
clusio.n that the finding given by the Appellate Assistant
Commissioner, in the appeals filed by Pulliah as well as by
the firm, that the business was carried on by the firm was
not a necessary .finding for deciding the appeals before
him. That finding was
(1) 71 I.T.R, 417.
661
clearly necessary. But for that finding he could not have
decided the appeals before him in the way he decided. The
High Court was also wrong in its conclusion that the firm
was a stranger to the assessment made on Pulliah. The firm
was intimately connected with Pulliah and the assessment
made on him.
For the reasons mentioned above we set aside the order of
the High Court. We vacate the answer given by the High
Court and answer the question referred to in the affirmative
and in favour of the Revenue. The appellant will got his
costs from the Respondent. One hearing fee.
V.P.S. Appeal allowed.
662