ORDER
R.N. Puri, Accountant Member
1. The appeals filed by the assessee pertain to the assessment years 1971-72 to 1979-80. These appeals are directed against the orders dated 15-12-1986 of the CIT (Appeals) upholding the assessments of the assessee made by the Income-tax Officer under Section 147 of the IT Act, 1961, in respect of the above mentioned assessment years. The assessee is HUF in status.
2. In its appeals, the assessee has challenged the very legality of the assessments. It is contended that the assessments should be struck down as being invalid. It is stated that assumption of jurisdiction under Section 147 was not justified. It is also stated that the assessments made were bad in law on account of the fact that notices under Section 148 were invalid, having been issued after the expiry of the time limit prescribed for the issue of such notices. It was pointed out that the issue of a notice under Section 148 was a condition precedent to the validity of any asssessment under Section 147 and if the notice issued under Section 148 was not valid, assessment was not legally sustainable. Another contention raised was that since the HUF had ceased to exist by the time the assessments came to be made, the assessments were bad in law, as law does not provide for making assessment on defunct HUF. It was stated that the HUF had disrupted on 8-5-1972. There is also dispute as to the applicability of the provisions of Section 150(1) which lift the bar of limitation prescribed for the issue of notice under Section 148. The view of the department that, since the assessments are in consequence of or to give effect to the “finding” of the Hon’ble High Court of Karnataka in the case of Paramanand L. Bajaj v. CIT [1982] 135 ITR 673, the bar of limitation for issue of notice under Section 148 is lifted, is disputed.
3. Let the facts be stated. There had existed a HUF consisting of Paramanand L. Bajaj, his wife, three sons and two daughters. The three sons of Paramanand L. Bajaj are Devendra P. Bajaj, Vijaykumar P. Bajaj and Nandlal P. Bajaj. The assessment was being made on the HUF represented by its karta, Paramanand L. Bajaj. On 20-8-1956, Devendra P. Bajaj got separated from the family. Vijay kumar P. Bajaj got separated from the family on 22-12-1961. Nandlal P. Bajaj got separated from the family on 30-6-1963. Subsequently, it was claimed that there had taken place areunion on 27-3-1971. The re-union was evidenced by an agreement signed by Paramanand L. Bajaj and his three sons on 27-3-1971. Clause (1), (2) and (3) of the agreement read:
Clause (1): The parties hereto do hereby affirm that they have reunited on 27th day of March, 1971, to form a Hindu Undivided family.
Clause (2) : Any party to this agreement can throw either his self-acquired property or any property got by him on partition of the Hindu undivided family before this reunion into the said Hindu Undivided family.
Clause (3): The properties got by the parties to this agreement on partition prior to this reunion shall continue to be their respective separate properties unless thrown into the common hotchpot of the Hindu undivided family which has come into existence by virtue of this agreement.
On 30-3-1971, Paramanand L. Bajaj threw only the immovable properties of the smaller HUF consisting of himself, his wife and an unmarried daughter into the common hotchpot of the re-united family. As far as the movables were concerned, they were not brought by him to the fold of the reunited family. Devendra P. Bajaj, Vijay kumar P. Bajaj and Nandlal P. Bajaj, however, did not bring any of the properties which they had got on partition and which were still in their possession on the date of the agreement of the re-union, to the hotchpot of the re-united family.
4. The re-united family (the assessee) did not file any return for the assessment year 1971-72. This was presumably on account of the fact that the re-union had taken place on 27-3-1971, i.e.,only a few days prior to the close of the previous year (the previous year had ended on 31-3-1971) and the income was less than the maximum amount up to which no tax was chargeable-.
5. The re-united family filed return of income for the assessment year 1972-73 on 18-8-1972 declaring income of Rs. 21,314. The income declared was from the properties which the smaller HUF of Paramanand L. Bajaj had brought back to the fold of the re-united family. The department was of the view that the re-union was not valid in law. The reason on account of which the department was of the view that the re-union was not valid was that all the properties which the re-uniting members had earlier received on partition were not brought back to the fold of the re-united family. As stated above, it was only Paramanand L. Bajaj who had brought the properties back to the fold of the re-united family and as far as his three sons were concerned, they had not brought the properties back to the fold of the re-united family. Even Paramanand L. Bajaj had not brought all the properties back to the fold of the re-united family. According to the department, it was the prime requirement for the re-union that the properties obtained by the members of the HUF at the time of partition were brought back into the hotch-pot of the re-united family. Since this requirement was not fulfilled in this case, the conclusion of the department was that there was no valid re-union. In this view of the matter, the department concluded that the properties which the smaller HUF of Paramanand L. Bajaj had thrown into the hotch-pot of the re-united family were to be considered to have continued to belong to the smaller HUF of Paramanand L. Bajaj, as, according to the department, the re-united family had not come into existence. The department, hence, assessed the income of these properties in the hands of the smaller HUF of Paramanand L. Bajaj for the assessment year 1972-73. As a protective measure, the department also assessed the income from these properties in the hands of the re-united family. This protective assessment was completed by the department on 4-7-1973.
6. The assessee (the re-united family) had filed its return of income for the assessment year 1973-74, showing an income of Rs. 2,050, on 16-8-1973. This income was also in respect of the properties which the smaller HUF of Paramanand L. Bajaj had thrown into the hotch-pot of the reunited family. There was a claim of partition of there-united family on 8-5-1972 and it was on account of this that it was only the income arising up to 8-5-1972 that was shown in the return of the re-united family. As pointed out above, the ITO was of the view that the re-union was not valid and as such, the properties thrown by the smaller HUF of Paramanand L. Bajaj into the hotch-pot of the re-united family had continued to belong to the smaller HUF. Hence, it was again only as a protective measure that the ITO completed the assessment of the re-united family for the assessment year 1973-74, on an income of Rs. 2,050 as disclosed, on 27-2-1976.
7. For the assessment years 1974-75, 1975-76, 1976-77 and 1977-78 also, the assessee filed returns of income. Since, according to the assessee, the partition of the HUF had taken place on 8-5-1972, the assessee filed returns showing only Nil income. The ITO did not recognise the claim of the assessee for partition on 8-5-1972, since, according to him, the re-united HUF itself had not come into existence and as such, the question of partition could not arise. The ITO, however, completed the assessments of the re-united family at Nil income as disclosed by the assessee. These assessments were also made by the ITO on a protective basis, since, according to him, the re-union was not valid and the properties had continued to belong to the smaller HUF of Paramanand L. Bajaj. The assessments of the assessee were made only to dispose of the returns which had been filed by it. The assessment for the assessment year 1974-75 was made on 10-3-1977. The assessments for the assessment years 1975-76,1976-77 and 1977-78 were completed on 30-1-1978.
8. For the assessment years 1978-79 and 1979-80, the assessee had not filed any returns on its own.
9. As stated above, the department was of the view that the re-union was not valid and as such, the bigger HUF could not be considered to have come into existence. The department was, hence, of the view that the properties thrown by Paramanand L. Bajaj into the hotch-pot of the bigger re-united family had continued in law to belong to the smaller HUF of Paramanand L. Bajaj. The department, hence, assessed the income of these properties in the hands of the smaller HUF of Paramanand L. Bajaj for the assessment years 1971-72 and 1972-73. This was objected to by Paramanand L. Bajaj. Ultimately, the matter went to the Hon’ble High Court of Karnataka in reference. The High Court decided the matter in the case of Paramanand L. Bajaj (supra) by its judgment dated 13-4-1981. The High Court found that in the facts of the case, the essential ingredients of re-union had existed. The High Court, hence, held that the re-union was valid. Clause (3) of the agreement of re-union had provided that the properties got by the parties on partition prior to this re-union were to continue to be their respective properties unless thrown into the common hotchpot of the HUF which had come into existence by virtue of the agreement of re-union. According to the High Court, Clause (3) would not invalidate the re-union. The High Court observed as under :
Clause 3 of the reunion agreement might be invalid as being repugnant to the reunion and unavailable to the coparceners but the reunion was not invalid on that account. It was open to the Income-tax authorities to ignore Clause 3 and to bring all the properties which belonged to the larger HUF before the partition to tax at the hands of the reunited HUF. It was also not open for the individuals, who admitted the reunion, to avoid its legal effect, viz., that the properties which they had got on partition and were existing with them at the time of reunion had become properties available for common enjoyment.
The High Court, thus, came to the conclusion that the re-union was valid and the department was in error in assessing the income of the properties thrown by the smaller HUF of Paramanand L. Bajaj into the common hotchpot of the re-united family, in the hands of the smaller HUF of Paramanand L. Bajaj. According to the High Court, the re-union being valid, these properties had come to belong to the re-united family and, hence, the income of those properties was assessable in the hands of the re-united family.
10. Thereupon, on the basis of this decision of the High Court, the department proceeded under Section 147 in the case of the re-united family to assess the income that had escaped assessment. In the assessments that were completed, the department brought to tax in the hands of the re-united family the income of all the properties since, as per the decision of the High Court, all the properties had, on re-union, come to belong to the re-united family.
11. The assessee has challenged the the validity of these assessments which had been made under Section 147. Section 147 provides for bringing to tax the income that had escaped assessment. There are certain conditions precedent which are required to be fulfilled before jurisdiction can be assumed under Section 147 for bringing to tax the income escaping assessment. Unless the ITO had “reason to believe” that income chargeable to tax had escaped assessment, he would not be justified to proceed under Section 147. The basis of the department’s action under Section 147 was the judgment dated 13-4-1981 of the Karnataka High Court in the case of Paramanand L. Bajaj (supra) wherein the validity of the re-union of the family on 27-3-1971 had been upheld. The department had, however, not accepted the decision of the High Court and had taken the matter to the Supreme Court. It was pointed out on behalf of the assessee that when the department was of the view that there was no valid re- union, it could have no “reason to believe” that income of the re-united family had escaped assessment. It was argued that, under the circumstances, the department was not justified to proceed under Section 147. This argument of the assessee does not appeal to us. The decision of the High Court, as long as it subsists, is the law of the land. On the basis of the decision of the High Court upholding the validity of the re- union, the ITO did have “reason to believe” that the income of the re-unitid family had escaped assessment. As such, the ITO was justified to proceed under Section 147.
12. The assessee has also put forth the contention that the assessments made under Section 147 are bad in law since notices under Section 148 for the various assessment years were not validly issued. Before making an assessment under Section 147, notice under Section 148 is required to be issued. Section 149(1) prescribes the time limit for the issue of notice under Section 148. The contention of the assessee is that notices under Section 148 were invalid since they had not been issued within the prescribed time limit.
13. We have considered this matter carefully. The question to be examined is whether notices under Section 148 for the various assessment years have been issued within the prescribed time or not. If notice under Section 148 for any year has not been issued within the prescribed time limit, the assessment made under Section 147 for that assessment year will have to be struck down. Section 149 prescribes the time for issuance of notice under Section 148.Section 150(1),however,provides that a notice under Section 148 may be issued at any time for the purpose of making an assessment or re- assessment in consequence of, or to give effect to, any finding of direction contained in an order passed in appeal, reference or revision under this Act. Hence, firstly we will examine whether notices under Section 148 in respect of the various assessment years have been issued within the time limit as prescribed under Section 149. In case any of the notices is not within the time limit laid down under Section 149, then we will further examine whether it is saved by sub-section (1) of Section 150 which forms an exception to Section 149.
14. The assessment years under consideration are 1971-72 to 1979-80. Notices under Section 148 in respect of all the assessment years were issued on 27-3-1982. Time limits prescribed under Section 149 for the issue of notice under Section 148 are different, depending on whether action for assessing the escaped income is under Clause (a) or Clause (b) of Section 147. If escapement of income is on account of omission or failure on the part of the assessee to make a return under Section 139 or to disclose fully and truly all material facts necessary for his assessment, then Clause (a) becomes applicable. There may be no such omission or default on the part of the assessee, but income may escape assessment on account of some error on the part of the ITO. In such a circumstance, action under Section 147 can still be taken by virtue of Clause (b). Clause (b) empowers the ITO to proceed under Section 147, if the ITO has, in consequence of information in his possession, reason to believe that income chargeable to tax has escaped assessment. In cases covered by Clause (a), notice under Section 148 may be issued at any time within 8 years from the end of the assessment year for which proceedings have been taken. If, however, the income chargeable to tax which has escaped assessment, amounts to or is likely to amount to at least Rs. 50,000, notice under Section 148 may be issued at any time within 16 years from the end of the assessment year for which action is being taken. In cases falling under Clause (b) of Section 147, notice under Section 148 may be issued at any time within four years from the end of the assessment year for which the re-assessment has to be made. Now, since the time limit for the issue of notice under Section 148 depends on whether the case falls under Clause (a) or under Clause (b) of Section 147, it becomes imperative to find out whether action in respect of a particular year falls under Clause (a) or under Clause (b). As far as assessment years 1971-72, 1978-79 and 1979-80 are concerned, action lies under Section 147(a), since there had been omission on the part of the assessee to file returns for these years. It was pointed out by the learned departmental representative that action for assessment years 1972-73 to 1977-78 would also lie under Clause (a). The assessee had filed returns for the assessment years 1972-73 to 1977-78. However, according to the department, since there had been omission on the part of the assessee to disclose the material fact of the re-union of the family, the assessee could be proceeded against under Clause (a). It was pointed out on behalf of the department that the assessee, while filing the returns for these years, had not mentioned that there had taken place re-union. We do not find it possible to accept the contention of the department that even in respect of the assessment years 1972-73 to 1977-78, the provisions of Clause (a) would become applicable. The records amply bear out that the ITO was all along seized of the fact of the re-union of the assessee-family. The ITO had made the original assessments on a protective basis. The ITO was of the view that the re-union being not valid no income was taxable in the hands of the re-united family. But, since the re-united family had filed the returns, the ITO disposed of the returns by making the assessments on protective basis. For example, the ITO has stated as under while completing the original assessment in respect of the assessment year 1974-75 :
Protective : Return of income declaring Nil income has been filed on 31-8-1974. It has already been held that the income arising to this HUF is to be included in the hands of Paramanand L. Bajaj, the minor HUF. Therefore, a protective assessments made by accepting the return of income.
15. It is, thus, obvious that the fact of the re-union was very much within the knowledge of the ITO when he completed the original assessments of the assessee in respect of the assessment years 1972-73 to 1977-78. The facts of the case indicate that the assessee had disclosed the material fact of re-union to the department. It may be that it might not have disclosed this fact everytime it filed its return for an assessment year, but it cannot be denied that this fact was duly within the knowledge of the ITO when he had made the assessments. Even if we may accept the contention of the department that the assessee’s not disclosing the fact of re-union everytime it filed the return for an assessment year, amounted to failure on the part of the assessee to disclose all the material facts necessary for his assessment, still this will not be of any use to the department. It is well-established that even if there has been any such omission or failure, but that has not led to the escapement of income, Clause (a) would not become applicable. From the facts narrated above, it is clear that the escapement of income was not attributable to any lack of knowledge on the part of the ITO about the re-union, which lack of knowledge could be said to have been generated by the failure on the part of the assessee to disclose the fact of re- union, but the escapement of income was on account of ITO’s not recognising the validity of the re-union. Hence, we are unable to accept the contention put forth by the learned departmental representative that even in respect of assessment years 1972-73 to 1977-78 Clause (a) would be applicable. But, in respect of these assessment years, however, Clause (b) does become applicable. The judgment dated 13-4-1981 of the Hon’ble High Court of Karnataka in the case of Paramanand L. Bajaj (supra) constituted “information” on the basis of which the ITO had reason to believe that income had escaped assessment. This would entitle the ITO to proceed under Clause (b) of Section 147 to bring to tax the income that had escaped assessment.
16. Hence, as far as assessment years 1971-72,1978-79 and 1979-80 are concerned, the action taken by the ITO under Section 147 is to be regarded as being under Clause (a) and action taken in respect of the assessment years 1972-73 to 1977-78 is to be regarded as being under Clause (b). As stated above, different time limits are prescribed for the issue of notices under Section 148 in respect of cases falling under Clause (a) and in respect of cases falling under Clause (b), of Section 147. In cases falling under Clause (a), notice under Section 148 can be issued where income escaping assessment is at least Rs. 50,000, within 16 years from the end of the assessment year in respect of which income has escaped assessment. For all these assessment years, the escaped income had amounted to at least Rs. 50,000. Therefore, notices under Section 148 issued for the assessment years 1971-72,1978-79 and 1979-80 for which action lay under Clause (a) were within the time limit prescribed under Section 149. In respect of the assessment years 1972-73 to 1977-78, action is under Section 147(6). In respect of cases falling under Clause (b) of Section 147, notice under Section 148, as per the time limit laid down under Section 149, can be issued within four years from the end of the assessment year for which action is being taken. It was, hence, only in respect of the assessment year 1977-78 that notice under Section 148 issued on 27-3-1982 had been issued within the prescribed time. As far as notices under Section 148 issued in respect of the assessment years 1972-73 to 1976-77 are concerned, they were issued beyond the time prescribed under Section 149.
17. Hence, out of the various assessment years under consideration, it is only in respect of the assessment years 1972-73 to 1976-77 that notices under Section 148 were not issued within time prescribed under Section 149. The claim of the department is that these notices are saved by the provisions of Section 150(1). Section 150(1) provides that, notwithstanding anything contained in Section 149, a notice under Section 148 may be issued at any time for the purpose of making an assessment or re-assessment in consequence of, or to give effect to, any finding or direction contained in an order passed in appeal, reference or revision under this Act. According to the department, the provisions of Section 150(1) become applicable since notices under Section 148 for the abovementioned assessment years were issued for the purpose of making re-assessments in consequence of, or to give effect to, the finding of the High Court in the case of Paramanand L. Bajaj (supra). It was also suggested by the learned departmental representative that the High Court had in its judgment given a direction to the department to assess the income in the hands of the re-united family and, hence, it could be said that the action for reassessments had been taken to give effect to this direction of the High Court. Hence, the question to be determined is whether the re-assessments for the above-mentioned assessment years in the case of the re-united family can be considered to be in consequence of, or to give effect to, the “finding or the direction” of the High Court.
18. Section 150(1) and Explanations 2 and 3 below Section 153 are as under :
Section 150(1): Notwithstanding anything contained in Section 149, the notice under Section 148 may be issued at any time for the purpose of making an assessment or reassessment or recomputation in consequence of or to give effect to any finding or direction contained in an order passed by any authority in any proceeding under this Act by way of appeal, reference or revision (or by a Court in any proceeding under any other law).
Section 153….
…
…
Explanation 2: Where, by an order referred to in Clause (ii) of sub-section (3), any income is excluded from the total income of the assessee for an assessment year then, an assessment of such income for another assessment year shall, for the purposes of Section 150 and this section, be deemed to be one made in consequence of or to give effect to any finding or direction contained in the said order.
Explanation 3 : Where, by an order referred to in Clause (ii) of sub-section (3), any income is excluded from the total income of one person and held to be the income of another person, then, an assessment of such income on such other person shall, for the purposes of Section 150 and this section, be deemed to be one made in consequence of or to give effect to any finding or direction contained in the said order, provided such other person was given an opportunity of being heard before the said order was passed.
19. We do not think that the High Court gave any “direction” in its judgment in the case of Paramanand L. Bajaj (supra) to give effect to which the present proceedings for re-assessment could be said to have been taken up. It is on the basis of the following observation of the High Court that the department is contending that the High Court had given a direction to the department to bring to tax the income of the various properties in the hands of the re-united family :
It would be open to the IT authorities to ignore clasus 3 of the agreement and to bring all the properties which belonged to the larger HUF, before partition, to tax under the Act at the hands of the reunited HUF.
We think that this observation of the High Court cannot be said to amount to any ‘direction’ given by the High Court. We will refer to the following observation of the Supreme Court in the case of Rajinder Nath v. CIT [1979] 120 ITR 14 :
A direction by a statutory authority is in the nature of an order requiring positive compliance. When it is left to the option and discretion of the ITO whether or not to take action, it cannot, in our opinion, be described as a direction.
In that case, the Appellate Asstt. Commissioner, in appeal, had observed that the ITO “is free to take action” to assess the excess in the hands of the co-owners. The department was of the view that this observation of the Appellate Asstt. Commissioner had amounted to a “direction” for the purpose of Section 153(3)(ii). According to the Supreme Court, this observation could not be regarded as being a direction because it had been left to the option and discretion of the ITO whether or not to take action. Similarly, the observation of the Kamataka High Court in the case of Paramanand L. Bajaj (supra) could not be regarded as being a “direction” since the matter was left to the discretion of the Income-tax Authorities to assess or not to assess the income of the properties in the hands of the re-united family.
20. Now, we will proceed to consider whether the re-assessments for the assessment years 1972-73 to 1976-77 could be considered to be in consequence of, or to give effect to, any “finding” of the High Court in the case of Paramanand L. Bajaj (supra). The issue that had cropped up in the case of Paramanand L. Bajaj in the assessment year 1972-73 which was the subject-matter of reference, was as to whether the income of the properties, which Paramanand L. Bajaj had thrown into the hotch-pot of the re-united family, could be assessed in the hands of Paramanand L. Bajaj. The case of the revenue was that, since all the properties that had belonged to erstwhile family had not been brought back to the fold of the re-united family, there was no re-union in law and as such, the properties purported to have been thrown by Paramanand L. Bajaj into the hotch-pot of the re-united family were to be considered to have continued to belong to Paramanand L. Bajaj and, hence, the income of these properties was still assessable in the hands of Paramanand L. Bajaj. In the view of the High Court, there was a valid re-union. The High Court observed that the option given to the re-uniting members to retain the properties obtained by them at the time of partition, being repugnant to the law of reunion, was not available to them. In this view of the matter, the decision of the High Court in respect of the issue arising in that case was that the income of the properties was not assessable in the hands of Paramanand L. Bajaj as the properties, on re-union, had come to belong to the re-united family.
21. It is true that the High Court in the case of Paramanand L. Bajaj in respect of the assessment year 1972-73 did decide that the re-union was valid and the re-united family had duly come into existence. The High Court also held that the option given to the members to bring or not to bring the properties obtained by them at the time of partition back to the fold of the re-united family was not operative and all the properties on re-union had come to belong to the re-united family. On the basis of this decision, the ITO took action in the case of the re-united family to assess its income which had escaped assessment. The contention of the department is that action in the case of the re-united family to assess the income that had escaped assessment was in consequence of or to give effect to this “finding” of the High Court and, hence, the bar of limitation for the issue of notices under Section 148 in respect of the assessment years 1972-73 to 1976-77 was lifted. There is no doubt that the decision of the High Court will definitely constitute “information” on the basis of which action under Section 147 for assessing the escaped income can certainly be taken. But the question that arises is whether the decision of the High Court could be regarded as being a “finding” as contemplated under Section 150(1) so as to lift the bar of limitation for the issue of notice under Section 148.
22. We have given our utmost consideration to the plea advanced on behalf of the department. We must admit that we are finding it difficult to persuade ourselves to accept the point of view canvassed by the department that the decision of the High Court constitutes “finding” contemplated under Section 150(1) so as to lift the bar of limitation for the issue of notices under Section 148 for all these years. The assessee before us is the re-united family. The “finding” that the re-union was valid was given by the High Court in the case of Paramanand L. Bajaj in respect of the assessment year 1972-73 which was the subject-matter of reference before the High Court. We fail to understand as to how action taken in the case of the assessee to assess the escaped income in respect of the assessment years 1972-73 to 1976-77 can be said to be in consequence of or to give effect to the “finding” given by the High Court in the case of Paramanand L. Bajaj in respect of the assessment year 1972-73. It is well established that the term “finding” has got a limited meaning. The authority or the Court is competent to give a finding with regard to the matter before it. The decision by the authority or the Court is in respect of the proceeding before it and is applicable only to such proceeding. It is well-known that the principle of res judicata does not operate in the proceedings under the Income-tax Act. For example, in an appeal for a particular year, it is held by the appellate authority that depreciation on a certain item of plant and machinery was admissible only at the rate of 10% and not at the rate of 20% as claimed by the assessee. In the assessments of the assessee for the preceding years, the department had allowed depreciation on that time at the rate of 20%. In respect of those years, the department now proceeds to assess the income that had escaped assessment on account of excessive depreciation having been allowed. The department can certainly do it if the normal time-limit for taking such action is still available to the department, but it cannot claim that the bar of limitation is lifted on the ground that the action is in consequence of or to give effect to the finding of the appellate authority. The finding of the appellate authority was in respect of a paticular year which was the subject-matter of appeal and it cannot be said that action taken in respect of other years was in consequence of or to give effect to that finding. Similarly, the finding given in the case of a person will not normally lift the bar of limitation for proceeding in the case of another person, unless the case falls under Explanation 3tos. 153 which deems certain assessments made in the case of a person other than the person in whose case in appeal, revision or reference the finding was given, as being the assessments made in consequence of or to give effect to the “finding”, for the purpose of Section 150. It is, thus, clear that merely because the High Court has held in the case of Paramanand L. Bajaj that the reunion was valid and all the properties, on re-union, came to belong to the re-united family, the department cannot claim that action for assessing the escaped income of the re-united family being in consequence of or to give effect to the finding of the High Court under Section 150(1) would lift the bar of limitation for issue of notice under Section 148. Our assessee is a person other than the one in whose case the finding was given. Hence, it is only if the case of this assessee falls under the Explanation that the bar of limitation will be lifted. If the case does not fall under the Explanation, the question of the bar of limitation for the issue of notice under Section 148 being lifted will not arise. Then the question that arises for consideration is whether the assessment of the re-united family in respect of the assessment years 1972-73 to 1976-77 come within the purview of Explanation 3. If they do not, then it cannot be said that they were made in consequence of or to give effect to the finding of the High Court. As per the Explanation, where by an order in appeal or reference or revision, any income is excluded from the total income of one person and held to be the income of another person, then, an assessment of such income on such other person shall, for the purposes of Section 150, be deemed to be one made in consequence of or to give effect to any finding contained in the said order, provided such other person was given an opportunity of being heard before the said order was passed. Thus, if “A” files an appeal against the assessment and the appellate authority deletes certain income on the ground that the income really belongs to “B”, a notice under Section 148 may be issued to “B” at any time and an assessment or re-assessment on him may be completed at any time. It is, thus, obvious that it is only such assessment which has been taken up to assess the income which has been excluded from the total income of another person that can be deemed to be one made in consequence of or to give effect to the “finding”. In the case under consideration, it is only action taken under Section 147 in respect of the assessment year 1972-73 that falls within the purview of the Explanation. The reference in the case of Paramanand L. Bajaj was in respect of the assessment year 1972-73. ParamanandL. Bajaj had thrown some of his properties into the hotch-pot of the re-united family. In the return filed by him he had shown the income of such properties which had been retained by him and hence there was no dispute about the assessability of that income in his hands. It was only the income of these properties that had been thrown by him into the hotch-pot of the reunited family, that had not been disclosed by him in the return. Hence, the dispute arising in his case was only with regard to the assessability of the income of the properties which had been thrown by him into the hotch-pot of the re-united family. He had contended that as these properties had become the properties of the re-united family, the income of these properties could not be assessed in his hands. The department, however, assessed the income in his hands, being of the view that re- union was invalid and as such, the properties had continued to belong to Paramanand L. Bajaj. As a result of the judgment of the High Court, it was only this income which came to be excluded from his total income. As per the Explanation, it was only such assessment of the re-united family which had been taken up to assess the income that was excluded from the assessment of Paramanand L. Bajaj, that could be deemed to be one made in consequence of or to give effect to the finding of the High Court. Such income which had been excluded from the assessment of Paramanand L. Bajaj falls to be assessed in the hands of the re-united family for the assessment year 1972-73. Hence, it was only the assessment for the year 1972-73 which could be deemed as being one made in consequence of or to give effect to the finding of the High Court in the case of Paramanand L, Bajaj. As far as assessments for other years are concerned, the Explanation does not become applicable to them and as such, they cannot be deemed to be the assessments made in consequence of or to give effect to the finding of the High Court in the case of Paramanand L. Bajaj. The bar of limitation for the issue of notice under Section 148 can be lifted if the Explanation becomes applicable. It is, hence, held by us that notices under Section 148 had not been issued in respect of the assessment years 1973-74 to 1976-77 within the prescribed time. As far as the re-assessment for the assessment year 1972-73 is concerned, the provisions of Section 150(1) do become applicable to it. We uphold the validity of the assessment for the assessment year 1972-73.
23. We will draw attention to the decision of the Karnataka High Court in the case of Consolidated Coffee Ltd. v. ITO [1985] 155 ITR 729. In that case, in respect of the assessment years 1964-65 to 1966-67, the Tribunal had held that the sale proceeds of timber had brought about capital gain. In the previous year relevant to assessment year 1963-64 also, the assessee had sold timber and that was for Rs. 11,91,508. For that assessment year, no capital gain had been taken into account. In view of the decision of the Tribunal in respect of the assessment years 1964-65 to 1966-67, the ITO had re-opened the assessment of the assessee for the assessment year 1963-64 under Section 147(6). Notice under Section 148 was issued beyond the time prescribed under Section 149. But, it was claimed that the notice was saved by the provisions of Section 150(1), as the reopening of the assessment was in consequence of or to give effect to the finding of the Tribunal that the sale of timber gave rise to capital gain. The High Court held that the order made by the Tribunal for the assessment years 1964-65 to 1966-67 could not be made the basis for re-opening the earlier concluded assessment for the assessment year 1963-64 as the decision of the Tribunal could not be regarded as a “finding” contemplated under Section 150(1) in respect of the assessment year 1963-64. In the case under consideration, the re-opening is not only to assess in the hands of the re-united family the income which had been excluded from the assessment of Paramanand L. Bajaj in respect of the assessment year 1972-73, but assessments for the assessment years 1973-74 to 1976-77 had also been re-opened. The decision of the Karnataka High Court in the abovementioned case of Consolidated Coffee Ltd., clearly establishes that the decision of an authority constitutes “finding” only with regard to the dispute which had arisen before it and cannot be regarded as being a “finding” in respect of may be a similar matter arising for other assessment years. That was in the case of the same assessee. It is all the more so that the decision of an authority or court in one case will not constitute a finding within the meaning of the term as used in Section 150(1) in the case of another assessee unless the case falls under Explanation 3, to Section 153. So it is obvious that barring under Explanation 3, the re-opening for the abovementioned assessment years cannot be said to be in consequence of or to give effect to the finding of the High Court. As we have already discussed above, it is only action for the assessment year 1972-73 which can be said to come within the purview of the Explanation. As such, the bar of limitation for the issue of notice under Section 148 is only lifted in respect of the assessment year 1972-73. As far as the assessment years 1973-74 to 1976-77 are concerned, the bar of limitation is not lifted. Hence, as notices under Section 148 in respect of those years were not validly issued, the assessments for these years are struck down as having been made without proper authority.
24. Another ground on the basis of which the validity of the assessments has been challenged is that since the re-united family was not in existence on the dates on which the assessments under Section 147 were made, the assessments were invalid, as no assessment could be made on a defunct family. It was stated that the re-united family had disrupted on 8-5-1972. It was stated that the assessments which had been made subsequent to 8-5-1972 could not be sustained, since no assessment could be made on a defunct Hindu undivided family.
25. We have considered the matter carefully. As per Section 171, once a Hindu undivided family is assessed as such, it would continue to be so assessed even after it has disrupted and has ceased to exist unless a finding is given under this section recording the total partition. The re-union of the family had taken place on 27-3-1971. No finding of total partition had since been recorded till the date of the assessments. The agreement to re-unite had provided that “any party to this agreement can throw either his self-acquired property or any property got by him on partition of the HUF before this re-union into the said HUF”. The agreement had further provided that “the properties got by the parties to this agreement on partition prior to this re-union shall continue to be their respective separate properties unless thrown into the common hotch-pot of the HUF which has come into existence by virtue of this agreement”. It was only Paramanand L. Bajaj who threw the properties of his minor HUF into the hotch-pot of the re-united family. As far as the other re-uniting coparceners were concerned, they did not bring the properties obtained by them on partition back to the fold of the re-united family. The re-united family partitioned, on 8-5-1972, the properties which had been brought to its fold by Paramanand L. Bajaj. It approached the ITO for recording a finding under Section 171 in respect of this partition. The ITO declined to record a finding of partition on the ground that there could be no partition of the re-united family. In appeal, the CIT(A) directed the ITO to record a finding of partition. The Tribunal by its order dated 30-4-1989 in ITA No. 1938/Bang/88 upheld the order of the CIT(A). The contention of the assessee is that what had happened on 8-5-1972 was a complete disruption of the re-united family. We find it difficult to accept this contention of the assessee. As has already been stated above, the High Court of Karnataka had held on 13-4-1981 in the case of Paramanand L. Bajaj v. CIT [1982] 135 ITR 673 that the re-union was valid and that the option given to the re-uniting members to bring or not to bring the properties back to the fold of the re-united family, being repugnant to law of re-union, was not available to the members. As a corollary of that, it was held by the High Court that all the properties, whether brought into the hotch-pot of the re-united family or not, came to belong, on reunion, to the re-united family. As stated above, the partition as on 8-5-1972 was only of the properties which had been brought by Paramanand L. Bajaj into the hotch-pot of the re-united family. It is thus, obvious that the remaining properties which on account of the decision of the Karnataka High Court were to be held to belong to the re-united family, continued to belong to the re-united family and there was no partition in respect of them. It was pointed out by the learned authorised representative of the assessee that such properties were to be deemed to have been partitioned on the date of the re-union itself, i.e., on 27-3-1971. It was stated that the very fact that the members had kept the properties with them was indicative of the intention of their enjoying those properties separately. It was stated that as such what had happened on 8-5-1972 was the total disruption of the family when even those properties which had been brought into the hotch-pot of the re-united family were partitioned. Thus, according to the learned authorised representative of the assessee, there was a complete disruption of the reunited family on 8-5-1972. We are unable to accept this contention of the assessee. Partition could only be subsequent to the bringing of the properties back to the fold of the re-united family. Partition is a conscious act. We are unable to accept the contention of the assessee that the fact that the members had not brought the properties back to the fold of the re-united family was tantamount to partition. The agreement of re-union had left it to the option of the members to bring or not to bring the properties back to the fold of the re-united family. When a member keeps the property with himself, it is because he has exercised the option not to bring it to the fold of the re-united family and it cannot be said that the property is with him as a result of the partition of the re-united family. To say that those properties, which were not brought by the members back to the fold of the re-united family, were to be considered to have been partitioned, does not make any sense. Hence, in our view, there was no complete disruption of the HUF on 8-5-1972. Only some of the properties of the HUF were partitioned on 8-5-1972. These were only the properties which Paramanand L. Bajaj had brought to the fold of the family that were partitioned. As far as other properties are concerned, there was no partition in respect of them. Thus, there was only a partial partition of the HUF on 8-5-1972. Hence, we do not find it possible to accept the contention of the assessee that the HUF had become defunct prior to the initiation of proceedings under Section 147 or prior to the completion of the assessments thereafter.
26. It was then stated that, examining the issue from another angle, the same conclusion of total disruption as on 8-5-1972 could be reached. It was stated that the properties which the HUF was aware of having as on 8-5-1972 were duly partitioned and there was thus total disruption of the HUF. It was stated that the question of partitioning the properties which the HUF did not consider itself to be having just could not arise. It was stated that if, later, on account of the decision of the Karnataka High Court in the case of Paramanand L. Bajaj, it was found that certain other properties had also belonged to the HUF, then that could not be made a ground for saying that there was no complete disruption of the HUF and that what had happened on 8-5-1972 was only a partial partition. It was stated that the intention of the HUF to disrupt itself totally was clearly expressed when all the properties which it had known itself to be having were partitioned. It was stated that the HUF could not be expected to partition these properties which it was not even aware of being possessed of. It was stated that in such a case the properties which could not be divided were to be regarded to be held by the coparceners as tenants-in-common. It was stated that the HUF had already completely disrupted and the question of considering any property as belonging to the HUF just could not arise. That may be the position with regard to Hindu Law. But, as far as income-tax law is concerned, the recording of the finding of partition under Section 1.71 is absolutely necessary. A property will continue to belong to the HUF unless in respect of it there is recorded under Section 171 a finding of partition. Since, in this case, there was no finding of partition under Section 171 in respect of the various properties which came to belong to the HUF, on re-union, the HUF is to be deemed to continue to exist and those properties will belong to the HUF.
27. It was also pointed out by the learned authorised representative of the assessee that in this case, since the re-united family had not previously been assessed to tax, there was no need for the recording of a finding under Section 171. But the family that was there prior to disruption had been assessed to tax. If the re-united family is to be considered to be an entity different from the one which had existed earlier, then what has been stated by the assessee would be acceptable. But the re-united family is not a different entity. It was the same family which had disrupted earlier but which came to be re-united. The family prior to its disruption had been assessed to tax. Hence, it can be said that the same family when it got re-united, was the one which had been assessed to tax. Under the circumstances, the provisions of Section 171 did become applicable to it. Since till the time of the making of the assessments under Section 147, there was no order under Section 171 recording total partition, the assessments cannot be said to have been made on a defunct family. We, hence, do not find it possible to accept the contention of the assessee that the assessments under Section 147 were invalid on the ground that they had been made on a defunct family.
28. In view of the above, we do not consider it necessary to go into the merit of the question whether law provides for or not for the making of assessment on a defunct family.
29. The assessment years under consideration are 1971-72 to 1979-80. We have upheld the validity of the assessments or re-assessments for the years 1971-72, 1972-73, 1977-78, 1978-79 and 1979-80. As far as re-assessments for the years 1973-74,1974-75,1975-76 and 1976-77 are concerned, we have held them to be invalid.
30. Now, we will consider the incomes which could be assessed for the years for which we have upheld the validity of the assessments.
31. Firstly, we will take up the assessment for the assessment year 1971-72. The assessee (the re-united family) had not filed any return under Section 139(1) in respect of this year. On account of the failure on the part of the assessee to file return of income, the department had proceeded under Section 147(a). The income escaping assessment had exceeded Rs. 50,000. Notice under Section 148 was issued on 27-3-1982. If notice under Section 148 is issued within four years from the end of the assessment year for which action under Section 147(a) is being taken, no prior sanction of any authority is necessary. If the notice is issued after the expiry of four years but before the expiry of 8 years, the Commissioner’s prior sanction is necessary. A notice issued after the expiry of 8 years requires the prior sanction of the Board. In this case, notice under Section 148 had been issued on 27-3-1982 i.e., after the expiry of 8 years from the end of the relevant assessment year. The ITO had failed to obtain prior canction of the Board as required by the provisions of Section 151(1). It was pointed out by the departmental representative that since action to assess the income that had escaped assessment had been taken in consequence of or to give effect to the finding of the High Court in the case of Paramanand L. Bajaj (supra) there was no need to take sanction of the Board prior to issue of notice under Section 148.
32. We have considered the matter. The Madhya Pradesh High Court has held as under in the case of Sukhdayal Pahwa v. CIT [1983] 140 ITR 206 :
Section 150 of the IT Act, 1961, is an exception to and overrides the provisions of Sections 149 and 151. It starts with a non obstante clause ‘notwithstanding anything contained in Section 149’. Hence, when a notice under Section 148 is issued atany time for the purposes for making an assessment or reassessment in consequence of or to give effect to any finding or direction contained in an appellate order, the provisions of Section 149 as a whole will not be applicable. Sub-section (2) of Section 149, which makes the provisions of Sub-section (1) subject to the provisions of Section 151, will also not be applicable in view of the clear language of Section 150(1). Therefore, it is not necessary for the ITO to obtain the sanction either of the Commissioner or of the CBDT under Section 151 prior to the issue of a notice under Section 148 of the Act where the case is covered by Section 150(1).
The same view had been taken by the Andhra Pradesh High Court in the case of B.A.R. Abdul Rahman Saheb v. ITO [1975] 100 ITR 541. Respectfully following the abovementioned decisions, it is accepted that there is no invalidity in the assessment on account of the fact that no prior sanction of the Board was taken before issue of notice under Section 148. But the question that arises for consideration is as to under the circumstances what income the ITO can legitimately assess in the hands of the assessee for the assessment year 1971-72. Shri Paramanand L. Bajaj had thrown some of his properties into the hotch-pot of the re-united family. S/Shri Devendra P. Bajaj, Vijay Kumar P. Bajaj and Nandlal P. Bajaj had not brought any of the properties obtained by them earlier at the time of partition back to the fold of the re-united family. The ITO had assessed in the hands of the re-united family incomes of all those properties, whether brought to the fold of the re-united family or not. This was on the ground that it had already been held by the High Court in the case of Paramanand L. Bajaj (supra) that the re-union was valid and the option available to the re-uniting members to bring or not to bring the properties back to the fold of the re-united family, being repugnant to the law of reunion, was not available to them and all the properties, on re-union, had become the properties of the re-united family. After the consideration of the matter, we are of the view that since the ITO had failed to obtain sanction of the Board prior to the issue of notice under Section 148, the action of the ITO in assessing the incomes of all the properties in the hands of the re-united family would not be justified. In the absence of the ITO’s complying with the provisions of Section 151(1), the only basis of the ITO’s deriving jurisdiction to assess is that he has taken action to assess the escaped income in consequence of or to give effect to the finding of the Karnataka High Court in the case of Paramanand L. Bajaj (supra). Now, let us proceed to find out as to what jurisdiction can the ITO derive therefrom. From the facts of the case of Paramanand L. Bajaj, which we have already narrated above, it is obvious that the jurisdiction of the ITO will be only to assess the income of the properties which Paramanand L. Bajaj had thrown into the hotch-pot of the re-united family. We will, hence, direct the ITO to assess only such income in the hands of the re-united family. As far as other incomes are concerned, the ITO lacks jurisdiction to assess them, since the ITO had failed to obtain the sanction of the Board prior to the issue of notice under Section 148.
33. Now, we will proceed to examine the same issue, i.e., as to what incomes the ITO is competent to assess with regard to assessment year 1972-73. We have already upheld the re-assessment for the assessment year 1972-73. The original assessment was re-opened under Section 147(6). Notice under Section 148 was issued on 27-3- 1982. In cases falling under Clause (b) of Section 147, notice under Section 148 may be issued at any time within four years from the end of the assessment year for which the re-assessment has to be made. It is, thus, obvious that notice under Section 148 for this assessment year was issued beyond the time limit laid down for the issue of notice under Section 149. The claim of the department that this notice was saved by the provisions of Section 150(1) has been accepted by us. It means that the jurisdiction of the ITO to assess the income merely arises on account of the fact that he has taken up the proceedings to assess the escaped income in consequence of or to give effect to the finding of the High Court in the case of Paramanand L. Bajaj (supra). On that basis, the only income that the ITO is competent to assess in the hands of the re-united family in respect of the assessment year 1972-73 is the income of the properties thrown by Paramanand L. Bajaj into the hotch-pot of the re-united family.
34. As far as assessment years 1977-78,1978-79 and 1979-80 are concerned, the impugned assessments are valid and are upheld. For the assessment year 1977-78, action was under Section 147(b) and notice under Section 148 was issued within the time prescribed under Section 149. In respect of the assessment years 1978-79 and 1979-80, action was under Section 147(a). Notices under Section 148 have been issued within the prescribed time under Section 149. For these assessment years the jurisdiction of the ITO extends to assessing of all items of escaped income. The re-assessment for the assessment year 1977-78 and the assessments for the assessment years 1978-79 and 1979-80 as made by the ITO are upheld, subject to what is stated below.
35. The fact that there was a partial partition of the family on 8-5-1972 is to be taken into account. The properties which had been thrown by Paramanand L. Bajaj into the hotch-pot of the re-united family were partitioned on 8-5-1972. The Tribunal, as stated above, by its order dated 30-4-1989 in ITA No. 1938/Bang/88 has upheld the order of the CIT(A) directing the ITO to record under Section 171 a finding of partition with regard to that. Hence, the ITO will exclude the income of such properties which have been partitioned on 8-5-1972 from the total income of the assessee.
36. In the result, the appeal for the assessment year 1971-72 is partly allowed as concluded in paragraph 32.
The appeal for assessment year 1972-73 is partly allowed as concluded in paragraph 33.
The appeals for the assessment years 1973-74 to 1976-77 are allowed.
The appeals for the assessment years 1977-78 to 1979-80 are to be considered to be partly allowed only to the extent relief, if any, that may become due to the assessee on account of what has been stated in paragraph 35 with regard to partial partition on 8-5-1972.