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AMICUS AI
Citation Codes
Equivalent Citations
citation codes
Case Number
Judges
  • Uday Sinha
  • Nazir Ahmad, JJ.
Acts
  • section 22(2) of the Indian Income-tax Act, 1922 (hereinafter referred to as the 1922 Act),
  • section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as the Act),
  • provisions of sub-section (1) of section 153
  • section 31,19. Section 31 of the 1922 Act
  • sections 22(4) and 23(2) of the 1922 Act.
  • section 34(3) of the 1922 Act
  • provisions of sub-section (2A),
  • clause (ii) of sub-section (3),
  • Taxes (Amendment) Act, 1964,
  • section 153(3)(ii),
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Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Judges
  • Uday Sinha
  • Nazir Ahmad, JJ.
Acts
  • section 22(2) of the Indian Income-tax Act, 1922 (hereinafter referred to as the 1922 Act),
  • section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as the Act),
  • provisions of sub-section (1) of section 153
  • section 31,19. Section 31 of the 1922 Act
  • sections 22(4) and 23(2) of the 1922 Act.
  • section 34(3) of the 1922 Act
  • provisions of sub-section (2A),
  • clause (ii) of sub-section (3),
  • Taxes (Amendment) Act, 1964,
  • section 153(3)(ii),
See more information ...
Smart Summary

Judicial Opinion Summary — Nazir Ahmad, J. (with Uday Sinha, J. concurring)

Factual and Procedural Background

For the assessment year 1966-67 the assessee filed two returns on the same date, 26 September 1966: one claiming status as a registered firm and another claiming status as a Hindu undivided family (HUF). The Income-tax Officer (ITO) made an assessment treating the taxpayer as a HUF (the ITO's assessment order is annexed as annexure A to the statement of the case). The assessee appealed; the Appellate Assistant Commissioner (AAC) accepted the assessee's claim of partial partition (i.e., that a partnership/firm existed) and directed that a fresh assessment be made in the correct status (order dated 31 December 1971, annexure B).

The ITO then made an assessment of the firm on 14 February 1972 (annexure A). Before the AAC the assessee had contended that an assessment made in February 1972 in the status of a firm was barred by limitation; the AAC rejected that plea, holding the assessment was protected by section 153(3) of the Income-tax Act and by reason of having acted on the AAC's direction. On further contest, the Income-tax Appellate Tribunal held the assessment on the firm to be barred by limitation (relying on CIT v. Rameshwarlal Sanwarmal) and treated the assessment as invalid (annexure C).

The Commissioner of Income-tax (Revenue) filed an application under section 256(2) referring the question whether, on the facts and in the circumstances, the Tribunal was correct in law in holding that the firm's assessment for 1966-67 was barred by limitation. The present opinion answers that question.

Legal Issues Presented

  1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the assessment for the assessment year 1966-67 on the firm was barred by limitation?

Arguments of the Parties

Assessee's Arguments (represented by Mr. K.N. Jain)

  • Emphasised statutory definitions and provisions: that "person" under section 2(31) includes both a HUF and a firm; that "assessee" under section 2(7) denotes a person by whom tax is payable; and that provisions such as section 4(1), section 139(1), section 148(1) and section 246 use the term "assessee" and contemplate return/appeal processes for a person in the relevant status.
  • Contended (implicitly) that prior decisions relied upon by Revenue (Daffadar Bhagat Singh and Vadde Pullaiah) were not applicable because of factual differences — in particular, that in those cases the firm had filed a return and proceedings were comparable, whereas in the present case the assessee submitted there had been no assessment on the basis of the firm's return.
  • Before the Tribunal it was argued that the original assessment was made on the HUF and no assessment was made on the return filed by the firm on 26 September 1966, and therefore the direction to make a fresh assessment could not save limitation in the case of the firm.

Revenue's Arguments (represented by Mr. B.P. Rajgarhia)

  • Relied on section 153(3)(ii) and Explanation 3 to section 153 of the Income-tax Act to argue that where an appellate order excludes income from one person and holds it to be the income of another, an assessment on the other person shall be deemed to be one made in consequence of, or to give effect to, the appellate direction (subject to the opportunity to be heard).
  • Pointed to precedent (CIT v. Vadde Pullaiah & Co. and Daffadar Bhagat Singh & Sons v. ITO) where the Supreme Court held that when a finding/direction in appeal as to status (firm vs individual or family) is necessary for disposal of the appeal and the persons are intimately connected with the original assessment, the bar of limitation is lifted for assessments made to give effect to that direction.
  • Invoked the legal proposition (as highlighted in the commentary quoted) that a finding or direction may validate an assessment on a person other than the original assessee if (a) the person is intimately connected with the assessment and (b) the finding or direction was necessary for disposal of the appeal.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court in This Opinion
CIT v. Rameshwarlal Sanwarmal, [1971] 82 ITR 628 (SC) Held that a return submitted by S was in his capacity as karta of the family; an ex parte assessment on S as an individual (set aside under section 27) did not amount to an assessment on the family; the individual and the HUF are different units of taxation; where no return or assessment exists in the other capacity, limitation may bar subsequent assessment. The Tribunal had relied on this case to hold the firm's assessment time-barred. The Court analysed the decision and concluded that it was not helpful to the assessee in the present facts (i.e., it did not support the Tribunal's conclusion).
CIT v. Vadde Pullaiah & Co., [1973] 89 ITR 240 (SC) Held that where the AAC must decide between two mutually exclusive statuses (individual vs firm), the finding as to status is necessary for disposal of appeals; the firm was intimately connected with the individual's assessment; assessments made on the firm to give effect to the AAC's direction were saved from limitation by the relevant proviso. The Court treated this decision as directly applicable and supportive: it held that the reasoning there (necessity of the finding and intimate connection) applied to the present case and supported lifting the bar of limitation.
Daffadar Bhagat Singh & Sons v. ITO, [1969] 71 ITR 417 (SC) Held that where the substantial issue before the AAC was status (partnership v. HUF) and the AAC's finding on status was necessary to dispose of the appeal, the second proviso applied and the bar of limitation was lifted; the firm was not a stranger to the assessment and members were intimately connected with the assessment under appeal. The Court found this precedent applicable to the present facts and used its reasoning to hold that Explanation 3 to section 153 of the Act operates to save the later assessment of the firm from being time-barred.

Court's Reasoning and Analysis

The court's analysis proceeded in stages, applying the statutory scheme and precedent to the established facts.

  1. Statutory time-limit: The court identified section 153(1)(a)(i) (four-year bar for assessment years commencing on or before 1 April 1967) and concluded that an assessment for 1966-67, in the ordinary course, should have been completed by 31 March 1971.
  2. Factual determination of filings and assessments: The court examined the record and accepted that two returns were filed on 26 September 1966 (one as firm, one as HUF), that the ITO had made an assessment relating to the HUF, and that the AAC, on appeal, accepted the partition/firm claim and directed a fresh assessment to be made in the status of a firm.
  3. Role of section 153(3)(ii) and Explanation 3: The court read section 153(3)(ii) (which saves assessments made to give effect to orders under section 250) together with Explanation 3 (which deems an assessment on another person to be one made in consequence of or to give effect to an appellate direction where income is excluded from one person and held to be income of another, provided that other person was given opportunity of being heard). The Court noted Explanation 3 was in its present form following amendment (Direct Taxes (Amendment) Act, 1964).
  4. Intimate connection and necessity of the finding: Citing the commentary and the Supreme Court decisions, the court emphasised two criteria: (a) the person to be assessed must be intimately connected with the assessment in question (the partners were the father and son who were both concerned with the HUF and the firm), and (b) the finding/direction as to status must be necessary for disposal of the appeal (the AAC had to decide whether the assessment should be on the HUF or the firm).
  5. Precedents considered and distinguished/applied:
    • The court found CIT v. Rameshwarlal Sanwarmal distinguishable and not helpful to the assessee (that decision dealt with different facts where a return was in the capacity as karta only and an ex parte individual assessment was later set aside).
    • The court found Daffadar Bhagat Singh & Sons and CIT v. Vadde Pullaiah & Co. directly applicable: both support the proposition that where the AAC's finding as to status is necessary and the persons are intimately connected with the original assessment, assessments made to give effect to that direction are saved from the bar of limitation.
  6. Application to present facts: Given that the AAC directed the ITO to assess in the status of a firm (after holding the partition claim genuine), and that the partners (Dhanpatram and Chhotelal) were intimately connected with the HUF assessment, Explanation 3 to section 153 applied and saved the assessment on the firm from being time-barred. The court therefore concluded the Tribunal's finding to the contrary was incorrect in law.
  7. Procedural/costs note: The court observed some confusion in the Tribunal's order about dates of filing (June 29 v. September 26) and noted that certain assessment orders relating to the HUF were not annexed, but these factual inconsistencies did not alter the court's substantive conclusion based on the materials it accepted (that two returns were filed on 26 September 1966 and that the AAC directed re-assessment as a firm).

Holding and Implications

Holding: The Tribunal was not correct in law in holding that the assessment for the assessment year 1966-67 on the firm was barred by limitation.

Consequences and immediate effects:

  • The answer to the referred question is given in the negative and in favour of the Revenue-petitioner and against the assessee-opposite party.
  • Accordingly, the assessment made on the firm to give effect to the AAC's direction is not time-barred under the circumstances of this case.
  • The court ordered that, in the peculiar circumstances, the parties shall bear their own costs.

Note: The Court based its decision on the Income-tax Act provisions (in particular section 153 and its Explanation 3), the factual finding about the filings and the AAC's direction, and relevant Supreme Court precedents (Daffadar Bhagat Singh & Sons; CIT v. Vadde Pullaiah). The court did not indicate that it was laying down a new legal principle beyond the application of those authorities to the facts before it.

Show full summary ...

    Commissioner Of Income-Tax v. Dhanpatram Chhotelal

    Nazir Ahmad, J.:— A statement of the case has been submitted by the Income-tax Appellate Tribunal, Patna Bench “A”, Patna, under section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”), under the direction of this court referring the following question for opinion of this court:

    “Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the assessment for the assessment year 1966-67 on the firm was barred by limitation?”

    2. The relevant facts of the case can be culled out from the statement of the case. For the assessment year 1966-67, the assessee had filed a return on September 26, 1966, claiming the status of a registered firm. According to the claim of the assessee, there was a partial partition in the erstwhile Hindu undivided family (hereinafter referred to as “the HUF”) and some of the members had entered into a partnership for carrying on this business. This claim of partition had not been accepted by the Income-tax Officer but the Appellate Assistant Commissioner accepted the claim of partition. The Appellate Assistant Commissioner also directed that the assessment should be made afresh in the correct status. This appellate order was passed on December 31, 1971, and the Income-tax Officer made the assessment on February 14, 1972, in the status of a registered firm. The order of the Income-tax Officer has been annexed and marked as annexure A forming part of the statement of the case. Before the Appellate Assistant Commissioner, a plea was raised that the assessment in the status of a firm as made on February 14, 1972, was barred by limitation. The Appellate Assistant Commissioner, however, did not accept this plea as, according to him, this assessment was protected by sub-section (3) of section 153 of the Act. As the Income-tax Officer had acted on the direction of the Appellate Assistant Commissioner, the Appellate Assistant Commissioner held that the assessment was protected and could not be held to be time-barred. The Appellate Assistant Commissioner thus overruled the claim of the assessee that the assessment was barred by limitation. The Appellate Assistant Commissioner also observed that if the appeal had been disposed of in proper time, the Income-tax Officer would have made the assessment within the normal period of limitation allowed under the law. The order of the Appellate Assistant Commissioner has been annexed and marked as annexure B forming part of the statement of the case.

    3. When the matter came before the Income-tax Appellate Tribunal, it was contended that the original assessment was made on the Hindu undivided family and no assessment was made on the return filed by the assessee as a firm on September 26, 1966. It was also argued before the Appellate Tribunal that the assessment set aside was that of the Hindu undivided family and, therefore, it could not be said that the direction of the Appellate Assistant Commissioner to make fresh assessment in accordance with the correct status, saved the limitation in the case of the firm. The Tribunal upheld the contention of the assessee as it was found that no assessment had been made though the return had been filed in the case of the firm on September 26, 1966, and so the assessment on the firm had clearly become barred by limitation on February 14, 1972. For this purpose, the Tribunal relied on the case CIT v. Rameshwarlal Sanwarmal, [1971] 82 ITR 628 (SC). The Tribunal, therefore, held that the assessment made on the firm was invalid and barred by limitation. The order of the Tribunal has been annexed and marked as annexure C forming part of the statement of the case.

    4. From the order of the Tribunal, annexure “C”, it is evident that on September 26, 1966, the assessee filed two returns, one in the status of the Hindu undivided family and the other in the status of a firm. This will be evident from paragraph 9 of the order of the Tribunal. This is also evident from paragraph 2 of the order of the Tribunal, annexure C-1, which is a copy of the order dated January 10, 1975, by which the Tribunal rejected the reference application under section 256(1) of the Act.

    5. The Commissioner of Income-tax filed an application before this court and it will be evident from paragraph 1 at page 13 of the paper book that the assessee filed a return claiming the status as a registered firm on September 26, 1966, and another return was filed on the same date in the status of a Hindu undivided family. Thus, in view of these materials, it has to be held that the assessee filed one return on September 26, 1966, claiming the status as a registered firm and on the same date the other return was also filed in the status of a Hindu undivided family. However, the assessment order of the Income-tax Officer against the Hindu undivided family and even the order of the Appellate Assistant Commissioner relating to the Hindu undivided family have not been annexed to the statement of the case. But the Appellate Assistant Commissioner has mentioned in his order, annexure B, that the appellant originally filed a return on September 26, 1966, claiming the status of a registered firm and the claim was not entertained and the Income-tax Officer did not accept the partial partition which resulted in the partnership and made the assessment in the status of a Hindu undivided family which had not been properly partitioned and the appellant came up in appeal and it was decided by the Appellate Assistant Commissioner that the partition claim was genuine and should have been allowed, and the Appellate Assistant Commissioner, therefore, directed that the assessment should be made afresh in the correct status. Thus, it is not clear from the assessment order of the Income-tax Officer or the order of the Appellate Assistant Commissioner whether the assessment was made on the basis of the return as Hindu undivided family or on the basis of the return as registered firm. However, the order of the Tribunal, annexure C, shows in paragraph 10 that there was no assessment on the firm although it filed return on September 26, 1966, and, therefore, there was no question of setting aside any assessment made against the firm and that what was set aside by the Appellate Assistant Commissioner was the assessment made by the Income-tax Officer on the Hindu undivided family. In the order of the Tribunal, there is some confusion about the date of the filing of the return. In paragraph 7, it has been clearly mentioned that the assessee filed return claiming the status as a registered firm on September 26, 1966, but in paragraphs 9 and 10, the date has been noted as June 29, 1966. However, the Appellate Assistant Commissioner has clearly mentioned that the date of filing of the return was September 26, 1966. Under such circumstances, I have to accept the position that the assessee filed one return in the status of a registered firm and another return in the status of a Hindu undivided family on September 26, 1966, and that the Income-tax Officer made the assessment on the Hindu undivided family rejecting the claim of the assessee as a registered firm and then the Hindu undivided family originally filed an appeal before the Appellate Assistant Commissioner and the Appellate Assistant Commissioner accepted the genuineness of the firm and partial partition of the Hindu undivided family and directed the Income-tax Officer to make correct assessment in the status of a firm.

    6. Section 153(1)(a)(i) of the Act lays down that no order of assessment shall be made under section 143 at any time after the expiry of four years from the end of the assessment year in which the income was first assess-. able, where such assessment year is an assessment year commencing on or before the 1st day of April, 1967. The assessment involved in the present case before me is the assessment year 1966-67, and thus in this case, the assessment had to be completed within four years from the end of the assessment year. Thus, the assessment should be completed for the assessment year 1966-67 by March 31, 1971, in the ordinary course.

    7. Before taking up the legal position, it is necessary to point out that the registered firm has been assessed as M/s. Dhanpatram Chhotelal and the share allocation has been made in the name of Shri Dhanpatram and Shri Chhotelal in equal shares. The assessee-Hindu undivided family is Dhanpatram Chhotelal and it also cannot be doubted that Dhanpatram is the father and Chhotelal is his son. Thus, these two persons will also have concern with the assessee-Hindu undivided family. Section 153(3)(ii) lays down that the provisions of sub-section (1) of section 153 shall not apply relating to the assessment, reassessment or recomputation which may, subject to the provisions of sub-section (2A), be completed at any time where the assessment, reassessment or recomputation is 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 250 of the Act. Sub-section (2A) is not applicable in the present case. Explanation 3 to section 153 of the Act lays down that 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. Explanation 3 in the present form was amended by the Direct Taxes (Amendment) Act, 1964, with effect from October 6, 1964. Thus, according to Explanation 3, it is evident that if the assessment was made on the Hindu undivided family and the Appellate Assistant Commissioner held that the assessment should be made in the status of a registered firm, then the Income-tax Officer could not proceed to make assessment against the registered firm in view of this Explanation.

    8. Mr. K.N Jain, learned advocate for the assessee-opposite party, has invited our attention to section 2(31) of the Act which says that a person includes a Hindu undivided family as well as a firm. He has also invited our attention to section 2(7) which lays down that an “assessee” means a person by whom any tax or any other sum of money is payable under the Act. He has also invited our attention to section 4(1) of the Act where it has been laid down that where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of this Act, in respect of the total income of the previous year or previous years, as the case may be, of every person. He has also referred to section 139(1) of the Act which lays down that every person, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax, shall furnish a return of his income or the income of such other person during the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed. He has also referred to section 148(1) of the Act where the word “assessee” has been used. He has also referred to section 246 under which an assessee can file an appeal before the Appellate Assistant Commissioner.

    9. It cannot be doubted that the: Hindu undivided family and the firm are two different entities and both are different assessees. It also cannot be doubted that when the Appellate Assistant Commissioner in the assessment of the Hindu undivided family held that assessment should be made in the status of a firm and not in the status of a Hindu undivided family and while deciding the assessment of the Hindu undivided family, it has to be held that the finding of the Appellate Assistant Commissioner whether the assessment should be made on the Hindu undivided family or on the firm, was a necessary finding for the assessment year 1966-67.

    10. Appeals before the Appellate Assistant Commissioner are filed under section 246 of the Act. Section 250 of the Act relates to the disposal of the appeal. Under section 251(1)(a) of the Act, in disposing of an appeal, the Appellate Assistant Commissioner in an appeal against the order of assessment, may set aside the assessment and refer the case back to the Income-tax Officer for making a fresh assessment in accordance with the direction given by the Appellate Assistant Commissioner and after making such further enquiry as may be necessary, and the Income-tax Officer shall thereupon proceed to make such fresh assessment and determine, where necessary, the amount of tax payable on the basis of such fresh assessment. It is due to this that in Section 153(3)(ii), reference has been made to section 250 of the Act under which the Appellate Assistant Commissioner has to dispose of the appeals. I hold that Explanation 3 to section 153 of the Act clearly lays down that if the Appellate Assistant Commissioner directs the Income-tax Officer in appeal in the assessment of the Hindu undivided family that the assessment should be made on the firm and not on the Hindu undivided family, then it cannot be doubted that it is a direction under section 250 of the Act. It also cannot be doubted that it was necessary for the Appellate Assistant Commissioner to give a direction whether assessment should be made on the Hindu undivided family or on the firm.

    11. Mr. B.P Rajgarhia has invited our attention at page 923 relating to the Commentary under section 153 in the book entitled “Kanga and Palkivala's the Law and Practice of Income Tax” in the 7th edition in volume I, where it has been held that various decisions of the Supreme Court broadly support the proposition that if the finding or direction is given against a person other than the assessee, it would be valid, provided—

    (a) the person is intimately connected with the assessment in the aforesaid sense, and

    (b) the finding or direction is necessary for disposal of appeal, revision or reference.

    12. I have already held above that the partners of the firm were intimately connected with the Hindu undivided family and it was necessary for the Appellate Assistant Commissioner to decide whether the assessment should be made against the Hindu undivided family or the firm in appeal by the Hindu undivided family and so the Income-tax Officer was competent to make assessment against the firm in view of the direction of the Appellate Assistant Commissioner in appeal by the Hindu undivided family.

    13. The Tribunal has relied on a decision in the case of CIT v. Rameshwarlal Sanwarmal, [1971] 82 ITR 628 (SC). In this case, for the assessment year 1955-56, a notice under section 22(2) of the Indian Income-tax Act, 1922 (hereinafter referred to as “the 1922 Act”), was issued to S in the individual status. He submitted a return on behalf of the Hindu undivided family. On February 29, 1960, the Income-tax Officer passed an ex parte assessment on S as an individual. S thereupon filed an application under section 27 to cancel the ex parte assessment. In December, 1960, the Income-tax Officer set aside that order. Thereafter, on February 6, 1961, the Income-Officer made an assessment on the Hindu undivided family on the basis of the return submitted by S. It was in those circumstances that it was held by their Lordships of the Supreme Court that the return submitted by S was in his capacity as karta of his family and he filed no return in his status as an individual and that the ex parte order which was set aside under section 27 was an assessment made on him in the status of an individual and that there was no assessment against the family. It was also held that the assessment made against the Hindu undivided family was not, therefore, an assessment under section 27 and so the assessment was clearly barred by time and the limitation was not saved by the second proviso to section 34(3). It was also observed in this decision that the same person can be taxed both as an individual as well as a karta of his family and that the two capacities are totally different and that the individual and the Hindu undivided family are totally different units of taxation; they are two different assessees. Hence, this decision will not be helpful to the assessee-opposite party.

    14. Mr. B.P Rajgarhia, learned advocate for the Revenue-petitioner, has relied on the case of CIT v. Vadde Pullaiah & Co., [1973] 89 ITR 240 (SC). In this case, P, who till the assessment year 1953-54, carried on a business, entered into a partnership with three others in respect of that business. For the assessment years 1954-55 to 1956-57, the firm filed returns in respect of the income from that business and also applied for registration under section 26A of the 1922 Act and the Income-tax Officer rejected the firm's application for registration holding that there was no genuine firm. He assessed P as an individual in respect of the income from the business on the ground that the business was exclusively that of P. Both the firm and P preferred appeals to the Appellate Assistant Commissioner and the Appellate Assistant Commissioner found that the firm was genuine and accordingly in the firm's appeal, he directed registration of the firm and in P's appeal he found that the business was carried on by the firm and not by P, and set aside the assessment made on P and directed the Income-tax Officer to adopt the correct share of P in the firm's income. Thereafter, the Income-tax Officer proceeded to assess the firm for those years. The firm claimed that the assessments were barred under section 34(3) and that the second proviso thereto did not apply. The Tribunal held that the assessment for 1954-55 was barred but the assessments for 1955-56 and 1956-57 were not barred. On a reference, the High Court held that the assessments for the three years were barred and were not saved by the second proviso to section 34(3). On appeal, their Lordships of the Supreme Court held, reversing the decision of the High Court, (i) that, in the appeals before him, the Appellate Assistant Commissioner had only two alternatives and that he had to decide whether the business was that of the firm or that of P and he came to the conclusion that the business was that of the firm and not that of P. It was also held in this decision that the finding given by the Appellate Assistant Commissioner was absolutely necessary for deciding both the appeals before him; (ii) that the firm was not a stranger to the assessment made on P; it was intimately connected with P and the assessment made on him; and (iii) that, therefore, the assessments made on the firm were saved from the bar of limitation by the second proviso to section 34(3) and were valid in law.

    15. As regards the aforesaid decision, Mr. K.N Jain, learned advocate for the assessee-opposite party, has submitted that in this case the firm had filed a return but P was assessed as an individual and both the individual and the firm filed appeals before the Appellate Assistant Commissioner and so this decision is not applicable to the facts of this case. However, I find that in this case also, the assessment was made on the individual and, after the order of the Appellate Assistant Commissioner, the assessment was made on the firm and in those circumstances a plea was taken that the assessment on the firm was barred by limitation. Under such circumstances, the decision in the aforesaid case is exactly applicable to the case before us.

    16. Mr. B.P Rajgarhia, for the Revenue, has also relied on the case of Daffadar Bhagat Singh & Sons v. ITO, [1969] 71 ITR 417 (SC). In this case, the appellant firm, comprising a father and his two sons, filed a return for the assessment year 1952-53 on March 31, 1953, and also applied for registration under section 26A of the 1922 Act. The Income-tax Officer refused registration and passed an order of assessment on March 26, 1957, holding that the assessee constituted a Hindu undivided family. On August 11, 1959, the Appellate Assistant Commissioner, on appeal/allowed registration of the firm. He held that the business belonged to the firm and its income ought to be excluded from that of the family and directed the Income-tax Officer to assess the income of the business in the hands of the firm. Thereafter, the Income-tax Officer issued fresh notices to the appellant under sections 22(4) and 23(2) of the 1922 Act. The appellant filed a petition under articles 226 and 227 of the Constitution for a writ prohibiting the income-tax authorities from proceeding with the assessment. The High Court dismissed the writ petition holding that the second proviso to section 34(3) of the 1922 Act was applicable because the members of the appellant firm could not be regarded as strangers to the proceedings which resulted in the assessment order made in respect of them on the basis of their constituting a Hindu undivided family along with others. In those circumstances, their Lordships of the Supreme Court held, affirming the decision of the High Court, (i) that the substantial issue before the Appellate Assistant Commissioner was one of status of the appellant and the Appellate Assistant Commissioner held that it was a partnership and not a Hindu undivided family and that this finding was necessary for deciding the appeal before him and it could not be said that it was arrived at only incidentally. It has also been held in this decision that once a finding was given which was necessary for the disposal of the appeal, the second proviso to section 34(3) of the 1922 Act was attracted and the bar of limitation lifted. It has also been held in this decision that it could not be said that the appellant was a total stranger to the assessment which was under appeal before the Appellate Assistant Commissioner and had no intimate connection with the person whose assessment was made by the Income-tax Officer. As regards the above decision, Mr. K.N Jain has submitted that in this case only one return was filed in the status of the firm and the Income-tax Officer assessed the assessee in the status of a Hindu undivided family and so this decision is not applicable. I, however, hold that this decision is applicable to the facts of the present case before us.

    17. In the present case before us also the assessee wanted assessment as a registered firm but the Income-tax Officer made assessment in the status of a Hindu undivided family and then the assessee-Hindu undivided family appealed before the Appellate Assistant Commissioner and asserted that the assessment should be made in the status of a firm and not in the status of a Hindu undivided family and the Appellate Assistant Commissioner held that the assessee could not be assessed in the status of a Hindu undivided family and it should be assessed in the status of a firm and so he directed the Income-tax Officer to make a fresh assessment in the correct status and, accordingly, the Income-tax Officer made assessment on the firm as a registered firm, vide annexure A. Under such circumstances, even if it is held that the assessment had not been made on the basis of the return filed in the status of a firm and the assessment was originally made against the assessee in the status of a Hindu undivided family, it will be deemed that the Income-tax Officer had refused to assess the assessee in the status of a firm. I have already pointed out above that the karta of the Hindu undivided family, namely, Dhanpatram and his son, Chhotelal, both were vitally interested in the firm in which they were partners and also in the Hindu undivided family which had been assessed originally.

    18. Under such circumstances, the decisions in Daffadar Bhagat Singh and Sons v. ITO, [1969] 71 ITR 417 (SC) and in CIT v. Vadde Pullaiah & Co., [1973] 89 ITR 240 (SC) are exactly applicable to the facts of the Case before us. The second proviso to section 34(3) of the 1922 Act is 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,…”

    19. Section 31 of the 1922 Act relates to the disposal of appeal by the Appellate Assistant Commissioner.

    20. Thus, from the aforesaid two decisions, it is evident that if a person is intimately connected with the assessment and a finding or direction is necessary for the disposal of an appeal, then it has to be held that the assessment on another person is necessary. However, Explanation 3 to section 153 of the Act clearly lays down that where in an appeal 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 be deemed to be one made in consequence of or to give effect to any finding or direction contained in the said order and the only condition is that such other person should be given an opportunity of being heard before the order is passed against him. Thus, Explanation 3 exactly applies to the present case of the assessee before us. Even if it is held that the karta of the assessee-Hindu undivided family, Dhanpatram and his son, Chhotelal, claimed to be assessed in the status of a firm but the Income-tax Officer originally assessed the assessee in the status of a Hindu undivided family, then it cannot be doubted that in appeal it was necessary to decide for the Appellate Assistant Commissioner whether the income of the assessee should be assessed in the hands of the Hindu undivided family or it should be assessed in the hands of the firm, and when the Appellate Assistant Commissioner held that the status of the assessee should be taken as a firm and not as a Hindu undivided family and then the Income-tax Officer proceeded to assess the firm, then in view of Explanation 3 to section 153 of the Act, although the two assessees are two different persons, even then the assessment on the firm cannot be said to be barred by limitation. In view of my discussions above, I hold that the assessment of the firm is not barred by limitation as held by the Tribunal, I, therefore, hold that, on the facts and in the circumstances of the case, the Tribunal was not correct in law in holding that the assessment for the assessment year 1966-67 on the firm was barred by limitation. The answer to the question referred is, therefore, given in the negative and in favour of the Revenue-petitioner and against the assessee-opposite party. However, in the peculiar circumstances of the case, the parties shall bear their own costs.

    Uday Sinha, J.:— I agree.

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    Commissioner Of Income-Tax v. Dhanpatram Chhotelal
    (Jan 18, 1985)