B.L.GUPTA J. - (1.) THIS is a reference under section 66(1) of the Income-tax Act. The question which has been referred for the opinion of the court is : Whether the assessments made under section 34 of the Income-tax Act for the assessment years 1946-47, 1947-48, 1948-49 and 1949-50 were bad in law, as they were made after the expiry of the period of four years from the date of filling of those returns on November 18, 1950 ?
(2.) IT appears that the question as framed and referred to us is incorrect. The four years period of limitation provided in section 34(3) for completing an assessment or reassessment under that sub-section is from the end of the assessment year in question and not from the date of filing of a return by the assessee. Acordingly, we reframe the question to bring out the point which has been referred to us for opinion in the following manner : Whether the assessments made under section 34 of the Income-tax Act for the assessment years 1946-47, 1947-48, 1948-49 and 1940-50 were bad in law, as they were made after the expiry of the period of four years from the end of the assessment years in question instead of from the date of the filing of the return on November 18, 1950 ? The facts giving rise to this reference are that there was a bigger Hindu undivided family, Messrs. Nathuram Jawaharlal. Up to the assessment year 1945-46 this bigger Hindu undivided family used to be assessee to income-tax as a unit. During the assessment year 1946-47 an application was made under section 25A claiming that a disruption had taken place in the family with effect from May 19, 1945. It was further alleged that on disruption of the bigger Hindu undivided family two smaller Hindu undivided families had come into existence, namely, Jawaharlal Mani Ram, which is applicant in this reference, and Bhagwandas Sitaram. The Income-tax Officer did not accept the claim and rejected the application by order dated October 4, 1950. It may be stated that about a month after this date, on November 18, 1950, the applicant filed four returns of its income for the four assessment years 1946-47 to 1949-50 showing income from business which has hitherto been carried on by the bigger Hindu undivided family as its own income. It appears that the other smaller Hindu undivided family, namely, Bhagwandas Sitaram, also similarly filed four returns claiming income from the erstwhile business of the bigger family as its own income. Meanwhile, the bigger Hindu undivided family, namely, Nathuram Jawaharlal, went up in appeal to the Appellate Assistant Commissioner against the order under section 25A. The Appellate Assistant Commissioner in appeal accepted the case of disruption of the bigger Hindu undivided family but not as it desired it to be accepted, namely, with effect from May 19, 1945, but only with effect from February 8, 1952. Against the order of the Appellate Assistant Commissioner a further appeal was taken by the bigger Hindu undivided family and by order dated August 31, 1954, the Income-tax Appellate Tribunal accepted the claim regarding partition in the family with effect from May 19, 1945. The order which it made was as follows : The orders of the income-tax authorities are therefore set aside and the Income-tax officer is directed to recognise partition with effect from May 19, 1945, under section 25A of the Income-tax Act. Meanwhile, it appears that, apart from the two returns which had been filed by the two smaller Hindu undivided families for the four years in question claiming the income of the erstwhile business of the larger family as their own income, the bigger family also filed blank returns. The Income-tax Officer, following his view that no partition had taken place in the family on May 19, 1945, as claimed by the bigger family, assessed the entire income in the hands of the bigger family, namely, Nathuram Jawaharlal. In doing so he must have taken the figure of the income of the bigger family from the figures of income given in the returns of the two smaller families, as the bigger family itself had filed only a blank return and did not mention any income at all. These assessments were taken up in appeal to the Appellate Assistant Commissioner of Income-tax thereafter to the Income-tax Appellate Tribunal. The Tribunal, following its view, in its order dated August 31, 1954, under section 25A granting recognition to partition with effect from May 19, 1945, appears to have allowed the appeals by orders of date and to have issued a direction to the Income-tax Officer to make fresh assessments as against the smaller units including the applicant in this reference. The direction is quoted in the order of the Appellate Assistant Commissioner dated January 3, 1957, in appeals against assessments subsequently made against the applicant under section 34, and is to the following effect : Fresh assessment should be made, one for the period May 19, 1945, up to which the Hindu undivided family was in existence and the other on the component units, namely, Messrs. Jawaharlal Maniram and Bhagwan Das Sita Ram.
(3.) IN pursuance of this direction the INcome-tax Officer took the sanction of the Commissioner of INcome-tax for initiating proceeding under section 34 against the smaller units. The sanction was accorded and thereupon on March 4, 1955, notices were issued by the INcome-tax Officer to the smaller unit, namely, Jawaharlal Maniram (the applicant before us) and in pursuance of the notice returns were filed on July 6, 1955, and assessments completed on September 8, 1955. Against the assessment orders the applicant went up in appeal to the Appellate Assistant Commissioner and raised the point that proceedings under section 34(1)(b) were invalid, as returns filed by it on November 18, 1950, under section 22(3) were pending and valid assessments under section 23 could have been made on those returns. The Appellate Assistant Commissioner rejected the contention on a two-fold ground. The first ground was that, as the claim to partition had not been recognised by the INcome-tax Officer under section 25A, the INcome-tax Officer was bound to make the assessment against the bigger family and as such he returns filed by the smaller family, namely, the applicant, could not be acted upon. The other ground on which the Appellate Assistant Commissioner rejected the contention was that, as no returns has admittedly been filed by the applicant in pursuance of the notice under section 22(1), a default had been incurred by it and its case came under section 34(1)(a). The period of limitation for Completion of proceedings under that sub-section is eight years and as such the assessments completed against the applicant on September 8, 1955, being within eight years of the end of the four assessments years in question were within time and, therefore, valid. Against the order of the Appellate Assistant Commissioner the applicant went up in appeal to the INcome-tax Appellate Tribunal and the same contention was raised before the Tribunal, namely, that the assessments under section 34 were invalid. The Tribunal rejected the contention on a variety of grounds. The first ground was that the applicant not having filed returns in consequence of the general notice under section 22(1) had committed such default as brought its case within ambit of section 34(1)(a) and, as such, the assessments made under that section were justified. The second ground on which it overruled the contention was that under sub-section (3) of section 34 the four year period of limitation is from the end of the year in which the income, profits and gains were first assessable. This language of sub-section (3) the Tribunal interpreted to mean when the income could be first assessed and not when the income first became assessable. The Tribunal held that, as the claim for partition had been recognised only under the order of the Tribunal dated August 31, 1954, and prior to that date assessments could not be made against the applicant, the income first became assessable in the hands of the applicant only with effect from August 31, 1954, and, as from that date a four year period had not expired until September 8, 1955, when the assessment orders were made under section 34, the assessments were not barred by limitation. The third ground on which the Tribunal rejected the contention was that the assessments, having been made by the INcome-tax Officer in Pursuance of the directions contained in the order of the Tribunal, the period of limitation provided in section 34(3) did not apply and assessments could be validly made even after the expiry of four years from the end of the assessment years in question. The Tribunal, therefore, confirmed the assessments. The applicant thereupon asked the Tribunal for a statement of the case to this court which the Tribunal did and thus the reference has come to this court. So far as the first two grounds upon which the Tribunal maintained the assessments are concerned, Sri Gopal Behari, learned counsel for the department, did not make any attempt to support the judgment of the Tribunal. He did not argue that, as there was default in filing returns under section 22(1) and even though returns had been filed under section 22(3), action under section 34 could be validly taken. Indeed he could not do so in view of the decision of the Supreme Court in Commissioner of Income-tax v. Ranchhoddas Karsondas, AIR 1959 SC 1154. He also did not seek to support the order of the Tribunal on the second ground, namely, on the interpretation which the Tribunal put on the last few words in section 34(3). He conceded that the meaning of those last few words was that the period of limitation commenced from the end of the assessment year in question and expired after the expired after the expiry of the four years from that date. He did not argue that merely because the order recognising the claim to partition came to be passed by the Tribunal on August 31, 1954, the income first became assessable in the hands of the applicant on that date and not prior to that date during the assessment years in question. The real question, therefore, which remains for our consideration is whether in the circumstances narrated above the assessments made under section 34 are valid and can be legally justified. Sri Gajadhar Prasad Bhargava has taken his stand firstly upon the decision in Commissioner of Income-tax v. Ranchhoddas Karsondas, AIR 1959 SC 1154. On the basis of that decision he has urged that admittedly as the returns had been filed by the applicant before the expiry of four years from the end of the four assessment years in question on November 18, 1950, and as it was possible for the Income-tax Officer to act upon those returns, the mere fact that he did not act upon those returns could not justify the proceedings under section 34. We have carefully examined this argument in the light of the facts in the Supreme Court case as well as the facts of the case before us. In the Supreme Court case a return had been filed. No action was at all taken on that return and the Income-tax Officer ignoring it proceeded to take action under section 34. On those facts the Supreme Court came to the conclusion that no such default as is contemplated by omission or failure to file a return under section 22 having taken place, proceedings under section 34 could not be validly taken. That case did not lay down that if any return filed under section 22(3) had been acted upon and despite the return having been so acted income had escaped assessment, even then no action under section 34 could be taken. Turning now to the facts of the case before us, what had happened in this particular case was that three returns had been filed, two by the smaller units and one a blank return by the bigger Hindu undivided family. A claim was also made before the Income-tax Officer under section 25A that a disruption had taken place in the Hindu undivided family and that on account of that disruption income of the family became assessable not in the hands of the bigger family but in the hands of the two smaller units. Upon a consideration of the entire facts and circumstances and taking into consideration the returns that had been filed, the Income-tax Officer first passed the order that no disruption had taken place and rejected the claim to disruption. Thereafter, he proceeded to pool the entire income which had been separately returned by the two smaller units and assessed the total income in the hands of the bigger Hindu undivided family. The question is whether it would be a proper inference from what the Income-tax Officer did that he ignored the returns filed by the applicant as well as the other smaller unit and did not act upon them and they were still pending. We are clearly of the view that in the circumstances it is wrong to say that the returns had not been acted upon and were still pending when the impugned orders were passed. Acting or not acting upon a return does not necessarily mean passing or not passing an assessment order. An assessment order is the final act in the process of assessment but a return can be acted upon all the same even though acting on the return may not result in the passing of an assessment order. Where an assessment order has been made on a return filed under section 22(3), or in respect of income shown in it but against another person, it cannot be argued that proceedings under section 34 cannot be justifiably taken. There may be no ommission under section 31(1)(a) in filing the return and so it may not be possible to take proceedings under section 34(1)(a) but there may still be a case of income escaping assessment and it may be possible to take proceedings validly under section 34(1)(b). We are, therefore, of the view that the facts and circumstances of the case distinguish it from the facts and circumstances of the Supreme Court case relied on by the learned counsel for the applicant. ;