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PETITIONER: COMMISSIONER OF INCOME TAX, U.P.

       Vs.

RESPONDENT: M/S.  MOHD.  SHAKOOR MOHD.  BASHIR

DATE OF JUDGMENT12/12/1972

BENCH: HEGDE, K.S. BENCH: HEGDE, K.S. REDDY, P. JAGANMOHAN

CITATION:  1973 AIR 2359            1973 SCR  (3)  87  1973 SCC  (4) 107  CITATOR INFO :  D          1984 SC 993  (23)

ACT: Indian  Income Tax Act, 1922, Section 34(3)-second  Proviso- Persons  originally carrying on tobacco and  other  business assessed  in  the  status,  of  association  of   persons-on devolution,   tobacco   business  subsequently   gifted   to appellants-Appellate  Assistant  Commissioner  holding  that assessee  not  liable  to be taxed  in  respect  of  tobacco business-No finding that appellants were continuing  tobacco business  in  their  own name or in respect  of  any  income earned  in  it-Direction  to income Tax  Officer  to  assess income  bearing in mind second proviso to  S.  34(3)-Notices under   S.  34(1)(a)  whether  barred  by  time-Meaning   of expressions  ’finding’ and ’direction’ in second proviso  to S. 34(3).

HEADNOTE: A  and  Z  were  carrying on  business  at  various  places, including  tobacco  business  at Mauranipur  and  they  were assessed in the status of Association of persons.  In 1938 A died  leaving his widow as his only heir.   She  transferred her interest in favour of Z, who then became the sole  owner of  the entire business.  Z gifted the tobacco  business  to his  two sons, the respondents, in 1942.  Z died  in  1948., During   the  assessment  years  1945-46  to  1956-57,   the respondents submitted their returns of income in respect  of the  tobacco business.  Following his earlier  decision  the Income  Tax  Officer rejected that return and  proceeded  to assess  all the heirs of Z as an Association of  persons  in respect of all assets including tobacco business.  In appeal the  Appellate Assistant Commission came to  the  conclusion that  the  assessee,  namely,  the  Association  of  persons consisting of all the heirs of Z, was not liable to be taxed in  respect of the tobacco business, and that that  business had  been gifted to the respondents in 1948 itself.  But  he did  not find that during the relevant assessment years  the respondents were continuing that business in their own name; nor did he give a finding in respect of any income coined in that business by the respondents in those years.  He  there- fore  set  aside  the order of the Income  Tax  Officer  but directed  him to assess the income from various  sources  in

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the  hands  of the respective persons to  whom  they  arose, bearing  in mind the provisions of the second proviso to  S. 34(3) of the Act.  Thereafter the Income Tax Officer  issued notices to the respondents under S. 34(1)(a) of the Act. Four  questions  were referred by the Tribunal to  the  High Court under S.. 66(1) of the Act.  The High Court held  that the  notices issued under S. 34(1)(a) were barred  by  time. On  the second question under reference, which was the  only question argued before this Court, the High Court held  that the Appellate Asstt.  Commissioner in dealing with   appeals of the Association of Persons consisting of all the heirs of Z  could not give a direction under S. 34(3) to take  action against  the assessee.  On appeals by special leave to  this Court,,  on  the  questions  whether  the  Appellate  Asstt. Commissioner  (i) had given finding as contemplated  by  the proviso  to  S. 34(3); and (ii) had given any  direction  as contemplated under the second proviso to S. 34(3),  dismiss- ing the appeals, HELD: (i) The expression ’finding’ in the second proviso  to S.  34(3)  means a finding necessary for  giving  relief  in respect  of  the  assessment for the year  in  question.   A finding therefore could only be that which 87 88 was  necessary for the disposal of the appeal in respect  of an assessment of a particular year.  The only ’finding’ that can fall within the scope of the second proviso to S.  34(3) is  a  ’finding’  which  is  absolutely  necessary  for  the disposal  of  an appeal and not other  incidental  findings. [90E] The  finding of the Appellate Asstt.  Commissioner that  the Association of persons, consisting of all the heirs of Z  is not  liable  in  respect  of the  tobacco  business,  is  an essential  finding; a finding absolutely necessary  for  the disposal of the case.  The further finding that business had been gifted to the respondents in 1942 is only an incidental finding and not a finding necessary for the disposal of  the appeal.   Further  from that conclusion it does  not  follow that  the  respondents  continued to be the  owners  of  the tobacco  business  during  the  relevant  assessment  years. Hence the High Court was right in holding that the Appellate Asstt.   Commissioner did not find nor was it necessary  for him to find that the respondents were owners of the  tobacco business during the relevant assessment years. [90FH] Income Tax Officer, A-Ward Sitapur v. Murlidhar Bhagwan  Das 52 I.T.R. 335 applied. (ii)The   ’directions’   that   the   Appellate   Assistant Commissioner  can  give are those falling  either  under  S. 31(3)  (b), (c) or (e) or S. 34(4).  It is conceded  by  the Appellant  that the direction given by the Appellate  Asstt. Commissioner   does  not  fall  within  any  one  of   those provisions.   Hence it must be concluded that the  direction given by the Appellate Asstt.  Commissioner is not one  that falls  within the scope of the second proviso of  S.  34(3). [91-B] (iii)The conclusion of the Tribunal as to the scope  of the  Appellate  Asstt.   Commissioner’s  finding  is  not  a finding of fact but one relating to law, and the High  Court had power to interfere. [91-C]

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 337 to 345 of 1970. Appeals  by special leave from the judgment and order  dated

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August 7, 1968 of the Allahabad High Court in I.T. Reference No. 712 of 1963. N.D.  Karkhanis, S. P. Nayar and R. N. Sachthey, for  the appellant. S.C. Manchanda, Uma Datta and P. C. Sharma, for the  Res- pondent. The Judgment of the Court was delivered by HEGDE,  J.  These are appeals by Special leave.   Though  as many as four questions Were referred by the Tribunal to  the High Court under Section 66(1) of the Indian Income Tax  Act 1922  (to be hereinafter referred to as "Me Act’), the  only question  that  was  argued before us was  question  No.  2, namely : "Whether  the  Appellate Assistant Commissioner  in  dealing with appeals of the Association of persons con- 89 sisting of all the heirs of Zahur Bux could give a direction under Section 34(3) to take action against the assessee ?" The High Court answered that question in the negative and in favour of the assessee. The  material facts lie within a narrow compass.  Two per- sons by name Allah Bux and Zahur Bux were carrying on  busi- ness  at  various  places,  including  tobacco  business  at Mauranipur   and  they  were  assessed  in  the  status   of Association of persons.  In 1938 Allah Bux died leaving  his widow  Begum  Zaidi  as  his  only  heir.   The  said  Begum transferred her interest in favour of Zahur Bux.  Thereafter Zahur Bux became the sole owner of the business.  Zahur  Bux gifted  his  business at Mauranipur to his  two  sons  Mohd. Shakoor  and Mohd Bashir in 1942.  Zahur Bux died  in  1948. During  the  assessment  years  1945-46  to  1956-57,  Mohd. Shakoor  and Mohd.  Basir submitted their returns of  income in  respect  of  the  Mauranipur  business.   Following  his earlier decision the Income Tax Officer rejected that return and  proceeded  to assess all the heirs of Zahur Bux  as  an Association of persons.  He also took into consideration not merely  the Mauranipur business but all the assets  left  by Zahur  Bux.  In appeal the Appellate Assistant  Commissioner came  to  the  conclusion that  the  assessee,  namely,  the Association of persons consisting of all the heirs of  Zahur Bux, was not liable to be taxed in respect of the Mauranipur business.  He came to the conclusion that that business  had been  gifted  to Mohd.  Shakoor and Mohd.   Bashir  in  1948 itself.   But  he  did not find that  during  the  relevant assessment  years  Mohd.   Shakoor and  Mohd.   Bashir  were continuing that business in their own name; nor did he  give a  finding in respect of any income earned in this  business by Mohd.  Shakoor and Mohd.  Bashir in those years.  On  the basis  of his finding that the assesse--the  Association  of pet-sons consisting of all heirs of Zahur Bux-is not  liable to  be taxed in respect of the Mauranipur business,  he  set aside  the order of the Income Tax Officer but directed  him to  "assess the income from various sources in the hands  of the  respective Persons to whom they arose, bearing in  mind the  provisions  of  second proviso to  subsection  (3)  of Section  34  of the Indian Income-Tax Act."  Thereafter  the Income-tax  Officer issued notices to the respondents  under Section 34 (1) (a) of the Act.  The Question for decision is whether  those notices are barred by time.  It is  urged  on behalf of the Revenue that in view of the second proviso  to Section  34(3) of the Act, the notices are not barred.   The High Court has rejected that contention. 90 The first question that calls for decision is "Whether the Appellate Assistant Commissioner had given  any

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finding as contemplated by the proviso to Section 34(3);" and the second question that arises for decision is "Whether the Appellate Assistant Commissioner had given  any direction  as contemplated under second proviso  to  Section 34(3) ?" This  Court in Income-tax Officer, A-Ward Sitapur v.  Murli- dhar Bhagwan Das(1), ruled as to what exactly is the meaning of the words ’finding’ as well as ’direction’ in the  second proviso  to  Section  34(3).  Dealing  with  the  expression ’finding’,  this  Court  ruled  that  it  meant  a   finding necessary for giving relief in respect of the assessment for the  year  in question.  A finding therefore could  only  be that  which was necessary for the disposal of the appeal  in respect of an assessment of a particular year.  In that case the  Appellate Assistant Commissioner had come to a  finding that  the  disputed income did not arise or  accrue  in  the concerned  assessment  year but had arisen in  the  previous year.   The question for decision by this Court was  whether the finding, that the income arose in the previous year is a ’finding’  within the meaning of second proviso  to  Section 34(3).   This  Court held that it is not a  finding  falling within  the meaning of that proviso, though it was a  matter considered   in  the  order  of  the   Appellate   Assistant Commissioner.  In other words this Court ruled that the only ’finding’  that can fall within the scope of second  proviso to  Section  34(3)  is  a  ’finding’  which  is   absolutely necessary   for  the  disposal of an appeal  and  not  other incidental findings. Let  us  apply that rule to the facts of the  present  case. The finding of the Appellate Assistant Commissioner that the Association of persons, consisting of all the heirs of Zahur Bux is not liable in respect of the Mauranipur business,  is an  essential  finding;  a  finding  which  was   absolutely necessary for the disposal of the case. The     further finding  that that business had benefited to  Mohd.  Shakoor and  Mohd.   Bashir in the year 1942 is only  in  incidental finding and not a finding necessary for the disposal of  the appeal.further  from  that conclusion  of  the  Appellate Assistant  Commissioner  it  does  not  follow  that   Mohd. Shakoor and Mohd.  Basbir continued to be the owners of  the Mauranipur  business during the relevant  assessment  years. Hence  we  agree  with the High  Court  that  the  Appellate Assistant Commissioner did not find nor was it necessary for him  to  find  that Mohd.  Shakoor and  Mohd.   Bashir  were owners  of  the  Mauranipur  business  during  the  relevant assessment years. (1)52 I.T. R. 335. 91 Now,  coming to the question of ’direction’,  in  Murlidhar- Bhagwan Das case (supra) this Court, held that the Appellate Assistant  Commissioner can give, are those  falling  either under,  section  31 (3) (b), (c) or (e) or Section  31  (4). Mr.  Karkhanis  concedes  that the direction  given  by  the Appellate  Assistant Commissioner does not fall  within  any one  of  the  provisions mentioned  above.   Hence  we  must conclude that the direction given by the Appellate Assistant Commissioner  is not one that falls within the scope of  the second proviso to Section 34(3). From  the  above conclusions it follows that  these  appeals must fail.  But Mr. Karkhanis contended that the finding  of the  Tribunal  in this case that the finding  given  by  the Appellate Assistant Commissioner  at the earlier stage is  a finding necessary for the disposal of the case, is a finding of  fact  and,  therefore, the High  Court  could  not  have interfered  with that finding.  In the first place, no  such

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contention  was  taken up before the High Court  or  in  the Memorandum  of Appeal.  That apart, the conclusion  of’  the Tribunal-as to the scope of the Appellate Assistant  Commis- sioner finding is not a finding of fact but one relating to law. In  the  result these appeals fail and  they  are  dismissed with, costs.  One hearing fee. 92