K S FIRM Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS consolidated reference relates to the assessment of K. S. Firm at Penang, its partners, the divided members of a joint Hindu family, being residents in India. The assessment now in question concerns the years 1948-49, 1949-50 and 1950-51. The year of account was the Tamil calendar year ending on 12th April, preceding the year of assessment. Somasundaram, Adappa, Nachiappa and Vairanvan were members of an undivided Hindu family, who were assessed up to and inclusive or the year 1947-48 as such. When the assessment for the years 1948-49 to 1950-51 was taken up, the assessee pleaded that the members of the family had entered into a partial partition with respect to their business at Penang, which, after such partition, was said to have been continued as a partnership concern amongst themselves. THIS case, if made out, would entitle the family to have the income therefrom excluded from the computation of its total income, the firm alone being liable to be taxed thereon. The Income-tax Officer did not accept that case of partition. He did not also make any protective assessment of the firm in case it were to be ultimately found that there was a partition so far as the business was concerned. His order formed the subject-matter of an appeal, where the Appellate Assistant Commissioner set aside the assessment and directed the Income-tax Officer to enquire afresh in order to ascertain whether there had really been a partition with respect to the business, as pleaded by the members of the family, and whether, after such partition, the business was run as a partnership concern by them. During the course of his order the Appellate Assistant Commissioner observed :

(2.) AFTER reman, the assessment of the family came up for consideration before the Income-tax Officer for a fresh enquiry. It was at that time that the present assessee, namely, K. S. Firm, Penang, filed on January 28, 1957, returns showing the profits of the Penang business. In the enquiry that was conducted with respect to the assessment of the Hindu undivided family, the Income-tax Officer was satisfied that the partial partition pleaded had been made out. He, therefore, reassessed the family, excluding the profits from the Penang business from the computation of its income. This was on January 6, 1959. Simultaneously with it, he completed the assessment of the K. S. Firm, overruling the objection of the assessee that such assessment could not be made by reason of the bar of limitation. The Income-tax Officers view was that the assessment of the firm being in pursuance of the direction of the Appellate Assistant Commissioner, it would be saved by the second proviso to section 34(3) of the Act. An appeal from that order met with no success. Dealing with the objection that the assessments were invalid by reason of there having been no notice under section 34 of the Act, the Appellate Assistant Commissioner expressed the view that no such notice was necessary, inasmuch as voluntary returns had been filed by the assessee. On further appeal, the Tribunal sustained the assessment on the ground that the second proviso to section 34(3) would apply to this case. Later the Tribunal referred under section 66(1) the following question for the opinion of this court :

(3.) IT will follow from the above, that the returns made for the assessment years in question by the assessee-firm on January 28, 1957, could not be regarded as valid returns for the purpose of assessing the assessee to tax on the basis of such returns. We, therefore, answer the question in the negative and in favour of the assessee. The assessee will be entitled to its costs. Counsels fee Rs. 250.