N NAGANATHA IYER Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE Tribunal has submitted a statement of the case, directed under section 66(2) of the Indian Income-tax Act, and the statement of the case discloses the following facts THE assessee, Naganatha Iyer, is a member of a Hindu undivided family consisting of himself, his father, Narayanaswami Iyer, and his brother, Ganapathy Iyer. THE family was carrying on business in rice-mill fire-wood, oil-cake and soap-nut powder at Tiruchirapalli. In February, 1941, the assessee entered into a partnership with one Manickam and carried on business under the name and style of "Andhra Trading Company." THE firm traded in fire-wood and oil-cake and also plied lorries for hire. THE business of the firm was also carried on at Tiruchirapalli. For the assessment year 1942-43, which was the very first year of assessment for the firm, the share income from the said firm was returned by the assessee as his separate income. THE Hindu undivided family, of which the assessee is a member, also filed its return. THE assessee claimed that he was carrying on the partnership business in the Andhra Trading Company in his individual capacity, and the firm had nothing to do with the Hindu undivided family. His father, Narayanaswami Iyer, also wrote a letter to the Income-tax Officer stating that he had no claim to the income from the Andhra Trading Company, as it belonged exclusively to his son, the assessee.

(2.) THE Income-tax Officer, after making enquiries, satisfied himself that the share income from the firm represented the individual income of the assessee, and accordingly separately assessed it in the hands of the assessee for the assessment years 1942-43, 1943-44 and 1944-45. But, in the assessment for the year 1945-46, the Income-tax Officer came to the conclusion, on the basis of the conduct of the parties and the entries in the account books of the family business and those of the Andhra Trading Company, that the assessee was a partner in the firm on behalf of himself and the other members of the family, and, therefore, his share income from the firm was included in the return of the undivided family. Narayanaswami Iyer, the father of the assessee and the karta of the Hindu undivided family, filed an appeal against such inclusion of his son's individual income in the return of the Hindu undivided family. THE Appellate Assistant Commissioner did not accept the contention of the father, and, on dismissal of his appeal, he filed a further appeal to the Tribunal where also he was unsuccessful. Finally, the family moved this court under section 66(2) of the Act and the High Court directed the Tribunal to state the case on the question of inclusion of the share income of the assessee in the income of the family, consisting of the assessee, his father and his brother.

(3.) THE question for consideration was whether the assessment under section 34 was valid. THE learned judges observed at page 41"...the assessment proceedings had not come to an end. THE return was still pending. Whether it was pending before the territorial Income-tax Officer, or the Income-tax Officer, Special Circle, is immaterial so far as the assessee is concerned. He had filed a return and an assessment could have been made by the department under section 23 in pursuance of that return. Under those circumstances, it cannot be said that the income chargeable to income-tax had escaped assessment, and, therefore, the Income-tax Officer had no jurisdiction to issue a notice under section 34 of the Act." *THE same principle has been followed in Muthiah THEvar v. Commissioner of Income-tax. THEre the assessee submitted a return for the assessment year 1944-45, in response to a notice under section 34 of the Act. He also submitted a return for the assessment year 1945-46. THE Income-tax Officer took no action on the return of 1945-46. Later, the officer issued a notice of reassessment under section 34. THE assessee objected and stated that he had already submitted his return for the year 1945-46. Admittedly, the officer had not made any assessment for that year. It was held that the Income-tax Officer was not entitled to initiate proceedings under section 34 of the Act. Reliance was placed on Commissioner of Income-tax v. Ranchhoddas Karsondas. THE facts of that case are these. THE assessee made a return in 1950 that his assessable income for the assessment year 1945-46 was only Rs. 1, 935 with a foot-note that his wife had sold her old ornaments and deposited the sum of Rs. 59, 026 in the firm in which he was a partner.