ONKAR NATH Vs. COMMISSIONER OF INCOME TAX LUCKNOW

JUDGEMENT

(1.) THIS is a case stated under section 66(1) of the Income-tax Act, 1922 (hereinafter referred to as the Act). The questions referred are:

(2.) THE material facts are these: The relevant year of assessment is the assessment year 1944-45, the accounting year being S. Y. 2002, commencing on 8th November, 1942, and ending on 28th of October, 1943. The assessee in Onkar Nath, an individual. He was a partner in the partnership firm of M/s Onkar Nath Raj Narain of Agra. This firm was duly registered under section 26A of the Act. The firm also owned and worked a mill know a "Prem Dal Mills" (hereinafter referred to as the mills). The accounts of the latter were separately maintained. There were various cash deposits aggregating Rs. 12,454 in the accounts of the different partners. The deposits were all on the 1st October, 1943. They included a deposit of Rs. 6,151 in the name of the assessee. The entire sum of Rs. 12,454 including the cash credit of Rs. 6,151 in the account of the assessee was treated by the Income-tax Officer as the income of the partnership firm of "Onkar Nath Raj Narain" from an undisclosed source in the assessment year 1945-46 which is a year subsequent to the relevant assessment year for purposes of this reference, notwithstanding the fact that the deposits stood in the capital account of the individual partners.

(3.) THIS order was passed on the 9th of October, 1957. The period of limitation had long since expired for taking any further action under section 34 against any one of the partners and, therefore, unless such a direction was issued no action could have been taken by the Income-tax Officer. Pursuant to the direction so given, the Income-tax Officer took action under section 34 against the individual partners to show cause why the respective deposits in their capital account should not be brought to assessment as escaped income for the relevant year of assessment. This time the partners took the objection that the proceedings were barred by time and the direction issued by the Appellate Assistant Commissioner was beyond his jurisdiction. The notice issued is not on the record nut it is clear from a reading of the assessment order that action was taken by the Income-tax Officer under proviso 2 to section 34(3). There is no indication as to whether the provisions of section 34(1) (a) or (b) were applied by the Income-tax Officer. There is also no indication that, if action was taken under section 34(1) (a), whether the necessary prior statutory sanction of the Commissioner of Income-tax taken before the proceedings were initiated. The opening paragraph of the assessment order reads: