S C PRASHAR Vs. VASANTSEN DWARKADAS

JUDGEMENT

(1.) THIS is appeal arises out of a petition filed challenging a notice issued by the Income-tax Officer under Section 34, Income-tax Act and praying for a writ restraining the Income-tax Officer from proceeding further pursuant to that notice.

(2.) IT appears that the firm of Purshottam Laxmidas, who are the second petitioners, was started on 28-10-1935 and in this firm there were two partners Dwarkadas Vussonji and Parmanand Odhavji. Dwarkadas died on 1-4-1946 and Vasantsen the first petitioner is his son. Another firm by the name of Vasantsen Dwarkadas was started on 28-1-1941 and in that firm there were three partners, Vasantsen the first petitioner, Narandas Shivji and Nanalal Odhavji, and this firm was dissolved on 24-10-1946. The firm of Vasantsen Dwarkadas filed a return of income for the assessment year 1942-43 and it also claimed registration as a firm. The Income-tax Authorities refused registration and came to the conclusion that the firm of Vasantsen Dwarkadas belonged to Dwarkadas the father of the first petitioner, and it added the income of this firm to the income of Dwarkadas. In the subsequent assessment years Vasantsen Dwarkadas applied for registration but registration was refused. For the assessment years 1942-1943 to 1943-49 several appeals were filed before the Income-tax Appellate Tribunal by the firm of Vasantsen Dwarkadas both against the quantum of income assessed and against the refusal of the Income-tax Officer to register the firm of Vasantsen Dwarkadas. An appeal was also filed by the firm of Purshottam Laxmidas against its assessment and there was also an appeal for the assessment year 1942-43 by the first petitioner as the heir and legal representative of his father against the decision that the income of Vasantsen Dwarkadas should be included in the income of Dwarkadas. After the decision in Vasantsen's case in the assessment year 1942-43 the income-tax Officer gave a finding that the firm of Vasantsen Dwarkadas was only a branch of the firm of Purshottam Laxmidas and he added the income of Vasantsen Dwarkadas to the income of Purshottam Laxmidas, and this question also came up before the Income-tax Appellate Tribunal in the appeals filed by Purshottam Laxmidas against their assessments and the Income-tax Tribunal by a consolidated order dated 14-8-1951 disposed of all these appeals, and its decision was that there was overwhelming evidence to come to the conclusion that the business done in the name of Vasantsen Dwarkadas belonged to the firm of Purshottam Laxmidas. With regard to the appeal filed by Vasantsen as the representative of his father for the assessment year 1942-43, the opinion expressed by the Tribunal was that the income of Vasantsen Dwarkadas should be deleted from the assessment, of Dwarkadas. It further expressed the opinion that if the Income-tax Officer could include this sum in the income of Purshottam Laxmidas he was of course at liberty to do so. Therefore in substance what the Appellate Tribunal decided with regard to the income of Vasantsen Dwarkadas for the assessment year 1942-43 was that it was erroneous to include that income in the assessment of Dwarkadas, that in its opinion the income of Vasantsen Dwarkadas was the income of Purshottam Laxmidas, and that if effect could be given to that expression of opinion by the Income-tax Authorities, the Income-tax Authorities should do so by including this income in the assessment of Purshottam Laxmidas. Armed with this opinion of the Income-tax Tribunal, the Income-tax officer issued a notice under Section 34. Income-tax Act on the-30-4-1334 and by this notice the firm of Purshottam Laxmidas was called upon to submit a return of its total income for the year ending 31-3-1953. It is this notice which is challenged by the petitioners.

(3.) UNDER Section 34, Sub-clause (1) (a) If the Income-tax Officer has reason to believe that income has escaped tax owing to an omission or failure on the part of an assessee to make a return, or under Sub-clause (b) notwithstanding that there has been a return of income in consequence of information in the possession of the Income-tax Officer he has reason to believe that income has escaped tax, authority is conferred upon the Income-tax Officer to issue a notice upon the assessee calling upon him to make a return pursuant to the provisions of the income-tax Act. A time limit is fixed for the issue of notice under Clauses (a) and (b ). Under Clause (a) notice must be issued at any time within eight years from the end of the assessment year, and in case falling under Clause (b) notice must be issued within four years from the end of the assessment year. Sub-section (3) of Section 34 provides a period of limitation for the making of an order of assessment and in the case falling under Clause (a) the order has to be made before the expiry of eight years and in the cases falling under Clause (b) it has got to be made before the expiry of four years from the end of the year in which the income was first assessable. But the first proviso to Sub-section (3) gives an additional period of one year where a notice under Section 34 has been served and the assessment can be completed within one year after the service of the notice even though such period may exceed eight years or four years as the case may 'be. There was a second proviso to Sub-section (3) and that was to the effect