ONKARMAL MEGHRAJ Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS reference substantially deals with two assessments. One part of the reference concerns the asst. year 1944 -45 in which 11 assessees are interested and the other part concerns the asst. yr. 1943 -44 in which the assessee Onkarmal Meghraj is interested. We are at this stage primarily concerned with the assessment of the following 11 assessees :

(2.) SIXTEEN persons entered on 19th May, 1930, into an agreement of partnership to conduct a business in partnership in the name of M/s Narayandas Kedarnath. Amongst these sixteen persons there were three sets of persons who constituted Hindu untied families. Narayandas Pokermal and his three sons - Govindram, Bhagwandas and Vasudeo -constituted one Hindu united family; Meghraj Pokermal and his three sons -Onkarmal, Banarasilal and Beniprasad -constituted another Hindu united family; and Hanumandas Sewakram and his four sons Kedarnath, Banarasidas, Durgaprasad and Harkisondas -constituted the third Hindu united family. Beside these 13 persons there were three strangers who were partners in the firm. For the assessment year 1944 -45, the members of the original three Hindu united families made returns for income -tax in their status as individuals returning their respective incomes in the firm. The ITO following his orders in the previous year of assessment ordered that the firm of Narayandas Kedarnath be registered under s. 26A of the IT Act and the total income be assessed in the hands of only six assessees, viz., the three outsiders and the three Hindu united families of Narayandas Pokermal, Meghraj Pokermal and Hanumandas Sewakram and he closed the assessment of the others by declaring their cases as of "no assessment". Against the order passed by the ITO, the three Hindu united families preferred appeals to the AAC and claimed that the income of the sons of the respective managers in the three Hindu united families be excluded from the family income as it belonged to those sons exclusively and was not the income of the Hindu united families to which they belonged. In support of their contention, they relied upon an agreement reached with the IT Department for the asst. yrs. 1938 -40 to 1941 -42 by which it was admitted that a partition has taken place in the three families on the of 19th July, 1940. The AAC following the decision of the Tribunal in respect of the profits from the firm for the asst. year 1943 -44 directed the ITO to quash the assessment of the three Hindu united families and to tax the income assessed in the hands of the Hindu united family in the hands of the separated members of the family entitled to receive the income. The ITO purporting to exercise powers under S. 34 then issued notices to all the thirteen members of the original three Hindu united families for re -opening the assessment of the year 1944 -45. These notices were issued in April, 1954, after obtaining the CIT's approval for taking action under S. 34 (1) r/w S. 34(3) as amended by Act 18 of 1953. For the purpose of these assessments, the assessees Narayandas, Meghraj, Hanumandas and Beniprasad respectively assessees Nos. 1, 5, 9 and 8 in the table set out herein before made their fresh returns in the status of individuals and the other assessees made their returns in the status of Hindu united family. It may be observed that all the thirteen assessees had submitted their original returns as individuals and the ITO had assessed them in the status of Hindu united family. Against the order passed by the ITO assessing the thirteen assessees as separated members of the families entitled to receive their shares of income from the firm in separate shares, appeals were preferred to the AAC and that officer confirmed the order passed by the ITO. In appeal to the Tribunal, the order passed by the ITO was substantially confirmed. The Tribunal held that the notices issued by the ITO in April, 1954, were issued under s. 34(1)(a) r/w S. 34(3) as amended by S. 18 of the IT (Amendment) Act, 1953, and that the Act having retrospective operation as from the of 1st April, 1952, the notices issued on the assessees were within the period of eight years prescribed by S. 34(1)(a). They also held that the case of the other 7 members who were appellants before them fell within section 34(1) r/w S. 34(3) of the IT Act as amended. Accordingly, the Tribunal confirmed the order passed by the Revenue Authorities.

(3.) BY the Finance Act of 1956, the time limit of eingt years was omitted from Sub -S. (1) in its application to cl. (a). It is evident that whereas before the 1st April, 1956, notice of assessment or reassessment could be issued under S. 34(1)(a) within eight years from the last day of the year of assessment to which the notice related, under the amendment made by the Finance Act, 1956, that notice could be issued at any time subject to certain conditions prescribed by the proviso incorporated in S. 34(1) -one of the important conditions being that the income which had escaped assessment was rupees one lakh or more. Counsel for the assessees contends that having regard to the circumstances the conditions prescribed for the issue of a notice under S. 34(1)(a) were absent and the notices issued against the assesses for reassessment were invalid. It is submitted that all the assessees had made their returns containing full and true disclosure of all the material facts necessary for assessment of the income in the year 1944 -45, and, therefore, notices under s. 34(1)(a) could not be issued for reopening the assessment and that the Tribunal was in error in holding that, because in the year 1954 some of the assessees had submitted their fresh returns in their status as individuals, i.e., as separated members of the erstwhile Hindu united families, whereas in the earlier returns they had made their returns as individuals, the assessees had omitted or failed to disclose fully and truly all material facts necessary for the assessment. It is not disputed that the assessees have in the fresh returns made by them made claims which were in - consistent with the claims made by them in the earlier returns. In the original returns made by the eleven assessees they had claimed that they were separated members and were partners of the firm in their individual rights. After the order of the AAC four out of the eleven assessees made their returns in the status of individuals, and the remaining in the status of HUF. Even the four members made their returns claiming that they were sole coparceners in their families. In the view we take in this case we do not propose to express at this stage any opinion on the correctness of the view of the Tribunal in its order dt. 31st July, 1953, that the facts represented by all the eleven assessees were "diametrically opposed to the real state of affairs."