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PETITIONER:

COMMISSIONER OF INCOME TAX, U.P.

Vs.

RESPONDENT:

M/S. MOHD. SHAKOOR MOHD. BASHIR

DATE OF JUDGMENT12/12/1972

BENCH:

HEGDE, K.S.

BENCH:

HEGDE, K.S.

REDDY, P. JAGANMOHAN

CITATION:

1973 AIR 2359 1973 SCR (3) 87

1973 SCC (4) 107

CITATOR INFO :

D 1984 SC 993 (23)

ACT:

Indian Income Tax Act, 1922, Section 34(3)-second Proviso-

Persons originally carrying on tobacco and other business

assessed in the status, of association of persons-on

devolution, tobacco business subsequently gifted to

appellants-Appellate Assistant Commissioner holding that

assessee not liable to be taxed in respect of tobacco

business-No finding that appellants were continuing tobacco

business in their own name or in respect of any income

earned in it-Direction to income Tax Officer to assess

income bearing in mind second proviso to S. 34(3)-Notices

under S. 34(1)(a) whether barred by time-Meaning of

expressions 'finding' and 'direction' in second proviso to

S. 34(3).

HEADNOTE:

A and Z were carrying on business at various places,

including tobacco business at Mauranipur and they were

assessed in the status of Association of persons. In 1938 A

died leaving his widow as his only heir. She transferred

her interest in favour of Z, who then became the sole owner

of the entire business. Z gifted the tobacco business to

his two sons, the respondents, in 1942. Z died in 1948.,

During the assessment years 1945-46 to 1956-57, the

respondents submitted their returns of income in respect of

the tobacco business. Following his earlier decision the

Income Tax Officer rejected that return and proceeded to

assess all the heirs of Z as an Association of persons in

respect of all assets including tobacco business. In appeal

the Appellate Assistant Commission came to the conclusion

that the assessee, namely, the Association of persons

consisting of all the heirs of Z, was not liable to be taxed

in respect of the tobacco business, and that that business

had been gifted to the respondents in 1948 itself. But he

did not find that during the relevant assessment years the

respondents were continuing that business in their own name;

nor did he give a finding in respect of any income coined in

that business by the respondents in those years. He there-

fore set aside the order of the Income Tax Officer but

directed him to assess the income from various sources in

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the hands of the respective persons to whom they arose,

bearing in mind the provisions of the second proviso to S.

34(3) of the Act. Thereafter the Income Tax Officer issued

notices to the respondents under S. 34(1)(a) of the Act.

Four questions were referred by the Tribunal to the High

Court under S.. 66(1) of the Act. The High Court held that

the notices issued under S. 34(1)(a) were barred by time.

On the second question under reference, which was the only

question argued before this Court, the High Court held that

the Appellate Asstt. Commissioner in dealing with appeals

of the Association of Persons consisting of all the heirs of

Z could not give a direction under S. 34(3) to take action

against the assessee. On appeals by special leave to this

Court,, on the questions whether the Appellate Asstt.

Commissioner (i) had given finding as contemplated by the

proviso to S. 34(3); and (ii) had given any direction as

contemplated under the second proviso to S. 34(3), dismiss-

ing the appeals,

HELD: (i) The expression 'finding' in the second proviso to

S. 34(3) means a finding necessary for giving relief in

respect of the assessment for the year in question. A

finding therefore could only be that which 87

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was necessary for the disposal of the appeal in respect of

an assessment of a particular year. The only 'finding' that

can fall within the scope of the second proviso to S. 34(3)

is a 'finding' which is absolutely necessary for the

disposal of an appeal and not other incidental findings.

[90E]

The finding of the Appellate Asstt. Commissioner that the

Association of persons, consisting of all the heirs of Z is

not liable in respect of the tobacco business, is an

essential finding; a finding absolutely necessary for the

disposal of the case. The further finding that business had

been gifted to the respondents in 1942 is only an incidental

finding and not a finding necessary for the disposal of the

appeal. Further from that conclusion it does not follow

that the respondents continued to be the owners of the

tobacco business during the relevant assessment years.

Hence the High Court was right in holding that the Appellate

Asstt. Commissioner did not find nor was it necessary for

him to find that the respondents were owners of the tobacco

business during the relevant assessment years. [90FH]

Income Tax Officer, A-Ward Sitapur v. Murlidhar Bhagwan Das

52 I.T.R. 335 applied.

(ii)The 'directions' that the Appellate Assistant

Commissioner can give are those falling either under S.

31(3) (b), (c) or (e) or S. 34(4). It is conceded by the

Appellant that the direction given by the Appellate Asstt.

Commissioner does not fall within any one of those

provisions. Hence it must be concluded that the direction

given by the Appellate Asstt. Commissioner is not one that

falls within the scope of the second proviso of S. 34(3).

[91-B]

(iii)The conclusion of the Tribunal as to the scope of

the Appellate Asstt. Commissioner's finding is not a

finding of fact but one relating to law, and the High Court

had power to interfere. [91-C]

JUDGMENT:

CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 337 to

345 of 1970.

Appeals by special leave from the judgment and order dated

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August 7, 1968 of the Allahabad High Court in I.T. Reference

No. 712 of 1963.

N.D. Karkhanis, S. P. Nayar and R. N. Sachthey, for the

appellant.

S.C. Manchanda, Uma Datta and P. C. Sharma, for the Res-

pondent.

The Judgment of the Court was delivered by

HEGDE, J. These are appeals by Special leave. Though as

many as four questions Were referred by the Tribunal to the

High Court under Section 66(1) of the Indian Income Tax Act

1922 (to be hereinafter referred to as "Me Act'), the only

question that was argued before us was question No. 2,

namely :

"Whether the Appellate Assistant Commissioner in dealing

with appeals of the Association of persons con-

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sisting of all the heirs of Zahur Bux could give a direction

under Section 34(3) to take action against the assessee ?"

The High Court answered that question in the negative and in

favour of the assessee.

The material facts lie within a narrow compass. Two per-

sons by name Allah Bux and Zahur Bux were carrying on busi-

ness at various places, including tobacco business at

Mauranipur and they were assessed in the status of

Association of persons. In 1938 Allah Bux died leaving his

widow Begum Zaidi as his only heir. The said Begum

transferred her interest in favour of Zahur Bux. Thereafter

Zahur Bux became the sole owner of the business. Zahur Bux

gifted his business at Mauranipur to his two sons Mohd.

Shakoor and Mohd Bashir in 1942. Zahur Bux died in 1948.

During the assessment years 1945-46 to 1956-57, Mohd.

Shakoor and Mohd. Basir submitted their returns of income

in respect of the Mauranipur business. Following his

earlier decision the Income Tax Officer rejected that return

and proceeded to assess all the heirs of Zahur Bux as an

Association of persons. He also took into consideration not

merely the Mauranipur business but all the assets left by

Zahur Bux. In appeal the Appellate Assistant Commissioner

came to the conclusion that the assessee, namely, the

Association of persons consisting of all the heirs of Zahur

Bux, was not liable to be taxed in respect of the Mauranipur

business. He came to the conclusion that that business had

been gifted to Mohd. Shakoor and Mohd. Bashir in 1948

itself. But he did not find that during the relevant

assessment years Mohd. Shakoor and Mohd. Bashir were

continuing that business in their own name; nor did he give

a finding in respect of any income earned in this business

by Mohd. Shakoor and Mohd. Bashir in those years. On the

basis of his finding that the assesse--the Association of

pet-sons consisting of all heirs of Zahur Bux-is not liable

to be taxed in respect of the Mauranipur business, he set

aside the order of the Income Tax Officer but directed him

to "assess the income from various sources in the hands of

the respective Persons to whom they arose, bearing in mind

the provisions of second proviso to subsection (3) of

Section 34 of the Indian Income-Tax Act." Thereafter the

Income-tax Officer issued notices to the respondents under

Section 34 (1) (a) of the Act. The Question for decision is

whether those notices are barred by time. It is urged on

behalf of the Revenue that in view of the second proviso to

Section 34(3) of the Act, the notices are not barred. The

High Court has rejected that contention.

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The first question that calls for decision is

"Whether the Appellate Assistant Commissioner had given any

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finding as contemplated by the proviso to Section 34(3);"

and the second question that arises for decision is

"Whether the Appellate Assistant Commissioner had given any

direction as contemplated under second proviso to Section

34(3) ?"

This Court in Income-tax Officer, A-Ward Sitapur v. Murli-

dhar Bhagwan Das(1), ruled as to what exactly is the meaning

of the words 'finding' as well as 'direction' in the second

proviso to Section 34(3). Dealing with the expression

'finding', this Court ruled that it meant a finding

necessary for giving relief in respect of the assessment for

the year in question. A finding therefore could only be

that which was necessary for the disposal of the appeal in

respect of an assessment of a particular year. In that case

the Appellate Assistant Commissioner had come to a finding

that the disputed income did not arise or accrue in the

concerned assessment year but had arisen in the previous

year. The question for decision by this Court was whether

the finding, that the income arose in the previous year is a

'finding' within the meaning of second proviso to Section

34(3). This Court held that it is not a finding falling

within the meaning of that proviso, though it was a matter

considered in the order of the Appellate Assistant

Commissioner. In other words this Court ruled that the only

'finding' that can fall within the scope of second proviso

to Section 34(3) is a 'finding' which is absolutely

necessary for the disposal of an appeal and not other

incidental findings.

Let us apply that rule to the facts of the present case.

The finding of the Appellate Assistant Commissioner that the

Association of persons, consisting of all the heirs of Zahur

Bux is not liable in respect of the Mauranipur business, is

an essential finding; a finding which was absolutely

necessary for the disposal of the case. The further

finding that that business had benefited to Mohd. Shakoor

and Mohd. Bashir in the year 1942 is only in incidental

finding and not a finding necessary for the disposal of the

appeal.further from that conclusion of the Appellate

Assistant Commissioner it does not follow that Mohd.

Shakoor and Mohd. Basbir continued to be the owners of the

Mauranipur business during the relevant assessment years.

Hence we agree with the High Court that the Appellate

Assistant Commissioner did not find nor was it necessary for

him to find that Mohd. Shakoor and Mohd. Bashir were

owners of the Mauranipur business during the relevant

assessment years.

(1)52 I.T. R. 335.

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Now, coming to the question of 'direction', in Murlidhar-

Bhagwan Das case (supra) this Court, held that the Appellate

Assistant Commissioner can give, are those falling either

under, section 31 (3) (b), (c) or (e) or Section 31 (4).

Mr. Karkhanis concedes that the direction given by the

Appellate Assistant Commissioner does not fall within any

one of the provisions mentioned above. Hence we must

conclude that the direction given by the Appellate Assistant

Commissioner is not one that falls within the scope of the

second proviso to Section 34(3).

From the above conclusions it follows that these appeals

must fail. But Mr. Karkhanis contended that the finding of

the Tribunal in this case that the finding given by the

Appellate Assistant Commissioner at the earlier stage is a

finding necessary for the disposal of the case, is a finding

of fact and, therefore, the High Court could not have

interfered with that finding. In the first place, no such

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contention was taken up before the High Court or in the

Memorandum of Appeal. That apart, the conclusion of' the

Tribunal-as to the scope of the Appellate Assistant Commis-

sioner finding is not a finding of fact but one relating to

law.

In the result these appeals fail and they are dismissed

with, costs. One hearing fee.

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