DAFFADAR BHAGAT SINGH & SONS vs. THE INCOME-TAX OFFICER, A-WARD, FEROZEPORE

CIVIL APPEAL No. 962/1966Supreme Court[1969] 1 S.C.R. 82822 August 1968Bench: 2 JudgesAuthor: V. RAMASWAMI, A.N. GROVER DAFFADAR BHAGAT SINGH6 pages
AI SummaryDismissed

What were the facts?

The appellant, a partnership firm consisting of a father and his two sons, filed a return for assessment year 1952-53 on March 31, 1953, and sought registration as a firm. The Income Tax Officer (ITO) determined the assessee to be a Hindu Undivided Family (HUF) and refused registration. The Appellate Assistant Commissioner (AAC), on August 11, 1959, reversed this, holding it was a firm and its income should be excluded from the HUF's assessment. Consequently, the ITO issued fresh notices under sections 22(4) and 23(2). The appellant refused compliance, arguing a statutory bar under section 34(3) of the Income Tax Act, 1922. The Inspecting Assistant Commissioner did not direct cessation of proceedings. The appellant filed a writ petition, which the High Court dismissed.

What did the Supreme Court hold?

The appeal is dismissed. Regarding issue 1, the Tribunal held that the substantial issue before the AAC was the status of the assessee, and the finding that it was a partnership firm and not an HUF was necessary for deciding the appeal. This finding was not incidental. Therefore, the second proviso to section 34(3) was attracted, lifting the limitation bar. The Tribunal relied on its previous decisions in S.C. Prashar & Others v. Vasanrsen Dwarkadas & Ors. and N.K. Sivalingam Chettiar v. The Commissioner of Income-tax, Madras, which clarified that a finding must be necessary for giving relief in respect of the assessment year in question. Regarding issue 2, the Tribunal held that the appellant could not be considered a "total stranger" to the assessment under appeal. The returns were filed by the firm, and the dispute concerned the assessment of the business income. The firm was intimately connected with the assessment of the year under appeal, thus falling within the scope of "any person" in the proviso. The operative direction is that the appeal fails and is dismissed.

What were the issues?

1. Whether the finding by the Appellate Assistant Commissioner that the assessee was a partnership firm and not a Hindu Undivided Family, and the consequent direction to assess the income in the hands of the firm, were necessary for the disposal of the appeal, thereby attracting the second proviso to section 34(3) of the Income Tax Act, 1922, and lifting the bar of limitation. Assessee's contention: The finding and direction were not necessary for the appeal's disposal, as the crux was excluding income from the HUF assessment. The direction to assess in the firm's hands was unnecessary, making the Murlidhar Bhagwandas case applicable. Revenue's contention: Not explicitly recorded, but implied by their action of issuing fresh notices and defending the High Court's decision which favored the revenue. 2. Whether the appellant partnership firm, as a distinct legal entity, was a "total stranger" to the HUF assessment before the AAC and thus not covered by the expression "any person" in the second proviso to section 34(3) of the Income Tax Act, 1922. Assessee's contention: The partnership firm was a distinct legal entity and a stranger to the HUF assessment, therefore not falling under "any person" in the proviso. Revenue's contention: Not explicitly recorded, but implied by their action of issuing fresh notices and defending the High Court's decision which favored the revenue.

Which sections of the Income-tax Act were involved?

Section 34(3),Section 22(4),Section 23(2),Section 26A,Section 31,Section 33,Section 33A,Section 33B,Section 66,Section 66A,Section 27

AI-generated summary — verify with the full judgment below

• DAFFADAR BHAGAT SINGH & SONS v. THE INCOME-TAX OFFICER, A-WARD, FEROZEPORE August 22, 1968 [V. RA:v!ASWAMI A1"D A. N. GROVER, JJ.] Jnco111e Tax Act, (11of1922) s. 34(3)-As~cssnu·nt claiincd as fir111- AssesseJ as llind11 lindivided 1-·an1ily- ·Appellate Cor11111i,sioner rever:i;es order and directs as,-e,·.nnent c.:.> /inn-First notice issued after four }'enrs- 1/ harm/. The appctl;inl-~1 p~rtncrship Jirn1 con~isllng of a f;1lhcr and his hvo sons filed a roturn for the assessment ye<tr 1952-53 on March 31, 1953, and applied for hcing rc~istercd as a firm. The Income-tax Officer held that the assc.;scc constituted a Hindu Undivided Family and not a firn1, and refused ro rcgisl~r it. But in appeal, the Appcllaic Assistant Com- n1issioner by an order dated August 11. 1959 allO\\'Cd the registration and held th;1t the business belonged to the firn1 and therefore its income must he excluded from that of the family.

Accordingly the Income Tax Officer issued frc<h notice to the appellant under ss. 22(4) and 23(2) of the Act. The appellant refused to con1ply \Vith the notice and moved the Inspecting Assistant Commisc;ioner for giving a direction that the assess· m

The order continues below.

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