c COMMISSIONER OF INCOME TAX, U.P. v. M/S. MOHD. SHAKOOR MOHD. BASHIR December 12, 1972 (K. S. HEGDE AND i>. JAGANMOHAN REDDY, JJ.) Indian Income Tax A.ct, 1922, Section 34(3)-Second Provi.ro-Per- so11s originally carrying on tobacco and otlier business as.u1ed in the status of association of persons-On devolution, tobacco business subsequently gifted to appellants-A.ppellate Assistant Commissioner holding that assessee not liable to be taxed in respect of tobacco business-No finding that appellants were continuing tobacco buslntss I~ their own name or in respect of ani income earned In i~-Direction to Income Tax Officer ro assess income bearing i11 mind second proviso to S. 34(3)-Not/ces under S. 34(1)(a) whether barred by time-Mtllning of expression• 'fi11c/ing' and 'direction' in second prov/Jo to S. 34(3). A and Z were carrying on busineu at various places, includin11 tobacco business at Mauranipur and they were assessed in the statllfl of Association of persons. In 1938 A died leiwin11 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 aifted the tobacco business to his two sons, the respondents, in 1942. Z died in 1948. During the asseu- ment years 1945-46 to 1956-57, the respondents submitted their returns of income in respect of the tobacco busine1S. Following his earlier deci· sion 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 Commis- sion 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 incomfl ec..:ned in that business by the respondents in those years. He there.
fore set aside the order of the Incon1e 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 the second proviso to S. 34(3 J of the Act. Thereafter the Income Tax Offi- cer issued notices to the respondents under S. 34(1)(a) of tbe 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 ooly question argued before this Court, the High Court held thM the Appellate Asstt. Commissioner in dealing with appeals of the A'5ociation 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 a"Y finding a! co_ntemplated by the proviso to S. 34(3); and (ii) had given any d1rect1on 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) n1eans 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.
The only 'finding' that can fall within the scope of the second proviso to S. 34(3) is a 'finding' which is absolutely neces- sary fOr the disposal of an appeal and not other incidental ftndings. [90Bl The finding of the Appellate Asstt. Commissioner that the Associa- tion of persons, consisting of all the heirs of Z is not liable in respect of the tobacco business, is an essential finding; & finding absolutely neces- sary for the disposal of the case.
The further finding that busicess had been gifted to the respondents in 1942 is only an im;idental 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 DM 52 l.T.R. 335 applied. c (ii) The 'directions'' that the Appellate Assistant Commissioner can give are those falling either under S. 31(3){b)1 (c) or (e) or S. 34(4) It is conceded by the Appellant th~t the direction given by the Ap~llate Asstt. Commissioner does not fall within any one of those proVIsions. Hence it must be concluded that the direction given by the Appellate Asst!. Commissioner is not one that falls within the scope ·of the second proviso of S. 34(3). [91-Bl
(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-Cl CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 337 tO 345 of 1970. Appeals by special leave from the judgment and order dated 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 J ud)!lllent of the Court was delivered by
HEGDE, J. These are appeals by special leave. Though as many as four questions w~re 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 'The Act'), the only question that was ar~ued before us was question No. 2, namely :
"Whether the Appelhrte Assistant Commissioner in dealinii with appeals of the Association of persons con- c C.I.T. V. MOHD. SHAKOOR (Hegdl!, J.) sisting of all the heirs of Zahur Bux could give a direc-
tion 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 ;ier-
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 siiid Begum transferred her interest in favour of Zahur Bux. Thereafter Zahur Bull 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 submitteii their re- turns of income in respect of the Mauranipur business. Follow- ing 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 per- sons 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 dur- ing 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 bv Mohd. Shakoor and Mohd. Bashir in those years.
On the basis of his. findin2 that the assessee–the Association of penons consistine: 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 I!icome Tax Officer but directed· him to "assess the income from various sources in the hands of rthe respective persons to whom they arose, bearinf? in mind the provisions of- second proviso to sub-section (3) of Section 34 of the Inruan Income-Tax Act." Thereafter the J~come.Jtax Officer issued notices to the respon- dents under Sect10n 34(1 )(a) of the Act. The auestion 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 Sec- tion 34 (3) of the Act, the notices are not barred. The High Court has rejected that contention.
(1973] 3 S.C.R. The first question that calls for decision is :- "Whether the Appella'le Assistant Commissioner had given any 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('), 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 nec·~ssary 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 t\ppel!ate 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 th~ 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 nec·~s sary for the disposal of an appeal and not other incidental findings. Let u~ apply that rule to the facts of the present case.
The finding of the Appellate Assistant Commissioner that the Asso- ciation of persons. consisting of all the heirs of Zahur Bux is not liable in reipe_~t of the Mauranipur business. is an essential find- ing; a finding which was absolutely nec•'5sory for the disposal of the cas.e.
The further finding that that business had been gifted to Mohd. Shakoor and Mohd. Bashir in the year 1942 is onlv "n incidental finding and not a finding neccsary for the dispo>al of the appeal.
J".urther from that conclusion of the Appellate Assis- tant Commissioner it does not follow tha'l Mohd. Shakoor and Mohd. Bashir continued to be the owners of the Maurnnipur business du• ing the relevant assessment years.
Hence we agree with the High Court that th·~ Appellate Assistant Commissioner did not fi!ld nor was it necessary for him to find that Mohd. Shakoor and Mohd. Bashir were owners of the Mauranipur busi- ness during the relevant assessment years.
—-·—–·- (!) 52 1.T.R. 335. c c C.I.T. v. MOHD. SHAKOOR (Hegde, l.) 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 Com- missioner does not fall within any one of the provisions mention- ed above.
Hence we must conclude that the direction given by the Appellat_e Assistant Commissioner is not one that falls with- in the scope of the second proviso to Section 3 4 ( 3). From the above conclusions it follows that these apepals must fail.
But Mr. Karkhanis contendo:d that the finding of the Tri- bunal 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 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. S.B.W. Appeals dismissed. _,