COMMISSIONER OF INCOME TAX, U.P. v. M/S. MOHD. SHAKOOR MOHD. BASHIR

A B ### c D E F G H 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 asseument 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 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 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 Officer 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), dismissing 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 87 88 SUPREME COURT REPORTS [1973] 3 S.C.R. **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 ftndings. [90Bl 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; & finding absolutely necessary 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. A B ### c **(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) 1 It is conceded by the Appellant th~t the direction given by the Ap~llate **D** **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 E 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. F _N._ _D._ _Karkhanis,_ _S._ _P._ _Nayar and R._ _N._ _Sachthey,_ for the appellant. _S._ _C._ _Manchanda,_ _Uma_ _Datta and P._ _C._ _Sharma,_ for the Respondent. G 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 : H "Whether the Appelhrte Assistant Commissioner in dealinii with appeals of the Association of persons con 89 A B ### c 0 E F G H The High Court answered that question in the negative and in favour of the assessee. The material facts lie within a narrow compass. Two ;iersons 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 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 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 respondents 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 Section 34 (3) of the Act, the notices are not barred. The High Court has rejected that contention. C.I.T. _V._ MOHD. SHAKOOR _(Hegdl!,_ _J.)_ sisting of all the heirs of Zahur Bux could give a direction under Section 34(3) to take action against the assessee ?" 90 SUPREME COURT REPORTS (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 Association of persons. consisting of all the heirs of Zahur Bux is not liable in reipe_~t of the Mauranipur business. is an essential finding; 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 Assistant 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. A B ### c D E F G H A B ### c D C.I.T. _v._ MOHD. SHAKOOR _(Hegde,_ _l.)_ 91 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 Appellat_e Assistant Commissioner is not one that falls within 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 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 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 Commissioner 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._ _,