# C.I.T., ANDHRA PRADESH v. M/S. VADDE PALLAIAH & CO

- **Citation:** [1973] 3 S.C.R. 655
- **Court:** Supreme Court of India
- **Decided:** 1973-03-08
- **Bench:** K. S. Hegde, P. Jaganmohan Reddy, H. R. Khanna
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/c-i-t-andhra-pradesh-v-m-s-vadde-pallaiah-co-5916
- **Pages:** 7

## Headnote

Income-tax Act (11 of 1922) s. 34(3), Second Proviso-Scope of.
Upto the assessment year 1953-54 a business was being carried on by
P as an individual.
In March 1953, he entered into a partnership consisting of himself and others. For the assessment years 1954-55, 1955-56,
and 1956-57 the firm filed returns of income aad applied for registration
under s. 26A of the Income-tax Act 1922. The income-tax officer rejected
the application holding that there was no genuine firm.
He accordingly
assessed P as an individual in respect di the income earned in that business. As against that order the firm as well as P appealed to the Appellate
Assistant Oimmissioner who allowed both the appeals.
The Appellate
Assistant Commissioner held that the business was that of the firm and'
not of P. When the Income-tax Officer proceeded to assess the firm for·
the assessment years 1954-55, 1955-56 and 1956-57, the firm resisted it
taking the plea that the proceedings were barred by limitation
under
s. 34(3) of the Act. On the question whether the assessment for each
of the assessment years was valid the High Court, on reference, held that
the assessments were barred by time and were not saved by the second·
proviso to s. 34(3) of the Act.
Allowing the appeals to this Court.
HELD : Under the proviso the limitation of time would not apply to,
an assessment or re·assessment made on the assessee or any person
in
consequence of or to give effect to any finding ·or direction contained in
an order under s. 31, 33, 33A and 33B, 66 or 66A.
A finding which
can be considered as relevant under the proviso must bt> one which was
necessary for deciding the appeal before the authority; and the expression
'any person' refers to one who would be liable to be assessed
for
the
whole or part of the income that went into the assessment of the year
under appeal or revision. The person should be intimately connected
with the proceedings in which the finding was given. (658 CD; 660 A-B;
E-Fl
In the present case, the order df the Appellate Assistant Commissioner
was made under s. 31.
Though he hac! not given any direction.
the
order made by the Income~tax Officer was in consequence of the finding
given by the Appellate Assistant Commissioner.
The finding given by
the Appellate Assistant Commissioner that the business was that of the
firm was absolutely necessary for deciding both the appeals before him.
P, v;ho was the dominant partner of the firm was not only interested in
his own assessment but was also interested in the assessment of the firm.
The partners and the firm were intimately connected with him and hence,
they are 'persons' coming within the scope of the proviso. [658 E-F· 660 C
F-GJ
.
'
'
Income-tax Officer; A-Ward, Sitapur v. Murlidhar Bhagwan Das, 52
I.T.R. 335; 344. N.KT. Sivalingam Chettiar v. Commi,<sioner of lncometax, Madras, 66 J.T.R. 586 and Daffadar Bhagat Singh and Sons v. Jncometa.t Offecer, A-Ward Ferozepore, 11 I.T.R. 417, followed.

## Text

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C.I.T., ANDHRA PRADESH
v.
M/S. VADDE PALLAIAH & CO.
March 8, 1973
655
(K. S. HEGDE, P. JAGANMOHAN REDDY AND H. R. KHANNA, JJ.J
Income-tax Act (11 of 1922) s. 34(3), Second Proviso-Scope of.
Upto the assessment year 1953-54 a business was being carried on by
P as an individual.
In March 1953, he entered into a partnership consisting of himself and others. For the assessment years 1954-55, 1955-56,
and 1956-57 the firm filed returns of income aad applied for registration
under s. 26A of the Income-tax Act 1922. The income-tax officer rejected
the application holding that there was no genuine firm.
He accordingly
assessed P as an individual in respect di the income earned in that business. As against that order the firm as well as P appealed to the Appellate
Assistant Oimmissioner who allowed both the appeals.
The Appellate
Assistant Commissioner held that the business was that of the firm and'
not of P. When the Income-tax Officer proceeded to assess the firm for·
the assessment years 1954-55, 1955-56 and 1956-57, the firm resisted it
taking the plea that the proceedings were barred by limitation
under
s. 34(3) of the Act. On the question whether the assessment for each
of the assessment years was valid the High Court, on reference, held that
the assessments were barred by time and were not saved by the second·
proviso to s. 34(3) of the Act.
Allowing the appeals to this Court.
HELD : Under the proviso the limitation of time would not apply to,
an assessment or re·assessment made on the assessee or any person
in
consequence of or to give effect to any finding ·or direction contained in
an order under s. 31, 33, 33A and 33B, 66 or 66A.
A finding which
can be considered as relevant under the proviso must bt> one which was
necessary for deciding the appeal before the authority; and the expression
'any person' refers to one who would be liable to be assessed
for
the
whole or part of the income that went into the assessment of the year
under appeal or revision. The person should be intimately connected
with the proceedings in which the finding was given. (658 CD; 660 A-B;
E-Fl
In the present case, the order df the Appellate Assistant Commissioner
was made under s. 31.
Though he hac! not given any direction.
the
order made by the Income~tax Officer was in consequence of the finding
given by the Appellate Assistant Commissioner.
The finding given by
the Appellate Assistant Commissioner that the business was that of the
firm was absolutely necessary for deciding both the appeals before him.
P, v;ho was the dominant partner of the firm was not only interested in
his own assessment but was also interested in the assessment of the firm.
The partners and the firm were intimately connected with him and hence,
they are 'persons' coming within the scope of the proviso. [658 E-F· 660 C
F-GJ
.
'
'
Income-tax Officer; A-Ward, Sitapur v. Murlidhar Bhagwan Das, 52
I.T.R. 335; 344. N.KT. Sivalingam Chettiar v. Commi,<sioner of lncometax, Madras, 66 J.T.R. 586 and Daffadar Bhagat Singh and Sons v. Jncometa.t Offecer, A-Ward Ferozepore, 11 I.T.R. 417, followed.
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 1682 to
1684 of 1970.
656
SUPREME COURT REPORTS
[1973] 3 S.C.R.
Appeals by special leave from the ·.iudgment and order dated
October 3, 1969 of the Andhra Pradesh High Court in R.C. No.
4 of 1966.
S. T. Desai, B. D. Sharma, S. P. Nayar, and R. N. Sachthey,
:for the appellant.
N.
D. Karf(hanis,
and K.
Ra;endra Chowdhary, for the
respondent.
The JudgmeJllt of the Court was delivered by
llEGDE, J.-These are appeals by Special Leave. They arise
from a common judgment of the Andhra Pradesh High Court in
a reference under section 66(i) of the Indian Income Tax Act,
1922, to be hereinafter referred to as the "Act". The reference i.n
question relates to the assessment of the assessee tor the assessment years 1954-55, 1955-56 and 19,6-57.
'I'he question of
law referred by the Tribunal is "Whether on the facts and the circumstances of the case, the assessm.ent Dll\(le on <the firms,. for
each of the assessment years 1954-55, 1955-56 and 1956-57, are
valid in law ?"
Now we shall set out the material facts as could be gathered
from the case stated by the Triqunal. Up to and including the
assessment year 1953-54 business with which we are concerned
in this case, was carried on by V adde Pallaiah. He was assessed
as an 'individual'. On March 20c3-1953 he entered into a partnership consisting of himself and three others. That partnership
was known as "M/s. Vadde Pulliah & Co." In that partnership
Pulliah had 8 as. share and out of the remaining three partners
two had 3 as. share each ·and one had 2 as. share. For the assessment years 1954-55, 1955-56 and 1956-57, this firm filed return>
of income as a firm. It also applied for registration under section
26A.
The Income-tax Officer rejected that aPPlication holding
that there was no genuine firm.
He came to the conclusion that
the business was exclusive that of Pulliah. He accordingly assessed Pulliah as an 'individual' in resoect of the income earned in
that business.
As against that order both the firm as well ·as
Pulliah went up in appeal to the Appellate
Assistant
Commissioner. Before the Appellate Assistant Commissioner, the
-question for consideration was whether the firm in question was a
genuine firm.
If the firm was a genuine firm, it necessarily followed that Pulliah was wrongly assessed. If, on the other hand, the
firm was not a genuine firm, Pul!iah was rightly assessed. Therefore, the sole question that arose for decision in the appeals filed
by the firm .as well as Pulliah was ·as to the genuineness of the firm
in question. The Appellate Assistant Commissioner after examining the material be.fore him came to the conclmion that the finn
in question was -a genuine firm.
Consequently, he allowed the
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A. appeal of the firm as well as that of Pulliah. In tho firm's appeals.
he directed the Income-true Officer to register that firm and in
Pulliah's ·appeal he set aside the assessment .made on him. In the
operative portion of his order he stated thus :
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"The Income-tax Officer is directed to adopt the
correct share of income of ihe appellant from this firm."
But in the body of his order he specifically held that the business;
in question was carried on by the firm and not l:zy Pulliah.
After this order was made, the Income-true Officer proceeded
to assess the firm in respeot of the income earned by that firm.
during the assessment years
1954-55, 1955-56 and 1956:57,
When the Income-true Officer initiated proceedings against the firm
for the purpose oi. assessment, the firm resisted the same taking
the plea that the proceedings in question is barred by limitation
under section 34(3) of the Act. He rejected that contention.
Aggrieved by that order the firm went up in appeal to the Appellate
Assistant Commissioner. The Appellate Assistant Coinmissi0nr.r
upheld the contention of the assessee and set a.•ide the order of
the Income-tax. Officer.
As against that order the Income-tall!
Officer went up in appeal to the Income-Tax Appellate TnbunaL
The Tribunal partly accepted the appeal of the Income-tax Officer.
It came to the conclusion that the assessment in respect of assess-.
ment years 1955-56 and 1956-57 are not barred in viewof the
Second Proviso to section 34(3) of the Act. Bur it opined that
the asse•sment in respect of the assessment year I 954-55
was.
barred by limitation.
Aggrieved by the decision of the Tribunal both the Commissioner of. Income-tax as well as the assessee moved the Tribunal
under section 66(i) of the Act to refer certain questions of law
to the High Court of Artdhra Pradesh. The Tribunal submitkd
the question set out earlier to the High Court. The High Court
has answered that question in favour of the assessee. It came to
the conclusion that the .impugned assessments were barred by time
and they are not saved by the Second Proviso to sub-section ( 3)
of section 34 of the Ac!. It is as against that decision these appeals
G have been brought by the Commissioner of Income-tax.
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In order. to deciile the controversy before us it is necessary
to rel.er to the material portions of section 34. That section deals
with income escaping assessment.
We are now concerned with
sub-section (3) of section 34 and the Second Proviso thereto.
Sub-section (3) of section 34 reads :
"No order of assessment or reassessment, othor than
an order of assessment u'nder section 23 to which clause
( c) of sub-section ( 1) of section 28 applies or an order
'658
SUPREME COURT REPORTS
(1973) 3 s.c.R.
of assessment or reassessment in cases falling within
clause (.i) of sub-section (1) or sub-section '(lA) of
this section shall be made afier the expiry of four years
from the end of the year in which the income, profits or
gains were first assessable."·
The First Proviso is not relevant for our present pnrposes. Hence
we shall _proceed to quate the Second Proviso to sub-section ( 3 )
CJf section 34. That Proviso s.iys :
"Provided further that nothing contained in this
section limiting the time within which any action may be
taken or any order, assessment or re-assessment may be
made, sh.ill apply to a re-asse8sment made under section
27 or to an assessment or re-assessment made on the
assessee or any person in consequence of or to give effect
to any finding or direction contained in an order under
section 31, section 33, section 33A, section 33B, section
66 or section 66A."
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The question before us is whether the assessee's case is covered
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by the Second Proviso to section 34 ( 3) ? Befqre a case can be
'Said to be covered by the said Proviso certain requirements will
have to be fulfilled. The first and foremost requirement is that
the order made must be one either under section 31 or section 33
Qr section 33A or ~tion 33B or section 66 or section 66A. In
the present case, admittedly, the order in question was made under
<Section 31. The present case does not fall within the scope of
·section 27 about which there is no dispute.
The next requirement is that the order made by the IncomeTax Officer must be to give effect to any finding or direction
~ven by the Appellate Authority. In this case the Appellate
Assistant Commissioner had not given aliy directiOn ·to ·.issess the
assessee. Therefore, all that we have to see is whether the order
made by the Income-tax Officer was in consequence of a finding
given by the Appellate Nsist.int Commissioner. The further
<1uestion tb:at we have got to decide is whether the assessee can be
considered as one of the pei;sons coming within the scope of the
proviso in question. There has been. considerable controversy as
to the meaning of the . word 'finding' in the Second '.Proviso to sec~
tion 34(3). This question came up before this Court for consideration in Income-Tax Officer, A-Ward, Sitapur v.
Murlidhar
Phagwan Das.(') This is what this Court obServed in that case:
''The expression "finding or direction", the argument proceeds, is wide enough to take in at any rate a
finding that is necessary to dispose of the appeal or direction which Appellate Assistant Commissioners have in
{I) 52 I.T.R. 335 ; 3"'4.
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C.I.T, v. VADDB PALLAIAH "' co. (Hegde, /.)
659
practice been issuin1t in respect of assessments of the
years other than those before them in appeal. What
does the expression "finding" in proviso to sub-section
( 3) of section 34 of the Act mean ? "Finding" has not
been defined in the Income-tax Act. Order XX, rule 5,
of the Code of Civil Procedure reads :
"In suits in which issues have been framed, the court
shall state its finding or decision, with the reasons therefor, upon each separate issue, unless the finding upon any
one or more of the issues is sufficient for the decision of
the suit."
Under this Order,
a "finding" is, therefore, a decision on an issue framed in a suit. The seconil part of
the rule shows that such a finding shall be one which by
its own force or in combination with findings: on other
issues should lead to the decision of the suit itself.. That
is to say, the finding shall be one which is necessary for
the disposal of the suit. The scope of the meaning of.
expression "finding" is considered by a Division Bench
of the Allahabad High Court in Pt. Hazarl Lal v. IncomeTax Officer, Kanpur,('). There the learned judges
pointed out :
"The word 'finding', interpreted in the sense indicated
by us above, will only cover 1Il8'1erial quC1Stions which
arise in a particular case for decision by the authority
hearing the case or the appeal which, being necessary for
passing the final order or giving the final decision in the
appeal, has been the subject of controversy between the
interested parties or on which the parties concerned have
been given a hearing."
We agree with this contention of finding." The same view was
taken by this Court in N .KT. Sivallngam Chettlar v. Commissioner
of Income-tax, Madras(').
Therein this Court ruled that a finding or direction by
an appellate authority in an order relating to the assessment of one year does not warrant the avoidance of the
bar of limitation under section 34 of the Indian Incometax Act, 1922, against initiation of proceedings for assessment for another year. A finding within the second proviso to section 34(3), must be a finding for giving relief
in respect of the assessment for the year in question. A
finding may only be that which was necessary for the disposal of an appeal in respect of an assessmene of a particular year.
(I) 39 J.T.R. 265.
(2) 66 I.T.R. 516,
660
SUPREME COURT REPORTS
[1973] 3 s.c.R.
The la'\\' on question was elaborately examined by this Court again
in Daffadar Bhagat Singh and Son,g v. lncome•tax Officer, A· Ward
F erozepure ( 1) • Therein this Court reiterated that a finding which
can be considered as relevant under the second proviso to section
34(3) must be one which was necessary for deciding the appeal
before the authority. Having set
ut the law, let us examine
whether the finding given in this case is one that was necessary
for the decision of the case before !he Appellate Assistant Commissioner. As mentioned earlier the question that the Appellate
Assistant Commissioner .bad to decide in the two appeals before
him, which he heard together, was whether the business in question was the business of. the firm or 1hat of Pulliah. He had only
two alternatives before him: In order to decide the appeal of the
firm as well as that of Pulliah, he had to decide whether the business was that of the firm or that of Pulliah. He cama to the conclusion that the business was that of the firm and not of Pulliah.
There is .no room for doubt that the finding given by the Appellate
Assistant Commissioner was absolutely necessary for
deciding
both the appeals before him.
This takes· us to the other branch of the second proviso . to
section 34(3), namely, whether the firm can be considered as
coming within the expression 'any person' in the proviso in question. In Murlidhar Bhagwan Das (Supra), this Court came to
the concltlsion that the .expression 'any person' in the second
proviso to section 34 ( 3) rel erred to one who would be fiable to
be assessed for the whole or a part of the income that went into
the assessment of the year under appeal or revision. Further, that
person should be intimately connected with the proceedings in
which the finding was given. The same view was taken in other
cases refierred to earlier. In the instant case Pulliah was the
dominant partner of the firm as found by the Tnbunal. He had
8 as. share in the firm. He was the original owner of the firm.
He was not only interested in his own assessment, he was also interested in the assessment of the firm. The partner of Pulliah were
intimately connected with him.
Hence we were clearly c1'. the
opinion that they are "persons" coming within the scope of the
second proviso to section 34(3).
It may be noted that the Appellate Assistant Commissioner had to deal. with the cases of Pulliah
as well as that ol. the firm.
In our opinion the High Court erred in coming to the conclusion that the finding given by the Appellate Assistant Commissioner, in the appeals filed by Pulliah as well as by the firm,
that the business was carried on by the firm. was not a necessary
finding for deciding the appeals before him.
That finding was
(1) 71 I.T.R. 417.
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C.J.T. V. VADDE PALLAIAH & CO. (Hegde. J.)
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clearly necessary. But for that finding he could not have decided
the appeals before him in the .way he decided. The High Coun
was also wrong in its conclusion that the firm was a stranger to
the assessment made on Pulliah. The firm was intimately connected with Pulliah and the assessment made on him.
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For the reasons mentioned above we set aside the order of
t.he High Court. We vacate the answer given by the High Court
and answer the question referred to in the affirmative and in favour
of the Revenue. The appellant will get his costs from the Respondent. One hearing fee.
V.P.S.
Appeal allowed.
10-L761Sup.C.l./73