# C.I.T. BOMBAY v. ONKARMAL MEGHRAJ (H.U.F.) & ORS - **Citation:** [1974] 1 S.C.R. 391 - **Court:** Supreme Court of India - **Decided:** 1973-08-16 - **Case number:** -Civil Appeals Nos. 22632274 of 1969 - **Bench:** H. R. Khanna, A. Alag!Ri~Wami - **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/c-i-t-bombay-v-onkarmal-meghraj-h-u-f-ors-5985 - **Pages:** 8 ## Headnote Indian Income Tax (Amendment) Act 1953-S. 34(3)-11$ scope. 391 16 person'1:i constituted a partnership firm under an agreement dated 19-51930. Out' of the 16 partners, 3 were outsiders and 13 were members of 3 Hinclu Undivided Families. Though the firm. consisted of 3 Hindu Undivided Families, the income tax assessment till 1939-40 was on aU the 16 individuals. From 1939-40 to 1941-42, the Income Tax Department asseosed the 13 persons not as individuals but as 3 Hindu Undivided Families. on the basis of a settlement between them and the department. After 1941-42, all the 16 personS were to be individually assessed. Nevertheless, the Income Tax Officer proceeded to make the asessment as though the 3 HiJidu Undivided Families still continued. The members of the Hindu Undivided Families disputed this ~nd on appeal, the Income Tax Appellate Tribun3.l directed that the assessment for the year 1943~ 44 had to be made on each individual partner. In respect of the year- 1944-45, the I.T.0. had, meanwhile, assessed the 3 H.U. Families as Hindu Undivided Families by declaring the cases of the individuals as cases of "No assessment". These assessments were, however, set aside by the' Appellate Assis!ailt Commissioner according to the directions given by the Tribunal earlier. After receipt of the orders of the Appellate Assistant Comrnissionet the I.T.O. fasued notices urider s. 34 to aU the 13 persons in April 1954. By that tiine, the Indian Income-tax (Amendment) Act 1953, which amended s. 34U) became operative retrospectively from 1-4-1952. The notices under s. 34 were served on 8th April 1954 and the assessments were made on 31-1-1955 on the footing that under that Sectior.., there was no time limit. Both the Appellate Assistant Commissioner and Tribunal dimissed the appeals filed by 'the assessees. These assessments were, however, set aside by the Appellate Assistant Comtnis- (i) whether, having regard to the' directions given by the· AppelJate Assistant Commissioner. and havir..g regard to the second provisQ to Se:::tion 34(3) as amended, the reas·sessment made by the I.T.0. on 31-1-1955 is governed by any limitation period, such as mentioned in s. 34(::\). (2) In respect of 4 other assessees, who furnished individual returns, "whether the remedy available to the I.T.0. had already become time-barred under s. 34 before that Section was amended .in 1953 with retrospective effect." The High Court answered the questions in the affirmative , arid hence, the appeals before this Court. Allowing 3 appeals and dismissing the others. HELD: (i) The direction given by the Tribunal on 31-3-53 was in respect of the assessment for 1943-44. The I.T.0. had even before that date, assessed the three units as H.U.F., for 1944-45 and paSsed an order of 'No ,assessment' in respect of the individuals. For that year also, all of th¢ hadj filed their ret11rns as individuals. Therefore, there was no question of omission or failure to make a return or to disclose fully all material facts necesSary for their assessment and, escapement of assessment was not due to any such fact but due fo the action of the l.T.0. asseS'Sing non-existent Hindu Undivided Families and passing an order of 'No assessment' in respect of individuals. -Section 34(1)(a) cannot, therefore, apply and only section 34(1) (b) can apply. [395D-FJ (i) AS regards the application of-the second proviso to s. 34(3), it applies only to the three individuals (Narayandas, Meghraj and. Hanuma~~as) who ~l~d returns as individuals but who had been assessed as Hindu Und1v1ded Families and who were before the Appellate Assistant Cornn1issioner and the Tribunal 392 SUPREME COURT REPORTS [ 1974] 1 S.C.R. but not to other eight respondents who were not parties to the proceedings and there was no Hindu Undivided Families at that time-all these eight persons having filed thei1 returns as individuals. [395F-396C] l.T.0. v. Mur/idhar Bhagwa11 Das, [1964] 52 I.T.R. 325, referred to. The right of the I. T. 0. to ## Text A n as follows : "Whether section 4 of the Income-tax (Amendment) Act (I of 1959) was applicable to any one or more of these B assessments ?" The High Court held against the Department on this question.· This was not argued before us and we need not ther~fore spend any further time over it. For the purpose of deciding whether section 34(3) applied, the High Court went into the question whether the :notices in these cases were issued under clause (a) or clause (b) of section 34(1). After considering all the facts and circumstances relevant to the determination of the question the High Court came to the conclusion that the notices issued should be deemed to have been issued under section 34(l)(b). This was based uporl the proposal made by the Income-tax Officer, the sanction given by the Commissioner, the notice issued by the Income-tax Officer and the return made by the assessees, as well as the assessment order of the _Income-tax Officer. The High Court also came to the same conclusion in respect of the case of Onkarmal Meghraj for the assessment year 1943-44. It then considered the question whether the case came under the 2nd proviso to section 34 ( 3). The High Court pointed out that neither group could be regarded as falling under section 34(1)(a) and'held that the cases of the seven persons could not be treated as cases of no - return and that the order of 'no assessment' made in respect of these persons was not because of a wrong or improper return having ·been submitted by these assessees, but because of ap erroneous view taken by the Income-tax Officer that the income had to be assessed in the hands of the HUFs. As regards the second group of four persons it observed that they had submitted their returns as individuals and bad fully and truly disclosed the income received by them, which was liable to assessment. The Income-tax Officer bad, however. _made the assessment on three HUFs represented by three of the four persons· and assessed the income as the income of the HUFs. The result was not because of a failure or omission on the part of these persons to make a return of their respective income, but because the income was assessed in the hands of the HUFs. Thus the escapement of asses'sment of income was not due to any failure or omission on the part of the assessees but because of the erroneous view taken by the Income-tax Officer. It thus held that the cases did not fall under section 34(1) (a) and that they could not fall under the second proviso to section 34(3) ~ause that proviso became applicable only from the 1st day of April 1952 and the assessment nnder section 34 being in respect of the assessment year 1944-45, the action to be taken under section 34 would be barred. The same view was taken in the case of the solitary appeal of Onkarmal Meghraj for the assessment year 1943-44. Even in respect of c D E F G H B c D E F C.1.T. v.iONKARMAL (A/agiriswami, l.) 395 Narayandas Meghraj and Hanumandas it observed that although they were undou'btedly parties to the proceedings in which the findings or orders were given, and the second proviso to section 34(3) would not be inapplicable but it could be applied only within the period of limitation that had expired before !st April, 1952. Iμ the result the High Court answered two of the questions in the affrmative. The Commissioner of Income-tax has, therefore, filed these 12 appeals. It appears to us that the conclusion reached by the High Court in respect of the question whether clause (a) or clause (b) of section 34(1) applies is correct. Neither the proposal submitted by the Incometax Officer to the Colpmissioner for taking action under section 3 4 r:or the sanction of the Commissioner, nor the notices issued in these case~ nor the returns filed by the parties, nor even the assessment orders of the Income-tax Officer point to the conclusion that action was either contemplated or taken under clause (a); It has to )le kept in mind that all the eleven persons had filed their returns in their status as individuals. The fact that seven of them filed· as smaller HUFs makes no difference to this fact. The larger HUF of Narayandas, Meghraj and Hanumandas was neither in existence nor did it file a return as such. Indeed from the year 1930 it never existed. The assessment for 193940 to 1941-42 of the three HUFs was only by agreement between the parties and the Department and 'was not questioned. The assessment for 1942-43 was somehow not taken up on appeal. The direction given by the Tribunal on 31-7·1953 was in respect of the assessment for 1943-44. The Income-tax Officer had even before that date assessed the three units as HUF for 1944-45 and passed an order of 'No Assessment' in respect of the individuals. For that year also all of them had filed their retnrrts as individuals. Oearly, therefore, there was no question of omission or failure to mal.;e a return or to disclose fullv and truly all material facts necessary for their assessment and the escapement of assessment was not due to any such fact but due to the action of the Income-tax Officer assessing non-existent HUFs and passing an order of 'No Assessment' in respect, of individuals. Section 34 (I) (a) cannot, therefore, apply and only section 34( I) (b) can apply. The second proviso to section 34(3) does not apply to eight of the 11 respondents in the appeals regarding the assessment year ! 944-45, as they were not parties to the proceedings in which the direction of the Tribunal was given, and the same consideration applies to the respon- . dent On)rnrmpl Meghraj for the assessment year 1943-44. Only Narayandas, Meghraj and Hanumandas who had filed returns as indiviG . duals but who had been assessed as HUFs were parties ther.:to. The others had no occasion to go up in appealoecause the Income-tax Officer had passed an order of 'No assessment' in their cases. Regarding the .assessment for the year 1943-44, the assessments were made in pursuance of the directions given by the Appellate Assistant Commissioner in the three appeals preferred by the persons who were treated as Kartas of the three I.{:JPs lrt whose hands the income was assessed by the H Income-tax Officer. These were NarayandasPokarmal, Meghraj Pokarmal and Hanumandas Sewakram. In these cases the settlement between the Department and the parties ea·'ier was on the basis ~hat there was partial partition in the HUFs. It has already been menhoned that be- 396 SUPREME COURT REPORTS ( 1974) l S.C.R. fore the year 1939-40 the various partners of the firm had been assessed in their individual capacities. Therefore, the appeals filed by Narayandas Pokarmal, Meghraj Pokarmal and Hanumandas Sewakram cannot represent the separ:itect membe_rs of the family. These three persons, however, were parties to the said proceedmgs. They had filed their returns as individuals and because they had been assessed as HUFs, had carried the matter up on appeal. In respect of the other eight persons who also filed returns as individuals the direction issued by the Assistant Appellate Commissioner in the appeals filed by Naraya0das, Onkarmal and Hanumaudas cannot be said to apply to them as there was no HUF and they were not members of a HUF. The words "any person" in the second proviso to section 34 (3) has been interpreted By this Court in Income-tax Officer v. Murlidhar Bhagwan Das(') as any person intimately connected like members of a HUF, partners of a firm or individuals forming an association of individuals becat!se in suoh cases though they are not eo nomine parties they could be deemed to be represented by the HUF, partnership or association before the relevant Income-tax Authority. Such is not the case with regard to these individuals because no HUF was before the concerned Income-tax Authority-indeed there was no HUF-and therefore they woulqnot be bound by those orders. In the case of individnals who were actually before the Appellate Assistant Commissioner and the Tribunal the orders would bina those three individuals. In their cases, therefore, the •econd proviso can be rightly applied. We have now held that the notices in these cases should be deemed to have been issued under section 34 (1) (b) and the orders of the Tribunal and Assistant Appellate Commissioner would apply to the three perso;is who were eo nomine parties before them but not others. The next question is whether the bar of limitation applies in any of the cases. A good deal of argument was a'dvanced before us as to whether the second proviso to section 34(3) could be availed of at any time. ·n appears to us that it could be so availed of in respect of persons in who&e cases reassessments are made under section 27 or in pursuance of an order under section 31, 33A, 33B, 66 or 66A, that is Narayandas Pokarmal, Meghraj Pokarmal and Hanumandas Sewakram. There is no difficulty in holding that the second proviso applies to them. They had filed their returns as individuals and been assessed as HUFs. It is open to persons in that situation to contend, as. indeed they did, thet they should be assessed as individuals and not as HUFs. And when the Appellate Assisian( Commissioner and the Tribunal make an order that they should not be assessed as HUFs but as individuals they are only. giving effect to the contention of the parties. Their cases col!!e .directly under the principle of the decision in Income-tax Officer v. Murlidhar Bhagwan Das (supra). Even if they are not assessees, they are inti· mately oonnected with the assessee, that is the HUF. The earlier order of 'No Asses,ment' made by the Income-tax Officer in their case does not affect this situation. But as far as the other eight persons are concerned, they did not have anything further to do after the Income-tax Officer in spite of their filing yeturns as individuals made an order of 'No Assessment'. They (l) [19641 52 I.T.R. 335. c J) G H A B c D E F G H CJ.T. v. ONKARM.i\L (Alagiriswami, /.) 397 were not before the Appellate Assistant Commissioner or the Tribunal. They were not assessees nor were they Tutimately connected with the assessee tha~·'is the HUF as there was no HUF. Therefor~. the second proviso to s~ction 34(3) is not applicabie in their cases. The right of the Income'tax Officer to assess these persons can be upheld only if the notice under the substantive part of section 34 can be said to be a valid notice. The assessment year being 1944-45 the :iotice under section 34 issued in April 1954 was beyond the period of 4 years under s. 34( 1) (b) which we have held applies to them. For the reasons just set forth the second proviso to s. 34(3) does not apply to them. That raises the question whether that proviso could be applied without reference to any period of limitation. It is a well s~ttled principle that no action i:an be commenced where the period within which it can be cemmen.ce