# COMMISSIONER OF INCOME TAX, PATIALA v. THE AMBALA FLOUR MILLS

- **Citation:** [1971] 1 S.C.R. 388
- **Court:** Supreme Court of India
- **Decided:** 1970-04-27
- **Case number:** Civil Appeals Nos. 1277 to 1279 and 1280 to 1282 of 1966
- **Bench:** J. C. Shah, K. S. Hegde, A. N. Grover
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/commissioner-of-income-tax-patiala-v-the-ambala-flour-mills-5055
- **Pages:** 8

## Headnote

Income-tax Act, 1922, ss. 31 and 34(3) & 66-Assessment.by lncomeA
B
tax Officer in statU!I of 'association of individuals' of which D a memberAppeflate Assistant. Commissioner directing
,assessn1ent to be 1nade on
famfly of D-Appeals by D before Tribunal whether
maintainable-D
whet'ier a stranger to proceedings-High Court in reference whether can
C
modify directions given by Appellate Assistant Commissioner-'-Referenc4
to the High Court of a question no~ raised before 'fribunal not competent.
D. B and J were partners in a firm which carried on the business entitled the Ambala Flour Mills.
On April 29, 1948 J fil<d a suit for
the
dissolution of the firm.
The litigation ended with the judgment df the
Panjab High Court delivered on September 25, 1951.
According to the
judgment the partnership stood dissolved with effect fr<'m the date of the
filing of the suit, but since the firm had continued to use J's share in the
property of the firm after that date he was held entitled to a ~orrespond·
ing share in the profits of the firm after that date, or at his option, to
interest at six per cent on the value of his share in the property of the
firm. During the pendency of the suit B also served his connection with
the business which was. thereafter carried on by D alone. In the assessment year 1950-H D flied three returns of income : (i) on 4-10-50 in
the status of a firm; (ii) on 14-4-51 in the status of an individual; and
(iii) on 1-7-51 in the status of a firm consisting of J and D partners. For
the assessment year 1951-52 D filed a return in the status of an unregistered firm.
For the assessment" year 1952-53 D submitted a return in the
status of a Hindu Undivided Family.
The Income-tax
Officer assessed
the Ambala Flour Mills in the three years of assessment in the statua of
an association of penons. In appeals
by D the Appellate Assistant
Commi11iooer annulled the orders of assessment and remanded the case to
the Income-tail Officer with a direction that the Income be as!ICssed as the
income of the family of D. In appealt by D the Income-tax Appellate
Tribunal con11rmed the order of annulment but ordered that the direction
to alHll the income in the hands of D be deleted. The Tribunal's order
was based on the view that D was a stranpr to the asaeasment proceed·
inp. At the instance df the Comml11ioner of Income-tax the followlna
questions were referred to the High Court : ( i) Whether D was a stranger
in respect of the income-tax proceedings against Ambala Flour Mills ?
(ii) Whether the Appellate Assistant Commissioner could give a direction
in the case of Ambala Flour Mills to the effect that the income should be
assessed in the banCh of D after annulling the assessment in the case of
the Ambala Flour Mills ? (iii) Whether on the facts and in the circumstances of the case the appeals filed by D were maintainable in law? The
High Court answered the first question in the negative, the second in the
affirmative with the rider that the assessment against D 'could only be in
his individual capacity'; and the third question in the affirmative. Appeals
were filed in this Court by both the parties. In this appeal the Commissioner df Income-tax questioned the order of the High Court by which
they sought to modify the order of the Appellate Assistant Commissioner.
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C.I.T. V. AMBAU FLOUR MILLS (Shah,/.)
.389
HELD: (i) The first and tliird 'of the questions referred to it were,,
correctly answered by the High Court.
(a) D was competent to maintain the appeals filed by him to the
Tribuna.l because by the order. of tJie Appellate Assistant Commissioner
it was directed that he may be personally assessed by the
Incom~-tax
Officer in respect of the income of the Ambala Flour Mills. [391 C-0]
(b) In malting a direction, against 'D' the Appellate Assistant Commissioner did not exercise his powers qua a stranger to the assessment
proceeding. D had submitted returns and had also appealed against the
orders of the assessment. The

## Text

388
COMMISSIONER OF INCOME TAX, PATIALA
v.
THE AMBALA FLOUR MILLS
April 27, 1970
[J. C. SHAH, K. S. HEGDE AND A. N. GROVER, JJ.)
Income-tax Act, 1922, ss. 31 and 34(3) & 66-Assessment.by lncomeA
B
tax Officer in statU!I of 'association of individuals' of which D a memberAppeflate Assistant. Commissioner directing
,assessn1ent to be 1nade on
famfly of D-Appeals by D before Tribunal whether
maintainable-D
whet'ier a stranger to proceedings-High Court in reference whether can
C
modify directions given by Appellate Assistant Commissioner-'-Referenc4
to the High Court of a question no~ raised before 'fribunal not competent.
D. B and J were partners in a firm which carried on the business entitled the Ambala Flour Mills.
On April 29, 1948 J fil<d a suit for
the
dissolution of the firm.
The litigation ended with the judgment df the
Panjab High Court delivered on September 25, 1951.
According to the
judgment the partnership stood dissolved with effect fr<'m the date of the
filing of the suit, but since the firm had continued to use J's share in the
property of the firm after that date he was held entitled to a ~orrespond·
ing share in the profits of the firm after that date, or at his option, to
interest at six per cent on the value of his share in the property of the
firm. During the pendency of the suit B also served his connection with
the business which was. thereafter carried on by D alone. In the assessment year 1950-H D flied three returns of income : (i) on 4-10-50 in
the status of a firm; (ii) on 14-4-51 in the status of an individual; and
(iii) on 1-7-51 in the status of a firm consisting of J and D partners. For
the assessment year 1951-52 D filed a return in the status of an unregistered firm.
For the assessment" year 1952-53 D submitted a return in the
status of a Hindu Undivided Family.
The Income-tax
Officer assessed
the Ambala Flour Mills in the three years of assessment in the statua of
an association of penons. In appeals
by D the Appellate Assistant
Commi11iooer annulled the orders of assessment and remanded the case to
the Income-tail Officer with a direction that the Income be as!ICssed as the
income of the family of D. In appealt by D the Income-tax Appellate
Tribunal con11rmed the order of annulment but ordered that the direction
to alHll the income in the hands of D be deleted. The Tribunal's order
was based on the view that D was a stranpr to the asaeasment proceed·
inp. At the instance df the Comml11ioner of Income-tax the followlna
questions were referred to the High Court : ( i) Whether D was a stranger
in respect of the income-tax proceedings against Ambala Flour Mills ?
(ii) Whether the Appellate Assistant Commissioner could give a direction
in the case of Ambala Flour Mills to the effect that the income should be
assessed in the banCh of D after annulling the assessment in the case of
the Ambala Flour Mills ? (iii) Whether on the facts and in the circumstances of the case the appeals filed by D were maintainable in law? The
High Court answered the first question in the negative, the second in the
affirmative with the rider that the assessment against D 'could only be in
his individual capacity'; and the third question in the affirmative. Appeals
were filed in this Court by both the parties. In this appeal the Commissioner df Income-tax questioned the order of the High Court by which
they sought to modify the order of the Appellate Assistant Commissioner.
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C.I.T. V. AMBAU FLOUR MILLS (Shah,/.)
.389
HELD: (i) The first and tliird 'of the questions referred to it were,,
correctly answered by the High Court.
(a) D was competent to maintain the appeals filed by him to the
Tribuna.l because by the order. of tJie Appellate Assistant Commissioner
it was directed that he may be personally assessed by the
Incom~-tax
Officer in respect of the income of the Ambala Flour Mills. [391 C-0]
(b) In malting a direction, against 'D' the Appellate Assistant Commissioner did not exercise his powers qua a stranger to the assessment
proceeding. D had submitted returns and had also appealed against the
orders of the assessment. The incoqie earned by the assessee was assessed to tax as income of an ·association df persons of which on finding of
the Income-tax Officer 'O' was a member .. Since the Appellate Assistant
Commissioner set aside the order assessing the income in the status of
'association of individuals, he had to give directions with regard to the
assessment of the income. He was competent to give the directions in
view of the provisions of s. 31 read withs. 34(3) of the Income-tax Act,
1922 and the interpretation plooed on the latter section by this Court in
the r.ases of Murlldhar Bhagwan Das and Kanpur Coal Syndicate.
[392 G-E; 394 0-F]
Commis~ioner of Income-tax, U.P. v. Kanpur Coal
Syndicate, 53
I.T.R. 225 and Income-tax Officer,· A-Ward, Sitapur v. Murlidhar Bhagwan
Das, 52 l.T.R. 335, applied.
S. C. Prashar and another v. Vasantsen Dwarkadas and others,
49
l.T.R. 1, referred to.
(ii) Tho High Court exercising advisory jurisdiction was incompetent
to amend the order of the Appellate Assistant Commissioner. On the
question referred to the High Court, no inquiry into the power of the
Appellate Assistant Commissioner to
make the impugned direction was
competent. The second question only related to the assessment of the
income in the hands of D after annulling the assessment Of the Ambala
Flour Mills. It was not contended before the Tribunal that the income
of the Ambala Flour Mills could not be assessed ·in the hands of the
family of 'D'. The competence of the Appellate Assistant Commissioner
to make the direction could ndt be and was not referred to the
High
Court. f395 A-CJ
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 1277 to
1279 and 1280 to 1282 of 1966.
Appeals by special leave from the judgment and order dated
October 14, 1966 of the Punjab High Court in Income-tax Referenc~ No. 16 of 1962.
B. Sen, s. K. Ai,var, B. D. Sharma and R. N. Sachthey, for the
appellant (in C.As. Nos. 1277 to 1279 of 1966) and the respondent (in C.As. Nos. 1280 to 1282 of 1966).
Bishan Narain and A. N. Goyal, for the respondents (in'
C.As. Nos. 1277 to 1279 of 1966) and the appellants (in CAs
Nos. 1280 to 1282 of 1966).
H
The Judgment of the Court was delivered by
Shah, J.
Balkishan Das, Debi Prasad and Jai Ram Das
. were partners in a trrding venture conducted in the name of the
L 12 Sip. C I/70-11
390
. SUPP.EME COURT REPORTS
[ 1971] 1 s.c.:a .
Ambafa Flour Mills, Ambala. On April 29, 1948, Jai Ram Da~
commenced an action for dissolution and for account of the partnership business. The Trial Court decreed the suit. In appeal to
the District Court, the decree was reversed. On appeal under the
Letters Patent from the judgment of a single Judge, the High Court
of Punjab by order dated September 26, 1951 restored the decree
of the Trial Court and declared that the partnership stood dissolved
on April 29, 1948. The High Court observed :
" .... notwithstanding the dissolution of the firnt
Debi Parshad and Balkishan Dass carried on the busi·
ness of the firm with the property of the firm.
On
these facts, 1 airam Dass plaintiff is entitled at the option
of himself to such share of the profits made since he
ceased to be a Partner as may be attributable to the
use of his share of the property of the firm or interest
at the rate of six per cent per annum on the amount
of his share in the property of the firm."
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During the pendency of the suit Balkishan Dass severed his -D
_ connection with the business and the business was carried on
thereafter by Debi Parshad alone.
In the assessment year 1950-51, Debi Parshad filed three
returns of income (i) on 4-10-1950 in the status of a !irm, (ii)
on 14-4-1951 in the status of an individual and (iii) on 1·7-1951
in the status· of firm consisting of J ai Ram Das and Debi Parshad,
partners.
For the assessment year 1951-52, Debi Parshad filed
a return in the status of an unregistered firm;- For the assessment
year 1952-53 Debi Parshad submitted a return in the status of a
Hindu Undivided Family.
The Income-tax Officer assessed the
Ambala Flour Mills in the three years of assessment in the statu~
of "an association of persons". In appeals by Debi Parshad, the
Appellate Assistant Commissioner, "annulled" the
orders
of
assessment of the assessee in the status of association of p.ersotis
be set aside and that the case be remanded to the Income-tax
Officer to assess the income as "the income of the family of Debi
Parshad". In appeals by Debi Parshad, the Income-tax Appellate
Tribunal confirmed the orders of the Appellate Assistant Commissioner annulling the assessment made by the Income-tax Officer
and directed that the direction for assessing the income in the
hands of Debi Parshad be deleted.
The Tribunal referred the following three questions at tht>
instance of tlJe Commissioner of Income-tax.
1. "Whether L. Debi Parshad was a stranger in
respect of tbe income-tax proceedings against Ambala
Flour Mills ?
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C. !. T. V. AM BALA FLOUR MILLS ( Shaf?., ] • )
3 9 l
2. Whether the Appellate Assistant Commissioner
could give a direction in the case of Ambala Flour
Mills to the effect that the income should be assessed
in the hands of L. Debi Parshad after annulling the
assessment in the case of Ambala Flour Mills ?
3. Whether on the .facts and in the circumstances
of the case the appeals filed .by Shri J?ebi Parshad were
maintainable in Jaw ?"
The High Court an1wered the first question in the negative;
the ucond in the affirmative with the nder that the assessment
against Debi Parshad "could onlr be in individual capacity"; and
the third question in the affirmative.
Debi Panhad wu competent to maintaili the appeals fi!ed by
him to the Tribunal because by the order of the Appellate Assistant Commissioner, it was directed that he may be personally
assessed by the Income-tax Officer in respect of the Income of the
Ambala Flour Mills.
Counsel for Debi Parshad, however, contended that Debi
Parshad was a stranger to the assessment proceedings and the
Appellate Assistant Commissioner had no j11risdiction to direct
after setting aside the order of assessment that Debi Parshad be
assessed pen!onal!y in respect of the income of the Ambala Flour
E
Mills. The relevant provisions of the Income Tax Act may be
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noticed.
·
The relevant provisions of s. 31 of the Income Tax Act,
1922, are these :
"In disposing of an appeal, the Appellate Assistant
Commissioner may, in the case of an order of assess·
ment:
(a) confirm, reduce, enhance or annual the assessment;
(b) set aside the assessment and direct the Income.
tax Officer to make a fresh assessment after
making such further inquiry as the Income-tax
Officer thinks fit or the Appellate Assistant
Commissioner may direct, and the Income-tax
Officer shall thereupon proceed ot make such
fresh assessment ........ "
( 4) "Where as the result of an appeal, any change
irl the assessment of a firm or as8ociation o(
persons or new assessment of a firm or associa-
392
SUPREME COURT REPORTS
[1971 J 1 s.c.R.
tion of persons is ordered to be made,
the
Appellate Assistant Commissioner may authorise the Income-tax Officer to amend accordingly any assessment made on any partner of
the firm or any member of the association".
All the returns have been filed by Debi Parshad but in different r:apacities.
The Income-tax Officer was of the view that
the business was carried on by an association of persons and the
income from the business was liable to be brought to tax on that
footing. The Appellate Assistant Commissioner was of the view
that the income belonged to Debi Parshad and he was liable to
be assessed personally in respect of the income.
Evidently the
Income-tax Officer held that Debi Parshad was a member of an
association of persons.
Since the Appellate Assistant Commissioner set aside the order assessing the income in the status of
"association of individuals", he had to give directions with regard
to the assessment of the income, provided the assessment was not
,barred by the law of Limitation.
Section 34 sub-section 3 prescribes for the period in which
assessment proceedings shall be completed.
The section at the
date of assessment by the' Income-tax Officer read as follows :-
"No order of assessment or re-assessment,
other
than an order of assessment under section 23 to. which
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clause ( c) of sub-sect.ion ( 1 ) of section 28 applies
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or an order of assessment or re-assessment in ca!>es
falling wirhin clause (a) of sub-section (I l or subsection (IA) of this Section shall be made after the
expiry of four years from the end of the year in which
the income, profits or gains were first assessable :
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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, shall apply to a re-assessment
made
under section 27 or to an assessment or re-assessment
G
made on the assessee or anv person in consequence of
or to give effrct to any finding or .direction contained
in an order under section 31, section 33, section 33A,
section 33B, section 66 or section 66A".
The assessment of tax had according to the law at the releH
vant time in force, ordinarily, to be completed by the Income-tax
Officer within four years frOIIl the Jast da.te
of the year of
assessment in which the income, was first assessable. But to this
,.
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C.I.T. V. AMBALA FLOUR MILLS (Shah,}.)
rule there were several exceptions. If tJi.e assessment had to be
made on the assessee or any person in consequence of or to give
effect to any findiugs or direction contained in an order of the
Appellate Assistant Commissioner or of the Appellate Tribunal
or of the Commissioner in revision or of an order made in a
reference, the assessment could be made even after the expiry of
the four years.
The exception applied to an assssment made
agAinst the assessee or any person in consequence of, or to give
effect to any finding or direction contained in the order of any
superior tribunal, or the High Court or this Court. This Court
in S. C. Prashar and another v.
Vasantsen
Dwarkadas and
others(') held that the second proviso to s. 34(3) of the Incoml:'
tax Act, 1922, insofar as it authorised the asse.;sment or rl:'
assessment of any person other than the assessee after the expiry
of the period of limitation SQecified in s. 34 in consequence of or
to give effect to a finding or direction given in an appeal, revisiol) or reference arising out of the proceedin~ in relation to the
assessee violated the provisions of Art. 14 of the Constitution and
was invalid to that extent.
In a later case lncomf!-tax Ofjlcer, A-Ward, Sitapur v. Murlidhar Bhagwan Das(') this Court explained the connotation of
the expression "any person" as used ill s. 34 sub-s. ( 3) proviso
2 at p. 346:
"The expression 'any person' in its widest connotation may take in any person, whether connected or not
with the assessee, whose income for any year has escaped assessment, but this construction cannct be
accepted, for the said expression is necessarily circumscribed by the scope of the subject matter of the appeal
or revision as the case may be.
That is to say, that
person must be one who would be liable to be assessed
for the whole or a part of the income that went into
the assessment of the. year under appeal or revision. If
so construed, we must turn to section 31 to ascertain
who is that person other than the appealing assessee
who can be liable to be assessed for the income of the
said assessment years. A combined reading of section
30(1) and section 31(3) of the Act indicates the cases
where persons other than the appealing assessee might
be affected by orders passed by the Appellate Commissioner.
Modification or setting aside of assessment
made on a firm, joint Hindu family, association of persons, for a particular year may affect. the assessment
for the said year on a partner or oartners of the firm.
member or members of the Hindu Undivided family
(1) 49 I.T.R. 1.
(I) 52 l.T.R. 335.
3'94
SUPREME COURT REPORTS
[1971) I S.C.R.
or the individual, as the case .may be. In such cases,
though the latter are not ea nomine parties to the appeal,
their assessments depend upon the assessment of ihe
former. The said instances are only illustrative. If is
not necessary ro pursue the matter further. We would,
therefore, hold that the expression ·'any person' in the
~et?ng in which it ap~ars must be confined to a person
mtlmately connected m the aforesaid sense with the
assessments of the year under appeal."
In Commissioner of Income-tax, U.P. v. Kanpur Coal Syndicate (1) this Court held that where the Income-tax Officer assessed
the income of an association of persons under s. 31 ( 3 > ( b) the
Appellate Assistant Commissioner was competent to set aside the
assessment and to direct the Income-tax Officer to
assess
the
members individually.
The Court observed that the Appellate
Assistant Commissioner had under the Act plenary powers in
disposing of an appeal •. the scope of his powers being. conterminous with that of the Income-tax Officer: he can do what the
Income-tax Officer can do and can also direct the Income-tax
Officer to do what he has failed to do.
·
Debi Parshad had submitted the returns, and Debi Parshad
appealed against the order of assessment. . He could,
in
the
circumstances of the case, not be called a stranger to the assess·
ment. The income earned by the assessee was assessed to tax
as income of an association of persons, of which on the finding
of the Income-tax Officer, Debi Parshad was
a member.
In
making a direction against Debi Parshad the Tribunal did not
exercise his powers qua a stranger to the assessment proceeding.
Civil Appeal Nos. 1280-1282 of 1966 must therefore fail.
The Appellate Assistant Commissioner had directed that the
income in the three assessm~nt years be assessed in the hands of
the family of Debi Parshad, apparently on the view that Debi
Parshad represented the Hindu Undivided family of which he
was a member.
The Tribunal set aside the direction to assess
the income of the Ambala Flour Mills in the hands of Debi
Parshad personally. for in their view Debi Parshad was a stange1
to the proceeding for assessment. The High Court held that the
·order of the Appellate Assistant Commissioner directing assessment of "the familv of Debi Parshad" was "clearlv unwarranted
and could relate only ot Debi Parshad in his individual capacity".
Anneals Nos. 1277 to 1279 of 1966 were filed against that
part of the' order of the High Court by which thev sought to
modify the order of the Aonellate Assistant Commissioner. The
(1) 53 l.T.1!.. 225.
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C.l.T. V. ,AMBALA FLOUR MILLS (Shah,].)
395
High Court exercising advisory 'jurisdiCtion was incompetent to
amend the order of t!J.e Appellate Assistant Commissioner. But
on the question referred to the High Court, no inquiry into the
power of the Appellate Assistant Commissioner to make the impugned direction was competent. The second question only related
to the assessment of the income in the hands of Debi Parshad
after annulling the assessment of the Ambala Flour Mills. It
was not contended before the Tribunal that the income of the
Ambala Flour Mills could not be assessed in the hands of the
family of Debi Parshad. ·The competence of the Appellate Assistant Commissioner to make the direction was not and could not
be referred to the High Court.
·
Appeals Nos. 1277 to 1279 of 1966 filed by the Commis·
sioner therefore fall. There will be no order as to costs in all the
appeals.
G.C.
Appeals dismissed.