Padhye, J.
1. This is a reference under section 66(1) of the Income-tax Act, 1922, and relates to the assessment years 1949-50, 1950-51, 1952-53 and 1953-54. The question that is referred for our answer is :
'Whether, on the facts and in the circumstances of the case, was the initiation of action under section 34(1) (b) read with the second proviso to section 34(3) against the assessee, for the assessment years 1949-50, 1950-51, 1952-53 and 1953-54 by the Income-tax Officer by notice dated October 4, 1960, legal and valid ?'
The few facts which are relevant and necessary for answering the question are these :
One Narsinghdas Daga with his wife, Sodradevi, and six sons, of whom three were majors and three were minors, formed a Hindu undivided family. There was a partition in the family on October 18, 1944 amongst the aforesaid eight members. After the said partition, the mother, Sodradevi, and her three major sons entered into a partnership and the three minor sons were admitted to the benefits of the partnership. The present assessee was one of the minor sons of Sahodradevi who was so admitted to the benefits of the partnership.
2. On behalf of the assessee, voluntary returns of his income from the partnership were filed for all the assessment years through his major brother, Hiralal Daga. Sodradevi, the mother of the assessee, also filed her returns separately showing her own income during those years. In the assessment proceedings recording 'nil assessments' on the view take by him that the income falling to the share of the assessee from the partnership to whose benefits he was admitted and in which partnership his mother, Sodradevi, was one of the partners, was assessable in the hands of his mother Sodradevi, under the provisions of section 16(3) (a) (ii) of the Income-tax Act 1922. In the assessment proceedings of Sahodradevi her income together with the income of the assessee from the partnership was clubbed together and Sahodradevi was assessed on these two income and taxed thereon. Sahodradevi then challenged the assessment order against her contending that the income of the present assessee was not liable to be included in her assessments and should be excluded from computation. Prior to these assessments, similar proceedings were taken for the assessment year 1946-47, and similar orders were passed by the Income-tax Officer in those proceedings also. Sahodradevi was unsuccessful before the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal and, at her instance, reference was made by the Appellate Tribunal to the then High Court of Judicature at Nagpur under section 66(1) of the Income-tax Act. By order dated April 13, 1954, the High Court took the view that the share of the income of the minor son from the partnership to whose benefits he was admitted could not be included in the assessment of his mother-partner under section 16(3) (a) (ii) and should, therefore, be excluded from her assessment. The decision of the Nagpur High Court, which is reported as Sahodradevi N. Daga v. Commissioner of Income-tax, was upheld by the Supreme Court by decision reported in Commissioner of Income-tax v. Sodradevi. In pursuance of the decision of the then Nagpur High Court, the Tribunal excluded from her assessment the income of the minor son. For the assessment year 1949-50 the Appellate Assistant Commissioner upheld the order of the Income-tax Officer including the minor's income in the income of his mother, but the said order was set aside in second appeal by the Appellate Tribunal and the Tribunal directed that the assessee's income should be deleted from the assessment of his mother, Sodradevi. The relevant portion of the Tribunal's order is in these words :
'As required by section 66(5) of the Indian Income-tax Act and in conformity with the judgment of the High Court of Judicature at Nagpur, delivered on April 13, 1954, the appeal is partly allowed. The Income-tax Officer is directed to exclude from the total income of the assessee the share income of the three minor sons of the assessee which was added under section 16(3) (a) (ii) of the Act.'
3. So far as the assessments for the years 1950-51, 1952-53 and 1953-54 are concerned, the Appellate Assistant Commissioner himself excluded the assessee's income from the assessments of his mother and gave the following directions to the Income-tax Officer :
'The Income-tax Officer will, therefore, revise the assessments accordingly by deleting the share incomes of Seth Sunderlal Daga from these assessments, and assess him separately on his incomes for the years in question.'
4. It was after these orders that the Income-tax Officer initiated action against the assessee by issuing notices against him on October 4, 1960. These notices have been taken to be under section 34(1) (b) of the Income-tax Act, 1922, as appears from the question referred and have to be dealt with on that basis. The Income-tax Officer completed the assessments for all those 4 years under section 23(3) read with section 34(1) (b) on December 12, 1960. The Income-tax Officer assessed the present assessee on separate income which was only from the partnership. The assessment proceedings against the assessee were objected to before the Income-tax Officer on the ground that the initiation of these proceedings was bad and barred by time and the notices were illegal and invalid. The returns were filed under protest raising these objections. These objections were negatived by the Income-tax Office. In appeal also, the Appellate Assistant Commissioner rejected these contentions and upheld the assessments against the assessee. The assessee then filed second appeals against these assessments to the Appellate Tribunal. It was contended by the assessee that, so far as the assessment year 1949-50 is concerned, there is no finding or direction at all entitling the Income-tax Officer to initiate the proceedings under section 34(1) (b) of the Income-tax Act. So far as the other years were concerned, it was contended that the aforesaid directions are ineffective so far as the assessee is concerned and they are without jurisdiction and beyond his powers and would not affect the assessee who was a stranger to the proceedings in which the directions were made. The Tribunal accepted the contentions of the assessee in respect of these 4 years. On being required by the Commissioner of Income-tax, the Tribunal was referred the question abovesaid under section 66(1) of the Income-tax Act, for being answered by this court.
5. The assessment for the assessment year 1949-50 stands separately. Section 34(1) (b) enables the Income-tax Officer to assess an income which has escaped assessment if, in consequence of information in his possession, he has reason to believe that income, profits and gains chargeable to income-tax have escaped assessment for any year even though returns of the income under section 22 might have been filed. However, for issuing such notices on the assessee a bar of limitation is put by the said sub-section and no such notice could be issued beyond a period of 4 years of the end of that year. However, this bar of limitation is lifted by the second proviso to sub-section (3) of the section 34, which proviso reads as under :
'Provided further that nothing contained in this section limiting the time within which any action may be taken or any order, assessment or reassessment may be made, shall apply to a reassessment made under section 27 or to an assessment or reassessment 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.'
6. Assuming for the present that the whole of this proviso is valid and intra vires, the bar of limitation is lifted only when the assessment or reassessment is in consequence of or to give effect to any finding or direction contained in the orders under the various sections mentioned in the proviso. In the Tribunal's order for this year there is no such finding or direction in consequence of which the assessment or reassessment is sought to be made. The learned counsel for the revenue however contends that there is implicit in the order of the Tribunal a finding or direction in consequence of which the notice was issued to the assesse and the assessment was being made. We have reproduced earlier the relevant portion of the Tribunal's order and we are unable to read any such finding or direction in the said order as contended on behalf of the revenue. The only direction that has been given by the Tribunal to the Income-tax Officer is to exclude from the total income of the assessee the share income of the three minor sons of the assessee which was added under section 16(3) (a) (ii) of the Act. There is no further direction that for that share income the present assessee should be assessed or proceedings for making the assessment against the present assessee should be initiated. In order to attract the second proviso to section 34(3) there should be a clear finding or direction on the basis of which action is sought to be taken. The notice under section 34(1) (b) was issued against the assessee on October 4, 1960, and assessment was completed on December 12, 1960. The notice thus issued is beyond the period of 4 years from the end of the assessment year and was completely barred under section 34(1) (b) and the said assessment was not saved by the second proviso to section 34(3) of the Income-tax Act.
7. It was, however, urged that the finding regarding the exclusion of the income of Sunderlal from the assessment of Sahodradevi necessarily means as a consequence that the said income has to be assessed in the hands of Sunderlal. Therefore, it is contended, that in order to give effect to the finding made in the assessment of Sodradevi, the present assessee has to be assesed. If the income in question, which is, in fact, the income of Sunderlal, cannot be assessed in the hands of Sahodradevi or any other person, then it has to be assessed in the hands of the person whose income it is i.e., Sunderlal. Can it be done beyond the period prescribed in section 34(1) or does the bar of limitation stand lifted The assessee, Sunderlal, was not an assessee in Sodradevi's assessment proceedings. As we shall presently discuss, the second proviso to section 34(3) so far as it relates to 'any person', except in a limited sense, is ultra vires. 'Any person' is referable only to a person who is intimately connected with the assessment in which a finding or direction is given. The present assessee is not such a person who can be said to be intimately connected in that sense as we shall show hereafter and, therefore, the bar of limitation is not lifted.
8. So far as the assessment years 1950-51, 1952-53 and 1953-54 are concerned, the matter stands on a different footing. In the assessment proceedings of Sahodradevi for these years the Appellate Assistant Commissioner gave a direction to the Income-tax Officer to revise the assessment by deleting the share incomes of Sunderlal Daga from her assessments and gave a further direction to assess the said Sunderlal Daga, the present assessee, separately on his incomes for the years in question. There is no doubt, therefore, that in respect of the assessments of these years there is a specific direction by the Appellate Assistant Commissioner to assess the present assessee separately and if the second proviso to section 34(3), as enacted, was valid to the full extent, this direction would have lifted the bar of limitation and proceedings could be initiated against the present assessee at any time for assessing his incomes for those years. It was, however, urged on behalf of the as assesses that since the second proviso with respect to any person other than the 'assessees' is invalid and unconstitutional being violative of article 14 of the Constitution, the bar of limitation is not lifted and the initiation of the proceeding against the assessee for these assessment years would be beyond the period of limitation prescribed by section 34(1) (b) and hence illegal and invalid. If this contention is correct, then the whole proceedings against the present assessee for these three years are bad and illegal and would be required to be quashed. The learned counsel for the revenue, however, contends, in the first place, that the present assessee, namely, Sunderlal Daga, was in the position of an assessee in the assessment proceedings against Sodradevi, his mother; in the second place though the present assessee, Sunderlal Daga, was not eo nomine a party to the assessment proceedings against Sodradevi, he must be taken to be a party to that proceeding as he was a member admitted to the benefits of the partnership between Sahodradevi and her three major sons and the income from the partnership was also being assessed in the hands of Sahodradevi and which is now sought to be assessed against the present assessee; in the third place, the present assessee is not a total stranger but is a person who is intimately connected with the assessment of Sahodradevi because his assessment depended upon the assessment of Sahodradevi and, therefore, with respect to such persons so intimately connected, the second proviso to section 34(3) was not ultra vires. If any of these contentions on behalf of the revenue is accepted, then certainly the second proviso to section 34(3) would lift the bar of limitation and the notice served on the present assessee under section 34(1) (b) and the subsequent proceedings of assessment would be legal and valid.
9. Mr. R. M. Hajarnavis, the learned counsel for the revenue, pressed upon us that the present assessee was an assessee in the proceedings against Sahodradevi in which direction was given by the Appellate Assistant Commissioner and there was no fresh assessment or fresh proceeding against the present assessee and, therefore, the question of the bar of limitiation under the second proviso did not arise. According to the learned counsel, the income that was being assessed to the present assessee was a share of income from the partnership and that share income as a partner was being assessed in the hands of his mother who had also an income from the same partnership which incomes depended upon the income of the firm, which, in the first instance, had to be computed. Hence, according to him the firm's assessment was continuing and Sunderlal Daga was also an assessee in that proceeding and not a stranger. In short, the contention is that the firm, to the benefits of which Sunderlal Daga was admitted, had filed the return and was before the Income-tax Officer; the income of the firm was being computed and therefrom the share of income of each of the partners or members admitted to the benefits of the partnership was being computed and, taking into account the share of income from the partnership firm, the total income of each of the members of the partnership was being assessee, Sunderlal Daga, must be taken to be an assessee in that earlier proceeding. Section 23(5) of the Income-tax Act lays down the procedure how the income of the firm and the partners thereof should be computed. By virtue of the definition of the word 'partner' in section 2(6B), a minor who has been admitted to the benefits of partnership is also termed as a partner for the purposes of the Act. Now, under sub-section (5) of secion 23, as it then stood, when the assessee is a firm and its total income has been assessed under sub-section (1), sub-section (3) or sub-section (4), as the case may be, and if it is a registered firm, then the sum payable by the firm itself had not to be determined, but the total income of each partner of the firm including therein his share of its income, profits and gains of the previous year were to be assessed and the sum payable by him on the basis of such assessment had to determined.
10. We are dealing here with a registered firm. Where is a partnership a minor was admitted to its benefits and that minor's father is also a partner in that firm, then in the total income of the father the minor's share of income in the firm had also to be included. This is provided by section 16(3) (a) (ii) which reads (excluding the unnecessary portion) as under :
'(3) In computing the total income of any individual for the purpose of assessment, there shall be included -
(a) so much of the income of a wife or minor child of such individual as arises directly or indirectly - ...
(ii) from the admission of the minor to the benefits of partnership in a firm of which such individual is a partner.'
11. It is now settled by the decision of the Supreme Court in Commissioner of Income-tax v. Sodradevi, that the partnership income of the minor child has to be included in the total income of its father and not in that of the mother. In the case of the firm, the firm as well as the individual partners have to submit their respective returns under section 22 of the Act and thereafter the incomes have to be assessed under the different sub-sections of section 23, but they are all different as assesses in their own rights. In the case of a registered firm the firm, under the provisions then existing, was not required to pay any tax on its total income but it was an assessee so far as its total income had to be computed for the purposes of finding out the shares of the individual partners so that these incomes could be included in their individual total income for the purposes of assessment and also for including the share of income of the minor partner in the total income of the father-partner. Once the total income of the firm was assessed or computed and once the income of the individual partner was determined, then there was nothing left to be done so far as the firm was concerned and thereafter there were separate assessments of each of the individual partners with respect to their total incomes including his share of the income from the partnership. Thus, while assessing the total income of Sahodradevi for the purposes of taxation, the present assessee, Sunderlal, Daga, had nothing to do with the same and similarly Sahodradevi had nothing to do with the assessment of Sunderlal Daga and these persons were independent of each other. In the proceedings again Sahodradevi though here share of income from the partnership was also being taken into consideration, she was the sole assessee in that proceeding and even though the share of income of Sunderlal Daga from the partnership was included in the total income of Sodradevi, validly or invalidly, the assessee was still Sahodradevi and not Sunderlal Data. So far as the assessment against Sunderlal Daga was concerned, it was already ordered to be a case of 'no assessment' and the proceedings so far as he was concerned came to an end. In Sodradevi's case there was not any assessee except Sodradevi. It is, therefore, not possible to accept the contention of the learned counsel for the revenue that in the assessment proceedings in which that direction has been given by the Appellate Assistant Commissioner for the three assessment years, the present assessee, Sunderlal Daga, could be said to be an assessee. We are also not inclined to accept the contention of the learned counsel for the revenue that, in proceedings under section 23(5) against a registered firm in which a minor and his mother are partners, grossing up of the two incomes was a proceeding in the assessment of the firm.
12. It was then contended that section 16(3) (ii) must be regarded as a proviso to section 23(5) of the Act. The contention is that in proceedings under section 23(5) where the assessee is a registered firm, the assessment is also against all the partners. That means the assessment against the firm for the computation of its total income and the subsequent assessment of the total income of each of the individual partners is one continuous process and the inclusion of the income of a minor partner in the total income of the minor's father under section 16(3) (a) (ii) is a part of the same process and one single proceeding to which the firm as well as all the partners are parties in the capacity of as assesses and if in such a proceeding a direction is given for deleting the partnership income of the minor from that of his father and direction is given to assess that income in the hands of the minor, then such a direction would be a direction against the minor assessee who was a par ty to the same proceeding. We are unable to accept this contention also. As said earlier, after the total income of the firm is assessed and the share of each of the partner in that income is determined, the proceedings against each individual partner are separated and they are indepedent proceedings and one partner is not an assessee in respect of the assessment proceedings of another partner. Likewise, even a minor partner would not be an assessee in the assessment proceedings of his father-partner merely by the fact that the minor's income is to be included in the total income of the father for the purposes of computing the tax payable by the father. Even if the contention of the learned counsel that section 16(3) (a) (ii) must be regarded as a proviso to section 23(5) is accepted this would not help the department in any way inasmuch as the income of the minor, Sunderlal, from the partnership could not be included in the total income of his mother, Sodradevi, under the provisions of section 16(3) (a) (ii) of the Act and a proceeding in which the minor's income from the partnership is included in the total income of the mother, who is also a partner in the said partnership, cannot be regarded as a part of the same proceeding since the provision of section 16(3) (a) (ii) would not come into play in such a case.
13. We may also consider here the argument advanced on behalf of the assessee in this connection. According to the assessee, the proceeding in which the grossing up of the total income of Sahodradevi with the partnership of Sunderlal Daga was made has not to be taken into consideration at all for the purposes of this reference as the question referred is only with respect to the proceedings under section 34(1) (b) read with section 34(3) and has no reference to the provisions of section 16(3) (a) (ii). It is true that section 16 is not pointedly referred to in the question, but its effect has to be considered to consider the applicability of the second proviso to section 34(3) of the Act. As said earlier, the present assessee could not be taken to be an assessee in the proceedings against Sahodradevi in which the direction has been given by the income-tax authorities. We have been referred to a few decisions on this question and they are : Maharajadhiraj of Darbhanga v. Commissioner of Income-tax, Commissioner of Income-tax v. Mahaliram Ramjidas, Seth Badridas Daga v. Commissioner of Income-tax and Narayana Chetty v. Income-tax Officer, in which the words 'assessee' and 'assessment' have been considered. 'Assessment' is held to be the whole process from the time of issuing of notice under section 22(2) until some order of assessment is made and 'at the time of making the assessment' means in the course or process of the assessment. 'Assessee' is held to mean primarily a person the amount of whose income is being computed. These decisions, however, do not render assistance in dealing with the question before us. In the proceedings against Sahodradevi in which a direction has been given the total income of Sahodradevi was being computed and according to the view expressed in Seth Badridas Daga v. Commissioner of Income-tax. Sahodradevi would be the assessee and simply because the partnership income of Sunderlal was being taken into consideration in that assessment against Sodradevi, Sunderlal would not be an assessee in the proceeding since in that proceeding his income was not being computed but that of Sodradevi, his income from the partnership being already determined and his total income would be determined in a separate proceeding in which he would be an assessee.
14. The next question that arises is how far the second proviso to section 34(3) is attracted in the present case on the footing that the present assessee, Sunderlal Daga, is not an assessee as contemplated by that proviso. This has been a point of great debate in view of the numerous pronouncements about the extend of the validity of this proviso by the Supreme Court as well as the different High Courts. The question regarding the validity of the second proviso to sub-section (3) of section 34 of the Income-tax Act arose before the Supreme Court in the two cases which were heard together and decided on the same day. They are : S. C. Prashar v. Vasantsen Dwarkadas and Commissioner of Income-tax v. Sardar Lakhmir Singh.
15. We may first deal with a decision of the Allahabad High Court in Pandit Hazari Lal v. Income-tax Officer where the import of the word 'any person' occurring in the second proviso to section 34(3) has been considered. In this case the assessee was assessed for the assessment year 1947-48. The Income-tax Officer came to know that a house was purchased in the name of the assessee's wife. A notice was, therefore, issued to the assessee under section 34(1) (a) and a fresh assessment was made against the assessee by adding an amount of Rs. 12,800. The Appellate Assistant Commissioner allowed the appeal holding that the alleged income related not to the assessment year 1947-48 but to the assessment year 1946-47. Thereupon, a fresh notice under section 34(1) (a) was issued on January 4, 1956, which was more than 8 years after the end of assessment year 1946-47. The question was whether this notice was in time. In that connection, it was held that the finding by the Appellate Assistant Commissioner with respect to the assessment year 1946-47 was not necessary for the decision of the appeal before him under section 32 of the Act and the Appellate Assistant Commissioner could not have given a finding with respect to the assessment year 1946-47 and such a finding, if given, did not save the limitation. The Allahabad High Court also considered what the exp expression 'any person' in the second proviso to section 34(3) meant, though it was not strictly necessary for the decision of the case before it and, in dealing with that question, the learned judges of the Allahabad High Court observed that it would cover a person who, though not strictly a party, has sufficient opportunity of being represented in the proceedings through the actual party. The learned judges envisaged three types of cases in which persons other than the actual assessee could be covered within the exp expression 'any person'. Those cases are : (1) a firm and its partners. (2) a company and its shareholders, and (3) a Hindu undivided family and its members. In the case of a firm if the registration of the firm is cancelled or registration of the firm is refused, then the Appellate Assistant Commissioner may allow the appeal and direct registration of the firm. The result of such an order would be that the income of the firm whose registration was cancelled or refused, which must have been assessed to tax in the hands of the firm itself, will subsequently, on the appeal being allowed, have to be assessed to tax in accordance with sub-section (3) of section 23 of the Income-tax Act, in the hands of the partners. As a result of the decision in the appeal in which the assessee-appellant would only be a firm, the effect of the appellate order would have to be given by assessing tax on the share of each partner in the income of the firm in the assessment proceeding of that partner and such partners would only be covered by the exp expression 'any person' as they cannot be held to be as assesses in the particular appeal which had to be filed by the firm against the order passed in its assessment proceedings under section 23(4) of the Act.
16. The other instance is of an order of assessment against a company, deeming certain dividends to have been declared though they were not actually declared. If on appeal the amount declared as deemed to have been distributed as dividends is reduced by the Appellate Assistant Commissioner and in the meantime there is a possibility that the shareholders might have been assessed to tax by including in their incomes, dividends deemed to have been received by them being the dividends declared as deemed to have been distributed, then it would be necessary to grant to the shareholders the appropriate relief when the order passed under section 23A is subsequently varied by the Appellate Assistant Commissioner reassessment of each shareholder and he would be a person within the meaning of the of the exp expression 'any person' used in the proviso to section 34(3) of the Income-tax Act. Then there would be a case of Hindu undivided family and the question of partition amongst the members thereof coming up. In such a case if the order of the Income-tax Officer refusing to recognise the partition is set aside in appeal, then the members individually will have to be assessed and not the Hindu undivided family. If in the appeal by the Hindu undivided family such a direction is given, then on the basis of that direction fresh assessment proceedings could be initiated against the members of the erstwhile Hindu undivided family as they would be included in the exp expression 'any person'. The Allahabad High Court took the view that the class of persons covered by the exp expression 'any person' would not be a class who might be accidentally affected by a finding or decision recorded by an Appellate Assistant Commissioner of Income-tax. The class of persons covered by the exp expression 'any person' would be persons belonging to those sections who, under the Income-tax Act, are intimately connected with and interested in the proceedings taken against the assessee and whose assessments under the Act are affected by the orders passed in those proceedings. In other words, the persons who are affected by the finding or a direction in the order of the Appellate Assistant Commissioner or the Tribunal are only such persons who are not only intimately connected with the assessee, but who are, according to the provisions of the Act, in the matter of their assessment, affected by the orders passed in the proceedings for the assessment of the assessee.
17. In the Supreme Court decisions referred to above, namely, cases of Vasantsen Dwarkadas and Sardar Lakhmir Singh, the validity of the second proviso to section 34(3) of the Act was challenged. Both these judgments were delivered on the same day and by the same Bench. In Sardar Lakhmir Singh's case, Sarkar J., with whom S. K. Das and Kapur JJ. agreed, took the view that the second proviso to sub-section (3) of section 34 in so far as it affected persons other then as assesses was void as violating article 14 of the Constitution. A similar view was taken in Vasantsen Dwarkadas's case. It was observed that 'any person' mentioned in section 34(3) must mean a person other than the assessee. The effect of the two decisions was that the second proviso to sec tion 34(3) was valid so far as finding or direction against the assessee alone is concerned, but not in respect of any other person besides the assessee.
18. The decision in Vasantsen Dwarkadas' case, was followed by this court in Mahendra Bhawanji Thakar v. S. P. Pande, and it was held that the department could not invoke the second proviso to section 34(3) of the Act. It appears that when this case was decided, the decision of the Supreme Court in Lakhmir Singh's case, in which the point was discussed by Sarkar J. of the majority, was not available and, therefore, this court took the extreme view relying upon the division of the Supreme Court in Vasantsen Dwarkadas's case; that the whole of the second proviso to section 34(3) of the Act was ultra vires.
19. The question about the interpretation of the second proviso to section 34(3) again came up for consideration before the Supreme Court in Income-tax Officer, A-ward, Sitapur v. Murlidhar Bhagwan Das. In fact, there also the question was whether a finding or a direction could be given in respect of an year which was not for consideration in the assessment proceedings before the Appellate Assistant Commissioner or the Tribunal. But the Supreme Court scrutinized the various expressions used in the second proviso to section 34(3) including the exp expression 'any person' and in dealing with that question their Lordships observed that the exp expression 'any person' in the setting in which it appears must be confined to a person intimately connected in the aforesaid sense with the assessments of the year under appeal. They said :
'The words 'any person', it is said, conclude the matter in favour of the department. The exp expression 'any person' in its widest connotation may take in any person, whether connected or not with the assesse, whose income for any year has escaped assessment; but this construction cannot be accepted, for the said exp 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 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 year. A combined reading of section 30(1) and section 31(3) of the Act indicates the cases where persons other than the appealing as assesses 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 partners of the firm, member or members of the Hindu undivided family or the individual, as the case may be. In such cases though the latter are not eo nomine parties to the appeal, their assessments depend upon the assessments on the former. The said instances are only illustrative. It is not necessary to pursue the matter further. We would, therefore, hold that the exp expression 'any person' in the setting in which it appears must be confined to a person intimately connected in the aforesaid sence with the assessments of the year under appeal'.
20. A reference to section 30(1) and 31(3) would show that they deal with only a firm and its partners. The illustrations which have been given are also illustrations of a firm and its partners, a Hindu undivided family and its members and an association of persons and its members, to which also may be added a company and its shareholders, as in the case of Hazari Lal. Thus, the persons intimately be observed that the decisions in Vasantsen Dwarkadas and Sardar Lakhmir Singh's cases have neither been overruled nor dissented from. It does appear, however, that though the earlier decisions in Vasantsen Dwarkadas and Lakhmir Singh have not been dissented from, they have been explained and the view taken therein has been a little modified in the case of Murlidhar Bhagwan Das, inasmuch as the invalidity of the second proviso to section 34(3) is not with respect to each every person other persons other then the as assesses and persons who are strangers, that is, the persons other than the as assesses and persons who are intimately connected with the assessment of the year under appeal. In this sense illustrated in the above quotation, it appears that the matter did not appear to have been fully set at rest by the aforesaid decisions of the Supreme Court and questions were still raised as to the extent of the validity of the second proviso to section 34(3) of the Act.
21. The question again was raised in the Gujarat High Court in Commissioner of Income-tax v. Shantilal Punjabhai. In this case Vasantsen Dwarkadas's case has been followed and Murlidhar Bhagwan Das's case has been distinguished. In this case the returns were filed of behalf of the Hindu undivided family and a member had also filed the return of his separate property. In this case, the assessee was being assessed in the status of an individual. He filed his return for the assessment year 1944-45 on which he included his share of profit in a firm. In the course of the assessment of the Hindu undivided family of which the assessee was a member for the same assessment year, the Income-tax Officer found that the assessee was a nominee of the Hindu undivided family in the said firm and, therefore, included the share of the profits of the assessee in the said firm in the total income of the Hindu undivided family. On appeal by the family to the Tribunal, the Tribunal held that there was not sufficient evidence to show that the assessee was a nominee of the Hindu undivided family in the firm and directed that the share of profits of the assessee should be deleted from assessment of the Hindu undivided family. Thereafter the Income-tax Officer issued a notice to the assessee under section 34 of the Income-tax Act for including in the assessee's assessment as an individual his share of profits in the firm and revised the assessment on that basis. It was held in that case that the second proviso to section 34(3) was ultra vires the Constitution as it contravened article 14 so far as it affected persons who were not parties to the appeal or revision or other proceeding in which the direction or finding contemplated by section 34(3) was made. It was further held that the assessee, though he was a member of the Hindu undivided family which was a party to the appeal, was not a party to the appeal but a stranger. While following the view in Vasantsen Dwarkadas's case, the learned judges of the Gujarat High Court observed :
'But it was contended that the words 'any person' used in the proviso concluded the matter in favour of the department and it was in the light of this contention that the Supreme Court construed the meaning of these word. But the question before the Supreme Court was regarding the scope and extent of those words, that is to say, against whom a finding or a direction can be said to be a finding or a direction within the meaning of the proviso, and not the question as to the constitutional validity of the proviso or the extent of such invalidity. The decision on that question in Prashar v. Vasantsen was never called into question and had not to be consider. That being the position, the limit laid down in Prashar v. Vasantsen as to the constitutional invalidity of the proviso and the distinction there made between assessee and non-as assesses remains intact.'
22. The learned judge made these observations while considering the effect of the later Supreme Court decision in Murlidhar Bhagwan Das's case .
23. Similar cases are dealt with in Commissioner of Income-tax v. Ghanta Bapaniah and Commissioner of Income-tax v. M. K. K. R. Muthukaruppan Chettiar. In these cases a Hindu undivided family claimed a partition and the erstwhile coparceners filed their separate returns. Their claim for partition was rejected by the Income-tax Officer, but was accepted by the Appellate Assistant Commissioner who gave directions that the individual coparceners should be assessed separately. It was held that these members were not strangers to the assessment proceedings in which a direction was given and, therefore, the proviso to section 34(3) of the Income-tax Act was attracted. In Muthukaruppan's case, while holding the Hindu undivided family as the assessee the file of the individual member was clubbed with the file of the father with an observation, 'that if for any reason it was ultimately held that a separate assessment should be held, it would be possible to take action under section 34 of the Income-tax Act'. In Ghanta Bapaniah's case, the as assesses were all coparceners of a Hindu undivided family. In the course of the assessment of the karta of the family it was claimed that a partition had taken place and an order under section 25A of the Income-tax Act was requested. Each of the coparceners also filed his individual return. The claim of the Hindu undivided family to record partition was rejected by the Income-tax Officer. The Tribunal and, on further remand, the Appellate Assistant Commissioner, held that there was a partial partition in respect of the bus service only and directed the Income-tax Officer to consider the same in the individual assessment of the coparceners in respect of the buses plied by each. In these circumstances, it was held that the as assesses could not be regarded as strangers to the proceedings of the karta of the Hindu undivided family in which direction was given to assess the coparceners, and, therefore, the second proviso to section 34(3) was attracted.
24. Next, we come to a group of cases in which the assessee was initially a Hindu undivided family in which there was a partition and the divided members thereof constituted a firm. The members of the firm which was being assessed claimed a partition and subset partnership, but the claim was rejected by the Income-tax Officer. In appeals, the orders of the Income-tax Officers were set aside the directions were given to assess the proper persons. In these cases all the members of the erstwhile Hindu undivided family were before the income-tax authorities claiming to be partners of a firm on the disruption of the Hindu undivided family. All the members who were sought to be reassessed in consequence of, or as a result of the direction, were already before the income-tax authorities and were fully represented in those proceedings. In these circumstances, it was held in all these cases that the assessee were not total strangers but they were persons who were intimately connected with the assessment and were either parties to the proceedings or though not eo nomine parties, intimately connected with the assessment proceedings, and, therefore, in view of the decision of the Supreme Court in Vasantsen Dwarkadas's case, as modified by the case of Murlidhar Bhagwan Das, the second proviso to section 34(3) was attracted and the bar of limitation had been lifted. These decisions are Commissioner of Income-tax v. Joharmal Parsuram, Soolchand Ram Sewak v. Commissioner of Income-tax, Onkarmal Meghraj v. Commissioner of Income-tax, and Daffadar Bhagatsingh v. Income-tax Officer. In Muthuraman v. Second Income-tax Officer, Madras, there was a partial partition in the Hindu undivided family between a father and a son on the one and the uncle on the other. Each branch filed separate returns. The uncle represented the family, though the assessee was not eo nomine a party thereto. The partial partition was not accepted by the Income-tax Officer, but the Appellate Assistant Commissioner took a contrary view, which was confirmed by the Tribunal. It was held that there was sufficient nexus between the earlier proceedings in which the uncle of the assessee was representing the Hindu undivided family and the assessee himself and hence the finding in the earlier proceeding can form the basis for reassessment of the assessee by virtue of the proviso to section 34(3).
25. In Commissioner of Income-tax v. Ambala Flour Mills, there was a partnership of three persons. One of the partners commenced an action for dissolution and accounts of the partnership. The trail court decreed the suit. The district court reversed the decree. The High Court confirmed the appellate decree and the High Court in Letters Patent restored the decree of the trial court. The assessee, Deviprasad, had filed three returns in three different capacities for one year and for another year submitted a return in yet another capacity. The Income-tax Officer assessed the Ambala Flour Mills in the status of an association of persons. Deviprasad filed appeals and it was observed that he was competent to maintain the appeals filed 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. The Appellate Assistant Commissioner, upon a view that the income belonged to Deviprasad and he was liable to be assessed personally in respect of the income, gave directions with regard to the assessment of the income. The question arose whether the second proviso to section 34(3) was attracted. It was held that, since Deviprasad had filed the returns and Deviprasad appealed against the order of assessment, he could not, in the circumstance, be called a stranger to the assessment. It was further observed that the income of the assessee was assessed to tax as the income of an association of persons of which, on the finding of the Income-tax Officer, Deviprasad was a member and in making a direction against Deviprasad the Tribunal did not exercise powers qua a stranger to the assessment proceedings.
26. In Ramakrishna Ramnath v. G. Lakshmi Narasimhan, Income-tax Officer the direction that was given was against the assessee himself and naturally, therefore, in view of the decision of the Supreme Court, the bar of limitation was lifted by the second proviso to section 34(3). The extent of the vires of that provision was also considered and it was observed that the decision of the Supreme Court in Vasantsen Dwarkadas and Lakhmir Singh's cases, stood modified by the later decision of the Supreme Court in Murlidhar Bhagwan Das and words 'any person' would take in only persons intimately connected with the assessment and the proviso would be ultra vires with respect to other persons who are not intimately connected with the assessment.
27. We were also referred to yet another decision of the Supreme Court in Estate of Late Rangala Jajodia v. Commissioner of Income-tax (Civil Appeals Nos. 2332 to 2339 of 1966, decided on 19-11-1970). That case also is not in point as it was observed that the assessee in respect of whom a direction was given was in fact an assessee and, therefore, the second proviso to section 34(3) applied.
28. On a review of these various decisions, it now emerges that the second proviso to section 34(3) is not wholly void, nor is it void with respect to all persons other than the assessees, but is void only with respect to those persons who are neither as assesses nor person intimately connected with the assessment. The question is of the application of the principles evolved in these decisions. The instant case is wholly different from the cases involved in these various decisions. Here, the family is already disrupted and there is no dispute about it. There was then a partnership and there is no dispute about it also. Each partner, therefore, had to be separately assessed for his or her own total income for which separate returns have to be filed by each of the partners. One partner had no concern with the assessment of the other. The firm's income had to be assessed only for the purpose of finding out the share of income of each partner from the partnership, but the su payable by the firm itself had not to be determined. In the assessment of Sodradevi's total income neither the firm nor the present assessee was an assessee. The assessment of the present assessee did not also depend upon the assessment of his mother, Sodradevi, in the sense in which it has to be understood. In fact, under the law, the income of the present assessee from the partnership had not to be included in the total income of his mother. The present assessee was not and cannot be said to be a party to the proceeding against Sodradevi, nor was he represented in the assessment proceedings against Sodradevi. In no sense, therefore, the present assessee, Sunderlal, can be regarded as a party to the proceedings of Sodradevi. There is in fact no nexus between the assessment against Sahodradevi and the present assessee. The present assessee could not have been heard in the assessment against Sodradevi. Under these circumstances, the present assessee, Sunderlal, cannot even be called a person intimately connected with the assessment against Sahodradevi in which a direction has been given by the Appellate Assistant Commissioner. He is, therefore, a total stranger to the proceedings against Sahodradevi and, as such, the bar of limitation cannot be lifted against such a person who is a stranger as pronounced by the Supreme Court. The direction, therefore, given by the Appellate Assistant Commissioner would not authorise the Income-tax Officer to initiate the proceedings against the instant assessee beyond the precribed period of limitation. Admittedly, the initiation of proceedings against the present assessee is beyond the period of limitation for all these years and the assessment proceedings against the present assessee would be invalid.
29. We, therefore, answer the question referred to us in the negative and hold that, on the facts and in the circumstances of the case, the initiation of action under section 34(1) (b) read with the second proviso to section 34(3) against the assessee for the assessment years 1949-50, 1950-51, 1952-53 and 1953-54 by the Income-tax Officer by notice dated October 4, 1960, is not legal and valid.
30. The Commissioner of Income-tax, Poona, who is the applicant, will pay the costs of this reference.
31. Question answered in the negative.