1998 Supreme(SC) 223

1998(2) Supreme 493
Supreme Court of India
(From Calcutta High Court)
Sujata V. Manohar & D.P. Wadhwa, JJ.
Hungerford Investment Trust Ltd. -Appellant
versus
Income Tax Officers & Ors. -Respondents
Civil Appeal Nos. 474-476 of 1984
Decided on 17-2-1998
Counsel for the Parties :
For the Appellant : Mr. Shanti Bhushan, Sr. Advocate and Mr. Prashant Bhushan, Advocate.
For the Respondents : Mr. K.N. Shukla, Sr. Advocate and Mr. B.K. Prasad, Advocate.

Important Point
The provision under Section 31(4) cannot be read as limiting the scope of the words “any person” in the second proviso to Section 34(3) as referring only to those persons who are covered by Section 31, sub-section (4). The words are wide enough to cover all directions under Section 31.

Headnote:Taxation-Income Tax Act, 1961-Sections 23A, 31, 2nd Proviso to Section 34(3) and 42-Expression “assessee or any person” in 2nd proviso to Section 34 (3)-Scope of-Notices for assessment years 1950-51 and 1951-52 sent to appellant-company and assessment was made in the name of M/s. Turner Morrison Company Ltd. as its agent-Notice for assessment year 1949-50 sent to M/s. Turner Morrison and Company Ltd. as agents of the appellant-company-However, in respect of assessment year 1949-50 what was sought to be assessed was appellant’s income or deemed income arising in India-Returns for assessment years 1950-51 and 1951-52 filed by the appellant-company as an assessee with non-resident status-Returns for assessment year 1949-50 filed by M/s. Turner Morrison and Company Ltd. as agents of the appellant-company-Whether M/s. Turner Morrison and Company Ltd. can be looked as an independent assessee or otherwise -Assessment was clearly in res­pect of the income of the appellant-company deemed to arise by virtue of Section 23A in India for that assessment year-Therefore, appellant-company directly concerned with the assessment proceedings before the Appellate Assistant Com­missioner - Directions by Appellate Assistant Commissioner to make fresh assessment on the appellant-company itself and not on its agent cannot be considered as a direction to assess a stranger-Appellant-company must, therefore, be considered as intimately connected with the assessment proceedings in which the Appellate Assistant Commissioner gave the impugned directions-Hence, appellant-company is covered by the expression “assessee or any per­son” in the second proviso to Section 34(3)-Notices issued pursuant to the directions so given do not constitute notices on total strangers barred by limitation.

       Held : The notices for the assessment years 1950-51 and 1951-52 were sent to the appellant-company itself. For the assessment year 1949-50, the notice had been sent to M/s. Turner Morrison and Company Ltd. as agents of the appellant-company. Under Section 42 of the Income-tax Act, 1922, income arising whether directly or indirectly through or from any business in the taxable territories or through or from any asset or source of income in the taxable territories, shall be deemed to be income accruing or arising within the taxable terri­tories; and where the person entitled to the income is not resident in the taxable territories, shall be chargeable to income-tax either in his name or in the name of his agent and in the latter case, such agent shall be deemed to be for all the purposes of this Act the assessee in respect of such income. Thus, in view of Section 42, in the present case, there was an option to tax either the appellant-company or its agent M/s. Turner Morrison and Company Ltd. Therefore, when the initial notices under Section 34 were sent by the Income-tax Officer in 1954 and 1955, what was sought to be taxed was the income arising in taxa­ble territories of the non-resident appellant-company. For the assess­ment years 1950-51 and 1951-52, the notice was addressed to the appel­lant-company. For the assessment year 1949-50, the notice was ad­dressed to the agents in India of the appellant-company. But even in respect of the assessment year 1949-50, what was sought to be taxed was the appellant’s income or deemed income arising in India. For the assessment years 1950-51 and 1951-52, the returns were also filed by appellant-company as an assessee. The status of the assessee was shown as non-resident. It was on the basis of these returns that the Income-tax Officer proceeded to make an assessment. For the assessment years 1950-51 and 1951-52, however, he made an assessment in the name of M/s. Turner Morrison and Company Ltd. as agents of the appellant-company. For the assessment year 1949-50 the return was filed by M/s. Turner Morrison and Company Ltd. as agents of the appellant-company. The status of the assessee was shown in the return as non-resident and the income which was shown was deemed dividend accruing to the appel­lant-company as provided under Section 23A. For the assessment year 1949-50, the assessment was made on M/s. Turner Morrison and Company Ltd. as agents of the appellant-company. Whe­ther we look upon M/s. Turner Morrison and Company Ltd. as an independent assessee or other­wise, the assessment was clearly in respect of the income of the appellant-company deemed to arise by virtue of Section 23A in India for that assessment year. Therefore, the appellant-company was direct­ly concerned with the assessment proceedings and the appeal arising in those assessment proceedings before the Appellate Assistant Commis­sioner. The Appellate Assistant Commissioner directed, for reasons set out in his order, that the assessments should be made on the appellant-company itself and not on its agent. This direction cannot be consid­ered as a direction to assess a stranger. In fact as the original assessment proceedings pertain to the income of the appellant-company, in any view of the matter, the appellant-company must be considered as intimately connected with the assessment proceedings in which the Appellate Assistant Commissioner gave the impugned directions. The appellant-company is, therefore, covered by the expression “assessee or any person” in the second proviso to Section 34(3). (Para 24)

       The directions in the present case, therefore, given by the Appel­late Assistant Commissioner by his order of 29.11.1960 are directions properly given under Section 31 of the Income-tax Act, 1922 and the notices, therefore, which are issued on 26.10.1961 by the Income-tax Officer pursuant to the directions so given, cannot be considered as notices on total strangers barred by limitation. The High Court was, therefore, right in dismissing the writ petition. (Para 27)

       (ii) Taxation - Income Tax Act, 1961-Section 31(4) and Section 34(3) 2nd Proviso-”Any person” in 2nd proviso-Scope of-Section 31(4) cannot be read as limiting the scope of the words “any person” in the second proviso to Section 34(3) as referring only to those persons who are covered by Section 31(4)-Words “any person” excludes total strangers to prevent infringement of Article 14.

        In the case of Muralidhar Bhagwandas (supra) this Court gave illustrations of persons who might be considered as intimately con­nected with the assessee in the light of Section 30(1) and Section 31 of the Income-tax Act. This Court referred to assessment of a partner­ship firm which may affect the income of individual partners or the assessment of an association of persons which may affect the income of the individual or the assessment of a joint Hindu family which may affect the assessment of members of the Hindu joint family. It, howev­er, made it clear that these instances were only illustrative and not exhaustive. The appellant-company, however, contends that “any person” in the said proviso would cover only such persons as were referred to by the Court as illustrations in Murlidhar Bhagwandas (supra) because they are also referred to in Section 31(4). We do not see any merit in this contention. Under Section 31(3), in disposing of an appeal the Appel­late Assistant Commissioner may, inter alia, set aside the assessments and “direct the Income-tax Officer to take 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 to make such fresh assessment and determine where necessary the amount of tax payable on the basis of such fresh assessment.” Under sub-section (4) of Section 31, where as the result of an appeal any changes are made in the assessment of a firm or association of persons or a new assessment of a firm or asso­ciation 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. This provision under Section 31(4) cannot be read as limiting the scope of the words “any person” in the second proviso to Section 34(3) as referring only to those persons who are covered by Section 31, sub-section (4). The words are wide enough to cover all directions under Section 31 including those relating to the assessment of a person intimately connected with the assessee in the sense as laid down by this Court in the case of Muralidhar Bhagwandas (supra). Whe­ther the person is so connected will depend on the facts of each case. The illustrations given in the case of Murlidhar Bhagwandas (supra) do not limit the words “any person”, but are only illustra­tive. The only reason why the words “any person” are read down to exclude total strangers, is to prevent infringement of Article 14 of the Constitution. (Paras 25 & 26)