Judgment

HEGDE, J.:- These are appeals by Special Leave. They arise from a common judgment of the Andhra Pradesh High Court in a reference under Section 66 (i) of the Indian Income Tax Act, 1922, to be hereinafter referred to as the "Act". The reference in question relates to the assessment of the assessee for the assessment years 1954-55, 1955-56 and 1956-57. The question of law referred by the Tribunal is "whether on the facts and the circumstances of the case, the assessments made on the firm, for each of the assessment years 1954-55, 1955-56 and 1956-57, are valid in law?"

2. Now we shall set out the material facts as could be gathered from the case stated by the Tribunal. Up to and including the assessment year 1953-54 business with which we are concerned in this case, was carried on by Vadde Pullaiah. He was assessed as an individual . On March 20-3-1953 he entered into a partnership consisting of himself and three others. That partnership was known as "M/s. Vadde Pulliah & Co. , In that partnership Pulliah had 8 as. share and out of the remaining three partners two had 3 as. share each and one had 2 as. share. For the assessment years 1954-55, 1955 56 and 1956-57, this firm filed returns of income as a firm. It also applied for registration under S. 26A. The Income-tax Officer rejected that application holding that there was no genuine firm. He came to the conclusion that the business was exclusively that of Pulliah. He accordingly assessed Pulliah as an individual in respect of the income earned in that business. As against that order both the firm as well as Pulliah went up in appeal to the Appellate Assistant Commissioner. Before the Appellate Assistant Commissioner, the question for consideration was whether the firm in question was a genuine firm. If the firm was a genuine firm, it necessarily followed that Pulliah was wrongly assessed. If, on the other hand, the firm was not a genuine firm, Pulliah was rightly assessed. Therefore, the sole question that arose for decision in the appeals filed by the firm as well as Pulliah was as to the genuineness of the firm in question. The Appellate Assistant Commissioner after examining the material before him came to the conclusion that the firm in question was a genuine firm. Consequently, he allowed the appeal of the firm as well as that of Pulliah. In the firm s appeals he directed the Income-tax Officer to register that firm and in Pulliah s appeal he set aside the assessment made on him. In the operative portion of his order he stated thus:

The Income-tax Officer is directed to adopt the correct share of income of the appellant from this firm."

But in the body of his order he specifically held that the business in question was carried on by the firm and not by Pullaiah.

3. After this order was made, the Income-tax Officer proceeded to assess the firm in respect of the income earned by that firm during the assessment years 1953-54, 1954-55 and 1955-56. When the Income-tax Officer initiated proceedings against the firm for the purpose of assessment, the firm resisted the same taking the plea that the proceedings in question are barred by limitation under Section 34 (3) of the Act. He rejected that contention. Aggrieved by that order the firm went up in appeal to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner upheld the contention of the assessee and set aside the order of the Income-tax Officer. As against that order the Income-tax Officer went up in appeal to the Income-tax Appellate Tribunal. The Tribunal partly accepted the appeal of the Income-tax Officer. It came to the conclusion that the assessment in respect of assessment years 1955-56 and 1956-57 are not barred in view of the Second Proviso to Section 34 (3) of the Act. But it opined that the assessment in respect of the assessment year 1954-55 was barred by limitation.

4. Aggrieved by the decision of the Tribunal both the Commissioner Income-tax as well as the assesses moved the Tribuna