Holding

A person intimately connected with the original assessee falls within ‘assessee or any other person’ under the second proviso to Section 34(3), so the limitation period does not apply to notices issued pursuant to a Section 31 direction.

Summary

Hungerford Investment Trust Ltd., a Singapore‑registered non‑resident company owning 100% of the Indian firm Turner Morrison & Co., was deemed to have received dividends from the undistributed income of the Indian company under Section 23A of the pre‑1955 Income‑Tax Act, 1922. The Income‑Tax Officer issued notices under Sections 23(2) and 34 to assess the non‑resident company, initially treating the Indian company as its agent. The Appellate Assistant Commissioner, invoking Section 31, directed fresh assessments on the non‑resident company directly, and new notices were issued in 1961, beyond the statutory limitation periods. The question before the Supreme Court was whether the non‑resident company, being intimately connected with the original assessee, fell within the phrase “assessee or any other person” in the second proviso to Section 34(3), thereby exempting the notices from limitation. The Court held that a person intimately connected with the original assessee is covered by that phrase, so the limitation did not apply and the notices were valid. Consequently, the Supreme Court dismissed the appeals, upholding the High Court’s dismissal of the writ petition.

Issues considered

The applicability of the second proviso to Section 34(3) of the Income‑Tax Act, 1922 to notices issued to a non‑resident company directed under Section 31.
Whether the non‑resident company is a ‘stranger’ or an ‘intimately connected person’ to the original assessee (the Indian company).
Whether the limitation period prescribed in Section 34 is barred for the notices issued in 1961.

Legislation cited

Income Tax Act, 1922s. 23, s. 23A, s. 30, s. 31, s. 31(4), s. 34, s. 34(1)(a), s. 34(1)(b), s. 34(3), s. 42

Subjects

Income TaxLimitation periodSection 34Section 31Non‑resident companyDeemed dividendAgentAssessment noticeSecond provisoIntimately connected person

Judgment

HUNGERFORD INVESTMENT TRUST LTD. A
v.
INCOME TAX OFFICERS AND ORS.

~
FEBRUARY 17, 1998

[MRS. SUJATA V. MANOHARAND D.P. WADHWA, JJ.] B
~

"""
Income Tax Act, 1922-Section 34(3)-lncome escaping assessment-
Limitation-Expression ''the assessee or any other person'' occurring in Section
34-Undistributed income of the Indian Company under an order passed
under Section 23-A (prior to amendment in 1955) deemed to be dividend c
received by the non-resident Company-With a view to subject these income
to tax, !TO issued notices to the Indian Company as agents for the Non-
Resident Company and directly to the Non-resident Company-Returns filed
pursuant to notices both by the Indian Company and by the non-resident
company through the cover letter of Indian company being agents-ITO
~
D
making assessment and issuing demand notice on the Indian company as
~
agents of the non-resident company-On appeal by the Indian company,
Appellate Assistant Commissioner directed fresh assessment to be made on
the non-resident company directly after notice-Held, in the proceedings
before the AAC, the non resident company was a person intimately connected
with the assessee and was not a stranger-Hence was covered by the expression E
"assessee or any person", occurring in second proviso to Section 34(3)-
Therefore the said notices though issued beyond the time period prescribed,
was not time-barred-The expression "any person " occurring in Section
34(3) is not confined to the persons enumerated in Section 31(4)

Words and Phrases-Words ''assessee or any other person ''-Meaning F
~

~· of-Jn the context of Section 34(3) of Income Tax Act, 1922.

The appellant, a non-resident company owned 100% shares in an
Indian Company. Consequent to an order passed by the Income Tax Officer
under Section 23-A of Income Tax Act, 1922 (prior to its amendment in ~-

1955) in the case of Indian Company, the undistributed portion of the G
assessable income of the Indian Company was deemed to have been paid tli,
)_
h and received by, the appellant-Company.as dividends for assessment yeats
1949-50, 1950-51 and 1951-52. In order to subject this income of the
appellant-Company to tax, the Income Tax Officer issued notice under Section
23(2) of the Act in respect of assessment year 1949-50 to the Indian Company
H
905
906 SUPREME COURT REPORTS [1998] l S.C.R.

A as the agents of the appellant-Company. With respect to other assessment
years, the Income Tax Officer issued notices under Section 34 to the appellant-
Company directly as assessee. Pursuant to these notices, returns were filed
with respect to assessment year 1949-50 by the Indian Company as agents ;.
of the appellant-Company and with respect to assessment years 1950-51 and
1951-52 by the appellant-Company. The Income Tax Officer passed assessment
B orders for the said assessment years and issued demand notices in respect
of each of the said assessment years to the Indian Company. On appeal, the
Appellate Assistant Commissioner directed the Income Tax Officer to make
.,..- --
a fresh or.der of assessment on the appellant-Company. Accordingly, notices
were issued by the Income Tax Officer to the appellant-Company for the said
c assessment years. The appellant-Company challenged these notices before
the High Court by way of a writ petition which was dismissed, holding that
the assessment proceedings against the appellant-Company were validly
commenced. The appeal before the Division Bench of the High Court was
also dismissed. Hence this appeal.

D It was contended by the appellant-Company that it was a stranger to the t-
proceedings before the Appellate Assistant Commissioner and hence the ~

direction given by him to make assessment on the appellant-Company was
without jurisdiction under Section 31 of the Act and that the notices issued
were beyond the period prescribed by Section 34 of the Act and were not
saved by the Second proviso to Section 34(3) lifting the embargo of limitation
E
in such cases.

Dismissing the appeal, this Court

HELD : 1. If the person against whom notices are issued under Section
34 of the Income Tax Act, 1922 pursuant to a direction given by the Appellate
F Assistant Commissioner under Section 31, is a person intimately connected 1~
with the original assessee, the period of limitation will not apply to such
notices. He would be covered by the phrase "assessee or any other person"
under the .second proviso to Section 34(3). (914-D-E)

G S.C. Prashar v. Vasantsen Dwarkadas, (1963), 49 ITR 1; CJTv. Sardar
Lakhmir Singh, (1963) 49 ITR 70; /TO v. Muralidhar Bhagwan Das, (1964)
_(
52, ITR 335; CIT v. Ambala Flour Mill, (1970)78 ITR 256; Estate of Late ...___
Rangalal Jajodia v. CIT, (1971) 79 ITR 505 and CJTv. Mohd, Shc;koor Mohd
Bashir, (1973) 89 ITR 57, relied on.

H 2. In view of Section 42 of the Act, in the present case there was an
HUNGERFORD INVESTMENT TRUST LTD. v. I.T.O. 907
option to tax the appellant-Company. For the assessment years 1950-51 and A
1951-52, the notices were 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 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 1950-51and1951-52, the returns B
were also filed by the appellant-company as an assessee. Whether one looks
upon the Indian Company 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 23-A in India for that assessment year.
Therefore, the appellant-Company was directly concerned with the assessment
proceedings and the appeal arising in those assessment proceetlings before C
the Appellant Assistant Commissioner, who had 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 D
assessment proceedings in which the Appellant Assistant Commissioner
gave the impugned directions. The appellant-Company is, therefore, covered
by the expression "assessee or any other person" in the second proviso to
Section 34(3). [916-A•H)
E
3. The provision in Section 31(4) empowering the Appellant Assistant
Commissioner to direct the Income Tax Officer to amend any assessment
made on any partner of the firm or any member of the association 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). The words are wide enough to cover all directions under F
Section 31 including those relating to the assessment of the person intimately
connected with the assessee. Whether the person is so connected will depend
on facts of each case. [917-F-G)

/TO v. Muralidhar Bhagwan Das, (1964) 52 ITR 335, explained.
G
~ 4. The directions in the present case given by the Appellant Assistant
~

Commissioner are directions properly given under Section 31 of the Income
Tax Act, 1922. The notices issued by the Income Tax Officer pursuant to the
directions so given, cannot be considered as notices on total strangers
barred by limitation. [917-H; 918-A] H
908 SUPREME COURT REPORTS [1998) l S.C.R.

A CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 474-476
of 1984.

From the Judgment and Order dated 13.8.1982 of the Calcutta High
Court in Appeal No. 211 of 1972.

B Shanti Bhushan and Prashant Bhushan for the Appellant.

K.N. Shukla and B.K. Prasad for the Respondents.

The Judgment of the Court was delivered by

MRS. SUJA TA V. MANO HAR, J. The appellant, Mis. Hungerford
C Investment Trust Ltd. was, at all material times, a non-resident company
having its registered office at Singapore. The appellant-company owned 100%
shares in Mis. Turner Morrison and Company Ltd. which was a company
incorporated in India. The present appeals are concerned with assessment
years 1949-50, 1950-51and1951-52.
D An order under Section 23A of the Income-tax Act, 1922, before its
amendment in 1955 was passed by the Income-tax Officer in the case of Ml
s. Turner Morrison and Company Ltd. as a result of which the undistributed
portion of the assessable income of Mis. Turner Morrison and Company Ltd.
was deemed to have been distributed as dividends among its shareholders
E for assessment years 1949-50, 1950-51 and 1951-52. The dividend deemed to
have been so received by the appellant-company as shareholder for the
assessment years 1949-50, 1950-51 and 1951-52 was sough to be subjected to
income-tax by the Income-tax Officer under Section 34 of the Income-tax Act,
1922. In the past an assessment had been made on Mis. Turner Morrison and
Company Ltd. as agents for the appellant-company on a total income which
F was returned as nil. In view of the above order under Section 23A, the
Income-tax Officer s.ought approval of the Commissioner of Income-tax under
Section 34 to tax the appellant-company as an assessee in respect of assessment
years 1949-50, 1950-51and1951-52.

After obtaining approval of the Commissioner of Income-tax under
G Section 34, the Income-tax Officer issued a notice for the assessment year
1949-50 to Mis. Turner Morrison and Company Ltd. as agents of the appellant-
company on 24.3.1954. A return was filed pursuant to the notice by Mis.
Tuner Morrison and Company Ltd. as agents of the appellant-company for
the assessment year 1949-50. The status of the company in the return was
H described as non-resident and the income was the dividend deemed to be
HCNGERFORD INVESTMENT TRUST L m. v. l.T.O. r SUJATA v. MANOHAR, J.) 909

received under Section 23A by the appellant-company from Mis. Turner A
Morrison and Company Ltd. On 29.10.1954 the Income-Tax Officer made an
assessment and issued a demand notice on Mis. Tuner Morrison and Company
Ltd. as agents of the appellant non-resident company.

For the assessment years 1950-51 and 1951-52, the Income-tax Officer,
after obtaining approval from the Commissioner of Income-tax to issue a B
notice under Section 34 on the appellant-company as the assessee, issued
notices dated 11.2.1955 on the appellant-company. On 16.2.1955, returns were
filed by the appellant-company. The residence was shown as at Singapore.
The returns were accompanied by a covering letter from Mis. Turner Morrison
and Company Ltd. as agents on behalf oft11e appellant-company. On 25.2.1955, C
t11e Income-Tax Officer made an assessment and issued a demand for
assessment years 1950-51 and 1951-52 on Mis. Turner Morrison and Company
Ltd. as agents of the appellant-company.

Thereupon Mis. Turner Morrison and Company Ltd. challenged the
assessment orders so made for t11e three assessment years before the Appellate
D
Assistant Commissioner. The Appellant Assistant Commissioner, by his order
dated 29.11.1960, held that the Income-tax Officer had validly initiated
proceedings for assessment years 1950-51 and 1951-52 on the appellant-
company. However, he failed to make an assessment on the appellant-company
directly and made an assessment on Mis. Tuner Morrison and Company Ltd.
as agents of the appellant. He held that such an assessment on the agent of E
a non-resident company was bared by limitation in the present case under the
second proviso to Section 34(1) of t11e Income-tax Act, 1922. He directed the
Income-Tax Officer to make a fresh assessment on t11e appellant-company on
the basis of t11e valid returns already furnished by the appellant-company. In
respect of assessment year 1949-50, the Appellate Assistant Commissioner F
held t11at the notice had been issued within the period of limitation. However,
the proceedings should have been taken against the appellant-company
directly. He, therefore, directed the Income-tax Officer to make a fresh
assessment on the appellant-company from t11e stage of notice.

Accordingly, on 26111 of October, 1961, three notices were issued on the G
appellant-company by the Income-tax Office for the three assessment years.
The appellant-company challenged these notice by filling a writ petition
before the Calcutta High Court being Writ Petition No. 111962. A learned
Single Judge of the Calcutta High Court by his order dated 31.1. I 972 dismissed
the writ petition, holding that the assessment proceedings against the appellant-
company were validly commenced by notices dated 26.10.1961. The appeal of H
910 SUPREME COURT REPORTS [1998] l S.C.R.

A the appellant-company before a Division Bench of th7 Calcntta High Court
was also dismissed by its judgment and order dated 13.8.1982. Hence, the
present appeals have been filed before us.

The appellant-company contends that the Appellate Assistant
Commissioner had no jurisdiction to give directions under Section 31 to the
B Income-Tax Officer to make the assessments on the appellant-company.
Therefore, the notices which have been issued against the appellant-company
on 26.10.1961 are beyond the period prescribed by Section 34 of the lncome-
tax Act, 1922. According to the appellant-company, since the direction given
by the Appellate Assistant Commissioner is not covered by Section 3 L the
C second proviso to Section 34(3) lifting the embargo of limitation in such cases
is not attracted.

The Appellate Assistant Commissioner by his order dated 29.11.1960
gave the following directions:

.. In view of the various reasons discussed above the assessment for
D 1949-50 made by the I.T.O. on the Resident Company Mis. Turner
Morrison and Company Ltd. as agents of the Non-Resident Company
Mis. Hungerford Investment Trust Ltd. in order to tax the deemed
dividend under Section 23A is set aside and the I.T.O. is directed to
make a direct assessment on the Non-Resident Company ..... and,
therefore, the I.T.O. is directed to make the assessment direct on the
E
Non-Resident Company to tax the deemed dividend under Section
23A. In connection with the assessment for 1950-51and1951-52 ...... .
the notices under Section 34 were validly issued taking the assessee
as Non-Resident Company directly and the returns of income were
also submitted showing the assessee as Non-Resident Company and,
F therefore, the proceedings are set aside from the stage of issue of
notice under Section 23(2) and the l.T.0. is directed to make the
assessment on the Non-Resident Company after giving fresh
opportunity to the assessee under Section 23(2)."

Pursuant to these directions the Income-tax Officer has issued two
G notices dated 26.10.1961 in respect of assessment years 1950-51and1951-52
on the appellant-company under Section 23(2) of t11e Income-tax Act, 1922.
The Income-Tax Officer has also issued a notice dated 26.10.1961 on the
appellant-company under Section 34 of the Income-tax Act for the assessment
year 1949-50.

H Under Section 34(1 )(a) of the Income-tax Act, 1922, if the Income-tax
HUNGERFORD INVESTMENT TRUST LTD. v. l.T.O.[MRS. SUJATA V. MANOHAR, J.J 911

Officer has reason to believe that by reason of the omission or failure on the A
part of an assessee to make a return of his income under Section 22 for any
year or to disclose fully and truly all material facts necessary for his assessment
for tliat year, income chargeable to income-tax has escaped assessment for
tl1at years, or has been under-assessed etc, as set out therein, the Income-
tax Officer can serve on the assessee a notice and proceed to assess or re- B
assess such income. Similarly, under Section 34( 1)(b ), notwithstanding that
there has been no omission or failure as mentioned in Clause (a) on the part
of the assessee, if the Income-tax Officer has, in consequence of information
in his possession, reason to believe tl1at income chargeable to income-tax has
escaped assessment for any year, or has been under-assessed he can serve
on the assessee a notice and proceed to assess or re-assess such income as C
specified in tl1at section. TI1e period prescribed at the material time for issuing
notice was eight years in tl1e cases falling under Section 34(1((a) and four
years for cases falling under Section 34(1 )(b ). The second proviso to Section
34(1), at the material time, provided tliat the Income-tax Officer shall not issue
a notice after tl1e expiry of two years from the relevant assessment year if the
person on whom the assessment or re-assessment is to be made in pursuance D
of the notice is a person deemed to be the agent of a non-resident person
under Section 43.

TI1e second proviso to Section 34(3), however, at the material time
provided as follows:
E
"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 F
finding or direction contained in an order under Section Ji, Section
33, Section 33A, Section 33B, Section 66 or Section 66A."

[Underlining ours]

This is how the second proviso to Section 34(3) stood after its amendment
in 1953 by the Income-tax (Amendment) Act of 1953 with effect from 1st of G
April, 1952. The appellant-company contends tliat this proviso has no
application in tl1e present case because the direction given by the Appellate
Assistant Commissioner under Section 31 is a direction to assess a stranger
to the assessment proceedings against Mis. Turner Morrison and Company
Ltd. and hence it is not covered by tl1e second proviso to Section 34(3). H
912 SUPREME COURT REPORTS [1998] l S.C.R.

A Since the impugned notices arc dated 26.10.1961, and pertain to
assessment years 1949-50 to 1951-52, it is clear that but for this proviso, the
notices would be beyond the period prescribed under Section 34 of the
Income-tax Act, 1922. The second proviso to Section 34(3) lifts the bar of
limitation when, inter alia, an assessment or reassessment is made on an
B assessee or any person in consequence of or to give effect to any finding
or direction contained in an order under Section 31.

In the present case the original assessment orders were made on M/s.
Turner Morrison and Company Ltd. as agents of the appellant-company. The
order of the Appellate Assistant Commissioner giving directions to assess
C the appellant-company was passed in the appeals of Mis. Turner Morrison
and Company Ltd. against the orders of assessment for the said three
assessment years. Can the appellant-company on whom the notices have
been issued pursuant to the Appellate Assistant Commissioner's order and
directions of 29.11.1960, come within the scope of phrase "the assessee or
any person" in respect of whom any direction can be given under Section 31?
D
The scope of this second proviso to Section 34(3) was e,-:amined by a
Constitution Bench of this Court in the case of S. C. Prashar & Anr. v.
i·asantsen Dwarkadas & Ors., (1963) 49 !TR 1. This Court, examining the
-
second proviso to sub-section (3) of Section 34 which came into effect from
1st April, 1952, said that it patently introduced an unequal treatment in
E
respect of some out of the same class of persons. Those whose liability to
pay tax was discovered by one method would be proceeded against at any
time and no limitation would apply in their case and m tl1e case of others the
limitation laid down by sub-section (1) of Section 34 would apply. Referring
to the distinction made by the High Court in that case on a somewhat
F narrower ground, tllis Court observed that so far as assesses were concerned,
there might be a rational ground of distinction because appeal proceedings
etc might take a long time m1d the assessee being a party to the appeal could
not complain of such delay. Therefore, an assessee did not occupy the same
position as strangers. This Court, therefore, held that the proviso, in so far
G as it affected strangers, must be held to be ultra vires as violating Article 14
of the Constitution.

The same Bench delivered another judgment on the same day in the
Commissioner of Income-tax, Bihar & Orissa v. Sardar Lakhmir Singh,
(1963) 49 !TR 70, in which it affinned its finding in S.C. Parashar's, case
H (supra). ln the case of SC. Parashar, (supra), the assessee before the Tribunal
HUNGERFORD INVES1MENTTRUSTLTD. v. l.T.O. (MRS. SUJATA V. MANOHAR, J.) 913
was Vasantsen Dwarkadas as representing his deceased father. The Tribunal A
in appeal held that the income in question should be deleted from Dwarkadas's
income. If the Income-tax Officer can include the same in the income of the
firm of Purshottam Laxmidas (of which Dwarkadas was a partner) he is at
liberty to do so. He can then apportion the income of Purshottam Laxmidas
amongst the partners thereof as provided in Section 23(5) of the Act. Thereupon
B
... ' 'I' the Income-tax Officer served a notice under Section 34 on the firm of
Purshottam Laxmidas. This Court held that the firm of Purshottam Laxmidas
was not before the Tribunal and, therefore, the firm was no better than a
stranger who was in some way associated with the assessee. Therefore, the
second proviso to Section 34(3) would have no application to the firm and
the notice under Section 34 which was issued on the firm of Purshottam c
Laxmidas was barred by limitation.

In the second case of Sardar Lakhmir Singh, (supra), the assessee and
his father had filed separate returns of income in their individual capacity. But
the Income-tax Officer amalgamated their income and assessed the total income
.., as the income of the Hindu Undivided Family. He did not make any protective D
.... assessment with regard to the separate income shown in the return of the
assessee. The Appellate Assistant Commissioner set aside the assessment of
the Hindu Undivided Family. Thereafter, the Income-tax Officer made an
assessment on the assessee in individual capacity on the basis of the original
return filed by him. This was held to be barred by limitation.
E
In the subsequent case, however, of Income-tax Officer, A-Ward, Sitapur
v. Muralidhar Bhagwan Das, [52 ITR 335], a Constitution Bench of this Court
considered the ratio laid down in S. C. Parashar ;s, case (supra). This Court
observed (p. 346) that the expression "any person" in the second proviso to
Section 34(3) in its widest connotation may take in any person, whether
..
,J
connected or not with the assessee, whose income for any year has escaped F
assessment; but this construction cannot 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, G
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 indicate 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 H
914 SUPREME COURT REPORTS [1998] l S.C.R.

A 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 fom1er. The said instances
are only illustrative. It is not necessary to pursue the matter further. We
B would, therefore, hold that the expression "any person" in the setting in
which it appears must be confined to a person intimately collllected in the
aforesaid sense with the assessments of the year under appeal."
-
Therefore, if the person against whom notices are issued under Section
C 34 pursuant to a direction given by the Appellate Assistant Commissioner
under Section 31, is a person intimately collllected with the original assessee,
the period of Hmitation will not apply to a notice issued against him under
Section 34. He would be covered by the phrase "assessee or any other
person" under the second proviso to Section 34(3).
r

D The principle laid down in the above case of Muralidhar Bhagwan Das
(supra) was applied by this Court in the case of Commissioner ofIncome-tax,
"-·
Patiala v. Ambala Flour Afills, (1970) 78 !TR 256. In that case an individual
Debi Prasad, had submitted the returns in various capacities and had appealed
against the order of assessment. The income earned by the assessee was
assessed to tax as income of an association of persons of which, on the
E findings of the Income-tax Officer, Debi Prasad was a member. In making a
direction against Debi Prasad, the Tribunal did not exercise its power qua a
stranger to the assessment proceedings. Therefore, this Court held that ·the
period of limitation would not be applied. The Appellate Assistant
Commissioner was competent to set aside the assessment of an association
F of persons and to direct the Income-tax Officer to assess the members
individually.

In the case of Estate of Late Rangalal Jajodia v. Commissioner of
Income-tax, Madras, [79 !TR 505], the return had been filed by one Rangalal
Jajodia who died before the assessment order was made. The assessment
G order showed the name of the assessee as the estate of late Shri Rangalal
Jajodia by legal heirs and representatives - these being the son, the (second)
wife and her children. No notice, however, was seived on the wife. Therefore,
in appeal, a necessary direction was given that notice should be given to her
and after hearing her assessment should be made. Interpreting the second
proviso to Section 34(3) this Court said that she was not a stranger to the
H assessment, she was not merely intimately connected with the assessment.
-·
HUNGERFORD INVESTMENT TRUST LTD. v. l.T.O. [MRS. SUJATA V. MANOHAR, J.] 915

She was in fact an assessee. TI1erefore, the second proviso to Section 34(3) A
..J... would apply .

In the case of Commissioner of Income-tax, U.P. v. Mohd. Shakoor
Mohd Bashir, (89 ITR 57], one Zahur Bux who was the sole owner of the
business gifted his business to his two sons Mohd. Shakoor and Mohd.
Bashir. Zahur Bux died thereafter. The two sons submitted their returns of B
income in respect of the business. The Income-tax Officer, however, rejected
their returns and proceeded to assess all the heirs of Zahur Bux as an
association of persons. In appeal, the Appellate Assistant Commissioner held
that the assessee, namely, the association of persons consisting of all the
heirs of Zahur Bux was not liable to be taxed in respect of the business. He
held that the business had been gifted to two sons, Mohd. Shakoor and
c
Mohd. Bashir. He set aside the order of the Income-tax Officer but directed
him to assess the income from various sources in the hands of the respective

-
persons to whom they arose. TI1e Income-tax Officer thereafter issued notices
to the two brothers. This Court held that the directions which were given by
Appellate Assistant Commissioner did not fall within the scope of second D
.... "" proviso to Section 34(3) and, therefore, the subsequent notices which were
I' issued by the Income-tax Officer were barred by limitation. The brothers to
·'![ whom the business was gifted were strangers to assessment proceedings
against the association of persons consisting of heirs of Zahur Bux.

In the present case we have to consider whether the appellant-company E
is a stranger to the assessment proceedings against Mis. Turner Morrison
and Company Ltd. as laid dqwn in the case of S.C. Parashar, (supra) or
whether the appellant-company can be said to be intimately connected with
the assessee Mis. Tllil!er Morrison and Company Ltd. as laid down in the
case of Afuralidhar Bhagwandas, (supra).
F
J 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 Mis. 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
G
taxable territories, shall be deemed to be income aci:.ruing or arising within the
~-
c 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. H
JI-

916 SUPREME COURT REPORTS [1998] l S.C.R.

A Thus, in view of Section 42, in the present case, there was an option to tax
either the appellant-company or its agent Mis. 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 1950-51and1951-52, the notice was addressed to
B 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 T
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
c 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 l 9S 1-52, however, he
made an assessment in the name of Mis. Turner Morrison and Company Ltd.
as agents of the appellant-company. For the assessment year 1949-50 the .._
return was filed by Mis. Turner Morrison and Company Ltd. as agents of the
D 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
)-

-. ,r:-
year 1949-50, the assessment was made on Mis. Turner Morrison and Company
Ltd. as agents of the appellant-company. Whether we look upon Mis. Turner
E 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 Conunissioner. The Appellate Assistant Commissioner
F 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 oftl1e matter, the appellant-company must be considered as intimately
-.-
G connected with tl1e assessment proceedings in which the Appellate Assistant
Commissioner gave tl1e impugned directions. The appellant-company is,
therefore, covered by t11e expression "assessee or any person" in the second ;__,
- .....4
proviso to Section 34(3).

In the case of Muralidhar Bhagwandas, (supra) this Court gave
H illustrations of persons who might be considered as intimately connected with
HUNGERFORD INVESTMENTTRUSTL TD. v. I.T.O. [MRS. SUJATA V. MANOHAR, J.] 917

the assessee in the light of Section 30(1) and Section 31 of the Income-tax A
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 . B
......, '.-
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 Muralidhar 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 di~]Josing of an appeal the Appellate Assistant Commissioner
c
may, inter alia, set aside the assessments and ''direct the Income-tax Officer
to take a fresh assessment after making such further inquity 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 D
....
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
E
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 F
J 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 Muralidhar 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
G
prevent infringement of Article 14 of the Constitution.

J The directions in the present case, therefore, given by the Appellate
Assistant Commissioner by his order of 29 .11.1960 arc 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 H
918 SUPREME COURT REPORTS [1998] l S.C.R.

A 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.

The appeals are accordingly dismissed with costs.

B R.K.S. Appeals dismissed.

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