COMMISSIONER OF INCOME TAX, PATIALA versus THE AMBALA FLOUR MILLS

Citation: [1971] 1 S.C.R. 388 · Decided: 27-04-1970 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Dismissed

Judgment (excerpt)

388 
COMMISSIONER OF INCOME TAX, PATIALA 
v. 
THE AMBALA FLOUR MILLS 
April 27, 1970 
[J. C. SHAH, K. S. HEGDE AND A. N. GROVER, JJ.) 
Income-tax Act, 1922, ss. 31 and 34(3) & 66-Assessment.by lncome-
A 
B 
tax Officer in statU!I of 'association of individuals' of which D a member-
Appeflate Assistant. Commissioner directing 
,assessn1ent to be 1nade on 
famfly of D-Appeals by D before Tribunal whether 
maintainable-D 
whet'ier a stranger to proceedings-High Court in reference whether can 
C 
modify directions given by Appellate Assistant Commissioner-'-Referenc4 
to the High Court of a question no~ raised before 'fribunal not competent. 
D. B and J were partners in a firm which carried on the business entitl-
ed the Ambala Flour Mills. 
On April 29, 1948 J fil<d a suit for 
the 
dissolution of the firm. 
The litigation ended with the judgment df the 
Panjab High Court delivered on September 25, 1951. 
According to the 
judgment the partnership stood dissolved with effect fr<'m the date of the 
filing of the suit, but since the firm had continued to use J's share in the 
property of the firm after that date he was held entitled to a ~orrespond· 
ing share in the profits of the firm after that date, or at his option, to 
interest at six per cent on the value of his share in the property of the 
firm. During the pendency of the suit B also served his connection with 
the business which was. thereafter carried on by D alone. In the assess-
ment year 1950-H D flied three returns of income : (i) on 4-10-50 in 
the status of a firm; (ii) on 14-4-51 in the status of an individual; and 
(iii) on 1-7-51 in the status of a firm consisting of J and D partners. For 
the assessment year 1951-52 D filed a return in the status of an unregister-
ed firm. 
For the assessment" year 1952-53 D submitted a return in the 
status of a Hindu Undivided Family. 
The Income-tax 
Officer assessed 
the Ambala Flour Mills in the three years of assessment in the statua of 
an association of penons. In appeals 
by D the Appellate Assistant 
Commi11iooer annulled the orders of assessment and remanded the case to 
the Income-tail Officer with a direction that the Income be as!ICssed as the 
income of the family of D. In appealt by D the Income-tax Appellate 
Tribunal con11rmed the order of annulment but ordered that the direction 
to alHll the income in the hands of D be deleted. The Tribunal's order 
was based on the view that D was a stranpr to the asaeasment proceed· 
inp. At the instance df the Comml11ioner of Income-tax the followlna 
questions were referred to the High Court : ( i) Whether D was a stranger 
in respect of the income-tax proceedings against Ambala Flour Mills ? 
(ii) Whether the Appellate Assistant Commissioner could give a direction 
in the case of Ambala Flour Mills to the effect that the income should be 
assessed in the banCh of D after annulling the assessment in the case of 
the Ambala Flour Mills ? (iii) Whether on the facts and in the circums-
tances of the case the appeals filed by D were maintainable in law? The 
High Court answered the first question in the negative, the second in the 
affirmative with the rider that the assessment against D 'could only be in 
his individual capacity'; and the third question in the affirmative. Appeals 
were filed in this Court by both the parties. In this appeal the Commis-
sioner df Income-tax questioned the order of the High Court by which 
they sought to modify the order of the Appellate Assistant Commissioner. 
D 
E 
F 
G 
H 
-
B 
c 
D 
E 
G 
C.I.T. V. AMBAU FLOUR MILLS (Shah,/.) 
.389 
HELD: (i) The first and tliird 'of the questions referred to it were,, 
correctly answered by the High Court. 
(a) D was competent to maintain the appeals filed by him to the 
Tribuna.l because by the order. of tJie Appellate Assistant Commissioner 
it was directed that he may be personally assessed by the 
Incom~-tax 
Officer in respect of the income of the Ambala Flour Mills. [391 C-0] 
(b) In malting a direction, against 'D' the Appellate Assistant Com-
missioner did not exercise his powers qua a stranger to the assessment 
proceeding. D had submitted returns and had also appealed against the 
orders of the assessment. The incoqie earned by the assessee was assess-
ed to tax as income of an ·association df persons of which on finding of 
the Income-tax Officer 'O' was a member .. Since the Appellate Assistant 
Commissioner set aside the order assessing the income in the status of 
'association o

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