Law:

Section:

Section 150 of the Income-tax Act, 1961 [Corresponding to section 34(3) of Indian Income-tax Act, 1922] - Reassessment - In pursuance of an order on appeal etc. - Assessment years 1945-46 to 1956-57 - 'A' gifted his business to his sons i.e., assessees - After death of 'A', ITO proceeded to assess all heirs of A as an AOP in respect of business left by him - AAC held that AOP consisting of all heirs of 'A' was not liable to be taxed in respect of business as business had been gifted by A to assessees - AAC, accordingly, set aside order and directed ITO to assess income from various sources in hands of respective persons to whom they arose bearing in mind second proviso to section 34(3) of 1922 Act - ITO taking into account observation of AAC issued notice to assessees under section 34(1) of 1922 Act - Whether conclusion of AAC did not follow that assessees continued to be owner of business during relevant years - Held, yes - Whether therefore, High Court was correct in holding that direction given by AAC was not one that fell within scope of second proviso to section 34(3) of 1922 Act - Held, yes FACTS 'A' gifted his business to his two sons, the assessees in 1942. A died in 1948. During the assessment years 1945-46 to 1956-57, the assessees submitted their returns of income in respect of the business. The ITO rejected that return and proceeded to assess all the heirs of 'A' as an association of persons. He also took into consideration not merely that business but all assets left by 'A'. On appeal, the AAC held that the association of persons consisting of all the heirs of A was not liable to be taxed in respect of the business as that business had been gifted to the assessees in 1942 itself. But he did not find that during the relevant assessment years the assessees were continuing that business in their own name; nor did he give a finding in respect of any income earned in this business by them in those years. On the basis of his finding that the association of persons consisting of all the heirs of A was not liable to be taxed in respect of the business, he set aside the order of the ITO but directed him to 'assess the income from various sources in the…

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