1. This is a reference at the instance of the assessee under section 66(1) of the Indian Income-tax Act, 1922, and section 21 of the Excess Profits Tax Act, 1940. The following question of law has been referred to us for our opinion :
'Whether, on the facts and in the circumstances of the case, the income-tax assessments for the years 1946-47 and 1947-48 and the excess profits tax assessments for the chargeable accounting periods ending November 4, 1945, and March 31, 1946, made on M/s. Nagarmal Baijnath, a firm which was dissolved and whose business was discontinued at the time of the assessments, were validly made ?'
2. The assessee before us is Messrs. Nagarmal Baijnath, which firm consisted of four partners, viz., Nagarmal, Banarsilal, Baijnath and Brijmohan. Nagarmal died in 1961, and his representative was his son, Bansarsilal, who was a partner in the firm. Nagarmal and Banarsilal were the financing partners whereas Baijnath and Brijmohan were working partners. The firm did business in cloth and commission agency. The firm was dissolved by a deed of dissolution dated 2nd December, 1946, and according to that deed the partnership was treated as closed from 25th October, 1946. The Tribunal has given a finding that the business of the firm came to an end on 21st April, 1947.
3. In this reference we are concerned with two income-tax assessments and two excess profits tax assessments. The income-tax assessment are for the years 1946-47 and 1947-48, the corresponding previous years being S.Y. 2001-2002 and S.Y. 2002-2003. The excess profits tax assessment were for the chargeable accounting periods ending 4th November, 1945, and 31st March, 1946, respectively.
4. The notice under section 22(2) of the Income-tax Act for the assessment year 1946-47 was issued in the name of M/s. Nagarmal Baijnath, 352, Kalbadevi Road, Bombay, and it was served on the Satyanarayan who accepted it on behalf of M/s. Nagarmal Baijnath on 19th August, 1946. Subsequent notices under section 22(4) and 23(2) were also issued in the name M/s. Nagarmal Baijnath. The assessment was completed on 23rd March, 1951 also on M/s. Nagarmal Baijnath.
5. For the assessment year 1947-48, the notice under section 22(2) was issued to M/s. Nagarmal Baijnath and was again served on Satyanarayan on 4th August, 1947. Subsequent notices under section 22(4) and 23(2) were issued in the name of M/s. Nagarmal Baijnath. The assessment was completed on 10th March, 1952, also on M/s. Nagarmal Baijnath.
6. The excess profits tax notice for the chargeable accounting period ending 4th November, 1945, was served on M/s. Nagarmal Baijnath on 3rd April, 1949. The notice was accepted by one Mansukhlal. Notice for the chargeable accounting period ending 31st March 1946, was also issued to M/s Nagarmal Baijnath and served on 30th April, 1949. The excess profits tax assessments were completed on 20th October, 1962, for both the chargeable accounting periods. It may be mentioned that the Income-tax returns for these two assessment years, viz., 1946-47 and 1947-48, were submitted on 9th October, 1947, and 3rd January, 1949, respectively, and both were signed by Baijnath Gajanand for Messrs. Nagarmal Baijnath. The excess profits tax returns for both the chargeable accounting periods were filed on 7th June, 1950, and were both signed in the name of Messrs. Nagarmal Baijnath.
7. The income-tax assessment for 1946-47 was completed on 23rd March, 1951, and that for the year 1947-48 was completed on 10th March, 1952. No objection was taken in the course of these assessment proceedings challenging the validity of the proceedings. There were appeals to the Appellate Assistant Commissioner against all the four assessments. Even in the course of these appeals the validity of the assessment was not challenged. It was the assessee who preferred appeals before the Tribunal from the orders of the Appellate Assistant commissioner both for the excess profits tax and income-tax assessment for these periods. In the original grounds of appeal before the Tribunal no objection was taken to the validity of the assessments. Subsequently, however, by its letter dated 11th April, 1966, the assessee applied for permission to advance additional grounds of appeal, viz. :
'1. The I.T.O. erred in assessing the appellant firm as such despite the fact that the appellant firm was dissolved as early as 1946. The appellant submits that the I.T.O. had in his possession information regarding the dissolution of the firm long before the date of the assessment order. In any event, there were sufficient materials indicative of the fact that the I.T.O.knew or had reason to know that the appellant firm was dissolved.
2. The I.T.O.and the A.A.C. ought to have gone into the above question of the tenability or validity of the order passed before the respective authorities came to the conclusion against the appellant.'
8. At the time of hearing of the appeals before the Tribunal several grounds on merits were considered, but these are not relevant for reference before us. We are only concerned with the additional grounds which were sought to be raised by the said letter, the portion of which is extracted above. It was contended on behalf of the assessee that the additional grounds should be allowed to be raised as they raised a pure question of law. On behalf of the department, however, it was contended that the grounds involved ascertainment of basic facts and therefore, should not be allowed to be raised at that stage. The Tribunal overruled these objections of the departmental representative and gave the following reasons for overruling the objections :
'The basic fact of the dissolution of the firm did not need any further verification. It is clear from the assessment order for the year 1946-47 that the Income-tax Officer was aware that the business of the firm was closed. In the paragraph dealing with the business in the name of Banarsilal Harischandra he had mentioned that the said firm was said to have been closed at the time as the assessee-firm. He had also referred twice to a firm in the name of Baijnath Brijmohan with the according to him was the successor to the assessee-firm. In the circumstances, it would not be proper for us to shut out the assessee from raising this legal objection.'
9. After, however, allowing the assessee to raise the further legal objections, the Tribunal expressed its opinion that there was no merit in the same. According to the Tribunal, the point was indirectly decided by the Supreme Court in the case of C. A. Abraham v. Income-tax Officer Kottayam : 41ITR425(SC) and directly decided against the assessee by the Bombay High Court in the case of Ramniwas Hanumanbux Somani v S. Venkatraman, Income-tax Officer : 43ITR152(Bom) . According to the Tribunal, the ratio of Somani's decision was that under section 44 of the Income-tax Act, notice of reassessment could be issued against the firm and need not be issued against the persons who were partners at the relevant time. Accordingly, the objection of the assessee contained in the additional grounds of appeal was overruled.
10. The question which the assessee had sought to be raised clearly was restricted to the assessment order and based on the grievance that such assessment order on the firm could not have been validly made at the time when the firm stood dissolved and had discontinued its business. The question sought to be raised by the assessee is to be found in paragraph 14 of the statement of the case. The Tribunal, however, submitted the question in its own words and the question referred to us has been set our earlier.
11. The question clearly indicates the view of the Tribunal and a clear finding that at the time when made on the firm, the firm stood dissolved and its business discontinued. It is on the basis of this clear finding that we have to decide whether the assessment were validly made in law.
12. The learned advocate for the assessee urged that the notices issued in the name of the firm and served on the employee, Satyanarayan, in the case of the income-tax assessment and Mansukhlal in the case of excess profits tax assessment were invalid because they were served on an employee. The second contention urged in the course of arguments was that the assessments made on the firm were bad because prior to the dates of the respective assessments the firm had been dissolved and its business discontinued.
13. As far as as the first contention concerned, in our opinion, it does not arise from the order of the Tribunal. A faint attempt was made by the advocate for the assessee to urge that it would so arise because it had been contended that the assessment was invalid and that this would cover all aspects of the question of validity of the assessment commencing from the service of notice. We are unable to agree with the wide sweep of this submission. The Tribunal considered and applied its mind only to the limited question of the making of the assessment on the firm and that is reflected both from the specific question referred to us and the question that was sought to be raised for reference by the assessee itself. Fairly considered, it is only the second contention which will arise in this reference and which will be required to be answered.
14. Learned advocate for the assessee drew our attention to the judgment of the Gujarat High Court given in Special Civil Application No. 429 of 1960 - F.Y. Khambaty v. L. D. Bhatt, Income-tax Officer (judgment delivered on 11/12-11-1965). The very distinguished Bench of the Gujarat High Court (Shelat C.J. and Bhagwati J.) was considering the position under section 44 of the Indian Income-tax Act, 1922, as it stood prior to the amendment (namely, with the very section with which we are concerned) and it was held that if the firm stood dissolved prior to the date of the amendment, assessment on such firm could not be made. The Bench specifically disagreed with the decision of the Bombay High Court in : 43ITR152(Bom) Ramniwas Hanumanbux Somani v. S. Venkatraman, Income-tax Officer on which reliance was placed by the Income-tax Tribunal in its order under consideration in this reference.
15. As far as this court is concerned, we are bound to follow the Bombay decision though the Gujarat High Court has expressly differed therefrom. However, normally, we would have considered the views expressed in the Gujarat decision in considerable detail to find out whether the Bombay decision which has been dissented from could be regarded as being per incuriam as having ignored some specific statutory provision or not having referred to and applied some binding observations of the Supreme Court.
16. In this matter, however, it becomes unnecessary to consider the Gujarat decision in detail inasmuch as subsequently the earlier Bombay view has been reaffirmed in two decisions to which reference may immediately be made.
17. In Commissioner of Income-tax v. Devidayal and Sons : 68ITR425(Bom) it was held by a Division Bench of the Bombay High Court that even after the discontinuance of the business of a firm either by dissolution or otherwise, the firm can be treated as continuing so far as the assessment of its pre-dissolution income is concerned and the assessment or reassessment of such a firm after dissolution, under section 44 of the Indian Income-tax Act, 1922, could be made in the same manner under Chapter IV as if it had not discontinued its business. In coming to this conclusion, the court considered the following decisions of Supreme Court, namely, Abraham (C.A) v. Income-tax Officer : 41ITR425(SC) and Shivram Poddar v. Income-tax Officer : 51ITR823(SC) and derived their conclusion from the observations to be found in the aforesaid two decisions of the Supreme Court. It is observed at page 434 of the report in Devidayal's case : 68ITR425(Bom) as follows :
'The result of the Supreme Court decision referred to above is that even after the discontinuance of the business of the firm either by dissolution or otherwise, the firm can be treated as continuing so far as the assessment of its pre-dissolution income is concerned and the assessment or reassessment of such a firm after dissolution under section 44 of the Act could be made in the same manner under Chapter IV as if it had not discontinued its business.'
18. The aforesaid decisions of the Supreme Court as well as the Bombay High Court in Devidayal's case : 68ITR425(Bom) came to be considered once again by the Bombay High Court in Laxmidas and Co. v. Commissioner of Income-tax : 72ITR88(Bom) . The first question which was being considered by the Division Bench in the said reference was whether the assessment made upon the assessee-firm on the basis of the notice issued in the name of the firm after its dissolution and served on one of its partners was valid in law, and it was conceded before the Bench that in view of the decision in Devidayal's case : 68ITR425(Bom) which followed the Supreme Court decision in Abraham's case : 41ITR425(SC) the matter was concluded against the assessee and no useful purpose would be served by reagitating the same as far as the Bombay High Court is concerned. We are not concerned with the second question considered in Laxmidas and Co.'s case : 72ITR88(Bom) , which was on the point of limitation.
19. In the result, it would have to be held by us that as far as this court is concerned, the question sought to be raised by the assessee in this reference is concluded against the assessee by reason of the Bombay decision referred to in the order of the Tribunal (which was subsequently dissented from by the Gujarat High Court) and the two subsequent decisions to which we have referred to in this judgment. In this view of the matter, the question is answered in the affirmative and against the assessee. The assessee will pay the costs of the reference to the Commissioner.