1. Normally even in a very bad case, there is always something to be said for the Taxing Department. In this case nothing whatever can be said for the action they have taken. What is challenged by this petition is a notice issued under section 34 on the 27th March, 1957, for the assessment year 1948-49. This notice would only be valid if it fell under section 34(1)(a), and the contention of the Department is that the case of the assessee does fall under section 34(1)(a).
2. Now, the assessee is a firm which was registered by the Income-tax Department and it was assessed as a registered firm. It is not suggested by the Department that this firm omitted or failed to make a return or to disclose fully and truly all material facts necessary for its assessment. What is urged by the Department is that they have now discovered that this is an illegal partnership and therefore they wish to assess not the partnership but the association of persons constituted by the partners. Now the curious fact is that the very partners who constituted the firm have been assessed to tax and they have been assessed as a firm have been assessed to tax and they have been assessed as a firm which is an assessable entity under the Income-tax Act. The Department now wishes to assess these very assessee as a different assessable entity and the amazing argument put forward is that the registered firm made a return but this particular entity has not made a return and therefore section 34(1)(a) is applicable. In putting forward this argument what is forgotten and overlooked is that although the status of the assessee may be different, the assessee has made return, the four partners constituting the firm have made their return and therefore it cannot be said that section 34(1)(a) is applicable because there is a failure on their part to make a return. But when one looks at the reason why this notice was issued the position is even worse. It seems that the are members of the Ahmedabad Stock Brokers' Association. One of the rules of this Association requires that a notice of a partnership must be given to the Association and if such a notice is not given the partnership is not recognised. It seems that the petitioner firm did not give notice of the partnership and did not inform the Association of the persons who constituted the partnership. The result of this according to the rules would be that this firm would to be recognised by the Association. From this fact the Department draws the extraordinary inference that the partnership is illegal and because an illegal partnership was assessed to tax it is now open to them to proceed to assess the partners as an association of persons. The Department never paused to think as to why a partnership which is otherwise legal ceases to be legal merely because it is not recognised by a particular Association. It is not suggested that this partnership is doing a illegal business or it has in an y way violated the law or that it was not constituted as required by the law of partnership. The Department cannot suggest that because the Department itself has registered the firm and has treated the firm as a registered firm under the Income-tax Act. Whichever way one looks at the matter, there does not seem any justification for the issuing of this notice.
3. The result is that the rule will be made absolute. There will be an order in terms of prayers (a) and (b) of the petition. The respondent to pay the costs of the petition.
4. Petition allowed.