1. These two petitions filed under Article 226 of the Constitution of India are for the issue of a Writ of Prohibition, restraining the respondent from proceeding with the collection of taxes and penalty from the petitioner.
2. The petitioner along with 6 others formed an association of persons for the purposes of doing business as Abkari renters under the name and style of the Adoni Town Toddy Combine. Returns were submitted on behalf of the said Combine for the years of assessment 1946-47 and 1947-48. By an assessment order dated 31-12-1948 the Additional Income tax Officer, Bellary, determined the total tax payable by Toddy Combine as Rs. 26,891-14-0 which was directed to be paid on or before the 25th of February 1949.
The assessment and the tax were confirmed by the Income-tax Appellate Assistant Commissioner subject to some modification. The assessee preferred an appeal to the Income-tax Appellate Tribunal, Madras. On the date of hearing the assessee was absent and the application made for an adjournment by the authorised representative was rejected. On the material available, the Tribunal thought that the only questions that arose were; (i) whether only half share of the toddy business should have been assessed; and (ii) the toddy yield per tree and the selling rate of toddy have both been estimated excessively.
On these two questions the Tribunal agreed with the conclusions of the Appellate Assistant Commissioner and dismissed the appeal. The Toddy Combine thereupon filed an application under Section 68(i) of the Indian Income Tax Act requiring the appellate Tribunal to refer to the High Court the two questions of law settled in the judgment of the Tribunal dated 17th December 1951. The Tribunal in its order dated 23-4-1952 held that its decision was based upon findings of fact and that no questions of law were involved for determination, so as to make it necessary for it to refer the matter to the High Court.
Similarly for the assessment year 1947-48 (with reference to which W. P. No. 1287 of 1958 has been filed) on a return submitted by the Toddy Combine, the assessment was made on 28-12-1950. There was an appeal before the Appellate Assistant Commissioner and a further appeal before the Income-tax Tribunal (A. A. Branch). That appeal was also dismissed. In that appeal, the main question was as to whether the Income-tax Officer and the Appellate Assistant Commissioner had properly estimated the yield of the toddy from the trees tapped by the assessee. The Tribunal accepted the estimate of 30 gallons per tree adopted by the Departmental authorities.
3. With regard to the assessment year 1946-47, the Income-tax Officer levied a penalty of Rs. 1,000/- on 10-10-1949 for default in payment of the tax for the year 1946-47. Similarly on 17-2-1951 and 2-11-1951 a penalty of Rs. 2 and 3 thousand respectively had been imposed by the Income-tax Officer, for default of the payment of the tax due for the assessment year 1947-48.
4. According to the counter-affidavit filed by the Income-tax Department, sums of Rs. 18,333-7-0 and Rs. 29,847-1-0 were payable for the assessment years 1946-47 and 1947-48 respectively after giving effect to the orders of the Appellate Assistant Commissioner and the Appellate Tribunal. ' After deducting the payment already made by the members of the Combine towards the arrears of tax and penalty, it is stated, that a sum of Rs. 730-6-0 and Rs. 22,095-3-0 are due for the years of assessment 1946-47 and 1947-48, respectively.
5. In these two petitions the main contention pressed upon me by Mr. Venkatramayya, the learned counsel for the petitioners, is that the proceedings initiated by the Collector for the recovery of arrears of tax are void of legal authority, for the reason that the assessments for the years 1946-47 and 1947-48 are illegal and invalid, because that on the respective dates of the two assessments, the Toddy Combine had discontinued its business and had thus become a dissolved association of persons.
That being so, it is argued that the assessments should have been made strictly in accordance with Section 44 of the Indian Income-tax Act, as it stood on the date of the assessment. Inasmuch as the assessments were made on a dissolved association of persons in violation of the terms of Section 44, it is contended, that the assessments should be struck down. If the assessments are, therefore, held to be not in accordance with law, it is urged, the petitioners would be justified in asking this Court to issue an interdict, restraining the Collector from enforcing the demand which is afflicted with an obvious legal infirmity.
6. Section 44 of the Indian Income-tax Act, as it stood prior to the amendment made in and by the Indian Finance Act, 1958, was in these terms:
44: 'Where any business, profession or vocation carried on by a firm or association of persons had been discontinued, or where an association of persons is dissolved, every person who was at the time of such discontinuance or dissolution a partner of such firm or a member of such association shall, in respect of the income, profits and gains of the firm or association, be jointly and severally liable to assessment under Chapter IV and for the amount of tax payable and all the provisions of Chapter IV shall, so far as may be, apply to any such assessment.'
7. The section provides that where a business carried on by a firm or association of persons has been discontinued or where the association of persons is dissolved, all the members of the association at the time of such discontinuance or dissolution are jointly and severally liable to assessment and also liable for the amount of arrears of tax due from the association. In other words, the Section seems to proceed upon the footing that on the dissolution of a firm or an association of persons, the firm or the association, as such cannot be assessed and that the proper procedure would be to assess the partners or the persons, as the case may be jointly and severally.
8. Section 11 of the Indian Finance Act, 1958 has introduced far-reaching amendments to Section 44. The substituted section is in these terms:
Section 11, 'For Section 44 of the income-tax Act, the following section shall be substituted, namely:
'44(1) Liability in case of firm or association discontinued or dissolved:
Where any business, profession or vocation carried on by a firm or other association of persons has been discontinued Or where a firm or other association of persons is dissolved, the Income-tax Officer shall 'make an assessment of the total income of the firm or Other association of persons as such as if no such discontinuance or dissolution had taken place.
(2) If the Income-tax Officer, the Appellate Assistant Commissioner or the Appellate Tribunal in the course of any proceedings under this Act in respect of: any such firm or other association of persons as is referred to in Sub-section (1) is satisfied that the firm or other association is guilty of any of the acts specified in Clause (a) or Clause (b) or Clause (c) of Sub-section. (1) of Section 28, he or it may impose or direct the imposition of a penalty in accordance with the provisions of that section,
(3) Every person who was at the time of such discontinuance or dissolution a partner of the firm or a member of the association, as the case may be, shall be jointly and severally liable for the amount of tax or penalty payable and all the provisions of Chapter IV so far as may be, 'shall apply to any such assessment or imposition or penalty.'
9. It is common ground that the amendment cannot be retrospectively applied and that the case must be judged on the Section 44, as it stood on the relevant dates of the assessment. namely, 1948 and 11950.
10. Mr, Venkataramayya, has raised two points with respect to these assessments, first, that the assessments have not been made on each individual member of the association of persons and that it was made on the Adoni Toddy Combine which had been dissolved. Secondly, on the strength of the decision of the Full Bench of this Court in Commissioner of Income-tax Hyderabad v. Eayalaseerna Oil Mills, Tadapatri : AIR1960AP23 (FB) it is urged that there can be no question of levying of penalty on a dissolved firm or association of persons.
11. Now, both these contentions rest upon the basic assumption that the Adoni Toddy Combine was a dissolved association of persons on the date of the two assessments. Mr. Venkataramayya very fairly states that neither at the stage of making the assessments, nor in further appellate proceedings therefrom were the appropriate authorities informed of the fact that the Adoni Toddy Combine had become dissolved and discontinued its business.
12. The learned counsel, however, contends that this is a case of dissolution within, the meaning of Section 41(b) of the Indian. Partnership Act, which is in these terms.
41. A firm is dissolved:
(a) by the adjudication of all the partners or of all the partners but one as insolvent, or
(b) by the happening of any event which makes it unlawful for the business of the firm, to be carried. On Or for the partners to carry it on in partnership;
Provided that, where more than one separate adventure or undertaking is carried on by the firm, the illegality of one or; more shall not of itself cause the dissolution of the firm in respect of its lawful-adventures and undertakings.'
13. It will be seen from the language of subsection (b) that the firm is deemed to be dissolved, if its business is, by operation of law rendered unlawful.
14. By a notification No. 419 (Revenue Department) dated 16th August 1946 and duly published in the Fort St. George Gezette the Governor of Madras in exercise of his powers conferred under Section l(3)(b)(ii) of the Madras Prohibition Act, 1937, directed that all the provisions of the said Act should come into force in the districts of Coimbatore, Bellary, Kurnool and Anantapur with effect on and from the 1st October 1947. The assessee association was doing business, at Adoni, which was then a part of Bellary District, and, therefore, within the scope of this notification. It is argued that by reason of that notification the association of persons had become dissolved and the continuance of it had been rendered unlawful,
15. If the matter had rested only there, there Would have been considerable force in the contention of the learned counsel. It is true that with effect from 1st October 1946 the assessee association could not have done the toddy business. It is equally true that the two assessments relate to the years prior to the issuance of the notification. It is now, however, admitted that on the date of the-assessments no mention was made of the dissolution and no representation was made that the procedure under Section 44 should be strictly complied with.
It is quite possible that the Toddy Combine may have other lines of business in which case the interdict on toddy business would not operate to dissolve the association of persons. The agreement evidencing the formation of the association of persons is not produced. The counsel for the petitioner contends that the substance of the agreement has been given in the assessment order and that it never had been the case of the assessing authority that the association did any other business.
Further, it Is pointed out to me that subsequent to the assessment of the year 1947-48 no assessments have been made on this Adoni Combine, which is only confirmatory of the petitioner's case that the toddy business had been discontinued and the association which was formed only for the toddy business had become thus dissolved.
16. The question, therefore, furns upon whether the Toddy Combine is a dissolved association of persons. As I said already, neither at the stage of the assessments, nor in the further appellate stages before the Appellate Assistant Commissioner or the Income-tax Appellate Tribunal was this point raised. .The assessee had the benefit of the assistance of authorised representatives and before the Income-tax Appellate Tribunal of a senior income-tax counsel.
It is difficult to understand why if the case of the petitioner is true, no such representation was made. It cannot be due to ignorance. It cannot be due to inadvertence. It cannot be due to want of legal assistance. The learned counsel contends that even if such a representation was not made, the petitioner cannot be penalized in a matter, which goes to the root of the jurisdiction of the assessment.
17. In Panualal Binjraj v. Union of India, (S) AIR 1937 SC 397 the Supreme Court of India was pleased to observe as follows:
'There is moreover another feature which is common to both these groups and it is that none of the petitioners raised any objection to their cases being transferred in the manner stated above and in fact submitted to the jurisdiction of the Income-tax officers to whom their cases had been transferred. It was only after our decision in Bidi Supply Co. v. Union of India : 29ITR717(SC) supra was pronounced on 20th March 1956 that these petitioners woke up and asserted their alleged rights, the Amritsar group on 20th April 1956 and the Raichur group on 5th November 1956. If they acquiesced in the jurisdiction of the Income-tax Officers to whom their cases were transferred, they were certainly not entitled to invoice the jurisdiction of this Court under Article 32. It is well settled that such conduct of the petitioners would disentitle them to any relief at the hands of this Court (vide Halsbury's Laws of England Vol. II, 3rd Ed. p. 140 para 255, Rex v. Tabrum; Ex parte, Dash, (1907) 97 LT 551, O. A. K. Latchmanan Chettiar v. Corporation of Madras, ILU 50 Mad 130: AIR 1927 Mad 130.
18. In these circumstances, 1 cannot say that the contention of the petitioner that it is a dissolved association of persons has been established, so as to render the assessments, open to the objections raised in the present petition.
19. The learned Counsel for the petitioner has very strongly contended that the Department has taken a very disingenuous attitude in this case. It is urged that in the first counteraffidavit filed by one T. Satyanarayana Murthy the Income-tax Officer of Adoni, there is no direct statement that the petitioner-association was not a dissolved association of ' persons. On the contrary, it is argued that the allegations are, that notwithstanding that the Adoni Combine being dissolved, the taxing authorities have the right not only to impose a tax in the manner in which they have done, hut also a penalty under Section 46(1) of the Act.
It is only in the additional counter-affidavit, it is argued, that for the first time one M. Janga-mayya, who is not the Income-tax Officer at Adoni, but an Income-tax Officer in the Office of the Commissioner of Income-tax, Hyderabad, has traversed the allegations that the Adoni Toddy Combine had become defunct and had discontinued its business in 1949. I am, however, not every much impressed with this comment that the Income-tax Department have no right to file an additional counter affidavit and that Jangamayya who swore to it was a person without personal knowledge.
20. On behalf of the Department, it is also urged that under Section 25(2) of the Act, there is an obligation on the part of the assessee to give notice-to the Income-tax Officer of such discontinuances of business within 15 days thereof, and that not having done, the petitioner cannot plead that the toddy Combine had become dissolved.
21. The counsel for the petitioner has argued that this provision has no application to the instant case. I have taken the view that the duty of proving the basic fact of the dissolution and discontinuance of business rests upon the petitioner. In the events that have happened and particularly having regard to the conduct of the petitioner. I am unable to say that at this stage the petitioner is entitled to raise that question. That being so, it is unnecessary for me to consider whether a failure to notify the factum of dissolution of the partnership or of the association Of persons within the-meaning of Section 25(2) precludes a party from challenging an assessment if it had been made in violation of Section 44 of the unamended Act.
22. The learned counsel for the petitioner has placed very strong reliance upon a decision, of a Bench of this Court in Raja Reddy Mallaram v. Commissioner of Income-tax, Hyderabadi : 39ITR636(AP) in support of the contention that an assessment made on a dissolved firm as such without making it on the erstwhile partners jointly and severally would be in contravention of Section 44 before the amendments introduced by the Indian Finance Act 1958, and, therefore, illegal.
23. The learned Counsel for the Department contends that a different view had been taken by a Bench of this court in an earlier case in Haji Wali Mohammed Haji Moosa Saya v. Commissioner of Income-tax, Hyderabad : 37ITR538(AP) and also a Full Bench-of the Madras High Court in Chengalvaroya Chettiar v. Comrnissioner of Income-tax, Madras : 5ITR70(Mad) . In view of the difference of opinion, between the two Bench decisions of this Court, I had directed that W. P. No. 552 of 195S and 415 of 1959, (where a similar question had arisen) may be referred to a Bench, which if it so deems fit, may refer the question to a Full Bench.
I do not think that those decisions have a material bearing on this case. Those decisions proceeded upon the admitted fact that the firm or the association of persons, had, as a matter of fact, been dissolved. It is upon that footing that those cases proceeded to consider the, impact of the relevant statutory provisions. In the instant case, however, the dissolution of the petitioner's Toddy Combine has not been admitted by the Department.
24. It is also equally unnecessary to consider the decision of the Madras High Court in Rayala-seema Constructions v. Deputy Commercial Tax Officer, Mannady Division Madras : AIR1959Mad382 where the learne'd Judges held that the words 'levy and collection' are used in Article 265 of the Constitution of India in a comprehensive manner and they are intended to include and envelop the entire process of taxation, commencing from the taxing statute to the taking away of the money from the pocket of the citizen.
The principle of that decision would apply only if the assessment is unlawful. The assessment would be unlawful if it was made on a dissolved association of persons contrary to Section 44 of the Act. I have taken the view in this case that at this stage after so many proceedings had taken place, it is not open to the petitioner to raise that question. I do not, therefore, think that that decision is of any assistance.
25. In the result, the petitions tail and areaccordingly dismissed. But in the circumstances, Imake no order as to costs.