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Mulchand Vs. Commissioner of Income-tax and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMadhya Pradesh High Court
Decided On
Case NumberMiscellaneous Petition No. 177 of 1971
Judge
Reported in[1977]107ITR932(MP)
ActsIncome Tax Act, 1922 - Sections 35
AppellantMulchand
RespondentCommissioner of Income-tax and ors.
Appellant AdvocateY.S. Dharmadhikari, Adv.
Respondent AdvocateP.S. Khirwadkar, Adv.
Cases ReferredMaharana Mills Pvt. Ltd. v. Income
Excerpt:
- - '13. the requirements of the section were clearly fulfilled in the present case. that precisely is the case here. the second point must, therefore, also fail......officer, special investigation circle a, nagpur, as to the extent of the assessee's two annas shareincome in the firm, the income-tax officer, ' c' ward, jabalpur, accordingly, proceeded to rectify the assessment orders of the assessee under section 35(5) of the indian income-tax act, 1922, by the inclusion of rs. 3,271, rs. 13,477 and rs. 38,525 which were liable to be assessed in its hands for the assessment years in question and these sums were, therefore, added to the income of the petitioner as detailed below : assessmentyear 1956-57incomeas per ito's original order u/s 23(3) dated 19-1-57as peraac's order dated 18-6-57 given effect on 24-7-57as perito's order u/s 35 dated 9-3-64 (1) total income assessedrs. 25,020rs. 23.949rs.27,220(2) share income from the firm,m/s. rambilas.....
Judgment:

A.P. Sen, J.

1. This petition under Article 226 of the Constitution filed by a Hindu undivided family styled 'M/s. Jainarayan Mulchand', Nainpur, through its karta, is directed against the order of the Additional Commissioner of Income-tax, Madhya Pradesh, Bhopal, dated November 27, 1970, rejecting its objections to the three revised and rectified notices of demand dated March 9, 1964, issued by the Income-tax Officer, 'C' Ward, Jabalpur, under Section 156 of the Income-tax Act, 1961, by which he raised a demand on the petitioner for payment of Rs. 1,345.98, Rs. 7,384.49 and Rs. 18,388-48 towards its two annas share income from the firm, M/s. Rambilas Murlidhar and Balaram Toluram of Tumsar, for the assessment years 1956-57, 1957-58 and 1958-59.

2. The validity of the impugned notices of demand is challenged before us on two grounds, namely :

(i) The Income-tax Officer acted illegally and without jurisdiction in issuing the notices of demand under Section 156 of the Income-tax Act, 1961, without any orders of rectification under Section 35(5) of the Indian Income-tax Act, 1922.

(ii) The notices of demand were also invalid inasmuch as the Income-tax Officer could not have made any fresh demands by including the assessee's two annas share income from the firm, M/s. Rambilas Murlidhar and Balaram Toluram of Tumsar, without notice as enjoined by Section 35 of the Indian Income-tax Act, 1922.

3. There is, in our opinion, no substance in either of these contentions.

4. The facts giving rise to the points raised in the petition, briefly, are these. The petitioner, i.e., the Hindu undivided family under the name and style of 'M/s. Jainarayan Mulchand', Nainpur, was admittedly a partner of the unregistered firm styled 'M/s. Rambilas Murlidhar and Balaram Toluram' of Tumsar, having a two annas share therein, and its share income throughout has been assessed in the hands of the assessee, i.e.,from the assessment year 1947-48. The firm, M/s. Rambilas Murlidhar and Balaram Toluram of Tumsar also all along showed the assessee as one of the partners. Two annas share income from the firm for the assessment year 1953-54 was included in the assessment of the petitioner as per credit entries in the account books of the assessee.

5. For the assessment years 1956-57, 1957-58 and 1958-59, the corresponding accounting years of which were Diwali 1955, Diwali 1956, Diwali 1957, the assessee filed a statement accompanying its returns to the effect:

'Assessee has two annas share in the firm, Rambilas Murlidhar and Balaram Toluram of Tumsar, in Manganese Mines. Share income should be ascertained from that firm.'

6. During the assessment years in question, the firm, M/s. Rambilas Murlidhar and Balaram Toluram of Tumsar, also filed returns, claiming the status of a firm and showing the assessee to be a partner having a two annas share.

7. The Income-tax Officer, 'A' Ward, Jabalpur, vide assessment orders dated January 19, 1957, and January 21, 1958, for the assessment years 1956-57 and 1957-58, and the Income-tax Officer, 'C' Ward, Jabalpur, vide assessment order dated February 23, 1959, for the assessment year 1958-59, consequently assessed the assessee, i.e., the Hindu undivided family styled M/s. Jainarayan Mulchand, Nainpur, under Section 23(5) of the Indian Income-tax Act, 1922, with the following note added:

'The assessee has not accounted for any profit or loss in his share in the firm, M/s. Rambilas Murlidhar and Balaram Toluram of Tumsar. Nothing is, therefore, included for the present, and action under Section 35 of the Act shall be taken on receipt of the exact share income from the Income-tax Officer, Special Circle I, Nagpur.'

8. The Income-tax Officer, Special Investigation Circle A, Nagpur, vide orders of assessment dated February 22, 1961, March 24, 1962, and February 13, 1963, assessed the firm, M/s. Rambilas Murlidhar and Balaram Toluram of Tumsar for the assessment years 1956-57, 1957-58 and 1958-59 in the status of an unregistered firm treating it as a registered firm under Section 23(5)(b) of the Indian Income-tax Act, 1922, on a total income of Rs. 26,166, Rs. 1,07,816 and Rs. 3,08,193, respectively. The total income of the firm was allocated amongst the partners under Section 23(5) for the rate and tax purposes. The assessee's two annas share income was as follows :

Rs.

Assessment year 1956-57

3,271

Assessment year 1957-58

13,477

Assessment year 1958-59

38,525

9. On receipt of information from the Income-tax Officer, Special Investigation Circle A, Nagpur, as to the extent of the assessee's two annas shareincome in the firm, the Income-tax Officer, ' C' Ward, Jabalpur, accordingly, proceeded to rectify the assessment orders of the assessee under Section 35(5) of the Indian Income-tax Act, 1922, by the inclusion of Rs. 3,271, Rs. 13,477 and Rs. 38,525 which were liable to be assessed in its hands for the assessment years in question and these sums were, therefore, added to the income of the petitioner as detailed below :

Assessmentyear 1956-57

Incomeas per ITO's original order u/s 23(3) dated 19-1-57

As perAAC's order dated 18-6-57 given effect on 24-7-57

As perITO's order u/s 35 dated 9-3-64

(1)

Total income assessed

Rs. 25,020

Rs. 23.949

Rs.27,220

(2)

Share income from the firm,M/s. Rambilas Murlidhar and Balaram Toluram, Tumsar, included in the totalincome

Nil. Note given for additionu/s 35

Nil

Rs.3,271

(3)

Demand raised

Rs. 3,434

Rs. 3,090

Rs.4,436

Assessmentyear 1957-58

As per ITO'sorder u/s 23(3) dated 21-1-58

As perITO's order u/s. 35 dated 9-3-64

As perITO's order u/s. 35 dated

16-7-57(share income considered for rate purpose being from U.R.F.)

Rs.

Rs.

Rs.

(1)

Total income assessed

29,410

42,887

42,887

(2)

Share income from the firm,M/s. Rambilas Murlidhar and Balaram Toluram, Tumsar, included in the totalincome

Nil. Note given for additionu/s 35

13,477

13,477

(3)

Demand raised

5,342

12,725

6,494

Assessmentyear 1958-59

As per ITO's original order u/s23(3) dated 28-2-59

As per ITO'S order u/s 35 dated9-3-64

Rs.

Rs.

(1)

Total income assessed

13,839

52,364

(2)

Share income from the firm,M/s. Rambilas Murlidhar and Balaram Toluram, Tumsar, included in the totalincome

Nil. Note given for additionu/s 35

38,625

(3)

Demand raised

757

17,631

10. The contention that the Income-tax Officer issued the impugned notices of demand without any prior orders of rectification passed by him underSection 35(5) of the Indian Income-tax Act, 1922, is wholly unfounded. The share income was included in the assessment of the petitioner with due consent and with proper notice to the petitioner. For the assessment years 1956-57 and 1957-58, the rectification was made with the consent of the petitioner's counsel, Shri A. S. Purohit, on March 30, 1963. On March 9, 1964, the Income-tax Officer passed the requisite orders of rectification under Section 35(5) of the Indian Income-tax Act, 1922. This is evident from the relevant order sheets for these two years which are as follows :

Assessmentyear 1956-57

18-2-63 :

Communication of share incomereceived

Sd. ITO

30-3-63 :

Shri A. S. Purohit, counsel forthe ' A ', is present and he has no objection to rectify the assessment u/s35

Sd. A. S. Purohit 30-3-63

Sd. ITO

9-3-64 :

Prepare revised I.T. 30 u/s 154and issue D.N. and chalan for fresh demand

Sd. ITO

Assessment year 1957-58

18-2-63 :

Share income received

Sd. ITO

30-3-63 :

Shri A. S. Purohit, counsel forthe ' A ' is present and be has no objection for rectification u/s 35

Sd. A. S. Purohit 30-3-63

Sd. ITO

9-3-64:

Prepare revised I.T. 30 u/s 154and issue D.N. and chalan for revised demand

Sd. ITO

11. For the assessment year 1958-59, a notice for rectification was issued to the petitioner on February 17, 1964. In response to the notice, the petitioner made an application dated February 24, 1964, praying that the demand be kept in abeyance till the decision of his appeal, but the Income-tax Officer declined to accede to its request, and on March 9, 1964, he passed an order of rectification under Section 35(5), as is clear from the order sheet which reads

17-2-64 :

Issue notice u/s 154, forrectification of assessment u/s 154 as the share income received from I.T.O.,S.I.C., Nagpur, Case for 24-2-64.

Sd. ITO

24-2-64 :

The ' A ' has filed his written reply in compliance of the noticeu/s 154 and states that he hadpreferred an appeal before I.T.A.T., Bombay, and the demand may be kept in abeyance till the decision of appeal in the case of the firm. Thecontention of the ' A ' is rejected.

Sd. ITO

9-3-64:

Prepare revised I.T. 30 andissue D.N, and challan for freshdemand

Sd. ITO

12. Section 35(5) of the Indian Income-tax Act, 1922, provides :

'35. (5) Where in respect of any completed assessment of a partner in a firm it is found on the assessment or reassessment of the firm or on any reduction or enhancement made in the income of the firm under Section 31, Section 33, Section 33A, Section 33B, Section 66 or Section 66A that the share of the partner in the profit or loss of the firm has not been included in the assessment of the partner or, if included, is not correct, the inclusion of the share in the assessment or the correction thereof, as the case may be, shall be deemed to be a rectification of a mistake apparent from the record within the meaning of this section, and the provisions of Sub-section (1) shall apply thereto accordingly, the period of four years referred to in that sub-section being computed from the date of the final order passed in the case of the firm. '

13. The requirements of the section were clearly fulfilled in the present case. On a perusal of the relevant order sheets, it is amply clear that the Income-tax Officer had passed the necessary orders for rectification, for inclusion of the petitioner's two annas share income in its assessment for the assessment years in question. The first point, therefore, fails.

14. The second point regarding want of notice is based on the first proviso to Section 35(1) of the Indian Income-tax Act 1922, which reads :

'Provided that no such rectification shall be made, having the effect of enhancing an assessment or reducing a refund unless the Commissioner, the Appellate Assistant Commissioner or the Income-tax Officer, as the case may be, has given notice to the assessee of his intention so to do and has allowed him a reasonable opportunity of being heard.'

15. The object of the provision as to notice in the first proviso is that no order for rectification should be passed to the detriment of an assessee without affording him a reasonable opportunity of a hearing, but the rule is not so rigid that if, as a matter of fact, the assessee has knowledge of the proceedings and the matter has been discussed with him, even then an adverse order would be invalid merely because no notice was given.

16. In the present case, the petitioner had undoubtedly such notice of being heard. The notice to the assessee may be express or constructive. It is not always necessary to serve the assessee with a written notice if he is aware of the rectification proceedings and the matter is discussed with him and he is given a reasonable opportunity of being heard. The matter is directly covered by the decision of their Lordships in Maharana Mills Pvt. Ltd. v. Income-tax Officer : [1959]36ITR350(SC) . There the Income-tax Officer recomputed the written down value which resulted in reduction of the unabsorbed depreciation to be carried forward. There was an enhancement of assessment and this was done, as here, after the matter was discussed with the assessee. In those circumstances, their Lordships held that the requirements of the proviso were amply met, and the orderof rectification could not be held to be invalid. That precisely is the case here. The second point must, therefore, also fail.

17. The petition, therefore, fails and is dismissed with costs. Hearing fee Rs. 100, if certified.


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