(1) Whether re-assessment proceedings under Section 34 of the Income-tax Act have been validly initiated is the question which falls for determination in the present case and in order to appreciate the point in issue it is essential to have a clear picture of the factual background.
(2) A firm consisting of the petitioners Banarsi Dass and his brother Phool Chand started business on 23rd of May 1940 under the name and style of Jankidass Banarsidass. The business was carried on at Kucha Natwan, Delhi, and there was also a Branch of the firm at Pilkhuwa in Uttar Pradesh. The dispute is in respect of the assessment year of 1946-47 relating to the accounting period between 16th of October, 1944 and 4th of November 1945. The firm used to be assessed yearly on its profits based on there returns filed by it. Banarsi Chand had 4 annas share, the remaining I anna share being kept apart for charity. The firm was assessed on 5th of August, 1946 for the assessment year 1946-47 on an income of Rs. 6,644/-. On 8th of August, 1946, the partners were assessed separately under clause (a) of sub-section (5) of Section 23 of the Indian Income-tax Act (hereinafter called the Act). Banarsi Dass on an income of Rs. 9,352/- which comprised his share in the profits of the firm while his brother Phool Chand on Rs. 18,105/-, which also included his share of 4 annas in the firm.
(3) Subsequently, assessment proceedings were reopened under Section 34 of the Act on 22nd of March, 1955 and an income of Rs. 1,520/- was added to that of Rs. 6,644/- to which the firm had been previously assessed. This supplementary assessment, however, was upset by the Appellate Assistant Commissioner who restored the original assessment of Rs. 6,644/- of 5th August, 1946.
(4) The proceedings which are now sought to be set aside under Article 226 of the Constitution of India also relate to reassessment under Section 34 initiated by a notice under Section 22(2) of the Act said to have been issued to the assessee firm on 29th of March, 1955. The ground on which this notice was issued was that fixed deposit receipts of rupees three lakhs represented in reality the profits of the firm and it was a spurious assertion on the part of the petitioners that they were obliged by their friends who provided them the fixed deposit receipts as securities for an over-draft. The amount of the fixed deposit receipts together with interest was treated by the income-tax authorities as an income of the firm which had escaped assessment while the contention of the assessee firm has of some friends had been utilized for the purpose of taking over-draft from the Bank. The income of Rs. 3,35,000/- was added as an escaped income to the assessed income of Rs. 6,644/-. The consequential assessment of the partners was also enhanced in proportion. It is this supplementary income which is impugned in these proceedings on the ground that the notice under Section 22(2), which is the foundation for assessment under Section 34, has no legal warrant and is illegal
(5) The case of the assessee is that the firm of Jankidass Banarsidass was dissolved on 18th of October, 1952, and on the following day another firm under the same name was reconstituted doing the same business with Banarsi Dass, Phool Chand, Jiwan Ram and Mandir Dass as partners. Banarsi Dass and his brother Phool Chand of the new firm had shares of 6 annas and 3 annas respectively while Jiwan Ram, son of Phool Chand had share of 6 annas and Mandir Dass was a co-sharer to the extend of 1 anna. The business of the new firm, according to the assessee shifted from Kuchu Natwan to Katra Gauri Shanker. Though no notice of its discontinuance was given under sub-section (3) of Section 25 of the Act, it is claimed on behalf of the assessee that a note was made in the income-tax return of the relevant year about the dissolution of the firm.
(6) It is common ground that the proceedings under Section 34 could have been initiated up to the 31st of March, 1955, according to the umamended provisions of law which govern this case. The notice, in other words, should have been issued and served before 31st March, 1955, before the assessment could have been reopened under Section 34. The notice of 29th of March, 1955, was handed over to the process-server who was accompanied by the Inspector O. P. Gupta. There is a report on the back of the notice that the proprietor was not available and accordingly service was effected by affixation. It is worthy to point out that in subsequent proceedings the petitioners Banarsi Das and Phool Chand participated and even expressed their readiness to submit the accounts. Reference in this connection may be made to Annexure G-1 which is a letter addressed by the firm to the Income-tax Officer on 22nd of November, 1955. The position taken up in this letter was that no notice under Section 22(2) had been received by the firm and therefore, no action could be taken under Section 34 of the Act.
Without prejudice to the objection on this score, the petitioners expressed their readiness to produce the account books in response to the notice served on them under Section 22(4) dated 2nd of November, 1955. The counsel for the assessee contends that this was done by way of abundant caution to avoid any 'best judgment' reassessment and should not be taken to be a waiver of the rights of the assessee to question the validity of action under Section 34 of the Act. The reassessment proceedings culminated in fairly detailed assessment orders of the Income-tax Officer of 5th of May, 1956, whereby the income of the assessee firm was revised and enhanced to Rs. 1,06,891/-. The income of Banarsi Dass was computed at Rs. 2,50,539/- and that of Phool Chand at Rs. 91,105/-. The tax demanded from the firm was Rs. 55,646/5/-. The appeal against this assessment of the firm is still pending before the Appellate Assistant Commissioner thought the appeal against individual assessments on the petitions under Section 35(5) of the Act have been dismissed by the Tribunal as non-maintainable. Concededly, the orders passed by the Tribunal, Annexures Q-1 and Q-2, on the 21st of August, 1958 do not furnish a bar to the present proceedings.
(7) According to the contention of the petitioners the Income-tax Officer had no authority to initiate re-assessment proceedings under S. 34, there being a patent illegality in the notice of 29th of March, 1955, and this error of law entitled them to seek the remedy by way of a writ to have the entire reassessment proceedings quashed. It is urged that the authorities, in their anxiety to effect service somehow on the petitioners before 31st of March, 1955, ignored the requirements of law and acted with undue haste. The firm having dissolved, the notice should have been sent to all the partners of the firm which had discontinued business as under the provisions of Section 44 of the Act that:
'where any business.............. carried on by a firm or association of persons has 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................ be jointly and severally liable to assessment.................... '
Reliance is also placed on the proviso to R. 3 of Order 30 of the Code of Civil Procedure requiring that
'in that case of a partnership which has been dissolved to the knowledge of the plaintiff before the institution of the suit, the summons shall be served upon every person............. whom it is sought to make liable.'
In his ensuing contention Mr. Bajaj has pointed out that no attempt even was made to serve the individual partners of firm which had been dissolved.
(8) Mr. Hardy for the respondent has on the other hand urged that the essential facts on which the petition is grounded are in issue between the parties and this Court cannot constitute itself into a fact finding Tribunal under its extraordinary jurisdiction. It is denied that there is any dissolution of the firm or that it had ever discontinued business. On the contrary the petitioners on their own showing, had reconstituted the firm under the same name and style and there had never been any suspension of business which had continued ever since the change in the Constitution of the firm. Mr. Hardy also contends that the business of the reconstituted firm was continued at least for some time in the old premises in Kuchu Natwan and it was only by way of caution that notices under S. 22(4) were served both at Kuchu Natwan and Katra Gauri Shanker. According to the pleas of the respondent the service was effected on the petitioners in due process of law and in any event this is a question which cannot be entertained by this Court in writ proceedings.
(9) On the question of service Mr. Kirpa Ram Bajaj has invited my attention to a Division Bench authority of the Calcutta High Court in Gopiram Agarwalla v. First Additional Income-tax Officer : 37ITR493(Cal) , in which it was held by K. C. Das Gupta, C. J. (now Justice of the Supreme Court) and Bachawat J. that
'the mere fact that the serving officer does not find that party to be served with the notice at his address is not sufficient to establish that he cannot be found. It must be shown not only that the serving officer went to the place at a reasonable time when the would be expected to be present, but also that if he was not found proper and reasonable attempts were made to find him either at that address or elsewhere. If after such reasonable attempts the position still is that the party is not found then and then only can it be said that he cannot be found.'
It seems clear that the parties are not in agreement about the essential facts. Whereas according to the petitioners the process-server did not go to the premises where the business was carried on, it is the case of the respondent that the proprietor (Malik) of the firm not having been found at Kuchu Natwan or Katra Gauri Shanker service had to be effected by affixation. Reliance has also been placed on behalf of the petitioner on a Supreme Court decision in Y. Narayana Chetty v. Income-tax Officer, Nellore : 35ITR388(SC) , wherein it was held that
'the notice prescribed by Section 34 of the Income-tax Act for the purpose of initiating reassessment proceedings is not a mere procedural requirement; the service of the prescribed notice on the assessee is a condition precedent to the validity of any re-assessment made under S. 34.'
It is, however, worthy of note that in the judgment which was delivered by Mr. Justice Gajendragadkar it is stated at page 396 that:
'If the appellants' case is that as a result of dissolution of the firms the firms had discontinued their business as from the respective dates of dissolution they ought to have been notices of such discontinuance of their business under section 25(2) of the Act.'
Mr. Hardy contends that in absence of a notice of discontinuance by the assessee a mere note made in the income-tax return that the firm had dissolved its business did not entail any obligation on the respondent to have the petitioners served individually.
(10) It was held in Ramnivas Hanumanbux v. S. Venkataraman : 37ITR329(Bom) by Shelat J. that if there was no discontinuance of the business of the firm Section 44 was not applicable and a mere service on the firm whose income was sought to be re-assessed is sufficient. To a similar effect is a Division Bench judgment of the Bombay High Court in B. M. Desai v. V. Ramamurthy : 34ITR409(Bom) ,
'that Section 44 of the Income-tax Act applied not on the discontinuance of a firm but on the discontinuance of the business of the firm.'
In the present case it is urged that there was no discontinuance of the business and only a new firm had come into existence. The business of that firm had not discontinued and therefore section 44 had no application. Again as stated in R. N. Bose v. Manindra Lal Goswami : 33ITR435(Cal) , by Chief Justice Chakravarti and K. C. Das Gupta J. (now Justice of the Supreme Court) that the Income-tax Officer in case of subbsisting firm cannot proceed against the partners individually. The proceedings are essential against the firm. It is only after the dissolution of the firm that the partners of the firm are held jointly and severally liable.
(11) So far as the present petition under Article 226 is concerned it is not necessary to go into the merits of the rival contentions on questions of fact and the case can be disposed of otherwise. As has been rightly contended by Mr. Hardy the reassessment proceedings cannot be challenged in writ proceedings where the income-tax authorities have actually assumed jurisdiction and assessment orders have been made as in the present instance. Reference in this connection be made to a Division Bench judgment of the Rajasthan High Court of Chief Justice Wanchoo (as Mr. Justice Wanchoo of the Supreme Court then was) and Dave J. in Ramniranjan Kedia v. Income-tax Officer 'A' Ward . In that case the Income-tax Officer has assessed the firm in reassessment proceedings under Section 34 and while an appeal had been preferred to the Appellate Assistant Commissioner, the assessee had invoked the jurisdiction of the High Court under Article 226. It was observed by Chief Justice Wanchoo, who delivered the judgment of the Court that 'prohibition lies to correct an assumption of jurisdiction by a Tribunal which has not got jurisdiction, and has to be applied for before the Tribunal decides the matter. It would have been a different matter if the applicant had come to us as soon as the Income-tax Officer issued notice to him questioning the jurisdiction of that officer. But after the Income-tax Officer had decided the matter and levied a tax on the applicant, there is no question now of prohibiting him from exceeding his jurisdiction.'
In dealing with the case of S. C. Prashar v. Vasantsen Dwarkadas : AIR1956Bom530 , relied upon by Mr. Bajaj, it was pointed out by Wanchoo C. J. that there was a patent want of jurisdiction in that case and the parties aggrieved had gone to the High Court immediately on the issue of the notice under Section 34, and did not wait for the Income-tax Officer to complete his assessment. It would be pertinent to make reference to the observations of Chief Justice Chagla in Prashar's case. Said he at page 893:
'If an assessee does not challenge the notice issued under Section 34 and allows the Income-tax authorities to assess him and then challenges the assessment the position may be very different, because then it may be said that the Income-tax Act itself gives him an adequate remedy for the purpose of challenging the assessment. But the case we are dealing with is where the assessee immediately on the issue of the notice under Section 34 challenges the competence of the authority of the Income-tax Officer to take any assessment proceedings pursuant to that notice and attacks the very basis of the assessment proceedings which the Income-tax authorities propose to initiate.'
(12) Thus a distinction is clearly brought between cases in which an assessee moves the High Court under Article 226 immediately after the receipt of notice and where he waits till the assessing authorities have made assessments. The Income-tax Act itself provides remedies for wrong assessments and it seems to me that once an assessee has chosen to prefer his remedies under the Act he cannot invoke the extraordinary jurisdiction of this Court. I may refer to another argument which was raised by Mr. Kirpa Ram Bajaj. He said that his remedy by way of appeal to the Assistant Commissioner is illusory inasmuch as he has to pay a heavy amount of tax and possibly some penalty before his appeal could be heard. This is a matter on which the appropriate authorities alone could give redress to the petitioners within the framework of the Act. It is to be hoped that the assessee would get the fairest possible hearing of the appeal against reassessment pending before the appellate authority. Nothing, which may have been said by me should be taken as an expression of opinion on the merits of the appeal before the appellate authority. With these observations I would dismiss this petition which, I would like to add has been argued by Mr. Bajaj and Mr. Hardy with utmost fairness and ability. There would be no order to costs.
(13) Petition dismissed.