MEHAR SINGH, J. - This is a petition under article 226 of the Constitution.
The facts are really not in dispute. Petitioner Sumat Parshad of Hansi and one Makhan Lal of Bhatinda entered into partnership in 1943. They started business on July 4, 1943, with head office at Bhatinda in the former Patiala State. Later on on December 9, 1943, they opened a branch at Patiala. In the case of the head office they closed the accounts for the first time on June 22, 1944, and in the case of Patiala branch on November 19, 1944. These periods according to Bikrami calendar are from Har sudi 2,2000 Bk., to Har sudi 1,2001 Bk., and from Maghar sudi 13,2001 Bk., to Maghar sudi 4,2001 Bk., respectively. The firm was non-resident and in consequence of a notice under section 24(a) of the Patiala Income-tax Act (No. 1) of 1993 Bk., calling upon it in the year 2001 Bk. to submit a return of its income for assessment of tax, and on its doing so, for the periods, as stated above, its assessment was completed for the year 2001 Bk. at the figure of Rs. 37,357, as the taxable income, upon which an amount of Rs. 4,463-1-0 was assessed as the income-tax due according to the rates prevailing in the year 2001 Bk. The assessment order by the Income-tax Officer of Bhatinda is dated 12-4-2002 Bk. and it was duly approved by the Commissioner of Income-tax, Patiala, under section 60(5) of the subsequent Act but in the order of the Income-tax Officer it is clearly stated that he made the assessment under section 23(3) of the Patiala income-tax Act. The assessed tax was duly paid.
The firm was dissolved in 2003 Bk. and it is averred by the petitioner in paragraph No. 5 of his petition that the partners never started any business anywhere, thereafter in partnership.
The Patiala Income-tax Act of 1993 Bk. was repealed and the Patiala Patiala Income-tax Act (No. 8) of 2001 Bk., was enacted in its place coming into force from Baisakh 1,2002 Bk. Subsequently on Chet 30, 2006 Bk. (April 11, 1949) the Income-tax Officer of Bhatinda Circle; issued a notice under section 34 of the Patiala Income-tax Act of 2001 Bk., against the firm, Makhan Lal - Raj Kumar, calling upon it to submit return for income-tax for the year ending with the last day of Chet 2002 Bk. The firm having been dissolved some three years earlier, of course, the notice could not be served upon it. However, the petitioner and Makhan Lal in pursuance of that notice did submits a return but raised objections to the return that the assessment having been already made the tax was paid and that no income had escaped assessment. Subsequently they took other objections in saying that the notice and the proceedings under section 34 of the Patiala Income-tax Act of 2001 Bk. were illegal and the proceedings taken under that section were barred by time. The Income-tax Officer, in spite of objections, proceeded with the assessment and he raised the assessable income to Rs. 46,736 and assessed income-tax on that amount not at the rates prevailing in the year 2001 Bk. but those prevailing in the year 2002 Bk. on the ground that for the previous accounting year the assessment year was 2002 Bk. and it was the rates of that period that were to be applied. This was on March 22, 1951. A notice of demand was issued again not against the former partners of the firm but in the name of the firm. It was served on Makhan Lal, but not on the petitioner. on November 28, 1951. Makhan Lal, for various reasons which are not material here, was unable to proceed against the demands notice to seek appropriate relief from the higher authorities. The notice was on a form under the Indian Income-tax Act, 1922. Makhan Lal filed a revision petition under section 33A(2) of the Indian Income-tax Act on November 19, 1952, and this was dismissed by the Commissioner of Income-tax on July 29, 1953, on the graund that there was no provision like section 33A(2) of the Indian Income-tax Act in the Patiala Income-tax Act of 2001 Bk. Thereafter Makhan Lal filed an appeal under section 30 of the Patiala Income-tax Act of 2001 Bk. on October 10, 1953, to the commissioner of Income-tax. In the meantime there having been amendment in that Act such an appeal was provided for before the Appellate Assistant Commissioner. The Commissioner of Income-tax wrote a letter, obviously to Makhan Lal, informing him of this state of affairs but it is not clear whether he received that information or not. In any case still later on November 25, 1957, Makhan Lal actually filed an appeal before the Appellate Assistant Commissioner but that was dismissed in limine as time barred.
The petitioner does not refer to this matter in the petition and the return of the respondents does not clearly say that the petitioner was also a party to it, but it is said that afterwards there was a representation made to the Commissioner of Income-tax, at Simla, sometime in October and November, 1957, requesting for early disposal of the appeal. The Commissioner of Income-tax gave an interview to the petitioner, and his counsel, at Rohtak on November, 16, 1957. He explained the whole position to them and what had actually happened. But after discussing the case with them he proceeded to look into the matter on his own and he reduced the taxable income back to the figure of Rs. 37,357, the figure that had been originally fixed by the Income-tax Officer in the beginning.
Thereafter on a certificate issued by the Special Assistant Collector of Income-tax, Bhatinda Range, Ambala, the Collector of Hissar, in an effort to effect recovery of the arrears of income-tax due from the petitioner, has attached his property. It is, in these circumstances, that the petitioner has come in this petition to question the validity of the assessment against him on the grounds : (a) that the notice under section 34 of the Patiala Income-tax Act, 2001 Bk., for the reopening of the assessment for the year 2001 Bk. in 2002 Bk. could not be issued to a dissolved firm for under section 44 of either Act such a notice could only be issued to the partners of the dissolved firm, (b) that such a notice was not given to the petitioner, (c) that such a notice could not be served in the name of the dissolved firm or any of its partners after 4 years of the last day of the year 2002 Bk., and (d) that such a notice was not issued under the Patiala Income-tax Act, 2001 Bk., and under the Indian Income-tax Act, 1922, it could not be issued. There are some other grounds urged but the same are not material here, because they concern the question of the issue of the recovery certificate.
In the return on behalf of the respondents the facts, as stated, are not denied but it is stated (a) that, although the notice under section 34 for the assessment year 2002 Bk. was issued in the name of the dissolved firm the petitioner could have not grievance because the firm filed its return in response to the notice and that the petitioner could have had his grievance redressed by appeal of which advantage was not taken in due time, and (b) that the assessment has become final and according to section 67 of the Patiala Income-tax Act, 2001 Bk., the petitioner is now debarred from challenging the validity of the assessment and consequent recovery of tax by way of civil proceedings.
The substance of the real dispute between the parties is whether, in the circumstances of the case, the petitioner is to pay income-tax according to the rates prevailing in 2001 Bk. or in 2002 Bk., for if he is to pay income-tax according to the first, he had already paid the proper amount due, but if he is to pay income-tax according to the second, the demand not made is a demand right according to those rates.
The arguments at the hearing on behalf of the petitioner have been confined to three matters : (a) that the original notice asking for the filing of return having been issued under section 24(a) of the Patiala Income-tax Act in the year 2001 Bk., the assessment was completed according to that notice, and it not being an assessment under section 23 of the same Act, only the rates prevailing in the year 2001 Bk. can apply, (b) that the notice under section 34 of the Patiala Income-tax Act, 2001 Bk., or the Indian Income-tax Act of 1922, in the name of the dissolved firm is not a valid notice according to section 44 of any of these Acts and so the assessment is invalid, and (c) that, according to section 34(1)(b) of the Patiala Income-tax Act, 2001 Bk., as amended by Finance Ordinance No. 1 of 1-1-2006 Bk., no notice under that section could be issued to the partners of the firm after the expiry of four years from the end of 2002 Bk. and the assessment is thus not valid. In reply it has been urged on behalf of the respondents that, though the notice was originally issued to the firm under section 24(a) of the Patiala Income-tax Act in the year 2001 Bk., the order dated 12-4-2002 Bk. of the Income-tax Officer clearly shows that the assessment was made no under that section but under section 23(3) of the same Act and so it were the rates prevailing in the year 2002 Bk. that should apply to the case, that it is true that notice under section 34 of the Patiala Income-tax Act of 2001 Bk. or the Indian Income-tax Act of 1922 was not issued to the partners of the dissolved firm but that since return has been submitted by the firm, which is not denied by the petitioner, the issue of the notice in the name of the dissolved firm is not a material matter, that it is not section 34(1)(b) that applies to the case but that section 34(1)(a) applies and the assessment could be made within 8 years of the income escaping assessment or having been assessed at too low a rate, from the end of 2002 Bk.
In regard to the first of these arguments undoubtedly the firm, Makhan Lal Raj Kumar, was served with a notice under section 24(a) of the Patiala Income-tax Act, 1993 Bk., to put in return in the year 2001 Bk., probably on the ground that the partners of the firm were non-residents, but the order (annexure A to the petition) shows that the Income-tax Officer assessed the firm to income-tax under section 23(3) of that Act. The assessment order was made in 2002 Bk. The Income-tax Officer Could well have then applied the rates of 2002 Bk., but he calculated income-tax on the rates of 2001 Bk. The partners of the firm assumed that that had been done so, the assessment having been made under section 24(a) of the Act, but the order speaks otherwise. This is a matter that is not very clear and if the case rested upon this consideration alone, the petitioner does not seem to have made out a case for relief in a petition of this type.
However, the other two arguments prove fatal. In paragraph No. 5 of the petition it is stated that the firm was dissolved in 2002 Bk. and closed its business in the former Patiala State. It is averred that this fact was in the knowledge of the Income-tax Department from the assessment of the year 2002 Bk. The reply to this paragraph is rather unsatisfactory for what is admitted in the reply is that after dissolution of the firm proceedings for the assessment year 2002 Bk. were re-opened under section 34 of the Patiala Income-tax Act on 30-12-2006 Bk. This reply does not deny that the Income-tax Department had the knowledge that not only had the firm been dissolved but that it had closed its business, in other words, it had discontinued as a partnership, and had discontinued its business as such. Section 44 of the Patiala Income-tax Act, 2001 Bk., says :
'44. Where any business, profession or vocation 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 as 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.'
This section is a verbatim reproduction of section 44 of the Indian Income-tax Act, 1922. It is apparent that in the knowledge of the Department. After that there could possible be no liability of the firm for it had discontinued business and, therefore, section 44, as above, provides for the joint and several liability to assessment of income-tax of each one of the partners of the firm. Notice is, therefore, necessary to the partners and an a; assessment based on notice to the firm that has discontinued its business cannot obviously be the basis of a valid assessment, according to law, against the partners of the dissolved firm. This matter has been fully considered and discussed by Chakravartti, C.J., in R. N. Bose v. Manindra Lal Goswami in which the learned Chief Justice says :
'If section 44 applies, the method of assessment to be followed in assessing the pre-dissolution income of a dissolved firm can only be the method prescribed by that section. I have already indicated, though only in outline, what the method of assessment is, when the income of a registered firm, which is a living firm, is to be assessed and similarly what the method is when the firm concerned is an unregistered firm. In both cases, the assessee is a firm which is a distinct and separate entity under the Income-tax Act - in one case up to the determination of the income and, in the other case, if the method applicable to registered firms is not followed, up to the assessment of the tax. The provision contained in section 44, however, is noticeably different. It says, not that the firm shall be assessed as if it had not been dissolved, nor that tax shall be charged for the income of the firm in the name and in the hands of the firm in spite of the dissolution, but that every person who was at the time of such discontinuance or dissolution a partner of such firm.... shall, in respect of the income, profits and gains of the firm.... 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.
The direction of the section, therefore, is that, not the firm but the partners of the firm, shall be jointly and severally liable to assessment, and that they shall also be liable for the amount of tax payable.... I can see no escaped, in view of this language, from the conclusion that if the pre-dissolution income of a firm falls to be assessed after the dissolution, the assessment can be made only on the partners at the time of the dissolution, jointly and severally, and that the method laid down in section 23(5)(a) or section 23(5)(b) can no longer be followed. Section 44, it appears to me, makes no distinction between registered and unregistered firms, but prescribes a common procedure for the assessment of pre-dissolution income of dissolved firms of both classes.'
Consequently the assessment in the present case against the dissolved firm was not an assessment properly made according to section 44 against the former partners of the dissolved firm. It is an assessment which cannot be sustained.
In regard to the last ground the amended sub-section (1) of section 34 of the Patiala Income-tax Act, 2001 Bk., reads :
'Income escaping assessment. - (1) If -
(a) the Income-tax Officer has reason to believe that by reason of the omission or failure on the part of an assessee to make a return of his income under section 22 for any year or to disclose fully and truly all material facts necessary for his assessment for that year, any income, profits or gains chargeable to income-tax have escaped assessment for that year, or have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under the Act, or if excessive loss or depreciation allowance has been computed, or
(b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income, profits or gains chargeable to income-tax have escaped assessment for any year, or have been under-assessed, or assessed at too law a rate or have been made the subject of excessive relief under this Act, or that excessive loss or depreciation allowance has been computed,
he may in cases falling under clause (a) at any time within eight years and in cases falling under clause (b) at any time within four years of the end of that year, serve on the assessee, or if the assessee is a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 22 and may proceed to assess or re-assess such income, profits or gains, or recompute the loss or depreciation allowance; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section.'
There is a proviso attached to this sub-section but that is not material for the purposes of the consideration of this argument on behalf of the petitioner. It is obvious that there was no omission or failure on the part of either the dissolved firm or its partners within the scope and meaning of section 34(1)(a). The Income-tax Officer called for return from the firm under section 24(a) of the Patiala Income-tax Act, 1993 Bk., because the partners of the firm were non-residents. The firm duly submitted the return. The return was considered and not decided until some four months after the beginning of the year 2002 Bk. It is not alleged that there was any omission or suppression by the firm or its partner in its return. they disclosed all the material necessary for the assessment. It was not their fault that, although the order of assessment was made in the year 2002 Bk., the rate of that year was not applied but it was the rate of the previous year that was applied. On no consideration clause (a) of sub-section (1) of section 34, as above, can possibly apply to the facts of the present case. The dispute here, as already pointed out, is not that the re-assessment is necessitated because of anything done or omitted to be done by the dissolved firm or any of its partners, the reassessment is necessitated because of what the subsequent Income-tax authorities have considered to have been the fault of the Income-tax Officer at Patiala in 2002 Bk. in calculating the income-tax on the Taxable income of the firm at the rates of 2001 Bk. instead of at the rates of 2002 Bk. Clause (a) of sub-section (1) of section 34 of the Act because there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the firm, but the income-tax Officer appears to have in consequence of gaining information by looking into the records of the case thought that there has been assessment at too law a rate as compared to the rate that was applicable in 2002 Bk. This case straightaway, therefore, comes under clause (b) of sub-section (1) of the section 34 of the Patiala Income-tax Act of 2001 Bk. and the notice for assessment or reassessment could not be issued 4 years after the last day of the year 2002 Bk. It is an undenied fact on behalf of the respondents that the notice was in fact issued long after the expiry of that term. The assessment or reassessment in the present case is, therefore, contrary to the very section under which it is sought to be made and cannot be sustained in law.
There remains the last position taken on behalf of the respondents with reference to section 67 of the Patiala Income-tax Act, 2001 Bk. That section provides that no suit shall be brought in any civil court to set aside or modify any assessment made under that Act. and no prosecution, suit or other proceeding shall lie against any officer of His Highness Government for anything in good faith done or intended to be done under that Act. It is obvious that that section has no application in the case of jurisdiction of this court under article 226 of the Constitution.
In consequence the assessment made against the dissolved firm of which the petitioner was previously the partner in consequence of the notice under section 34 of the Patiala Income-tax Act of 2001 Bk. on 30-12-2006 Bk., is not a valid assessment according to law and is, therefore, quashed and as a further consequence all proceedings for recovery of any alleged arrears of income-tax against the petitioner and as a result of that the attachment of his property are also quashed. The petitioner succeeds in his petition and the respondents will pay his costs in it. Counsels fee being Rs. 100.