B. S. DHILLON, J. - This judgment will dispose of Income-tax References Nos. 105 to 108 of 1975 as the questions of fact and law arising out of these references are common.
The following questions of law have been referred to this court for its opinion :
Income-tax References Nos. 105 and 106 of 1975.
'1. Whether on the facts and in the circumstances of the case, The tribunal was right in holding that Shri Sohan Lal, son of Shri Bakshi Ram, deceased, was competent to file an appeal before the Appellate Assistant Commissioner under section 246 of the Income-tax Act against the order of the Income-tax Officer ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in upholding the order of the Appellate Assistant Commissioner setting aside the order passed by the Income-tax Officer under section 143(3) and under section 185(1)(b) directing him to decide the case afresh ?'
Income-tax References Nos. 107 and 108 of 1975.
'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that Shri Sohan Lal, son of Shri Bakshi Ram deceased, was competent to file an appeal before the Appellate Assistant Commissioner under section 246 of the Income-tax Act, 1961, against the order of the Income-tax Officer ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in upholding the order of the Appellate Assistant Commissioner setting aside the orders passed by the Income-tax Officer under section 143(3) and under section 185(1)(b) and directing him to decide the case afresh ?
The facts giving rise to these references are that the firm known as M/s Amin Chand and Sons, Phillaur, in I. T. Rs. Nos. 105 and 106 of 1975, and the firm known as M/s. Landro Engineering & Foundry Works, Phillaur, in I. T. Rs Nos. 107 and 108 of 1975, had Shri Bakshi Ram as one of their partners. Sh. Bakshi Ram served a notice of dissolution of the firms on January 30, 1967, and, thereafter, filed a suit on October 3, 1967, against the other partners for the rendition of accounts after dissolution of the partnerships. Bakshi ram died on February 4, 1968, and his son, Sh. Sohan Lal, and other legal representatives were impleaded as plaintiffs.
In view of cl. 18 of the partnership deed dated April 1, 1960, the disputes between the parties were referred to the arbitrators, Shri Viryam Singh and Shri Jinender Kumar. During the pendency of the arbitration proceedings, the following question was referred to the senior Sub-judge, Jullundur, under s. 18(b) of the Arbitration Act, 1940 :
'Whether Sohan Lal is competent to proceed with the case and entitled to any relief under the partnership deed. It is therefore, urged that, as a special case, an opinion may be given whether Sohan Lal has acquired the status as required by the partnership deeds on the file.'
The learned Senior Sub-Judge expressed the view that the partnership between the deceased and the defendants being not a partnership at will it still endures notwithstanding the notice of dissolution given by the deceased.
The order of the learned Senior Sub-Judge was challanged before the Supreme Court, but the Supreme Court upheld the order of the learned Senior Sub-Judge.
After the death of Bakshi Ram on February 4, 1968, a new deed of partnership was drawn up on March 12, 1968, according to which Shri Shiv Dayal Shri Kishan Chand and Shri Gurpal Singh (minor) were admitted as partners. An application for registration of this firm was filed on March 29, 1968 in Form No. 11-A which was signed by Shri Shiv Dayal and Kishan Chand. Another application dated March 28, 1968, in Form No 11-A was filed on May 16, 1969 according to which Bakshi Ram, Shiv Dayal and Kishan Chand were shown as partners. The constitution of the firm with effect from February 5, 1968, was shown to be Shiv Dayal 38% Kishan chand 32% and Bakshi Ram 30%.
The assessee-firm also filed a declaration dated February 10, 1971, under s. 184(7) of the I. T. Act, 1961. According to this declaration, there was no change either in the constitution of the firm or the shares of the partners. So, the assessee-firm sought renewal of registration on the basis of the registration for the immediately preceding year.
On being confronted with the position that there were different claims in respect of the registration of the firm, the assessee contended that the partnership deed dated March 12, 1968, was never acted upon and so it did not claim any registration on the basis of that partnership deed. However, the assessee set up alternative claims for registration on the basis of its application dated March 28, 1968, filed on May 16, 1969, in Form No. 11-A and the declaration dated February 10, 1971, under s. 184(7) of the I. T. Act, 1961.
The ITO rejected the first claim of the assessee on the ground that no fresh partnership deed was executed after the death of Shri Bakshi Ram on February 4, 1968. He did not accept the claim of the assessee for continuation of registration on the ground that there was a change in the constituation of the firm with the death of Shri Bakshi Ram and as such the provision of s. 184 (7) did not apply to the case. The ITO consequently, assessed the firm in the status of an unregistered firm. The ITO vide his orders dated March 16, 1972, under ss. 143(3) and 185(1)(b), completed the assessment of the firm accordingly.
Against the aforesaid orders of the ITO passed under ss. 143(3) and 185(1)(b), the assessee-firm filed two appeals before the AAC. Sohan Lal, legal representative of Bakshi Ram, also filed an appeal against the order of the ITO under s. 143(3).
The AAC accepted the appeal filed by Sohan Lal and held as follows :
'It was however, contended by Shri D. D. Sud, counsel for the appellant, that Shri Bakshi Ram had issued instruction to the bank for stopping operations on the bank account. It is stated that later on, however, Shri Bakshi Ram agreed that for the purposes of making the payments for the outstanding bills, the cheques signed by all the three partners jointly may be accepted by the bank. It is contended that these cheques were, therefore, signed by Shri Bakshi Ram in the light of the aforesaid.
It is contended that this was only for the operation of the dissolution of the firm and for no other purpose. It was further contended by Shri D. D. Sud, that the return for the year 1967-68 of Shri Bakshi Ram had been filed by M/s B. D Bansal & Co., Chartered Accountants, and through oversight or for some other reason best known to them, they had shown the share income to that extent for the said period. It is, however, stated that the said return was signed by Shri Bakshi Ram either before or after filling up the figures by M/s B. D. Bansal & Co. It was further contended by Shri D. D. Sud that so far as the credit of salary to Shri Bakshi Rams account was concerned, the books of account of the firm, M/s Amin chand & Sons, were in the possession of Shri Shiv Dayal and Kishan Chand and they could make whatever entries they deemed fit and the other party was not in a position to stop them. It was contended by Shri D. D Sud that no adverse inference could be drawn against his clients merely on the ground of these entries. Shri Sohan Lal, who also appeared before me, stated that he doubted the correctness of the signatures on the various vouchers and also the salary register, etc. It was stated by him that to the best of his knowledge the signatures on the vouchers were not of his father, but these signatures had been forged. It appears that the Income-tax Officer had disposed of the aforesaid cases without deciding the basic issue whether Shri Bakshi Ram was a partner in the appellant-firm during the year or not. It appears, he had not given requisite opportunity to both the parties in this connection nor was the evidence produced by one party brought to the notice of the other party. Accordingly the order passed by the Income-tax Officer under section 143(3) and 185(1)(b) are set aside with the direction that the same be made de novo. Before making these orders, the Income-tax Officer would :
(i) give all opportunity to both the parties to prove their point of view.
(ii) bring the evidence produced by one party to the notice of the other party to enable it to rebut the evidence produced by other party,
(iii) also give facility of cross-examination to the opposite party, to each of the party. The Income-tax Officer would reframe the assessment and also pass an order under section 185(1) afresh in the light of the proceedings referred to above.
Lastly, it was urged before me by Shri R. K. Bansal, C. A., counsel for Shri Shiv Dayal and Kishan Chand that unless the legal heirs were determined by the competent court, they could not intervene in the proceedings as legal heirs of Shri Bakshi Ram nor could they file appeals as legal heirs of Shri Bakshi Ram. Appeal No. 35-A/1972-73, Jullundur, has been filed in this case by Shri Sohan Lal, son of Shri Bakshi Ram. I am satisfied that Shri Sohan Lal was a legal heir of Shri Bakshi Ram and he was competent to file the appeal. Accordingly, the objection raised by Shri R. K. Bansal, in this connection, is overruled. On appeal, the Tribunal held as follows :
11. The first contention of the learned representative of the assessee before us is that Shri Sohan Lal had no locus standi to file an appeal before the AAC against the order of the Income-tax Officer. We are unable to accept this contention. Section 246(1)(c) of the I. T. Act, 1961 provides as follows :
'246. Subject to the provisions of sub-section (2) any assessee aggrieved by any of the following orders of an Income-tax Officer may appeal to the Appellate Assistant Commissioner against such order :-...
(c) an order against the assessee, where the assessee denies his liability to be assessed under this Act or any order of assessment under sub-section (3) of section 143 or section 144, where the assessee objects to the amount of income assessed, or to the amount of tax determined or to the amount of loss computed, or to the status under which he is assessed.'
According to Gokuldas v. Kikabhai Abdulali : 33ITR94(Bom) , a person who is treated as a partner in the assessment of a firm may appeal if he denies his liability to be assessed as a partner. Now, the case of Shri Sohan Lal had been that the firm was dissolved on 1st February, 1967, and his father, Shri Bakshi Ram was not a partner of this firm during the relevant accounting period, but the Income-tax Officer rejected this contention held that the firm continued to be in existence though it was not entitled to registration. The effect of this order would be that Shri Sohan Lal being the legal heir of Shri Bakshi Ram, was not a partner of the assessee-firm (at least up to 4th February, 1968) and would therefore, be liable to pay the tax chargeable from the firm. Since Sohan Lal does not accept the existence of the firm after 1st February, 1967, and also denies his liability to be assessed as a partner of the firm, he had the right to file an appeal against the order of the Income-tax Officer. We accordingly hold that the appeal filed by Shri Sohan Lal against the order of the Income-tax Officer under s. 143(3) was maintainable before the AAC.
12. The second contention of the learned representatives of the assessee before us is that the Appellate Assistant Commissioner could not legally set aside the order passed by the Income-tax Officer under section 185(1)(b) and direct him to pass a fresh order giving a opportunity to Shri Sohan Lal to produce evidence to prove his contention that he was not a partner of the assessee-firm. This connection is also without any substance. it is clear from the facts stated above that Shri Bakshi Ram served a notice of dissolution on the other partners of the firm on 20th January, 1967, and claimed that the firm had already been dissolved with effect from 1st February, 1967. He also filed a suit on 3rd October, 1967, against the other partners for rendition of accounts. The dispute was referred by the senior Sub-Judge, Jullundur, to the arbitrators and the matter is still pending before the umpire. If the contention of Shri Bakshi Ram is finally accepted, it would mean that the firm had already been dissolved with effect from 1st February 1967, and in that event, there would be no firm during the relevant accounting period, i.e., 1st April 1967, to 31st March, 1968. In such a situation the question of granting registration to this firm for the assessment year 1968-69, relevant to the accounting period from 1st April, 1967, to 31st March, 1968, would not arise. In other words the basic issue whether the assessee-firm was really dissolved on 1st February 1967, and it was not in existence during the relevant accounting period, still remains to be decided. Unless that issue is finally decided by the Civil Court, the Income-tax Officer cannot grant or refuse registration to the assessee-firm affecting the rights of Shri Sohan Lal. Thus, the dispute raised by Shri Sohan Lal that the firm was dissolved with effect from 1st February, 1967 is inextricably intermingled with the question relating to the grant of registration to it. The two issues cannot be bifurcated and as such the Appellate Assistant Commissioner was justified in setting aside the order passed by the Income-tax Officer under section 185(1)(b) and directing the Income-tax Officer to decide the question after giving adequate opportunity to both the parties whether the firm had really been disolved with effect from 1st Febbruary, 1967 and then redecide the question of grant of registration to the assessee-firm. if it was, in fact in existence after the commencement of the accounting period on 1st April, 1967.
13. that the Appellate Assistant Commissioner has wide powers in appeal to pass any suitable order is obvious from section 251 (1) (c) of the Income-tax Act, 1961. This section provides as follows :
'251. (1) In disposing of an appeal, the Appellate Assistant Commissioner shall have the following powers :-...
(c) in any other case, he may pass such orders in the appeal as he thinks fit.
It is obvious from the plain language of the aforesaid section that the Appellate Assistant Commissioner is not debarred from setting aside an order passed under section 185(1)(b) and directing the Income-tax Officer to decide the matter after taking into consideration some other relevant matters. the powers of the Appellate Assistant Commissioner are wider than those of an appellate court under the code of Civil procedure. His competence is not restricted to dealing with the subject-matter of an appeal. He may remand the case to the Income-tax Officer for enquiring into the item which were not even subject-matter of an appeal. In our opinion, therefore, the Appeallate Assitant Commissioner had had the power to set aside the order of the Income-tax Officer under section 185(1)(b) and restore the case to his file for fresh decision after examining the contention raised by Shri Sohan Lal that the assessee-firm had already stood dissolved with effect from 1st February, 1967.
14. in view of the above discussion, we conclude that the Appellate Assistant Commissioner was legally competent to pass the impunged order and that he was exercised his discretion under section 251 (1) (c) judicially and not arbitarily. We do not, therefore, see any good reason to interfere with his order. The same is accordingly upheld.'
From what has been stated by the above, it is clear that the order of the ITO which has been set aside by the AAC deed fasten the liability of tax on Sohan Lal. In this view of the matter and keeping in view the provisions of s. 142 of the I. T. Act, we have no reason to differ from the view taken by the Tribunal that Sohan Lal who was affected by the impunged order of the ITO has a right to file an appeal before the AAC. Nothing could be shown by the learned counsel for the opposite side to take the contrary view. Their lordships of the Supreme Court in CIT v. Ambala Flour Mills : 78ITR256(SC) , held that if a person is fastened with the liability of tax he has a right of appeal so as to challenge the liability with which he is sought to be fastened. In this view of the matter, we are of the opinion that question No. 1 in I. T. Rs Nos. 1015 to 108 of 1975 has to be answered in the affirmative. We find that the Tribunal was right in upholding the order of AAC setting aside the order of the ITO who has been directed to decide the case afresh in accordance with the directions given by the AAC. Accordingly question No. 2 in i. T. Rs. Nos. 105 to 108 is also answered in the affirmative. No costs.