B.C. Misra, J.
(1) This Judgment will dispose of two writ petitions (Civil Writ No. 387-D of 1963 and Civil Writ No. 388-D of 1963) the former of which has been filed by Shri Ravinder Narain and the latter by Shri Bishan Narain and Shri Sham Narain. I hey raised common questions of law and fact and are direcied against the same action of the Income-Tax Officer. The material facts are taken from the second writ petition (C W. 388-D of 1963) filed by Shri Bishan Narain and Shri Sham Narain.
(2) It appears that there was an agricultural land situated in Mauza Malikpur Chaoni on the Grand Trunk Road Delhi. Nine persons had separate defined shares in them On 22nd July, 1949, they entered into an agreement with Delhi Land and Finance Limited for the purpose of development and parcelling out of the land in plots and sale as a residential colony. Dalhi Land and Finance Limited were appointed as their sole selling agents and a power of attorney was given to them. One of the terms of the agreement wai that the company would get 50 per cent of the net realisations while the other 50 per cent would be given to the respective nine owners of the land in accordance with their shares in the land. It may be noticed that all the aforesaid nine members do not belong to the same family.
(3) During the assessment year 1953-54, Shri Suraj Narain, father of the petitioners in the Second writ petition, filed a return of his total income in which he appended a rote to the effect that he owned some lands and garden in the area in dispute inherited as ancestral property which were not taxable and some of those lands had been sold during the current year. A certificate had been filed from Delhi Land and Finance Limited (hereinafter referred to as the Finance Company) showing that a sum of R. 28,828-11-9 had been received by Shri Suraj Narain during that year. The Income-Tax Officer concerned by his order dated 26th August, 1953 held that during the accounting year, the aaiesice had sold some of his ancestral agricultural land for which he had received th amount mentioned as part payment and it was ^ stated that the sale had been entrusted to the Finance Campany which had paid the assessed the said amount. He noticed the submission of the assessed that he had merely converted his poiscssion into cash which did not amount to business activity. The Income-tax Officer, under the circumstances, accepted the Explanationn and held that the said income was not arevenue receipt, but was of the nature of non- business or for that matter a capital gain. The finding of the Income- Tax Officer is contained only in the case of the assessment of Shri Saraj Narain. who was the predecessor of the petitioners in the second petition It is obvious that at that time the Income-Tax Officer did not propose to assess any association of persons constituted by the nine or ten persons men'ioned above. The parties received further incomes on account of sale of lands from the Finance Company in subsequent years. On 26^h March, 1963, the Income-Tax Officer issued two sets -y' of notices for each of the four assessment years, namely 1954-55 and 1958-59, 1959-60 and 1960-61, pioposing to assess the escaped income. The first set of notices was issued to the nine owners of the land or their legal representatives as land-owners besides the Finance Company. The second set of notices was issued to them with the addition of the name of the Finance Company. These are the notices which have been challenged in the present writ petitions.
(4) The writ petitions were filed in the High Court on or about 23rd May, 1963 and they were dismissed in liming by order of the High Court dated 24th May. 1963. Aggrieved by this order, the petitioners filed appeals in the Supreme Court of India with special have. The appeals were allowed by order dated 22nd November. 1966 and the order of dismissal of the High Court was set aside and the petitions were remanded to this Court with the direction to issue the rule and decide the petitions according to law. That is how the petitions have now come up for final hearing.
(5) At this stage it would be convenient to refer to the pedigree of the petitioners to indicate the nine parties mentioned above. Shri Munshi Tulsi Dhar, Pleader, had three sons, SaligRam, Raghubar Dayal and Panna Lal. Salig Ram had a son by name R. B. Suraj Narain, Bar-at-law. Advocate and three other sons, Chand Narain, Radhika Narain and Kirpa Narain. Shri Suraj Narain had died on 24th December, 1957 and is represented by his sons Shri Bishan Narain and Shri Sham Narain (petitioners in the second writ petition). Raghubar Dayal had a son by name Shri Rajinder Narain, Advocate who has died, leaving behind him Ravinder Narain, Advocate, who is petitioner in the first petition. There was another family owning share in the land in dispute which was headed by Shri Girdhari Lal Kapur, another Advocate who died in 1928. He had four sons, namely, Inder Narain, Rangi Lal, Jagan Nath and Murli Dhar. Inder Narain had died in 1954 and on his death, h's share devolved on his son Siri Narain. The case of the petitioners is that in 1875, Munshi Tuisi Dhar, Pleader, purchased a portion of the agricultural land in dispute, and another portion of the land now in dispute was purchased by Shri Girdhari Lal in the year 1908. It is alleged that the said agricultural land had been purchased as investment because in those days ownership of agricultural land gave the owner pride of possession and special status. After the death of Munshi Tulsi Dhar, the said land was inherited by his three sons. Salig Ram, Raghubar Dayal and Panna Lal. Thereafter upon partition of the family property amongst the three brothers, Salig Ram received as his share a portion of the land and after his death, his share of the property devolved on his four sons, Suraj Narain, Chand Narain, Radhika Narain and Kirpa Narain who continued to hold definite and equal shares in the said lands. The lands inherited by Raghubar Dayal and Panna Lal ultimately came to be held by Raghubar Dayal exclusively and the same has since devolved upon Ravinder Narain. The land of Girdhiri Lal devolved on his four sons, Inder Narain. Rangi Lal, Jagan Nath and Murii Dhar and on the demise of Inder Nuain,,the same devolved on his son Siri Narain. Jagan Nath had died in 1924. In this way, the nine parties who were owners of the land in dispute were (1) Suraj Narain (now represented by Shri Bishan Narain and Sham Narain petitioners in the second writ petition, (2) Chand Narain, (3) Radhika Narain. (4) Kirpa Narain, (5) Raghubar Dayal (now represented by Ravinder Narain petitioner in C. W. 387-D of 1963), (6) Rangi Lal Kapur (who has since died and it represented by his legal representatives) (7) Jagan Nath, (8) Murli Dhar and (9) Siri Narain (who is the legal representative of Inder Narain). The 10th party is of course the Finance Company.
(6) These persons have been sought to be assessed on business arising out of the sales of the land in dispute and the income received there from during the four assessment years mentioned above. The petitioners have challenged the said notices in the two writ petitions and have contended that there was no business activity but only conversion of the capital and there was no income in the nature of revenue receipt and that the order passed in the case of Suraj Narain was final. They have also contended that they never formed any association of persons to carry on any business and, at all events, the Income-Tax Officer had exercised his option to assess the parties individually. They also allege that full facts had been disclosed to the Income-Tax Officer in connection with the assessments and there was no valid and legal ground to issue notices under section 148 of the Income-Tax Act and the notice are consequently legally bad.
(7) After the remand of the case by the Supreme Court, the notices were issued to the respondents who have filed counter affidavits in the two writ petitions. They have contended that they wish to assess the - nine parties or the same together with the Finance Company as an association of persons which had carried on the venture in the nature of development and sale of the land and that the information had been received on close examination of the agreement executed between the parties and that the notices were perfectly legal and valid. It is suggested that the association had not been assessed previously and on its assessment, every member of it would be liable to tax on the profits of the association as a whole. A rejoinder to the said counter-affidavit has been filed on behalf of the petitioners.
(8) Mr. Manchanda, learned counsel for the petitioners, has, in supporting the writ petitions, raised the following contentions :-
1.The impugned notices ex-fade show that they had not been issued to any association of persons as an assesnee and as inch they are not valid notices, 2. Assuming that the notices have been issued to the association, the department has exercised its option and assessed some of its members in their individual capacity and so it can thereafter not assess the association as well. 3. There is no association of members existing in law or fact, nor has any such association been formed for the purpose of producing business income and at all events, the same had come to an end with the death of two of its members, Jagan Nath in 1954 and Suraj Narain in 1957 as well is by a compromise decree of the nine parties against the Finance Company recorded in 1959 relating to the rendition of accounts. 4. The business alleged is not in the nature of a trading transaction and the income produced was not a revenue receipt but only conversion of the capital and so the capital cannot and was not liable to income-tax in the relevant years.
(9) I have heard the learned counsel for the parties at length. It may be mentioned at the outset that the Revenue has not filed the report of the Income-Tax Officer made to the Commissioner of Income- Tax and the Central Board of Revenue sanctioning action under sec- corporation 147 of the Income Tax Act. The ground was that the relevant papers were not available. We are, thereforee, left with the meagre material placed on the record. The relevant portion of the first set of the notices for the years 1954-55 reads as follows :-
'SARVSHRISuraj Narain, Chand Narain, Radhika Narain, Sri Narain Kirpa Narain, Rangi Lal, Jagan Nath, Murli Dhar and Raghubar Dayal (Landowners) with Delhi Land & Finance (Private) Limited, Civil Lines, Delhi. Whereas I have reason to believe that your income chargeable to tax for the assessment year 1954-55 (has escaped, fill in is supplied) assessment within the meaning of section 147 of the Income-Tax Act, 1961, I, thereforee, propose to assess the income for the said assessment year and I hereby require you to deliver to me within 30 days from the date of service of this notice, a return in the prescribed form of your income assessable for the said assessment year. This notice is being issued after obtaining the necessary satisfaction of the Commissioner of Income-Tax Delhi the Central Board of Revenue. sd/- R- M. Malhotra, Income-Tax Officer, C-(1),NewDelhi.'
Association of persons means an Association in which two or more persons join with acommon purpose with the object to produce income, profits or gains. It is significant that in the notice the expression 'Association of Persons' is not used for the assessed and in paragraph 2, the return is invited of 'your income' and the alternative column 'the income **of in respect of which you are assessable' is blank and would be presumed to bs scored out. It is obvious that there is no indication or mention in this notice whatsoever of any association of persons formed to carry on the business which was sought to be assessed. The notices have been sent to each one of the ten parties mentioned therein. There is nothing else in the notice to indicate that the assessces were required to file areturn in respect of income of the business of the purchase and sale of land described above. By a perusal of the said notice, it would be impossible for any of the parties (except by intuition or by a fresh reference to the income tax officer concerned) to divine that these notices were not intended to deal with the income of the said persons only but to an association, a different assessed, which was supposed to hive been formed by these persons by an agreement of July, 1949 or otherwise. Notices in respect of the other assessment years in dispute are in precisely the same language and are subject to the same comments.
(10) Section 147 of the Act prescribes that if the Income-Tax officer has reason to believe that, by reason of the comission or failure on the part of an assesses to make a return under section 139 for any asessment year to the Income-Tax officer, or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment..............he may, subject to the provisions of section 148 to 153, assess or reassess such income for the assessment year concerned. Section 148 prescries that before making the assessment, reassessment or recomputation under section 147, the Income-Tax Officer shall serve on the assessed a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 139 and the provisions of this Act shall, so far as maybe, apply accordingly, as if the notice were a notice issued under that sub-section and the Income Tax Officer shall, before issuing any notice under this section, record his reasons for doirg so.
(11) The Supreme Court in Narayana Chetty and another v. Income- Tax Officer, Nellore, held on page 392 that the notice prescribed by section 34 of the Act of 1922 for the purpose of initiating reassessment proceedings, was not a mere procedural require.nent, but the service of the prescribed notice on the assessed was a condition precedent to the validity of any re assessment made under section 34 and if no notice is issued or if the notice issued is shown to be invalid, then the proceedings taken by the Income-Tax Officer without a notice or in pursuance of an invalid notice would be illegal and void. This authority has subsequently been followed and the rule of law laid down therein has been reiterated in Calcutta Discount Company Ltd. v. Income-Tax Offiicer, Commissioner of Income-Tax v. A. Raman and Co., Chhugamal Rajpal v. S.P. Chaliha, and Sheo Nath Singh v.Appellate Assistant Commissioner of Income-Tax. In Commissioner of Income Tax, Andhra Pradesh v. K. Adinarayana Murty', the material fact was that the correct status of the assessed was that of Hindu Undivided Family, but the first notice under section 34 of the Act had been issued to the assessed as an individual for making assessment in that status and it was, thereforee, manufest that the proceedings taken under that notice were illegal and without jurisdiction. In this connection, the Supreme Court/observed:-
'UNDERthe scheme of the Income-tax Act the 'individual' and the 'Hindu undivided family' are treated asseparate units of assement and if a notice under section 34 of the Act is wrongly issued ' to theassessed in the status of an 'individual' and not in the correct status of 'Hindu undivided family' the notice is illegal and all proceedings taken under that notice are ultra-vires and without jurisdiction.'
(and that even the submission of the return will not validate the illegality of the notice and the proceedings. In Prabhudas Jagjivandas and others v. Income-Tax Officer', J. M. Shelat and P. N. Bhagwati JJ. (as they than were) held that when a firm' is assessed as an unregisered firm in the original assessment proceedings, the notice under section 34(1)(a) must be issued against the firm and notice against anindividual partner or partners of the firm cannot form a foundation for initiating proceedings for reassessment of the income, profits and gains of the firm and the fact that the firm had been dissolved did not make any difference. Their lordships further held that even if a notice is issued against the firm, it can be served on one of the partners by addressing the envelope containing the notice to such partner and it may also 'be served personally on one of the partners but whatever be the mode adopted for effecting service on a partner, the notice must be against the firm and it must seek to reassess the income of the firm which has been assessed at too low rate or has been the subject of excessive relief. It was further pointed out that whether a notice is one against the firm or a partner thereof, has to be decided on the construction of the notice as awhole. The notice, their lordships were construing, was addressed to 'K, partner of D. S.T.Co. Indore City' and referred to 'your income' and the notice was served on him only and the other partners were not served with any notice. It was held that on a construction of the notice as a whole, it was not a notice to, the firm and the proceedings under section 34 initiated on such notice were invalid. In this decision, the Division Bench agreed with the view of a Division Bench of the High Court of Calcutta in Base v. Manindra Lal Goswami, where it was held that if it was intended that the notice should do duty for a notice on the firm, served on a partner, it should at least have been made clear in the body of the notice that what in the Income-tax Officer's view had escaped assessment was the income of the whole firm and not the income of an individual partner and that the return called for a return of the total and world income of the firm and not the income of the individual partner. In Marghabhai Babarbhai Patel v. R. M. Parikh, Income-Tax Officer,' P. N. Bhagwati.C.J. speaking for the Division Bench held that if a notice under section 34 were issued against a person as a legal representative of a deceased person for making re-assessment-of the income of the deceased as an individual, the notice could not be availed of for the purpose of taking proceedings for reassessmeet of the income of the Hindu undivided family and the fact whether the notice had been issued to the undivided family or to the individual would be plainly a question of construction which would have to be determined on a proper interpretation of the language of the impugned notice and the intention of the revenue would hardly be relevant in determining this question. The impugned notices addressed to the petitioner as legal representative of late Patel left no doubt that the impugned notices were issued to the petitioner as legal representative of the deceased and the-income which was sought to be assessed was the income of the deceased as an individual and the proceedings could not be continued against the Hindu Undivided family. In this decision, the Court observed that the notice under section 34 was not merely a procedural requirement and it was the foundation of the jurisdiction of the Income-Tax Officer and if the impugned notices could not be said to be notices to the Hindu undivided family of the deceased, the revenue could not proceed to reassess the income of the Hindu undivided family of the deceased by relying on them.
(12) MR.DHEBAR has relaed upon Radhey Lal Balmukand , re., Gopaldas Parshottamdas v. Commissioner of Income-Tax Commissioner of Income-Tax v. K. M. N. N. Swaminathan Chettiar, and Mohd: Haneef v. Commissioner ofIncome Tax' to support the contention that there is no prescribed form of notice and it was not necessary to strike off the relevant entries contained in the notice and it was open to the assessed to score them and make a proper return according to law The said authorities deal with the notice issued under section 22(2) of the Act where the prescribed form was different. The said authorities are of no assistance to Mr. Dhebar in view of the clear decision of the Supreme Court reported as (1967)65 Income Tax Reports 607. I would also prefer to follow the view of the High Court of Gujarat in (1965)55 Income Tax Reports I and : 78ITR418(Guj) .
(13) The aforesaid authorities lay down a rule of law that notice under section 148 must be issued and addressed in the name of and must be served in accordance with law on the assessed himself who is sought to be assessed or reassessed and is called upon to tile a return. In the instant case, there is nothing to indicate in the impugned notices that any association of persons was sought to be assessed or was Called upon to file a return. Notices were addressed to the individuals. Although the names of all the persons were mentioned, still their copies were sent and served on each one of them, yet there was nothing to indicate that they were intended to relate to the assessed as the association of persons which is distinct from an individual assessed. There is no doubt that a partnership firm is not a distinct legal entity from the partners and the firm's name is a compendious way of describing the individual partners but that position is of no avail under the Income Tax Act since under clause (31) of section 2 of the Act 'person' includes an individual, Hindu undivided family, company, firm, association of persons, or a body of individuals, whether incorporated or not. All these persons are, thereforee, distinct assesseds. How a firm, whether registered or unregistered is assessed and how the assessment is reflected in the income of the individuals is not relevant for purposes of the present petitions.if the Income-Tax Officer had intended to proceed against the association, he ought to have made it perfectly plain that he proposed to assess the association formed by nine or ten parties. In that case he would ordinarily we issued a notice addressed to the association or referring to the association in the body of the notice served it on the principal Officer of the association, but he addressed it to all the nine or ten persons. In the counter-affidavit it has been asserted that there were two associations of persons, one formed by nine co-owners.of the land and ihe second by them together with the Finance Company. This again shows the weakness of the stand of the Revenue inasmuch as they were not sure of the existence or the status of one or two associations and they were only proceeding to assess the individuals for the income received by them and not any association of persons. Had it been intended to proceed against the association, not only notices would have been addressed to the association but its business activity, which was sought to be assessed, would certainly have been indicated. Further, if it is correct that the association had come into existence during the assessment year 1954 55 or earlier, and had been functioning and carrying on business, there is no reason why the notices had not been issued for the entire period from 1st April, 1954 to 31st March, 1961. The individuals had apparently received amounts from the Finance Company during 1954-55 and for three years from 1st April, 1958 to 31st March, 1961 and they had not received any income during the intervening three years from 1955 to 1958. This also points to the fact that notices were addressed only to the individuals in respect of the amounts received by them. There is nothing to indicate in the notices that they were addressed to or were intended for any association of persons.
(14) The Supreme Court in deciding the appeals of the petitioners against dismissal of the present writ petitions in liming has quoted one of the notices in extenso. The argument raised by the petitioners before the Supreme Court was that they had placed all ihe primary facts before the Income-Tax Officer by Shri Suraj Narain and the Ineome- Tax Officer was, thereforee, not entitled to reopen the assessment. In reply, l he Attorney General contended that the impugned notices did not suffer from any infirmity because, according to them, the Revenue, association of persons existed during the relevant years which had not filed any return and, thereforee, there was no question of re-opening of any assessment as such and it was a case of non-filing of return by an assessable entity. The Supreme Court observed that the Income- Tax Officer had filed an affidavit before the Court giving his version of the facts and apparently the contention of the Attorney-General was based on the facts contained in that affidavit, but the Attorney- General was not entitled to base his arguments on facts contained in the affidavit. The Attorney-General further argued in the alternative that a perusal of the notices issued under sections 147 and 148 would show that the notices were issued because, according to the department, the association of persons existed at the relevant time. The Court observed : 'We have reproduced one notice above and we cannot find anything in that notice to come to the conclusion that the Income-Tax Officer was really attempting to assess an association of persons.'
(15) These observations of the Supreme Court fully support the veiw I am taking of the notices. I, thereforee, hold that the impugned notices are not directed against any association of persons alleged to have been formed by the petitioners. They are however, addressed to the individuals. As such the Income-Tax Officer, in pursuance of the said notice, cannot proceed to assess any association of persons, but there is nothing to prevent him from proceeding against the parties in their individual capacity. It may here be noticed that Mr. Manchanda, in all fairness, submitted that the individual parties have been and are still ready and willing to have their cases reopened and have them decided according to law, but their main objection was to the assessment of association of persons which was sought to be proceeded against by the Income-Tax Officer and which in fact and law did not exist. This submission further assists e in deciding the writ petitions.
(16) Mr. Manchanda has further argued in the alternative that assuming that an association of persons existed, the department had exercised its option to assess the individuals. This is borne out by the assessment order passed by the Income-Tax Officer on 26th August, 1953 in the case of Shri Suraj Narain. The order indicates that Suraj Narain .had one 16th share in the land and that he had inherited the land from his ancestors some of the land had been entrusted to the Finance Company which had paid the assessed Rs 28.828-11-9 during the accounting year. In response to the notice under section 23(3) of the Act of 1922, the assessed had filed a letter dated 5th August, 1953 narrating the history of the land to show that the land was anoestral and that he had merely converted his possession into cash and had not indulged in any business activity. In this case;the Income- Tax.Officer came to the conclusion that it was a non-business receipt, which conclusion was perhaps legally wrong, but no appeal against the same appears to have been filed. It has been suggested at the bar that the plea of discovering an association of persons as distinct from the individual owners and the fresh mehod to assess the same has been invented by the department to get over this inconvenient finding of the Income-Tax Officer in the case of Suraj Narain which has become final. Be that as it may, the order does indicate that the Income-Tax Officer had proposed to assess Suraj Narain in his individual capacity in respect of the same income which is being attributed to the association. It is, thereforee, clear that the Income-Tax Officer had exercised his option. Support for this submission is also sought to be found by the learned counsel for the petitioner by reference to the orders of the Income Tax Officer in the case of Prakash Narain, son of Chand Narain, deceased. In this order, the income received by Chand Narain is also mentioned as of one of the co-owners of the land from the sale of the land in dispute made by the Finance Company and others during the assessment year 1954-55. This would support the contention that the department has opted to assess the parties in respect of the income in dispute and has not thought it fit to proceed against the association. However, copies of the orders in the case of Prakash Narain have been filed along with the rejoinder and since Mr. Dhebar, counsel for the respondents has not had any adequate opportunity to admit or deny the correctness of those orders. I would prefer not to rely upon them, unless the correctness of these orders is established. Still, I feel reinforced in my conclusion that the department had in the case of at least Suraj Narain proceeded to assess the parties in their individual capacity and had not proceeded against the association of persons. In this way, he must be deemed to have exercised the option available to him. In Commissioner of Income Tax v. Kanpur Coal Syndicate, Joti Prassad Aggarwal v. Income-Tax Officer, and Commissioner of Income- Tax v. Murliahar J. & P. Ginning & Pressing Factory, the principle has been approved that once the option to make an assessment against an individual has been exercised, the department cannot proceed to assess the association formed by him for the same income for the same years. Considered from any point of view, I am satisfied that the impugned notices are in law not directed against the association of persons but are intended only for the individuals. As a result, the writ petitions must succeed.
(17) In the view I am taking, it is not necessary to determine whether on the construction of the agreement of July, 1949 executed between the Finance Company and nine parties, any Association of persons had or had not been formed and whether the same had come to an end with the death of two of its members. It is again not within my jurisdiction to determine whether the income derived from the sale of the land comtitited revenue receipt or capital gain. This is a matter which is to be decided by the departmental authorities in appropriate proceedings according to law.
(18) As a result, the writ petitions are allowed to the extent that the respondents will forebear from treating the impugaed notices as notices having been issued to or in respect of any Association of persons not assessed to income-tax. The income-tax authorities will, however, treat the said notices as notices addressed to individual members mentioned therein in respect of their individual incomes which are alleged to have escaped assessment during the relevant years. Upon the construction of the impugned notices as being addressed to the individuals, they do not suffer from any other legal infirmity, nor has any been pointed out and the department will act accordingly.
(19) The writ petitions stand disposed of. The parties will bear their respective costs.