Hardayal Hardy, J.
(1) The following two questions of law have arisen for decision in this reference:-
'(I)Whether on the facts and in the circumstances of the case, the notice under Section 34 was valid in law (ii) Whether on the facts and in the circumstances of the case, the service of the notice under Section 34 was valid in law ?'
(2) These questions arose out of a consolidated order dated 6th August, 1966 in two appeals heard by the Income-tax Appellate Tribunal for the assessment years 1948-49 and 1949-50. Since a common statement of case was drawn in respect of both the assessment years, this judgment will dispose of both the questions.
(3) The facts are that two limited companies, Raza Sugar Company Limited and Buland Sugar Company Limited Rampur entered into a partnership and formed an agricultural company in the name of Agricultural Company Rampur. The case relates to the last mentioned company which is the assessed in this case.
(4) The assessed took on lease some lands from the erstwhile Rampur State for the purpose of growing sugarcane. Subsequently Raza Sugar Company Limited merged with Buland Sugar Company Limited as a result of High Court's order dated 25th July, 1957. According to the above order, the merger was with retrospective effect from 1st November, 1955. The Income-tax Officer had in the mean time, started proceedings under Section 34 against the assessed-company and had issued a notice on 20th March 1957 addressed to the assessed company. He also made assessments in the status of an unregistered firm for both these assessment years.
(5) The assessed being aggrieved, filed appeals before the Appellate Assistant Commissionr wherein he raised several contentions regarding validity of the assessments under Section 34 of the Income-tax Act and the income being from agriculture, it was contended that it was exempt from tax. The Appellate Assistant Commissioner by his orders dated 18th August, 1958 dismissed the appeals holding that the proceedings under Section 34 had been validly started and also that the income from the firm was rightly taken as non-agricultural income. The assessed then preferred second appeals before the Income-tax Appellate Tribunal. The only contention that was pressed was regarding the validity of the notice under Section 34 of the Act. The main argument raised on behalf of the assessed was that this was the case of a firm that had been dissolved. In such a case an assessment could not be made as none of the partners would be liable to tax. It was argued that there was a merger of the two companies on 25th July 1957 with retrospective effect from 1st November, 1955 and as such there was no firm in existence on the date of the issue of the notice, namely, the 20th March, 1957. The Tribunal held that as the orders of the High Court were made on 25th July, 1957 and the notice was issued on 20th March, 1957, the Income-tax Officer was justified in issuing the said notice and that the notice was valid because the notice was issued prior to the date of the High Court's order. The assessed had also contended that no assessment could be made on a dissolved firm and that the notice' had not been validly served. The Tribunal found that the notice was sent to the assessed company on 20th March, 1957 and it was accepted by the Accounts Officer who was looking after the work on behalf of the assessed as well as the work of the two companies which were the only partners of the assessed company. It was thereforee held that the service of notice was also proper. Both the appeals of the assessed were accordingly dismissed.
(6) On these facts the questions of law mentioned above were referred to this Court for its opinion.
(7) At the very out-set the counsel for the assessed company submitted that although on these facts the question as the validity of the assessments could also arise as had been done in the case of validity of the notice, but since the question of validity of the assessments had not been referred to this Court the arguments had to be confined to the question of validity of the notice. An attempt was no doubt made to persuade us to raise the question of validity of the assessments and it was urged that since the assessed company had been dissolved and was not in existence on 20th March, 1957 no assessments could be made on a dissolved firm. It was also urged that according to the . order of the High Court dated 25th July, 1957 there was a merger of the two companies with retrospective effect from 1st November, 1955 and as such neither the firm nol any of its partners were liable to tax pursuant to a notice issued on 20th March, 1957. We did not agree with the submission made on behalf of the petitioner but as in our opinion the validity of the' assessments depended almost entirely on the validity of the notice, we felt that the question of assessments was clearly interlinked with the question of validity of the notice and thereforee it was not necessery to raise a separate question about the validity of the assessments.
(8) The questions referred to us relate to the validity of the notice and also to the service of the notice under Section 34 of the Income- tax Act, 1922 and thereforee raise points relating to the construction of Section 34 and Section 63 of the Act but in a way they also relate to the provisions of the Companies Act, 1956. We have seen that the order of amalgamation was made by the High Court of Allahabad on 25th July, 1957. By then the Companies Act, 1956 had come into force repealing the earlier Act of 1913. The provisions regarding compromises, arrangements, reconstruction and amalgamation of companics are contained in Chapter V of that Act. Section 391 providos turn a compromise or arrangement between a company or its creditors or any class of them or between a company or its members or any class of them and deals with the procedure that has to be followed in that behalf. Section 394 contains provisions for facilitating reconstruction and amalgamation of companies where an application is made to the Court under Section 391 for the. sanction of a compromise or arrangement. If it is shown to the Co'urt that the compromise or arrangement has been proposed for the purposes of, or in connection with, ascheme for the re-construction of any company or companies, or the amalgamation of any two or more companies, the Court is required to make certain orders providing inter alias for the transfer to the transferee company of the whole or any part of the under-taking, property or liabilities of any transferor companies and several other matters mentioned in that section.
(9) SUB-SECTION (2) of Section 294 lays down that where an order under this Section provides for the transfer of any property or liabilities, then by virtue of the order, that property shall be transferred to and vest in and those liabilities shall be transferred to and become the liabilities of the transferee and in the case of any property, if the order so directs, freed from any charge which is by virtue of the compromise or arrangement, to cease to have effect.
(10) Under Section 394A, the court is required to give notice of every application under Section 391 or Section 394 to the Central Government and it has to take into consideration the representations if any made to it by that Government, before passing any order under any of these sections.
(11) The net result of these sections is that with effect from the date that is mentioned in the order, the transferor companies cease to exist and all the property or liabilities of the transferor companies become vested in and become the liabilities of the transferee company.
(12) Appropriate rules have been framed by the Supreme Court of In in exercise of the powers conferred on it by sub-sections (1) and (2) of s. 643 of the Companies Act. These rules are called the Companies (Court) Rules, 1959. Rules 79 to 84 deal with the manner in which necessary applications and orders have to be made by the Court having jurisdiction to deal with these matters.
(13) In the instant case, we have already stated that there was an amalgamation of the two companies namely, Raza Sugar Company Limited and Buland Sugar Company Limited. Rampur which together constituted the partnership firm known by the name of Agricultural Company, Rampur. But when there was an order of the High Court dated 25th July, 1957 merging or amalgamating the two companies, with effect from 1st November, 1955 it is contended by the assessec that with effect from that date the firm itself stood dissolved. Since the assessment 'under Section 34 relates to the assessment years 1948-49, 1949-50' when the firm was in existence the question involved in the case thus relates to the assessments of the dissolved firm because the notice of assessments itself was issued on 20th March, 1957: Th.' question for determination thereforee is whether such a. notice could be issued on 20th March, 1957 for the purpose of making, assessments on a dissolved firm under Section 23(3) read with Section 34 of the Income-tax Act, 1922.
(14) Counsel for the assessed drew our attention to a Single Bench decision of Calcutta High Court in Manindra Lal Goswami v. incometax Officer (30 Itr 550)(1) where it was said that after the discontinuance of a firm,. the firms as such cannot be assessed, the proper procedure is to assess the partners jointly and severally, and the procedure adopted by the Income-tax Officer on sending a notice under Section 34 to each partner individually calling upon him to file a return of his total income, and making an assessment on the firm on the basis of such a notice, was erroneous.
(15) Against that decision there was an appeal to a Division Bench of the High Court in R. N. Bose v. Manindra Lal Goswami : 33ITR435(Cal) . The decision was affirmed, but Chakravartti C.J. who wrote the judgment of the Bench made certain observations with regard to the construction of Section 44 of the Income-tax Act. That section (before it was amended in 1958), as we shall see hereafter, forms the basis of the argument on behalf of the revenue. The learned Chief Justice however observed that section speaks of a case where any business, profession or vocation, carried on by a firm, or association of persons has been dis-continued and a case where an association of persons is dissolved. It does not speak of a case, at least expressly, where a firm has been dissolved. It was thereforee arguable that the dissolution of a firm was not within the contemplation of Section 44 at all and thereforee, the Department could not invoke its aid for the purpose of assessing the income of the dissolved firm.
(16) Learned Chief Justice also went on to add that Sinha J. (in 30 Itr 550) was entirely right in holding that in view of terms of Section 44 of the Act, a firm could no longer be assessed as a firm after its dissolution for its pre-dissolution income and that the assessment could only be on the partners jointly and severally.
(17) Reference was also made by the counsel for the assessed to a decision of the Punjab High Court in Sumat Pershad v. Income-tax Officer A Ward Bhatinda and others (40 Itr 692) (8) where in the context of Section 44 of Patiala Income-tax Act, 2001 Bk. which was on all fours with Section 44 of the Income-tax Act, 1922, Mehar Singh J. (as he then was) observed that under Section 44 of the Patiala Incometax Act, there could be no liability of the firm which had discontinued business to the knowledge of the Department. The section provided for the joint and several liability to assessment of income-tax of each of the partners of the firm. Notice to the partners was thereforee necessary and the re-assessment based on the notice to the firm wilich had discontinued its business was not valid.
(18) Counsel for the assessed next referred to a decision of the Supreme Court in C. A. Abraham v. Income-tax Officer, Kottayam and another : 41ITR425(SC) . The Division Bench decision of Calcutta High Court was not noticed in this case but while dealing with the provisions of 'Section 44 it was observed :-
'SECTION44 sets up machinery for assessing the tax liability of firms which have discontinued their business and provides for three consequences (1) that on the discontinuance of the business of a firm, every person who was at the time of its discontinuance a partner is liable in respect of income, profits and gains of the firm to be assessed jointly and severally, (2) each partner is liable to pay the amount of tax payable by the firm, and (3) that the provisions of Chapter Iv, so far as may be, apply to such assessment. The liability declared by Section 44 is undoubtedly to assessment under Chapter Iv, but the expression 'assessment' used therein does not merely mean computation of income. The expression 'assessment', as has often been said, is used in the Income-tax Act with different connotations.'
(19) Their lordships also said that the section was enacted manifestly with a view to' ensure continuity in the application of the machinery provided for assessment and imposition of tax liability notwithstanding discontinuance of the business of the firm. By a fiction the firm is deemed to continue after discontinuance for the purpose of assessment under Chapter Iv of the Income-tax Act.
(20) The other case to which our attention was invited by the counsel for the assessed is a decision of Allahabad High Court in Moti Lal and another v. Income Tax Officer, District Ii (in) Kanpur : 44ITR454(All) . The head-note is defective but at pages 457 and 458 of the report, after setting out Section 44 the learned Judges observed that this Section appears to provide for proceedings under the Income-tax Act to determine the liability of partners of a dissolved firm or members of a dissolved association but it appears difflicult to hold that in the absence of any such assessment on the partners themselyes they would not be liable to tax at all. A firm may be assessed to tax before its dissolution and the tax assessed may have to be recovered after dissolution. In that case the tax assessed on the firm would be a liability on the firm and the partners of the firm at the relevant time would be liable to meet that liability under the provisions of the Indian Partnership Act. There may again be a case where a firm has to be assessed to tax and proceedings are started for the purpose but before they terminate in an assessment, the firm is dissolved. It is open to the Income-tax Officer to proceed against the partners by invoking the aid of Section 44 of the Act and to make an assessment and demand the tax from them.
(21) The case of C. A. Abraham4) was re-considered and explained by the Supreme Court in Commissioner of income-tax, Andhra Pradesh v. Raja Reddy Mallaram 51 Itr 284 it was said that the question which directly fell to be determined in that case was whether penalty for concealing the particulars of income or for deliberately furnishing inaccurate particulars of income in the return could lawfully be im- im posed after discontinuance of the business. It was said that the valiity of the order assessing the. firm was not expressly challenged, though at the date of the order of assessment the firm stood dissolved, and its business was discontinued, but the court could not adjudicate upon the validity of the order imposing penalty without deciding whether there was a valid assessment, for an order imposing penalty postulates a valid assessment.
(22) On behalf of the assessed, it was contended that all the members who were sought to be assessed must be individually served with notice of assessment and those not served will not be bound by the assessment. The argument was repelled.
(23) Counsel for the assessed then contended that the original assessment made under Section 23(4) was invalid because notice of assessment was not served in the manner provided by Section 63(2) of the Income-tax Act. This contention was negatived because it had not been raised before the Tribunal.
(24) The observations of Chakravartti C.J. in 33 Itr 435 at page 441, were held to be obiter and it was pointed out that the learned Chief Justice had himself observed that the parties before him had throughout proceeded on the footing that Section 44 applied to the case of a dissolved firm and that be would also proceed on the assumption that Section 44 applied to the case of a dissolved firm.
(25) This case made it clear that Section 44 operates in two classes of cases : Where there is discontinuance of business, profession or vocation carried on by a firm or association, and where there is dissolution of the firm or association. The. mere dissolution of a firm without discontinuance of its business would not attract the application of Section 44 of the Act. It is only where there is discontinuance of business, whether as a, result of dissolution or other cause, that the liability to assessment in respect of income of the firm under Section 44 arises. In the case of an association, discontinuance of business for what ever cause, and dissolution with or without discontinuance of the business, will both attract Section 44. This case instead of supporting the contention on behalf of the assessed, rather goes against it.
(26) No material has been placed on record to show whether the dissolution of the assessed firm was not accompanied by discontinuance decisions of the Supreme Court in the case of C. A. Abraham v. Income-tax Officer Kottayam : 41ITR425(SC) (4) and Shivram Poddar v. Income-tax Officer Central Circle Ii, Calcutta,(8) A. N. Grover and H. R. Khanna JJ. (as their lordships then were), said that dissolution of the assessed firm and discontinuance of its business would not affect the validity of the assessment order made against the firm. That was a case in which a notice under Section 22(2) was served and the return was filed when the firm was in existence but when the assessment was made the firm had been dissolved. It was held that under Section 44 of the Income- tax Act (before it was amended in 1958) notwithstanding the dissolution of a firm and discontinuance of its business assessment could be made on the firm in respect of income earned by it before dissolution. made on the firms as constituted, at the time of making the assessment provided that the income profits, and gains of the previous year, shall for the purpose of inclusion in the total income of the partner. be apportioned between partners, who in such previous years were entitled to receive the same. There is also another proviso to this sub-section which lays down that when the tax assessed upon a partner cannot be recovered from him it shall be recovered from the firm as constituted at the time of making the assessment. Section 44 on the other hand only applies when there has been a discontinuance of the business. If a business is dis-continued the partners will nevertheless be jointly and severally liable for the profits which had been earned.
(28) Dealing with this inter-relation between Section 44 (before it was amended by the Finance Act of 1958) and the provisions of Section 25(1) and (2) and Section 26(1) and (2) the Supreme Court in Shivram Poddar v. Income-fax Officer, Central Calcutta : 51ITR823(SC) observed:-
'DISCONTINUANCEof business has the same connotation in Section 44 as it has in section 25 of the Act; it does not cover mere change in ownership or,in the constitution of the unit of assessment. Section 44 is, thereforee, attracted only when the business of a firm is discontinued, i.e. when there is complete cessation of the business and not when there is a change in the ownership of the firm, or in its constitution, because by reconstitution of the firm, no change is brought about in the personality of the firm and succession to the business and not discontinuance of the business results.... But the Income-tax Act recognises a firm for purposes of assessment as a unit independent of the partners constituting it; it invests the firm with a personality which survives reconstitution. A firm discontinuing its business may be assessed in the manner provided by section 25(1) in the year of account in which it discontinues its business; it may also be assessed in the year of assessment. In either case it is the assessment of the income of the firm. Where the firm is dissolved, but the business is not discontinued, there being change in the constitution of the firm, assessment has to be made under section 26(1), and if there be succession to the business, assessment has to be made under section 26(2). The provisions relating to assessment on re-constituted or newly constituted firms, and on succession to 'the business are obligatory. thereforee, even when there is change in the ownership of the business carried on by a firm on re-constitution or because of a new constitution, assessment must still be made upon the firm. When there is succession, the person succeeded have to be assessed each in respect of his actual share. This scheme of assessment furnishes the reason for omitting reference to dissolution of a firm from section 44 when such dissolution is not accompanied by discontinuance of the business.'
(29) In other words, Section 44 applied to those cases only in which there had been discontinuance of the business and not to cases where business continued after the re-constitution of the firm, or there was succession to the business. Case of re-constitution of the firm or succession to the business of the firm, are covered by Section 26(1) and Section 26(2) of the Act.
(30) This position was made clear in another decision of the Supreme Court in Commissioner of Income-tax, Blhar and Oris.sa v. Kirkend Coal Co : 74ITR67(SC) where Shah J. who had delivered judg- ments in the earlier cases of Shivram Poddar and C. A. Abraham reiterated and explained his views in those cases.
(31) Counsel for the assessed sought to draw assistance from another judgment of the Supreme Court in Kalva Suryanarayana v. Incometax Officer, A-3 Ward, Hyderabad : 71ITR422(SC) and urged that after discontinuance of business and dissolution of firm the recovery of tax can be made from individual partners and not from the firm. From this he concluded that the assessment itself should be made on the partners and not on the firm. That was a case of the registered firm in which the total income of the firm was determined and apportioned among four partners. The total income was enhanced by the commissioner in exercise of his revisional power under Section 33B and the total income was determined afresh and apportioned among the partners in proportion to .their share. Two of the partners failed to pay tax on their share of the income of the firm and a notice was issued to the third partner calling upon him to pay the tax assessed on the other two partners, on the footing that under Section 44 there was a joint and several liability on every partner of the dissolved firm, in respect of the arreas of tax.
(32) Applying the principle laid down by the Supreme Court in Income-tax Officer, Agra v. Radha Krishan : 66ITR590(SC) that the Income-tax Officer had no jurisdiction to issue the notice and the proceedings against the appellant to whom notice was issued were liable to be quashed, it was held that the joint and several liability under Section 44 cannot be invoked in the case of a registered firm.
(33) It would thus be seen that that was a case of a registered firm where tax is assessed individually against each partner and no tax is made payable by the partnership. The principle of joint and several liability thereforee has no application. The entire scheme of taxing the income of a registered firm in the hands of individual partners is inconsistent with any argument that for payment of tax assessed against a partner, other partners are liable. In the present case we are dealing with an un-registered firm.
(34) Shri G. C. Sharma, appearing for the Revenue, made it clear that A Sections 25(1), 26(1), and 26(2) had not been employed in the present case. The case was governed by the provisions of Section 44 only. According to the learned counsel. Section 3 of the Act which was a charging section made every individual, Hindu undivided family, company and local authority and every firm and other association of persons of the partners of the firm or the members of the association individually as units of assessment. An un-registered firm was thereforee a unit of assessment and its liability for assessment continued even after it is dissolved and its business is discontinued. The question of any partner of the firm being made separately assessable after the dissolution of the firm thereforee does not arise. The liability is fixed by Section 3 of the Act and Section 44 is merely an enabling provision.
(35) Counsel for the Revenue cited a decision of Allahabad High Court in Ram Niranjan Satyanarain v. Commissioner of Income-tax.U.P. : 66ITR94(All) . What had happened in that case was that a firm was dissolved on 13-10-1951 but in respect of the profits of the firm for the accounting year 17-10-1948 to 6-10-1949, notices under Section 22(2) and section 22(4) had been served on the firm before the firm was dissolved. An assessment was made on the firm in 1955. It was held that the assessment was not invalid on the ground that it was made on the dissolved firm and not on the partners. This judgment clearly shows that even through a partner is liable, the liability does not cease after dissolution. The case thereforee has the support of Supreme Court's judgment in Shivrain Poddar's case.
(36) Counsel for the Revenue, also referred us to another decision of Allahabad High Court in Nand Kishore Sita Ram v. Commissioner of Income-tax : 67ITR349(All) where the contention of the applicant was that the assessment was invalid as the firm had been dissolved before issue of the notice and no separate notices were served on all the partners. It was held that the assessment was valid even though no separate notices on all the partners had been issued.
(37) The above decisions leave no room for doubt that in the case of a dissolved firm a valid notice can be issued under Section 34 turn the assessment or re-assessment of the firm. The first question is thereforee fore answered in favor of the Revenue and against the assessed.
(38) This takes us to the second contention which relates to the service of notice. Section 63 consists of two parts. Sub-section (1) deals with the number of service of notice and lays down that service may be effected either by post or as if it were a summons issued by a. court, under the Code of Civil Procedure. Sub-section (2) deals with the manner in which the notice should be addressed and it provides that any notice issued to a firm or a Hindu un-divided family, be addressed to any member of the firm or to the manager or any adult male member of the family. In the case of any other association of persons, it may be addressed to the principal officer of the association. The question as framed, relates to the service of notice as mentioned in Section 63(1) of the Act. Counsel for the assessed contended that according to the statement of case the notice had been issued to the dissolved firm and it was accepted by the Accounts Officer who was looking after the work of the assessed firm as well as the work of the two companies which were the only partners of the assessed firm. He conceded that if the notice had been issued to the dissolved firm through a certain partner or to a partner for and on behalf of the firm no objection could have been raised to the validity of service of notice. But in the present case the notice was sent for service on the firm itself. It could not thereforee be held to be a valid service. It was held by the Supreme Court in Commissioner of Income-tax (Centra), Bombay v. Devidayal and Sons : 68ITR425(Bom) that service of notice issued in the name of the firm and served on one of the partners is quite valid and proper. The circumstance that the notice to the firm was not addressed to a partner will not render it invalid, if in fact it is served on the partner and accepted by him and a return of the firm has been submitted in pursuance thereof. In the present case, no doubt the service was not accepted by a partner of the firm but from the very nature of things it was not possible to do so. The two partners of the dissolved firm were limited companies and it is only the principal officer of one of the .companies that would accept service of notice on behalf of one of them. The most significant thing in the present case is that a return was filed by the assessed in pursuance of the notice which was accepted by the Accounts Officer of one of the companies who according to the statement of case, was not looking after the work for the assessed firm, but also for the work of the two companies.
(39) In the Commissioner of Income-tax Gujarat I, v. Bhanji Kanji's Shop : 68ITR416(Guj) a notice was received by a temporary employee of a dissolved firm. It was held that there was service of notice on the assessed and re-assessment proceedings had been properly instituted against it. It was said in that case and we agree with the observation made in that behalf that the provisions contained in Section 63(1) are not exhaustive and it is permissible to have a notice served in a way not mentioned in Section 63(1) of the Income-tax Act, 1922. All that matters is that the notice must have been received by and on behalf of the assessed and a return must have been filed by the assessed in pursuance of that notice. In the instant case no such question was raised before the Income-tax Officer or before the Appellate Assistant Commissioner and it was at the stage of appeal before the Tribunal that the question of validity of service of notice raised for the first time. At the stage of appeal before, the Appelwas late Assistant Commissioner, the only contention urged on behalf of the assessed was that the accounting period had been wrongly stated in the notice and that contention was repelled.
(40) It may be mentioned here that in the order of the Appellate Tribunal that has given rise to this question, Section 44 of the Income- tax Act (as it stood before the amendment of 1958) was not correctly stated. What is actually stated therein is Section 44 as it stood after the amendment; but since the relevant section is as it stood before amendment, we have dealt with the case in that light.
(41) The result of the above discussion is that the second question is also answered against the assessed and in favor of revenue. The Commissioaer will also have his costs, Counsel's fee Rs. 500.00.