1. The facts In this case are shortly as follows : The petitioner, Manindra Lal Goswami, carried on a business in co-partnership with one B. R. Das Gupta and one P. C. Mukherji under the name and style of 'Dyes and Chemical Agency', at No. 12, Dalhousie Square, Calcutta. The partnership commenced from 1-4-1940 and was discontinued as & from 31-3-1944. On or about 25-11-1944 notice was issued under Section 34, Indian Income-tax Act. So far as the petitioner is concerned, it was issued in this form:
'Notice under Section 34 of the Indian Income-tax Act, 1922 (XI of 1922)
M. L. Goswami, Esqr.,
Partner of M/S. Dyes & Chemical Agency
C/o Bengal Engineering Co., Ltd.,
12, Dalhousie Square, Calcutta.
Whereas in consequence of definite information which has come into my possession, I have discovered that your income assessable to income-tax for the year ending 31st of March 1944 (a) escaped assessment:
I therefore propose to assess the said (a), escaped assessment:
I hereby require you to deliver to me not later than 5-1-45 :
Or within thirtyone days of the receipt of this notice a return in the attached form of your total income and total world income assessable for the said year ending 31st of March 1944.'
2. It will be observed that the notice was not on the firm but on an individual partner calling for a return of his income, that is to say, his total world income, which would include not only his income from the firm but from other sources as well. I am informed that a similar notice was issued to the partner B. R. Das Gupta. The notice was received by the petitioner on 30-11-1944. It appears that he received the notice but did nothing about it. On the other hand, Sri Das Gupta filed a return. At the hearing before the Income-tax Officer, which took place on 12-12-1947 Daa Gupta appeared and the firm was assessed for the year 1943-44. A copy of the assessment order dated 12-12-1947 is annexed to the petition and is marked 'A'. In the assessment order, the name of the assessee is stated to be 'Dyes & Chemical Agency: represented by Mr. B. R. Das Gupta'. The status was URP which means 'unregistered firm', It is further stated in the said order that the firm was R and OR which means 'resident and ordinarily resident'. The assessment was stated to have been under Section 23(3) read with Section 34. It appears from the assessment order itself that the return showed a net loss of Rs. 1,889/-, but this was not accepted by the Income-tax Department which assessed the firm upon a total income of Rs. 45,101/-. It was directed that demand notice and challan was to be issued on the unregistered firm. It is stated in the petition that notice of dissolution of the firm was served on the then income-tax Officer, District III(1) Calcutta in or about 14-1-1947. In the affidavit in opposition, reference has been made to the record, but there is no express denial. As the firm defaulted in making payment, the Income-tax Officer on 30-3-1949 sent to the Collector of 24 Parganas a certificate under Section 46(2), Indian Income-tax Act for recovery from the firm of arrears amounting to Rs. 13,264/1. On 31-3-1949 the Certificate Officer signed and filed certificate No. 1537 IT of 1948-49 under the Public Demands Recovery Act against the firm. Thereafter the Certificate Officer issued notice on the firm under Section 7, Public Demands Recovery Act. This notice was returned un served with tile report that the firm -- the certificate debtor -- was not traceable. On 28-12-1950 the Certificate Officer reported the fact to the Income-tax Officer and requested him to furnish the correct address and present whereabouts of the certificate debtor, together with a list of his assets. On 13-2-1952 the Income-tax Officer stated that the firm was not traceable and he was therefore issuing notice to the partners for payment of the taxes, failing which, he would issue certificate under Section 46(2) on the partners, and requested the Certificate Officer to keep the case pending. Subsequently, having the Income-tax authorities thought that the firm not being registered under Section 26A, Indian Income-tax Act, the partners of the firm were liable for the dues of the firm and no separate demand notice was required to be served on the partners. Thereafter the Certificate Officer added the names of the three partners in the certificate under Section 4, Public Demands Recovery Act, and notices under Section 7 of the said Act were served on the partners. The petitioner and P. C. Mukherji, another partner, filed objections before the Certificate Officer which, were rejected on 30-11-1953. Thereupon appeals were preferred before Mr. K. C. Basak, Commissioner, Presidency Division. Three points were taken before the Commissioner. The first point was that the partners were not served with any demand notice. Secondly, it was urged that the Income-tax Officer had issued a certificate under S. 46(2), Indian income-tax Act against the firm and not its partners and consequently the Certificate Officer could not proceed against a partner under the Public. Demands Recovery Act. Thirdly, St was urged that the firm having been discontinued the partners would have to be separately assessed because the liability was of a discontinued firm, and under Section 44, Indian Income-tax Act, proceedings could be taken against the partners jointly or severally by assessing them as such. This rule was issued on 25-8-1954 upon the respondents to show cause why an order in the nature of a Writ of Certiorari should not be issued and why ia Writ in the nature of Mandamus should not be made directing the respondents to refrain from taking any further steps in connection with the said certificate proceedings commenced upon the requisition of respondent 1 in the petition mentioned, .and why such further or other order or orders should not be made as to the Court might seem fit and proper. Although the rule does not specifically say what the Writ of Certiorari was meant to do, it is clear from the petition that it is for quashing the assessment order and the issue of a certificate under Section 46(2), Income-tax Act. While the Rule was pending, the appeal has been heard and allowed. The learned Commissioner has held that no notice under Section 25(2), Indian Income-tax Act having been served of the discontinuance of the firm, Section 44, Indian Income-tax Act was not applicable. He proceeded upon the footing that the assessee was an unregistered firm. He held that the certificate having been issued against the unregistered firm by the Income-tax Officer under Section 46(2), Indian Income-tax Act, it was not open to the Certificate Officer to add the names of the partners and/or to execute the certificate against the partners. The appeals were accordingly allowed and the recovery proceedings under the Public Demands Recovery Act were set aside. I am informed that an appeal against this order has been preferred by the Income-tax authorities.
3. The first point that arises in this application is as to the exact scope thereof. So far as the certificate proceedings are concerned, the petitioner has already got relief by the order of the learned Commissioner and it is not necessary at this stage to intervene. Mr. Roy however argues that his attack in this application is also upon the assessment order itself, as well as the order made by the Income-tax Officer under Section 46(2), Income-tax Act, which is left outstanding and which, in the opinion of the Income-tax authorities, is executable against a partner. It will be observed, however, that the certificate under Section 46(2) is also against the unregistered firm and not against the partners as such. The real complaint is that the assessment order has been made against an unregistered firm and it is quite obvious that the Income-tax authorities consider this as entitling them to proceed individually against the partners without any assessment of the partners themselves. Of course, it is not obligatory upon the Income-tax Department to proceed under the Public Demands Recovery Act, and they may proceed in other ways. Mr. Meyer on behalf of the Income-tax authorities very fairly submitted that he was not going to take & technical stand but wished to have a decision on the point as to whether such an assessment could be made and having been made, whether it could be realised from the partners. I will therefore proceed to consider this point.
4. The argument of Mr. Pal who followed Mr. Meyer is based on Section 44, Indian Income-tax Act which runs as follows:
'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 of 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 Chap. IV and for the amount of tax payable and all the provisions of Chap. IV shall, so far as may be, apply to any such assessment.'
5. Mr. Pal argues that the words 'jointly or severally liable to assessment' mean no more than that they were liable to be proceeded with in enforcement of an assessment order against the firm, Mr. Pal has relied on two authorities in support of his proposition. The first is -- 'Commissioner of income-tax, Madras v. Chengalvaroya Chettiar' 1937 Mad 300 (AIR V 24) (SB) (A). In this case the facts are not very clearly stated in the decision as reported. It appears, however, that the Court was dealing with a reference made by the Commissioner of Income-tax and one of the points referred was as follows:
'Whether after the dissolution of the partnership, the Income-tax Officer had jurisdiction to assess the firm as a unit and whether Section 44 of the Act gives jurisdiction to the Officer both to make a joint and single assessment or whether the individual partners alone are liable to be assessed in respect of their proportionate share'.
6. Had this question been answered, it would be of great assistance in this case. Unfortunately, however, the Court answered the question in a manner which throws no light upon the exact problem that has arisen in this case. All that was argued before the Court was that the assessment must be made upon the firm before its discontinuance, and after its discontinuance, the partners cannot be assessed jointly. Beasley, C. J. pointed out that if this contention was correct, it led to ft very strange result inasmuch as if the partners were assessed individually, the tax recoverable would be less and therefore a part of the tax due from the firm would be avoided by the discontinuance. The learned Judge came to the following conclusion :
'That being so, we are clearly of the opinion that the Income-tax authorities were correct in assessing the partners of the discontinued firm jointly and severally in respect of the profits earned by the firm before it was discontinued. Question No. 2 is answered accordingly.'
7. It appears therefore that the point decided was that the partners of a discontinued firm could be assessed Jointly or severally after the discontinuance. It will be remembered that the wordings of Section 44 as it stood before the amendment by Act 7 of 1939, did not contain the words 'to assessment' after the words 'jointly or severally liable'. In other words, Section 44 as it then stood simply laid down that the partners would be jointly and severally liable. The amendment however has made it clear that the liability was a liability 'to assessment', either jointly or severally.
8. The second case referred to by Mr. Pal la -- 'A. G. Pandu Rao v. Collector of Madras' : 26ITR99(Mad) . This was a case under the Excess Profits Tax Act, but as Mr. Pal pointed out, the law applicable was the same as under the Indian Income-tax Act. In this case, the assessment was against the firm which was a registered firm but had been dissolved. Rao J. said as follows:
'It therefore follows that assuming that by the date of the issue of the notice under Section 13, the firm became dissolved, still the machinery provided by by Sections 13 -& 14 of the Excess Profits Tax Act could be availed of and the partners even after the dissolution continued to be jointly and severally liable to assessment under Section 14 of the Act and for the amount of tax payable after determination. The result of S, 44 as amended by the Central Board of Revenue is to attract the procedure applicable to an undissolved firm to a dissolved, firm, and, therefore, if two or three persons carried on a business as a firm assessment could be made on the partnership in the partnership name and the persons who carried on the business during the chargeable accounting period will be liable to pay the tax as provided by Sub-section (2) of Section 14 read with Section 44, Income-tax Act.
So far as the assessment in the present case is concerned, even assuming that by the date notice under Section 13 was issued, the firm became dissolved, the machinery provided under the Act for the service of notice under S, 63 can be availed of by serving notice on the partners. Notice therefore, to a partner is treated as notice to all'
9. This authority appears on the face of it to support the argument of Mr. Pal. It also deals with the point which has been argued before me. Mr. Boy has argued that under the Income-tax Act, a firm is a distinct and separate entity and it would be unjust to hold that a firm which has been discontinued will still be assessed as a firm because in that event Section 63(2), Income-tax Act would justify the service of notice upon any one of the partners, In the case of a dissolved firm this would be an illegal thing to do, firstly because a partner of a dissolved firm has no authority to act on behalf of the firm and secondly, from a practical point of view a partner of a firm which has been dissolved long ago might be faced with a liability upon an assessment of which he had no notice, the notice having been served upon one of his ex-partners who may not have been sufficiently interested to dispute the assessment or may collusively not take any steps. I do not think that it can be disputed that under the Income-tax Act, a firm is considered to be a separate entity from its partners. Under the general law a partnership has no separate legal entity but is merely a compendious name for the partners collectively. For the purpose of the Income-tax Act, however, a partnership is a separate entity. The position hag been thus described by S. Iyengar in his Treatise on Indian Income-tax Act, Vol. II Edn. 4, page 121:
'Though according to the Partnership Act, a partnership firm is not a single legal person, still for the purpose of the Income-tax Act, a firm is regarded as having a separate status and existence and has a distinct entity apart from the individual partners who carry on the business of the firm.'
10. Reference has been made to the case of -- 'Talipatigala Estate v. Commr. of Income-tax, Madras' : 18ITR320(Mad) . It was held there by a Divisional Bench of the Madras High Court that though according to the Partnership Act a partnership firm was not a single legal person, still for the purpose of income-tax the firm was regarded as haying separate status and existence and as a distinct entity apart from the individual partners who carry on the business of the firm, although a few exceptions were recognised in the Act itself. The same principle was laid down in another Divisional Bench of the Madras High Court, -- 'Commissioner of Income-tax, Madras v. Karuppiah Pillai' 1941 Mad 355 (AIR V 28) (D). That this is a correct proposition of law appears from the provisions of the Act itself. In the charging section viz., Section 3 a firm has been mentioned as a distinct assessable entity. Kanga in his Annotations to the Act says as follows :
'A firm may be charged as a distinct assessable entity or the partners of the firm may be assessed individually. In the case of an unregistered firm the levy is on the firm while in the case of a registered firm it is on the partners individually. Prior to the amendment of this Act in 1939 even in the case of a registered firm the levy was on the firm, itself and not on the partners individually. The words in the section 'or the partners of the firm individually' were inserted by the Amendment Act of 1939 which also added Sub-section (5) to Section 23 providing for the levy on the partners of a registered firm individually.'
11. In Section 4A(b) it is stated that a firm is resident in British India unless the control and management of its affairs is situated wholly without British India. Thus, a firm may have a residence quite different from its partners. In this particular case, we are dealing with an unregistered firm. Section 23 (5) (b). Income-tax Act lays down that in such a case the Income-tax Officer may proceed against the firm or, alternatively, determine the total income of each partner of the firm including therein his share of its income, profits and gains of the previous year, if in his opinion the aggregate amount of tax including super-tax if any payable by the partners under such procedure would be greaten than the aggregate amount which would be payable by the firm and the partners individually if the firm were assessed as, an unregistered firm under Section 2 (2) the word 'assessee' means a person by whom income-tax is payable. We now come to Section 34 under which the assessment in question was made. Under that section, if the Income-tax Officer has reason to believe that any income of the assessee has escaped assessment under circumstances mentioned in that section, then he can proceed to take steps under Section 34. I have already pointed out that a firm is a separate entity for the purposes of assessment under Section 23 (5) (b) the Income-tax Officer can proceed, in the case of an unregistered firm, either against the firm as such, or against the partners individually. In this particular case I have set out the notice served on the partners and it is quite plain that the Income-tax Officer elected to proceed against the partners individually. If that is so, I fail to see how the firm as such was assessed at all. The whole procedure followed was erroneous. Mr. Pal tried to argue that the notice was a notice upon the petitioner as a partner and therefore it really meant that the assessment was to be against the firm. I am unable to agree. The notice clearly asks a partner to render a return of his own total world income, which would include not only his income from the firm, but from all other sources. If he failed to make a return, he could be assessed ex parte upon an estimate of his total world income. But why should the notice result in an assessment of the firm as such ?
12. The next point taken by Mr. Roy is that a firm having been discontinued and the fact - of such discontinuance being intimated, at least before the assessment, there is no warrant in the Act by which the discontinued firm can be assessed, as it ceased to have a legal existence. He has referred me to cases where it has been held that where an assessee dies pending an assessment, the assessment cannot be on the deceased assessee. The only way that the assessment can proceed after the discontinuance of a firm is under Section 44 of the Act. The words in that section must therefore be strictly construed. I cannot see anything in the section which authorises assessment of a firm as such, after its discontinuance or dissolution. This does not, however, mean that its liability is gone. The liability itself which continues is specifically set out in the section, which says that notwithstanding such discontinuance or dissolution, a partner of such firm shall be jointly and severally liable to assessment under Chap. 4. Under Chap. 4, one must proceed against an assessee which may be either a firm or an individual. I do not think there is any escape from the position that after discontinuance or dissolution of the firm, the partners will have to be assessed either jointly or individually but that the firm as an unit can no longer be assessed. In the judgment of the learned Commissioner he has stated that since notice under Section 25 (2) has not been given, notice cannot be taken of the dissolution. But Section 25 (2) merely says that if notice has not been given, the partners would be liable to a penalty. I do not see how that authorises the Income-tax Authorities to ignore the discontinuance and assess a firm which has ceased to exist. Attention may also be drawn to the fact of the amendment of Section 44. Whereas before the amendment it was a question of liability, after the amendment, the partners are 'liable to assessment'. Where however the firm is discontinued after assessment, Section 44 clearly makes the partners individually or jointly liable to pay the dues. But if the assessment is to take place after discontinuance, it is the partners who are to be assessed and not the firm, although the tax due would be calculated as if there was no discontinuance. I might also point out that for the subsequent years the Income-tax Authorities have themselves realised the position and have issued notices upon the partners individually. That being so, I respectfully beg to differ from the Madras decision in : 26ITR99(Mad) , mentioned above. In my opinion, the position is that an unregistered firm when it has been discontinued can no longer be assessed as such. It is open, however, to the Income-tax Authorities to proceed against the partners jointly or severally for the liabilities of the firm which has been discontinued. But in any event, they have got to assess the partners jointly or severally. I do not see any warrant for serving notice under Section 34 individually upon a partner calling for his world income, and on the strength of it, assessing the firm as such long after its discontinuance, and then proceeding to execute the order of assessment against a partner who has not even had a demand notice served upon him. The procedure sought to be followed is erroneous.
13. Lastly I have to consider as to whether the petitioner had an alternative legal remedy which is adequate. Against an assessment order, an appeal lies. But the assessment order in this case is not against the petitioner and he could not appeal. He received no notice of assessment of the firm and no demand notice was ever served upon him By the time he came to know of the assessment order, the time to appeal, assuming that he could prefer an appeal, was barred by limitation. He therefore cannot be said to have an alternative remedy which is adequate. .
14. This Rule must therefore be made absolute in part. I do not think that it is necessary to quash the assessment order against the firm. It would be sufficient if the enforcement thereof against the petitioner is prohibited. There would be a writ in the nature of Mandamus directing the respondents to forbear from enforcing the assessment order dated 12-12-1947 in the petition mentioned, against the petitioner. But this will not in any way exonerate the petitioner from liability or prevent the respondent from proceeding against the petitioner or against any partner of the dissolved, firm in accordance with law. Nothing in this order relates to the validity of the notice under Section 34 issued to the petitioner on 25-11-1944. If it is a valid notice, nothing in this order will prevent the respondents from taking proceedings under the said notice. There will be no order as to costs.