1. This reference arises out of the income-tax assessments of Bose Brothers as a partnership firm for the assessment years 1956-57, 1957-58 and 1958-59. The material facts available from records are as follows :
On May 24, 1948, by a deed of partnership, executed by Sudhansu Kumar Bose, Biraj Bose and Tarachand Bose, three sons of one Shamendra Kumar Bose, a partnership was sought to be constituted under the name and style of Bose Brothers. It was recorded in the deed, inter alia, that Shamendra who had been carrying on business in the name and style of M/s. Bose & Co., at No. 76, Benaras Road, Hovvrah, as a sole proprietor had retired from the said business in 1349 B.S. and that the same was given in gift to his said three sons, in equal shares, for being carried on in co-partnership, each partner having 1/3rd share. Tarachand was a signatory to the said deed.
2. The partnership claimed and was granted registration under the I.T. Act for the relevant assessment years and was assessed as a registered partnership.
3. In the assessment proceedings for the assessment year 1959-60, it was found that Tarachand had been born in 1940 and was a minor on May 24, 1948, the date on which the said partnership deed was executed. A notice was issued to the partnership to show cause why its registration for the relevant assessment years should not be cancelled under Rule 6B of the Indian I.T. Rules, 1922, on the ground that the partnership was invalid.
4. In the ensuing proceedings, the partnership contended that Tarachand was not a minor on May 24, 1948. An affidavit of Shamendra dated October 25, 1960, stating that Tarachand was a major on the relevant date and two horoscopes were produced as evidence. A certificate of birth of Tarachand dated November 24, 1960, issued by the Municipality of Howrah, on the application of Tarachand supported by the said affidavit of Shamendra, and a policy of insurance taken out on the life of Tarachand from Pearl Assurance Company on August 7, 1952, were also produced and taken into account. In the said policy, the age of Tarachand was initially admitted to be 16 years at the date of the proposal. Subsequently, on November 11, 1961, the age of Tarachand was admitted by the Life Insurance Corporation of India to be 23 years as on the date of the proposal. The Corporation accepted the age as recorded in the said birth certificate. The matriculation certificate of Tarachand could not be produced, but it was admitted that his age as recorded there was less than his actual age. From the records of the Vidyasagar College, it was ascertained that the date of birth of Tarachand as shown in his matriculation records was February 2, 1940.
5. The ITO accepted the age as appearing in the matriculation records of Tarachand as correct. He rejected the evidence to the contrary as not genuine and held that Tarachand was a minor on May 24, 1948, when the partnership deed was executed. By his order dated March 26, 1965, the ITO cancelled the registration granted to the firm for the said assessment years on the ground that no genuine firm was in existence the said years.
6. The partnership applied for revision of the said order of the ITO before the CIT, West Bengal-III, under Section 33A of the Indian I.T. Act, 1922.
7. Summoned by the Commissioner in the revision proceedings, Tarachand deposed that his date of birth was February 2, 1940, as correctly stated in his Matriculation records. He stated further that he did not in fact take any part in the partnership business nor did he draw any amount from the firm. He admitted that he had put his signature on a number of blank papers to be used by the firm, inter alia, for income-tax purposes.
8. The Commissioner accepted the finding of the ITO that Tarachand was born on February 2, 1940, and that he could not have been treated as a real partner of the firm at the material time. He concurred with the ITO and held that the firm was not genuine. The order of cancellation of registration of the firm was upheld.
9. Thereafter, notices under Section 148 of the I.T. Act, 1961, respectively, dated March 29, and November 25, 1965, were issued by the ITO addressed to 'Sudhansu Kumar Bose and others ', proprietors of M/s. Bose Brothers, for the assessment of their income as an association of persons for the relevant assessment years.
10. The proceedings were challenged in an application under art. 226 of the Constitution before this court in Civil Rule No. 4735(W) of 1965. The said Rule was disposed of on October 11, 1974. It was stated in the judgment as follows :
' In my opinion, there is nothing wrong in the order passed by the Commissioner of Income-tax. Whether the subsequent order of the Tribunal will have affected or not the proceeding under Section 147 of the Act, I am not deciding it in this proceeding. For the purpose of disposal of this case I note that the notice under Section 147 of the Act is not bad as it is not without jurisdiction. It is open to the petitioner to take all objections that the notice under Section 147 is bad before the Income-tax Officer concerned, but it must be held that challenge in regard to the notice under Section 147 of the Act on the ground of initial lack of jurisdiction cannot be sustained. The Rule must, therefore, stand discharged.'
11. The ITO thereafter proceeded with and completed the assessments. The incomes computed in the assessments of the firm were retained but in each year the status of the assessee was changed from that of a firm to an association of persons.
12. Appeals from the said assessments were disposed of by the AAC by his consolidated order dated March 18, 1975. The Appellate Assistant Commissioner held that the ITO had jurisdiction to initiate proceedings under Section 147 in respect of the association of persons which was a new entity different from the firm. The contention that the firm had already been assessed in respect of its income in the said assessment years and that there could not be a double assessment of the same was considered. The Appellate Commissioner held that it would be open to the assessee to apply for cancellation of the assessments of the firm. He confirmed the three impugned assessments of the firm.
13. The assessees preferred further appeals before the Income-tax Appellate Tribunal from the order of the Appellate Assistant Commissioner. Before the Tribunal, it was contended that the assessments made on Sudhansu Kumar Bose as a proprietor of M/s. Bose Brothers and not as an association of persons were inappropriate and improper. It was contended further that the assessments of the firm having remained on record under the charging section, the same income could riot be taxed again in the same or any different hand. It was also contended that the assessable entity should have been treated as an unregistered firm and as not an association of persons. Mere cancellation of the registration could not convert the firm into an association of persons.
14. The Tribunal held that the order of the Commissioner under Section 33A(2) of the Indian I.T. Act, 1922, had become final and that the finding of the Commissioner that the firm did not exist could not be ignored. Accordingly, the assessments in the status of an association of persons were held to have been made validly. The Tribunal held further that the assessees were described not only as the proprietors of M/s. Bose Brothers but were also described clearly as an association of persons. The decision in Civil Rule No. 4735(W) of 1965 confirmed that the ITO did not have initial lack of jurisdiction.
15. To avoid double assessment, the Tribunal directed the Revenue to adjust the tax already paid in respect of the said income in computing the tax payable by the association of persons. The proceedings were held to be otherwise proper and valid and, accordingly, the Tribunal dismissed the appeals.
16. By three separate orders passed by this court on September 7, 1977, under Section 256(2) of the I.T. Act, 1961, the Tribunal was directed to refer the following questions of law, in respect of each of the assessment years involved, for the opinion of this court :
' 1. Whether the conclusion of the Tribunal as to the existence of an AOP comprising Sudhansu Kumar Bose, Biraj Kumar Bose and Tarachand Bose is perverse in the sense that it was inconsistent with the evidence on record
2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the reassessment in the status of AOP was valid ?'
17. At the hearing, the learned advocate for the assessees submitted that even if it was held that an association of persons came into existence on the cancellation of the registration of the firm, there was no clear finding as to who constituted the association. It was contended that on the cancellation of registration of a firm, an association of persons does not and cannot come into existence automatically. An association of persons like a partnership could be formed only by an act or volition of individuals. If Tarachand, being a minor, was not competent to enter into a partnership, he was also incompetent to enter into an association of persons. Moreover, the case of Tarachand that he had no connection with the partnership or his brothers had been accepted by the Revenue. Therefore, it could not be held that Tarachand has associated with his brothers. The Revenue was not entitled to rely on the recitals in the deed of partnership which was held to be void, and hold that an association of persons between Tarachand and his brothers was formed and continued.
18. Learned advocate next submitted that, in any event, under the proviso to Section 2(6)(b) of the Indian I.T. Act, 1922, a minor could be treated as a partner in a firm and under Section 30 of the Partnership Act, a minor could be admitted to the benefits of a partnership in which case, except for being liable for losses, he would have all the rights of a partner. He submitted that in respect of the assessment years 1959-60 and 1960-61, it had been held by the Tribunal that Tarachand was not a minor on May 24, 1948. The Tribunal, in the instant case, did not consider or appreciate the same though its attention was drawn to the said order.
19. Learned advocate submitted last that the assessments made on the firm and on the individual partners had not been cancelled and were on record. After de-registration, the same persons were being wrongly sought to be assessed in a different status.
20. In support of his contentions, learned advocate for the assessee, cited the following cases :
(a) In re B.N. Elias : 3ITR408(Cal) . This decision was cited for the following observations of Costello J. sitting in a Division Bench of this court with Derbyshire CJ. (p. 417):
' When we find, as we do find in this case, that there is a combination of persons formed for the promotion of a joint enterprise banded together, if I may so put it, co-adventurers to use an archaic expression, then I think no difficulty whatever arises in the way of saying that in this particular case these four persons did constitute an ' association of individuals within the meaning of both Section 3 and Section 55 of the Indian Income-tax Act, 1922.' (b) In re Dwarakanath Harishchandra Pitale : 5ITR716(Bom) . In this case, a Division Bench of the Bombay High Court, following B.N. Elias : 3ITR408(Cal) , held that two brothers who had inherited a property, managed the same jointly and divided the profits, constituted an association of persons. It was observed in the judgment as follows (p. 721):
' They did not purchase the property for the purpose of managing it ; they received it under a will, and it may be said that in the first instance they did not constitute an association of individuals. But as soon as they elected to retain the property and manage it as a joint venture producing income, it seems to me that they became an association of individuals within the meaning of the Income-tax Act, and that they are properly assessed as the owners of the property under Section 9.' (c) Buldana District Main Cloth Importer's Group v. CIT/EPT :
In this case, a Division Bench of the Nagpur High Court following, inter alia, B.N. Elias : 3ITR408(Cal) , observed as follows (p. 71):
'......before any group of persons can be called an association of persons, it must be established on facts that they are in the nature of partners i.e.,......the established facts......must at least lead to an inference that the members of the group of their volition or free will have joined in a venture with a view to earn profit.'
(d) Indira Balakrishna v. CIT reported in : 30ITR320(Bom) . In this case, three widows had jointly inherited properties and assets. The income arose from the assets under several heads, namely, income from property, dividends from shares in a registered firm, interest on deposits and ground rent. They were assessed as an association of persons in respect of the entire income.
On a reference, the Bombay High Court held that as the assessees had enjoyed and managed the immovable properties jointly, they must be treated as an association in respect of income from the same. In respect of the other heads of income, it was found that as the assessees did not perform any particular act as an association which resulted in the income, but had only collected the same, they could not be assessed as an association for such income.
Chagla C.J. observed as follows (pp. 328, 330):
' Property which an association of persons may own jointly may produce income, but even so the question that will have to be considered is whether these persons who are associated together have done any act which has helped to produce the income, because it is only if they have done something in respect of the property which helps the production of income that it could he said that the association of persons has earned income which is liable to tax..........What is required before an association of persons can be made liable to tax is not that they should receive income, but that they should earn or help to earn income by reason of their association. ' (e) CIT v. Amritlal Bhogilal & Co. : 34ITR130(SC) . This decision of the Supreme Court was cited for the facts to show that once the registration of a firm is cancelled, the usual procedure is to assess the entity as an unregistered firm.
21. On question No. 2, learned advocate for the assessees submitted that the order passed in Civil Revision No. 4735(W) of 1965 upheld only the initial jurisdiction of the ITO to initiate proceedings under Section 147 of the Act of 1961. All other objections of the assessee to the said proceedings were left open. The Tribunal misconstrued the said order and did not allow the assessees to urge the invalidity of the notice and of the re-assessments at the hearing. The notice under Section 148 and the proceedings pursuant thereto, it was submitted, were bad. It was clear from the assessment made under Section 147 that the ITO did not assess a new assessee but reassessed the partnership firm on the basis of its trading account as in the original assessment.
22. The sanction of the Commissioner for initiating proceedings under Section 147 was obtained on the incorrect representation that this was a case of a new assessee. There being no association of persons in existence, neither assessment nor reassessment of the same could have been made under Section 147.
23. Learned advocate submitted last that the notice under Section 148 was expressly bad inasmuch as it was addressed to Sudhansu Kumar Bose and others who were left undetermined. It was also not known in what capacity the said notice was served oh Sudhansu. Though not raised before the Tribunal, it was open to the assessees to agitate the same at the stage of reference inasmuch as the validity of the assessment itself was under challenge. The assessees never waived the invalidity of the said notice.
24. Learned advocate cited the following decisions on question No. 2.
(a) CIT v. Scindia Steam Navigation Co. Ltd. : 42ITR589(SC) .
This well-known decision was cited for the following propositions laid down by the Supreme Court :
(a) A complex question of law might involve more than one aspect requiring to be tackled from different standpoints. Each aspect of a question is not a distinct question for the purpose of reference.
(b) In answering such a question, the court is not limited to only those aspects of the question answered before the Tribunal.
(c) Where the question is specific it is open to the court on a reference to allow a new contention to be advanced, provided it is within the framework of the question referred.
(b) B.K. Gooye v. CIT : 62ITR109(Cal) : Here, a Division Bench of this court held that service of a valid, notice under Section 34 of the Indian I.T. Act, 1922, was a condition precedent for assumption of jurisdiction by the ITO under the section. Where the notice did not contain the signature of the ITO, the irregularity was not merely procedural and was invalid and non est. There could not be waiver of such an invalid notice.
25. Learned advocate also cited CIT v. Thayaballi Mulla Jeevaji Kapasi : 66ITR147(SC) and CIT v. Sunderlal N. Daga : 81ITR73(Bom) . These decisions do not throw any further light on the questions raised and need not be considered in detail.
26. Learned advocate for the Revenue contended, on the other hand, that there was an option for the ITO to assess either the firm or the association which were different entities in law. In the facts, there was no question of the same persons being assessed over again.
27. Learned advocate submitted that the cancellation of registration of the firm, finally confirmed by the Commissioner, remained unchallenged. Therefore, the only question to be decided was that, following the cancellation, how could the entity, viz., M/s. Bose Brothers, be assessed. Facts on record, it was submitted, showed that Shamendra had inducted his three sons into his business by making a gift of the same to the latter. The business had, admittedly, been carried on thereafter, if not in partnership, then as a joint venture with a common intention to earn profit. Tarachand participated in the business, at least by sufferance. Learned advocate submitted that there was sufficient evidence before the Tribunal on which it could come to a conclusion that the brothers formed an association of persons.
28. Learned advocate next submitted that it was not open to the assessees to contend that the Tribunal had not found as to which persons constituted the association in view of the frame and the language of question No. 1.
29. It was also submitted that several contentions raised by the assessees and the challenges thrown at the hearing of the present reference were not mooted before the Tribunal and as such the same could not be urged for the first time in this reference.
30. On question No. 2, learned advocate submitted that the assessees had sought to raise a specific question in this reference as to the validity of the initiation of the proceedings under Section 147 which was not allowed to be raised. The assessee was, therefore, not entitled to impugn the validity of the notice.
31. Learned advocate submitted further that the terms 'assessment' and 'reassessment ' were interchangeable and, in any event, the order of the ITO showed that what was done was an assessment under Section 147 and not a reassessment. Both the Appellate Assistant Commissioner and the Tribunal have treated the order as an assessment. In that view, if it was contended that question No. 2 was raised on the basis of reassessment, the same could not be answered.
32. Learned advocate submitted last that the finding in C.R. No. 4735(W) of 1965 that there was no lack of jurisdiction in the initiation of the proceedings under Section 147, precluded the assessees from contending that the notice of the proceedings was bad as it was only by that notice the proceedings could be initiated, The assessees neither produced nor challenged the notice before the Tribunal and the Tribunal did not refer to or deal with the said notice. This court, therefore, should not adjudicate on the validity of the notice in this reference. In any event, it was not necessary to determine in advance the status of the persons on whom the notice was served.
33. In support of his contentions, learned advocate for the Revenue cited the following decisions :
(a) Mohamed Abdul Kareem & Co. v. CIT : 16ITR412(Mad) . In this case, a Division Bench of the Madras High Court held that the expression 'other association of persons' in Section 3 of the Indian I.T. Act, 1922, had to be construed in their plain ordinary meaning and not ejusdem generis with the word 'firm'. The court observed as follows (p. 430):
' It is unnecessary in order to constitute an association that there should be any mutual rights or obligations among the members enforceable in a court of law. So long as the object of the association is to carry on for gain a business which is not unlawful.,....' (b) V.K. Kumaraswami Chettiar v. Addl. ITO : 31ITR457(Mad) . Here, another Division Bench of the Madras High Court laid down that where a valid notice of demand has been served in accordance with the I.T. Act on an association of persons represented by its principal officer, there was no necessity for issuing further notices on the other members of the association.
(c) Mohamed Noorullah v. CIT : 42ITR115(SC) . Here, a Mohamedan proprietor of a business died intestate, leaving him surviving one son by his predeceased wife, his second wife and his four children by his second wife as his heirs and legal representatives. The widow along with an outsider continued the business. Suits for partition of the estate were filed successively by the son and the widow, where joint receivers were appointed and they carried on the business by consent of the parties till it was sold. The ITO sought to tax the income of the business in the hands of the receiver as the income of an association of persons consisting of the heirs of the deceased. On these facts, the Supreme Court held that the income was rightly assessed as that of an association of persons and observed as follows (p. 122):
' The mere fact that a suit was pending at the time for the administration of the estate......or for the separation of the shares of the co-heirsdoes not affect the incidence of taxation in this case, because the business was carried on......as one business with unitary control and by the consentof the parties. ' (d) CIT v. Krishna, Reddy : 46ITR784(AP) . Here, a Division Bench of the Andhra Pradesh High Court following Mohamed Abdul Kareem & Co. v. CIT : 16ITR412(Mad) held that where a partnership constituted in contravention of law was void, the person having purported to join as partners with the common purpose of earning profit were assessable as an association of persons.
(e) M.M. Ipoh v. CIT : 67ITR106(SC) . This decision was cited for the following observations of the Supreme Court (p. 120):
' There is......nothing in the Act which supports the contention...... that before proceedings in assessment can commence against an association of persons, a notice must be issued and an order passed after giving opportunity to the person proposed to be treated as the principal officer to show cause why he should not be so treated. It is open to the Income-tax Officer to serve a notice on a person who is intended to be treated as the principal officer......The Income-tax Officer may postpone any final determination of the dispute until the time comes to make an assessment. ' (f) CIT v. Kirkend Coal Co. : 74ITR67(SC) . This decision was cited for the following observations of the Supreme Court (at p. 72):
' .........in a reference under Section 66 of the Indian Income-tax Act, 1922, only the question which was either raised or argued before the Tribunal may be answered, even if the language of the question framed by the Tribunal may apparently include an enquiry into other matters which could have been, but were not, raised or argued. ' (g) Gobald Motor Service (P.) Ltd. v. CIT : 60ITR417(SC) . Here, the Supreme Court did not permit the assessee to raise a point which was not raised before the AAC or the Tribunal.
(h) CIT v. Raja Reddy Mallaram : 51ITR285(SC) . In this case, the Supreme Court held that a notice to the appropriate person under Section 63(2) of the I.T. Act, 1961, was sufficient to enable the authority to assess to tax the association of persons. The Supreme Court refused to consider a contention of the assessee that the notice was not served on the principal officer as the same was not raised before the Tribunal, did not arise out of the order of the Tribunal and was not referred.
34. Learned counsel also cited Thiagaraja Pillai v. CIT : 55ITR419(Mad) , Vahiwatdars of Ambaji Temple v. CIT : 58ITR675(Guj) and CIT v. Sunderlal N. Daga : 81ITR73(Bom) . The said decisions need not be considered in detail as they reiterate the principles laid down in the decisions considered hereinbefore.
35. In answering question No. 1, it is to be considered first whether under the deed dated May 24, 1948 a valid partnership was created. It is the case of the assessee that when the said deed was signed, Tarachand, one of the partners, was a major and as such by the said deed a valid partnership was created. The case of the Revenue is that on the date the deed was executed, Tarachand was a minor, and as such no valid partnership could come into existence. The assessee has relied on an affidavit of Shamendra, the father of Tarachand, two horoscopes and the policy of insurance where the admitted age of Tarachand was corrected subsequently, to establish that Tarachand was a major on May 24, 1948. The assessee also relies on the orders of the Tribunal passed in the subsequent assessment years 1959-60 and 1960-61, where it was held that Tarachand had attained majority in 1948.
36. The Revenue has relied on the matriculation records of Tarachand and the statement of Tarachand recorded and the order passed by the Commissioner in the revision proceedings. It is to be noted that the order of the Commissioner had become final not having been challenged by the assessee in any further proceedings.
37. In this state of conflicting evidence, the finding of the Tribunal that no valid partnership was constituted by the deed cannot be held to be perverse as being based on no evidence or as being contrary to the evidence on record. On the same evidence, a different finding could have been reached, but to come to such a finding in this reference would mean re-appreciation of the evidence.
38. The order of the Tribunal in the subsequent assessment years where the finding is to the contrary cannot help the assessee in this reference. The principle of res judicata does not apply in revenue proceedings so far as findings of facts are concerned. Moreover, in the assessment years involved in this reference, the order of the Commissioner passed in the revision proceedings could not have been ignored by the Tribunal.
39. The next aspect to be considered is that, assuming a valid partnership was not constituted under the deed, was the Tribunal justified in holding that an association of persons consisting of the three brothers came into existence
40. It has been found as a fact that Shamendra who carried on the business as a sole proprietor under the name and style of M/s. Bose and Co. made a gift of his business to his three sons in equal shares. It is also in evidence that the business was thereafter carried on in the name of the three brothers. At the material time, Shamendra was the natural guardian of Tarachand and he permitted his other sons to carry on the business with his minor son. The business was obviously carried on as a joint venture. It is not in evidence that Tarachand, after he became a major, renounced his share of the business or objected to the same being carried on jointly in his name. He allowed the business to be run as a joint venture and earn profits. Tarachand admitted that he put his signatures on documents of the business for the purpose of income-tax. As noted earlier, the Supreme Court held in Mohammed Noorullah : 42ITR115(SC) that a business carried on by the consent of the parties with unitary control can be assessed to income-tax in the status of an association of persons.
41. In view of the above, it appears to us that there was sufficient material before the Tribunal to hold that the business of M/s. Bose Bros, was carried on by an association of persons and such conclusion of the Tribunal does not appear to us to be perverse.
42. It has been argued on behalf of the assessee that there was no finding by the Tribunal as to who constituted the association. This point was neither raised nor urged before the Tribunal and in our view it is not open to the assessee in this reference to raise a new question on facts not mooted in earlier proceedings where further evidence could have been adduced, if necessary.
43. The contention of the assessee that, in any event, Tarachand should have been treated as a minor admitted to the benefits of the partnership is of little substance. Ex facie, the deed dated May 24, 1948, recorded that Tarachand was being inducted as a full partner and not as a minor admitted only to the benefits of the firm. This case also was never made at any earlier stage and was mooted for the first time in the present reference.
44. Question No. 2 has been framed in broad language. Under this question, the assessee sought to contend at the hearing that the notice issued under Section 148 of the I.T. Act initiating proceedings under Section 147 thereof was bad as (a) there was no new assessee, and (b) as the notice left undetermined as to who were the persons who were sought to be assessed.
45. It is on the record that, in the present reference, the assessee sought to raise a specific question, viz., whether the Tribunal was right in holding that the reassessment proceedings were validly initiated under Section 147(a) of the Act. This question was not allowed to be raised. Therefore, in our view, it is not open to the assessee to urge this contention under question No. 2. In any event, it has been held in C.R. No. 4735(W) of 1965 (Cal) that there was no lack of jurisdiction in the initiation of the proceedings.
46. We note that the Tribunal directed the Revenue to adjust the tax already paid under the earlier assessments made on the firm in computing the tax payable by the association of persons.
47. For the above reasons, we answer question No. 1 in the negative and question No. 2 in the affirmative, both in favour of the Revenue. In the facts and circumstances, there will be no order as to costs.