Mian Jalal-Ud-Din, C.J.
1. The petitioner seeks to quash the impugned orders forming annexs. ' F ' and ' G ' to the petition by issuance of a writ of certiorari and mandamus directing the respondent not to proceed against the petitioner for the recovery of the tax amount.
2. It is averred that the petitioner along with Bakshi Bashir Ahmed, Bakshi Ghulam Hassan and Bakshi Ghulam Ahmed constituted a partnership firm known as ' M/s. Kashmir Motors '. This firm was dissolved on December 31, 1960. Thereafter, the statement of assets and liabilities of this firm was drawn up according to which the petitioner did not take over the liabilities of the income-tax of the dissolved firm. According to the petitioner this remained the responsibility of the other three partners. Even according to the finding of the one man Tribunal presided over by the late Justice lyyengar, the entire assets of the Kashmir Motors were appropriated exclusively by the above-said partners excluding the petitioner. Respondent No. 1 issued notice No. 83 of demand asking the petitioner to pay the amount of Rs. 2,55,600 allegedly as arrears of tax of the defunct firm of Kashmir Motors, This notice forms annex. ' B ' to this petition. The petitioner submitted his objections and pleaded that the responsibility to pay the tax amount did not rest with the petitioner inasmuch as he was not a partner of the defunct firm. He also pleaded that no demand or notice of assessment as required under Sections 143 and 156 of the I.T. Act or that of imposing a penalty under Section 274 had been given to him. The petitioner also raised either factual and legal plea before the I.T. authority. The respondent, however, recorded that no notice to the petitioner was necessary as notice to one of the parties of the firm would be deemed a notice on the petitioner also and on this ground the recovery of the tax was ordered. Consequently, the respondent issued three notices of demand amounting to Rs. 2,55,600 out of which Rs. 1,55,505 related to the penalty imposed by virtue of certificate No. 5354 dated March 20, 1974. The remaining sum of Rs. 50,309 and Rs. 50,632 were in response to the certificate Nos. 20/p36 and 21/p36. The petitioner submitted his further objections in regard to this demand notice. The respondent, however, finally passed the impugned order dated September 20, 1974, rejecting the objection of the petitioner. The petitioner has characterised the order of the respondent as arbitrary, illegal, and without jurisdiction. He has further averred that the impugned orders forming annexs. ' F ' and ' G ' to the petition are void, illegal and against the provisions of the I.T. Act, they are without jurisdiction, and also violate Articles 14, 16 and 19 of the Constitution of India. The firm according to the petitioner having admittedly been dissolved and no notice of demand or assessment or penalty as required under Sections 143, 156 and 274 of the I.T. Act having been given to the petitioner, notice on the other partners could not be deemed to be a notice on the petitioner, because the firm did not exist as a person on the date the assessment is alleged to have been made in the absence and behind the back of the petitioner. The impugned order has vested the arbitrary discretion in the respondent in exercise of which he has so far chosen to proceed only against the petitioner for the whole amount of tax and penalty. The other partners have not at all been proceeded against so far. In this way the action on the part of the respondent is a colourable exercise of power and is mala fide in law. For these reasons, the petitioner seeks the annulment of the impugned orders.
3. In his objections, the respondent has averred that the writ petition is not maintainable as the petitioner has not exhausted the statutory remedy available to him under the Act before approaching the High Court for invoking its extraordinary jurisdiction for issuance of a writ in the nature of certiorari or mandamus. It is further averred that there has been no dissolution of the firm but instead two partners of the original firm retired and it was a case of reconstitution of the firm. In the case of a reconstituted firm no notice is to be served separately on every partner. It is admitted that the original partnership consisted of four partners, the petitioner and the other three partners mentioned in the petition. It is also admitted that the firm carried on till December, 1960, when Bakshi Bashir Ahmed ' and Bakshi Ghulam Hassan retired from the partnership and agreements to this effect were executed on December 30, 1960. Subsequently Bakshi Ghulam Ahmed also retired and was succeeded by Bakshi Abdul Majid. The original assessment was made on ' Kashmir Motors ' in the status of a registered firm under Section 143(3) and a notice of demand was also issued under Section 156 and was served upon Bakshi Ghulam Hassan through his father. Notice under Section 148 was issued for the assessment years 1960-61 and 1961-62 on July 31, 1965, and served through partners on August 3, 1965. These proceedings were initiated at the instance of the petitioner who had at that time pleaded that the other partners had deceived him and on the declaration that on December 27, I960, the assets exceeded the liabilities by Rs. 9,07,086 the petitioner furnished the returns in response to the notice under Section 148 of the I.T. Act. The return of the income was signed by the petitioner himself and was filed under his covering letter duly signed by the petitioner himself. During the assessment proceedings the petitioner was actively co-operative with the department and gave a statement before the ITO concerned which can be produced in the court. This completely gives a lie to the theory of the petitioner that he was completely ignorant of the entire proceedings being taken against him by the department. The assessment was made under Section 147/143(3) of the I.T. Act, vide order dated March 25, 1970. A recovery certificate dated March 15, 1971, was issued by the concerned ITO. Thereafter the petitioner never took up the position with the department that he was ignorant of the original assessment order or of the demand notice and that the entire proceedings initiated by the department were null and void because no notice had been served upon him. After three years of acquiescence he cannot turn tables upon the department and cannot say that no notice was served upon him and as such under the law the firm being dissolved, he could not be liable for the taxes. The petitioner never informed the department about the dissolution of the firm. Under the law he is bound to inform the department about this change. A perusal of the agreement dated May 29, 1962, would show that the petitioner undertook to accept all the liabilities of the partnership firm and thereby acquired the assets. As such the petitioner cannot deny his liability and ask the court to hold that he had no liability of the income-tax dues. It is further averred that the reconstituted firm is a legal entity and fully exists in the eye of law. No notice to the petitioner was necessary as the firm was never defunct but was successor to the original firm. It is denied that there was any violation of Articles 14, 16 and 19 of the Constitution of India on any of the grounds mentioned by the petitioner.
4. In the premises it was prayed that the writ petition be dismissed with costs.
5. In the rejoinder affidavit filed by the petitioner it is stated that it having been conceded by the respondent that Bakshi Bashir and Bakshi Gulam Hassan had retired from the partnership on December 31, 1960, and also that notice of demand under Section 156 of the I.T. Act was served upon Bakshi Gulam Hassan, admittedly a retired partner through his father, therefore, this could not constitute service on the assessee as required by Section 156 of the I.T. Act. No implied authority can be presumed in the case of a retired partner under Section 19 of the Partnership Act to receive a notice from any statutory authority so as to bind the other partners. It having been admitted by the respondent that notice under Section 148 was issued for the assessment years 1960-61 and 1961-62 on July 31, 1965, and served through the partners on August 3, 1965, it is clear that such service could not be deemed service on the assessee and could not bind the petitioner as no notice was admittedly served on the petitioner but only to the partners who had already retired. The impugned order was, therefore, violative of the provisions of the I.T. Act and the assessment proceedings are void and without jurisdiction. There was no acquiescence by conduct on the part of the petitioner as alleged by the respondent in his affidavit. The matter relates to the enquiry proceedings started by Mr. Anand Prakash, ITO, who was deputed by the Central Government to make a special enquiry into the affairs of the firms of the family of Bakshi Ghulam Mohammad. Any statement made by the petitioner referred to in the reply affidavit of the respondent was not a statement in the assessment proceedings of ' Kashmir Motors ' but related in general to the firms of the family of Bakshi Ghulam Mohammad as in the same sequence enquiry was held by Mr. Justice Iyyangar. The statements made by the petitioner before Mr. Anand Prakash, ITO, or Mr. Justice lyyangar, which are sought to be relied upon against the petitioner have no reference to the assessment proceedings. The averments made in the reply affidavit are utterly misconceived as there can be no estoppel against a statute. Under Section 187 of the I.T. Act where a change occurs in the constitution of the firm, assessment is to be made on the firm as constituted at the time of making the assessment. As a matter of fact the previous firm was reconstituted ; therefore, under the I.T. Act, the assessment proceedings should have culminated in the impugned order by having been held to be in violation of the provisions of the Act. It is denied that the petitioner was ever associated with the assessment proceedings and that any notice was served in the name of the firm on him. As these notices were served on retired partners who could not be said to be partners at the time of assessment, the notice is had in law. That the petitioner had to avail another legal remedy available to him has been answered by stating that no notice was served on the petitioner and by the time the impugned order was issued on the basis of the illegal notice, the time for filing of the appeal against the assessment order which was not conveyed to the petitioner, had expired, and, secondly, the alternate remedy was so onerous that huge amount of tax of nearly three lakhs of rupees had to be deposited before the appeal could be filed. Therefore, the alternate remedy could not be deemed to be easy and efficacious for the petitioner.
6. In this case Bakshi Ghulam Hassan also made an application for impleading him as a party to the writ proceedings. In his application he has averred that the allegation of the petitioner that the liabilities of the income-tax of ' Kashmir Motors ' be affixed on the other three partners is utterly misconceived. So far as the applicant is concerned, he has got no knowledge of any income-tax proceedings that were initiated against the firm ' Kashmir Motors '. The applicant wants to safeguard his interests and, therefore, seeks impleadment as a party in the case. By order dated April 18, 1975, Bakshi Ghulam Hassan was impleaded as a party. He filed the reply affidavit. The case was, thereafter, ordered to lie over in view of the proclamation of emergency and suspension of fundamental rights under Articles 14 and 19 of the Constitution of India. After the revocation of the Presidential order relating to emergency, the case was revived and was posted for hearing. Shri R. N. Kaul appeared on behalf of Bakshi Ghulam Hassan on October 18, 1977, but thereafter nobody appeared on his behalf.
7. I have heard the learned counsel for the parties before me.
8. Let me first of all deal with the argument raised at the bar that as the statutory remedy by way of appeal was available to the petitioner and as he did not avail of it, therefore, the writ petition should be thrown out on that ground. It is not disputed before me that the petitioner could prefer an appeal under the I.T. Act against the impugned assessment but in this connection important facts have to be taken into consideration. It is admitted that in this case no notice as required by Section 148 of the I.T. Act was served on the petitioner and by the time the impugned order was issued the time for filing the appeal had run out. According to the petitioner this prevented him from filing the appeal. To this averment, made in the rejoinder affidavit, there is no reply forthcoming from the respondents. Secondly, the alternate remedy by way of appeal is, indeed, an onerous one inasmuch as the petitioner will be called upon to deposit a huge amount of tax of nearly three lakhs of rupees before the appeal could be filed. In Himmatlal Harilal Mehta v. State of M.P. : 1SCR1122 , Mahajan C.J. observed that where the remedy by way of appeal is onerous, where the petitioner is under a legal obligation to deposit the amount in dispute, then pursuit of alternate remedy is onerous and burdensome and cannot be said to be easy and efficacious. The same view has been reiterated in State of Bombay v. United Molars India Ltd. : 4SCR1069 . The question whether a writ petition can be entertained when an alternate remedy is available to a party has been the subject of discussion in many decisions of the Indian High Courts and the Supreme Court. In Hirday Narain v. ITO : 78ITR26(SC) their Lordships did not agree with the contention of the revenue that the writ petition should have been thrown out by the High Court on the ground that the alternate remedy was not pursued by the petitioner. It was a case under the I.T. Act where the petitioner without availing of the statutory remedy had approached the High Court for issuance of a writ of certiorari. The High Court entertained the petition and decided the case on merits. It was held that the petition could not be rejected on the ground that the statutory remedy was not availed of once the writ petition had been entertained and heard on merits. A Division Bench of the Calcutta High Court in Sovachand Mulchand v. Collector of Central Excise : AIR1968Cal174 , had occasion to review the case law on the subject. After discussing all the authorities on the subject, their Lordships observed that the principle that a writ petition should be discouraged when the Act itself prescribes other remedies is not an absolute principle which ought to be invariably followed. Their Lordships relied upon the observations made in British India Steam Navigation Co. Ltd, v. Addl. Collector of Customs : AIR1964SC1451 . Again, there are decisions to the effect that where the inferior Tribunal has acted without jurisdiction or the order has been made in violation of the principles of natural justice, an aggrieved party can approach the High Court for issuance of an appropriate writ although a concurrent remedy is also available to him under the law. In view of the catena of authorities on this proposition, I think that the objection raised by the respondent is not tenable. In the instant case, the writ petition was filed and admitted as early as in the year 1974 and, thereafter, because of the operation of the Presidential Order issued under Article 359 of the Constitution of India, proceedings remained suspended for some time and were revived after the revocation of the Presidential Order. The case has since proceeded in the court. Final arguments have also been addressed. It is now too late in the day to ask the petitioner to pursue the remedy by way of appeal when it is not legally possible for him to do so at this late stage ; more so, when final arguments in the case have also been concluded. Moreover, as already observed, the remedy is bo onerous that it cannot prove easy and efficacious for the petitioner.
9. I now proceed to deal with the second aspect of the matter which is, undoubtedly, of very great significance. According to the petitioner it was a case of dissolution of the firm. The petitioner has referred to an agreement by virtue of which the original firm was constituted of four partners which was dissolved on December 31, 1960, after the statement of assets and liabilities of this firm was drawn up. No agreement has been produced in the court. The case of the petitioner is that according to the statement of assets and liabilities he did not take over the liabilities of the tax of the dissolved firm and this remained the responsibility of the other three partners. On the other hand, according to the respondent, this is not a case of a dissolved firm but of a firm which was reconstituted and the petitioner continued to remain a partner of the firm ' Kashmir Motors ', notwithstanding its reconstitution and the fact that the other three partners, namely, Bakshi Bashir, Bakshi Ghulam Hassan and Bakshi Gulam Ahmed had retired, and a new partner, namely, Bakshi Abdul Majid, was inducted thereafter. According to the respondent the reconstituted firm is a legal entity, a person within the meaning of the I.T. Act and fully exists in the eye of law, and no notice to the petitioner was, therefore, necessary as the firm had never become defunct but was successor to the original firm. Notice to Ghulam Hassan, a retired partner, was sufficient notice and would be deemed notice to the petitioner.
10. In my opinion, on a consideration of the material placed before the court and also on the construction of the true legal position, it appears to me that it was not a case of the dissolution of the firm of ' Kashmir Motors ' under the I.T. Act although the petitioner has averred that after the retirement of Bk. Ghulam Hassan and Bk. Bashir the liability to pay the income-tax of the firm was not taken over by him. The mere fact that the partners of the firm, namely, Bakshi Bashir, Bakshi Ghulam Hassan, and Bakshi Ghulam Ahmed had retired did not have the effect of making the firm defunct inasmuch as thereafter, the petitioner continued to remain a partner of the said firm along with Bakshi Abdul Majid, a new partner. As it is a case of a reconstituted firm, the assessment shall have to be made in accordance with Section 187 of the I.T. Act. In the case of a firm which has been dissolved or which has discontinued, assessment shall have to be made in accordance with the provisions of Sections 188 and 189 of the I.T. Act. Section 187 of the I.T. Act provides that where at the time of assessment under Sections 143 and 144, it is found that a change has occurred in the constitution of the firm, the assessment shall be made on the firm as constituted at the time of making the assessment. For the purpose of this section change in the constitution of a firm would mean if one or more of the partners cease to be partners, or one or more partners are admitted in such circumstances that one or more partners who were partners of the firm before the change continue as partner or partners of the firm. This section clearly indicates that where some of the partners retire from the firm but at least one of the partners before the change continues as a partner of the firm, then it is not a case of dissolution of the firm but of reconstitution of the firm. If on the other hand, all the old partners go out and an entirely new set of partners come in, it would not amount to change in the constitution of the firm but would amount to succession of one firm by another and Section 188 of the Act would apply.
11. In the instant case, the petitioner continued to be a partner of the firm. At the time of the assessment in the year 1965 the firm had been reconstituted. Under Section 187 of the Act, assessment has to be made on the firm as constituted at the time of making the assessment. The assessment was required to be made of the firm as it existed at the time of assessment in the year 1965, i.e., when the petitioner and Bakshi Abdul Majid, were alone its partners and Bakshi Ghulam Hassan, the erstwhile partner, had already retired. For making assessment, it is necessary that notice must have gone to either of the partners of the firm as was constituted at the time of making the assessment. The admitted position is that no notice was sent to the petitioner but to the father of the retired partner, namely, Bakshi Ghulam Hassan, who did not figure at all in the new partnership at the time of assessment. No notices as required by Sections 143, 156 and 274 of the I.T. Act were given to the petitioner. As the issue of notices is a mandatory requirement of law, the impugned orders are not sustainable in the eye of law.
12. It is pertinent to quote Chaturvedi (vide page 2054 of his book on Income-tax Law, 3rd edn, Vol. II.) :
' The payment of tax could be avoided by a firm by adopting a simple device. For 360 days of the accounting year, the partners A, B and C make good earnings. On the last day of the year A retires withdrawing his capital and profit. B and C reconstitute the firm (who are merely working partners without any capital). Assessment will be made on the reconstituted firm and/or B and C partners. None is able to meet the liability. A goes unscathed. Section 170 cannot be invoked against him because of the provisions of Section 187(1).'
13. In CIT v. Sri Rama Talkies : 87ITR615(AP) , it has been held by the Andhra Pradesh High Court that even if in accordance with the terms of the deed of partnership, a partner is replaced by another without the firm being dissolved, there is a change in the constitution of the firm for the purpose of Section 184(7) of the I.T. Act.
14. Again, for the sake of argument, even if we agree that it was a case of dissolution of the firm and a new firm had come into existence, then no single assessment after 1961 could be made. As required by Sections 188 and 189 of the I.T. Act, two assessments were required to be made.
15. It would be advantageous to refer to the case law on the subject. A Full Bench of the Punjab and Haryana High Court in Nandlal Sohanlal v. CIT had occasion to go into the question of the application of the provisions of Sections 187 and 188 of the I.T. Act with reference to a firm that was dissolved either by the death of a partner or by operation of law, Their Lordships observed that where a firm is dissolved on account of the death of a partner by virtue of Section 42(c) of the Partnership Act, and the business is continued by the remaining partners or by the remaining partners and another in the place of the deceased partner, there being only a change in the constitution of the firm within the meaning of Section 187(2)(a), the assessment of the firm for the previous year or years must invariably be made under Section 187, and if there be succession to the firm by another separate entity owned by altogether different partners, assessment has to be made under Section 188 as it would squarely fall under Section 188. Succession involves change in ownership from one entity to another, although the continuity of the business find its nature are preserved intact. It contemplates or postulates the existence of two separate and distinct entities owned by two different groups of persons and none of the old partners should continue to be partners in the new or reconstituted firm. However, if there are one or more of the old partners continuing as partners in the second firm, it must be construed to be only a change in the constitution of the firm within the meaning of Section 187 but not a case of succession as contemplated by Section 188.
16. The Allahabad High Court in the case of Dahi Laxmi Dal Factory v. ITO : 103ITR517(All) made a distinction in the application of the law, with reference to an old firm, constituted by two partners and the new firm, as existed at the time of assessment. Their Lordships observed that where a firm is dissolved either by agreement of the partners or by operation of law and another firm takes over the business, that will be a case of succession governed by Section 188 even though some of the partners of the two firms are common. Assessment of the new firm could only be made in accordance with Section 188 and a single assessment for the whole year was not valid.
17. In either case the notice of demand is faulty. No notices under Sections 143, 156 and 274 were given to the petitioner. The admitted position is that notice was sent to the father of the erstwhile partner, Bakshi Ghulam Hassan, which is no notice in the eye of law. According to Mohinder Das v. Mohan Lal AIR 1939 All 188, the father of one of the partners of a firm cannot represent the firm and that being so, notice on the father could not be treated as notice on the partners.
18. The proposition that the petitioner was entitled to notice in such circumstances is also supported by the observation made in ITO v. Mrs. A. Sattler : 92ITR576(SC) .
19. Again, it is not correct to say that the petitioner had taken part in the assessment proceedings of 1965. The affirmation made in the reply affidavit that the petitioner undertook to accept all the liabilities of the partnership firm and thereby had acquired the assets has not been substantiated inasmuch as the agreement dated March 29, 1962, on which this affirmation is based has not been made available and produced in the court. On the other hand, in the reply to the affirmation made in the reply affidavit of the respondent that the proceedings of assessment were instituted at the instance of the petitioner and also that the petitioner had furnished the return in response to the notice under Section 148 of the I.T. Act and that the return was signed by the petitioner himself and was filed under his covering letter, the petitioner has explained it in the rejoinder affidavit by stating that no notice under Section 148 of the I.T. Act was issued for the assessment years 1960-61 and 1961-62 on July 31, 1965, and as such there was no acquiescence as alleged by the respondents. In reply to the filing of the returns, he replied that the matter of filing the return related to the enquiry proceedings started by Shri Anand Prakash, the ITO, who was specially deputed by the Central Government to make a special inquiry into the affairs of the firms of the family of Bakshi Ghulam Mohammad. This was a much later act. Any statement made by the petitioner which is referred to in the reply affidavit was not a statement in the particular assessment proceeding of ' Kashmir Motors ' but related in general to the firms of the family of Bakshi Gulam Mohammad and, in the same sequence, enquiry was held by Justice Iyyanger. This has not been rebutted by the respondent in any manner.
20. It is, therefore, clear that the affirmations made in the reply affidavit have reference to a distinct and separate matter and proceeding and has no reference to the time when the assessment of the firm was made in the year 1965.
21. For the foregoing reasons, as the petitioner had no notice either under Section 143 or Sections 156 and 274 of the I.T. Act and, therefore, the impugned orders suffer from serious legal infirmity and are not sustainable in the eye of law.
22. The result is that the impugned orders are hereby quashed and the writ petition is allowed. The respondent may proceed in the case according to law.