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Kanodia Brothers vs Income-Tax Officer.

High Court Of Judicature at Allahabad|19 August, 1964

JUDGMENT / ORDER

JUDGMENT JAGDISH SHAHI J. - This special appeal has been filed by M/s. Kanodia Brothers, a partnership firm registered under the Indian Partnership Act, hereinafter referred to as the appellant, against the decision of a learned single judge (Manchanda J.) dated April 3, 1963, dismissing writ petition No. 86 of 1963 filed by the appellant. The appellant is a partnership of which the following are members in four-anna share each :
1. Srimati Hira Mani, 2. L. Murlidhar, 3. L. Satya Prakash Kanodia, and 4. L. Jagmohan Lal.
A gentleman by the name of Shahzade Prasad Srivatsava also carried on business at Kanpur. The Indian Army and Police Equipment Factory (hereinafter referred to as the factory) is said to be a partnership business of which Shahzade Prasad is admittedly one partner, the other partners according to Kanodia Brothers being the individual members who constitute the Kanodia Brothers. According to the income-tax department (hereinafter called the department), the factory is an association of persons. The Income-tax Officer, Project Circle, Kanpur, served the following notice on the factory "through Shri Kanodia Brothers, former partners, Kahukothi, Kanpur" :
"Whereas I have reason to believe that your income assessable to income-tax for the year ending 31st March, 1956, has -
(a) escaped assessment. I therefore propose to assess the said income that has -
(a) escaped assessment.
I hereby require you to deliver to me within 35 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 March, 1956.
The notice is being issued after obtaining the necessary sanction of the Commissioner of Income-tax, Lucknow.
Sd. Income-tax Officer."
On receipt of the notice mentioned above the appellant filed an objection before the Income-tax Officer. The proceedings dragged on for some time and on January 17, 1961, Writ Petition No. 182 of 1961 was moved in this court on behalf of the appellants. In that petition a number of reliefs were claimed. When the matter came up for hearing before a learned judge of this court (Brijlal Gupta J), he granted an adjournment in order to enable the parties to inform him as to "how far the proceedings under section 34 had gone and whether the petitioners objection to the order under section 23B had or had not been disposed of". On the next date of hearing learned counsel for the parties informed the learned single judge "that only about 15 days ago service of notice of the date in the proceedings had been made on the petitioners and that no orders had been passed on the objection under section 23". Having observed as below, the learned single judge passed an order, an extract from which is also reproduced :
It seems to me that it is not fair to me the petitioner that his objections to the order under section 23B should not have been decided and the tax demand under that order should be sought to be enforced, and not only this but that penalty should be imposed upon the petitioner for non-payment of the amount of tax...
In the circumstances, the order which I propose to make is that the tax demand created under the order under section 23B and the penalty imposed for non-payment of that tax demand amounting in all to Rs. 68,185.42 nP. shall not be enforced against the petitioners until the assessment under section 34/44 is completed. It is also only fair that the petitioners objection to the order under section 23B should be disposed of by the income-tax department at an early date. Sri. R. S. Pathak, learned counsel for the petitioners, is quite content with this order. The petition is, therefore, allowed to this extent. The petitioners shall be entitled to the costs of the petition."
On January 7, 1963, Writ Petition No. 86 of 1963 i.e., the one giving rise to this appeal, was filed in this court. The prayer in this writ petition is as follows :
(a) That a writ in the nature of prohibition may issue to the respondent-Income-tax Officer, Project Circle, Kanpur, prohibition him from proceeding further with assessing or recovering any income-tax from the petitioner in pursuance of the notice dated January 31, 1958, and received on February 13, 1958, under section 44 and notice under section 34 of the Act dated January 31, 1958 as also in pursuance of the provisional findings incorporated in the notice dated December 13, 1962;
(b) that a writ in the nature of certiorari may issue to quash the notice dated January 31, 1958, under section 34 of the Act in respect of the assessment years 1952-53, 1953-54, 1954-55, and 1955-56, as also the notice dated January 31, 1958, received on February 13, 1958, under section 44 of the Act and the notice dated december 13, 1962, and all proceedings taken in pursuance of the aforesaid notice;
(c) that a writ in the nature of mandamus may issue to command the respondent-Income-tax Officer to forbear from taking any further proceedings in pursuance of the aforesaid notice detailed in relief (b) above.
(d) the costs of this petition may be awarded to the petitioner as against the opposite party."
This petition was dismissed by our brother, Manchanda, as already said earlier, on April 3, 1963, on the following three grounds :
(1) That the findings recorded in the order in Writ Petition No. 182 of 1961 operated as res judicata in respect of the allegations made in the writ petition giving rise to this appeal.
(2) That the petition No. 86 of 1963 had been moved with unjustifiable delay to quash a notice dated January 31, 1958.
(3) That there was disputed questions of fact which it is not permissible or desirable to adjudicate upon in these proceedings."
It is against that order that instant special appeal has been filed. We have heard Sir Gupta on behalf of the appellant and Sri Gupta, the learned standing counsel for the department. Sri Gupta has made the following submissions :
(1) The petition giving rise to this special appeal was not barred by res judicata and the view taken by the learned single judge is not correct.
(2) The petition was not belated.
(3) In any case the position of the department is not prejudiced either by delay in the presentation of the petition or by not pressing certain reliefs in the earlier writ petition.
(4) In any case the notice under section 34 read with section 44 of the Indian Income-tax Act, 1922, hereinafter referred to as the Act, being invalid the petition should have been decided on merits and so should be appeal be.
We will deal with the submissions seriatim.
In his order Brijlal Gupta J. clearly stated that "tax demand amounting in all to Rs. 68,185.42 nP. shall not be enforced against the petitioners until the assessment under section 34/44 is completed." It was also stated that "It is only fair that the petitioners objection to the order under section 23B should be disposed of by the income-tax department at an early date." Thereafter the learned judge said :
"The petition is, therefore, allowed to this extent."
From these observations as also from a perusal of the entire judgment of Brijlal Gupta J., it is clear that he intended clearly to provide for the continuance of the assessment proceedings under section 34/44 of the Act and for their completion. He also required that the objections under section 23B be disposed of at an early date. The learned judge clearly said in his order that he was passing it with the consent and to the satisfaction of the then learned counsel for the petitioners, Sri R. S. Pathak (now Pathak J). From this circumstance as also from the use of the words "the petition is, therefore, allowed to this extent", in the context which we have already discussed above, it is clear that Brijlal Gupta J. was not prepared to allow the other reliefs claimed in that petition with the result that there was implied rejection of the same. It is not the case that Sri. R. S. Pathak, as he then was, withdraw certain reliefs or grounds from the consideration of the court in order to re-agitate them later on. A perusal of the judgment of Brijlal Gupta J. clearly reveals that the entire petition was looked into and all the allegations and grounds considered, but reliefs was given only in respect of some matters and not all. It is, therefore, difficult to see how the petitioner can escape the bar of res judicata in the present case. But assuming that there is no clear bar of res judicata, the fact remains that in exercise of writ jurisdiction this court would always be governed by considerations of equity. Since Sri Pathak was content with the relief that was ultimately granted to him by Brijlal Gupta J. and when, with his consent, the order passed was that proceedings under section 34/44 would continue and the objections to the order under section 23B would be disposed of by the income-tax department at an early date, it is not just and proper to allow the petitioner to wriggle out of that situation in this special appeal. We are also satisfied that the petition is a belated one and that disputed questions of fact are involved in it. We do not agree that the position of the department would in no way be prejudiced if the present petition is entertained because the limitation for taking proceedings under section 34 of the Act has expired in respect of the notice issued on January 31, 1958.
We are, therefore, clearly of the opinion that the learned single judge exercised his discretion properly in dismissing the writ petition.
However, in view of the fact that the learned counsel for the parties have addressed us on merits of the case also, we think it only just and proper to deal with those submissions as well.
On merits the only submission that Sri Gupta made was that notice under section 34/44 of the Act was invalid on the ground that it proceeds on the footing that the factory is a partnership between an individual (Shahzade Prasad) and another partnership (The Kanodia Brothers) which is not countenanced by the Partnership Act and the income-tax law. It is on this ground that the learned counsel for the appellant urged that the notice issued under section 34/44 of the Act is invalid. No other ground has been urged before us for the alleged invalidity of the notice.
Section 34 of the Act, so far as is relevant for our purposes, reads :
"34. (1) If - (a) the Income-tax Officer has reason to believe that by reason of the omission or failure on the part of an assessee to make a return of his income under section 22 for any year or to disclose fully and truly all material facts necessary for his assessment for that year, income, profits or gains chargeable to income-tax have escaped assessment for that year, or have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under the Act, or excessive loss or depreciation allowance has been computed, or... he may in cases falling under clause (a) at any time... serve on the assessee, or, if the assessee is a company on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 22 and may proceed to assess or reassess such income, profits or gains or recompute, the loss or depreciation allowance; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section."
The condition precedent to the exercise of jurisdiction conferred by section 34 of the Act, inter alia, is that a notice is served on the assessee. In the present case the assessee against whom proceedings under section 34 read with section 44 of the Act were started is the factory. It is the admitted case of the parties that the assessee is not registered as a partnership firm under section 26A of the Act. It is also admitted that no return of the income was ever made by the factory. Consequently, if the idea was to assessee the factory, as it is in the present case, a notice had to be served on it. We have already reproduced the notice earlier. It is addressed not the appellant, Section 44 of the Act reads :
"44. 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, by jointly and severally liable to assessment under Chapter IV and for the amount of tax payable and all the provisions of Chapter IV shall, so far as may be, apply to any such assessment."
In the present case, it is admitted that before the impugned notice was issued the factory had dissolved. Consequently, whether it was a partnership or an association of persons, those who constituted it were liable to pay the tax for the years in which the factory carried on business and earned income. Section 63 of the Act deals with service of the notice and reads :
"63. (1) A notice or requisition under this Act may be served on the person therein named either by post or, if it were a summons issued by a court, under the Code of Civil Procedure, 1908 (V of 1908).
(2) Any such notice or requisition may, in the case of a firm or a Hindu undivided family, be addressed to any member of the firm or to the manager, or any adult male member of the family and, in the case of any other association of persons, be addressed to the principal officer thereof."
We may mention here that no writ petition has been moved on behalf of the factory challenging the proceedings under section 34/44 of the Act. Admittedly, such a petition could be moved on behalf of the factory has not been moved. We have pointed out this circumstance in order to show that it is not only the factory which is complaining of the so-called ultra vires nature of the proceedings on the ground of the invalidity of the notice.
We have already stated earlier that it is the factory and not the appellant who is the assessee and to whom the notice has been addressed. Consequently, even if it be assumed that the appellant had been wrongly described as the former partner of the factory on the ground that the appellant being a partnership could not enter into partnership, the notice issued to the factory would not be invalidated. The factory does not complain that the notice issued to it is invalid. The appellant is not a direct party to the proceedings started by means of the impugned notice. It may be that the individuals who constitute the appellant may be liable to pay tax by virtue of their being persons forming and an association or being partners in the factory but that would not make them parties to proceedings started by means of the notice under section 34/44 of the Act. A distinction had got to be drawn between the unit which is liable to be assessed and the persons who have to pay the amount of the tax assessed on the unit. It is settle that even if there is a partnership of which the constituent members include a partnership, the legal consequence is not that there is no liability to pay the tax buy only that the unit as a firm would not be registered.
From what we have said above, it clearly follows that the impugned notice has been addressed to the right assessee, that is, the factory, and to that extent the notice is perfectly valid. All that is complained of is that the appellant has been treated to be an agent of the factory for purposes of service and it has been wrongly described as a former partner. In our judgment, that is a defect of a very trivial nature. The purpose of the notice is to apprise the factory of the proceedings that are going to be started against it. There is no complaint that the factory is not apprised of the fact that proceedings under section 34/44 of the Act have been started against it. In fact, there being no mis-description of the factory in the notice addressed to it, such a plea would not have been open to it.
Learned counsel for the appellant relied upon Commissioner of Income-tax v. Ramsukh Motilal Mohd. Haneef, v. Commissioner of Income-tax R. K. Das & Co. v. Commissioner of Income-tax Commissioner of Income-tax v. Maharaja Pratap Singh Bahadur Estate and Trust Agencies v. Singapore Improvement Trust and Y. Narayana Chetty v. Income-tax Officer, Nellore in order to support his submission that in proceedings under section 34 of the Act the service of a valid notice is a condition precedent and when such a notice is not served within the period of limitation prescribed the proceedings are void. All these cases are distinguishable on facts. In none of them the notice was challenged on the ground that, the person through whom service was effected on the assessee had been in any way mis-described. Apart from it, service was to be effected on the factory and the condition precedent of section 34 of the Act was that service shall be made on the factory within the period of limitation which was done. The factory is not complaining that service has not been effected on it, or it has not been effected within the prescribed time. Consequently, it cannot be said that the condition precedent to the exercise of the jurisdiction has not been complied with in the present case. Surely the appellant is not entitled in law to fight out the battle of the factory and to complain on behalf of the factory when the factory does not choose to complain that the notice is invalid. The appellant could have refused to take notice on the ground that it did not or could not represent the factory, being itself a partnership business. This admittedly it did not do. It accepted the notice. Even in the application made to the Income-tax Officer if assumed that it were the appellant who were subject to assessment and not the factory. We have already pointed out earlier that there is a distinction between a unit of assessment and the liability for the payment of the tax assessed. The assessee in the present case is not the appellant but the factory though by virtue of section 44 of the Act the persons who constituted the factory may be liable to pay the tax.
It would be noticed that section 44 of the Act itself speaks of "the income, profits and gains of the firm or association." It does not speak of the income of the partner or the persons or the members of the association. It is the income of the factory which would be assessed in the proceedings started by the impugned notice. Even in the case of a dissolved firm or dissolved association of persons the assessee remains the firm or the association of persons : vide C. A. Abraham, v. Income-tax Officer Ramniwas Hanumanbux Somani v. Venkatraman and and Joint Committee of Action, B. Group Merchants, v. Commissioner of Income-tax.
It is, therefore, difficult to see what cause of action has the appellant got to file the present writ petition.
It would be open to it or to the factory to make such objections as it is advised to make with regard to the proposed assessment under section 34 of the Act. The belief expressed in the impugned notice that the "income assessable to income-tax for the year ending 31st of March, 1956," has escaped assessment is only tentative and it is open to the factory or the persons who formed that the association of persons or partnership to represent to the Income-tax Officer that no income has escaped assessment or that the notice against them is liable to be withdrawn on any other ground.
It is well settled that a writ of prohibition can only be issued if it is a proved to the satisfaction of the court that there is a patent want of jurisdiction on the part of the authority taking the proceedings. In a doubtful or marginal case the writ cannot go. Nothing has been shown to us to justify the conclusion that the Income-tax officer, Project Circle, has no jurisdiction to initiate proceedings under section 34 of the Act against the factory. It gas not been contended that the assessee, that is, the factory, has not been served. All that is complained is that the person through whom service has been effected has been mis-described. We are clear in our minds that a writ of prohibition cannot issue in a case like this.
For the reasons mentioned above, we are of the opinion that not only the learned single judge was right in dismissing the writ petition on preliminary grounds but on merits also no case for interference has been made out before us.
The special appeal is, therefore, dismissed with costs.
Appeal dismissed.
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Title

Kanodia Brothers vs Income-Tax Officer.

Court

High Court Of Judicature at Allahabad

JudgmentDate
19 August, 1964