JUDGMENT H.N. Seth, J.
1. These three petitions under Article 226 are being disposed of by a common judgment.
2. Writ petition No. 523 of 1975 is by M.L. John and I.E. John. The two petitioners question the validity of the various reassessment orders under the Indian I.T. Act, 1922, and the Excess Profits Tax Act, for the assessment years 1942-43 to 1947-48, as also that of the reassessment orders under the I.T. Act for the assessment years 1948-49 to 1956-57, made in the case of the unregistered firms known as John Mills and Co. and John and Co. They pray that notices of attachment of movable and immovable properties for a realisation of the tax assessed under the impugned assessment orders be quashed and the respondents be restrained from taking any step to recover the said demands amounting to Rs. 26,72,662-66 from the petitioners.
3. Writ Petitions Nos. 562 of 1975 and 790 of 1975 are by N.K. Patni and Munni Lal Mehra. By these petitions, the two petitioners also question the validity of the recovery proceedings, in respect of the aforesaid demands, initiated against them. The respondents have, however, clarified that they were proceeding to recover from the petitioners only the sum representing the demand created as a result of the reassessment proceedings under the Indian I.T. Act, 1922 and the Excess Profits Tax Act, taken against the firm John Mills and Company for the assessment years 1942-43 to 1944-45.
4. Briefly stated, the facts giving rise to these petitions are that at one stage four brothers G.A. John, A.U. John, Edven John and H.C. John owned three spinning mills and one flour mill at Agra. They ran those mills under the name and style of John Brothers. During the course of their business, John Brothers took some loan from one Govind Ram Saksaria of Bombay after mortgaging the mill properties with him. Govind Ram Saksaria filed a suit against John Brothers in the Bombay High Court for the recovery of the aforesaid loan advanced by him. The Bombay High Court appointed a receiver to take possession of the mills. In the meantime, some time before the year 1940, G.A. John died and, his interest in the mills devolved upon his three sons and a daughter, i.e., M.L. John, I.E. John, R.E. John and Mrs. Doris Marzano. Before the Bombay High Court, the parties resolved their dispute and the court passed compromise decree in the year 1940, providing that A.U. John (uncle of the petitioner) and R.E. John (one of the brothers of the petitioner) and I.E. John (one of the petitioners) would run the mills as lessees of the receiver appointed by the court and that they would continue to pay the rent thereof, to the receiver till such time as the mortgage debt, together with interest due thereon, and the expenses of litigation, was not liquidated. Thereafter, A.U. John, M.L. John and I.E. John ran the said mills in the name and style of M/s. John Mills and Company. It is claimed that the respective shares of the three partners in the said business were not in proportion to their proprietary interest in the mills.
5. Major A.U. John, one of the partners of John Mills £ Co. died on May 8, 1943, and, thereafter, M.L. John and I.E. John filed suit No. 28/1943 in the Civil Courts at Agra, claiming a decree for the dissolution of the firm and for accounting. A preliminary decree was passed in February, 1944, but the proceedings in preparation for final decree are still pending. Thereafter, according to the petitioners, R.E. John ran the mills till May 23, 1946, in the name and style of John Mills Company (1943) as his proprietory concern. The case of the respondent, on the other hand, is that as per the returns filed by Sri M.L. John, it was run by the remaining partners of the firm John Mills and Company i.e., R.E. John, M.L. John and I.E. John in the name of John Mills Company (1943). John Mills and Co. and the business income thereof was assessed as such. At this stage R.E. John sold his proprietary interest in three mills to his two brothers M.L. John, I.E. John and Mrs. Marzano, who had already become the owner of G.A. John's share in the mill properties and, thereafter, the mills were run by M.L. John, I.E. John and Mrs. Doris Marzano in the name of the firm M/s. John. & Co. In the month of July, 1946, the executors of the estate of A.U. John, sold the interest that A.U. John had in the mills to Hira Lal Patni (father of petitioner, N.K. Patni, in Writ Petition No. 962 of 1975) and Munni Lal Mehra (petitioner in Writ Petition No. 790 of 1975). Likewise Edven John sold his interest in the mill properties to one Sri Gambhirmal Pandey. On April 11, 1949, the new owners of the mills formed a partnership by the name of John Jain Mehra and Company. On April 18, 1949, one Sri Loon Karan Sethiya filed suit No. 76/49 against John Jain Mehra and Company and John Mills and Company for the recovery of certain loans advanced to M/s. John and Company. In that suit, the Civil Court at Agra, vide its order dated May 21, 1949, appointed Sarvasri P.S. Mathur and M.B. Tawakley, advocates, as joint receivers.
6. In due course, for the assessment year 1942-43, the ITO by his order dated June 30, 1945, assessed the firm M/s. John Mills & Co., on an income of Rs. 1,78,468, after permitting depreciation allowance on the assets represented by the mill properties treating its original cost as Rs. 20,80,000 instead of Rs. 62,37,505, as claimed by the assessee. He pointed out that the court receiver, appointed by the Bombay High Court in the suit instituted by Govind Ram Saksaria, had claimed depreciation on the same property treating its original costs as Rs. 62,37,505, but the AAC had upheld the order of the ITO allowing depreciation allowance treating the original costs of the mills as Rs. 20,80,000, only and that there was no reason for him to take a contrary view. The assessment order further disclosed that M/s. R.E. John, I.E. John and M.L. John were the partners of the assessee-firm. Likewise, for the assessment years 1943-44 to 1948-49, the ITO determined the income of the firm M/s. John Mills and Company after accounting for depreciation allowance calculated in the light of the depreciation allowed by him for the assessment year 1942-43.
7. it appears that both the Revenue and the Receiver appointed by the Bombay High Court were not satisfied by the order of the AAC, Bombay, in respect of the depreciation allowance allowed by the I.T. authorities as also the extent thereof. They, accordingly, went up on appeal before the ITAT, Bombay. Whereas the contention on behalf of the Revenue was that the assessee was not entitled to any depreciation allowance, the assessee claimed that the depreciation allowance should have been allowed to him treating the initial cost of the machinery, etc., as Rs. 62,37,505 as claimed by him, instead of Rs. 20,80,000 allowed by the AAC. The appeal filed by the assessee before the I.T.A.T. (Bombay Bench) succeeded. The Tribunal, Bombay, in connection with the receiver's appeal for the assessment years 1942-43, 1943-44 and 1944-45, held that the assessee was entitled to claim depreciation allowance under Sections 12(3) and 12(4) of the I.T. Act. It also enhanced the amount of depreciation allowed by the ITO and the AAC, and observed that any allowance made to the proprietors of John Mills, who actually ran the mills, but were not the present owners of the mill buildings, plant, machinery or furniture, should be treated to have been wrongly allowed.
8. After the decision of the I.T.A.T, Bombay, dated February 3, 1951, the ITO issued notices order Section 34 of the I.T. Act for the assessment years 1942-43, 1943-44 and 1944-45 on March 28, 1951. Similar notices for the assessment years 1945-46, 1946-47 and 1947-48, were issued oh March 28, 1953. The petitioners' claim that these notices were never served on any of the partners of the assessee-firm, i.e., John Mills and Company. They were also not served on any of the two petitioners. The ITO, however, reopened the assessments for all these years. He disallowed the depreciation in respect of the mill properties claimed by the assessee and, vide his orders dated January 24, 1952, reassessed the assessee M/s. John Mills and Co., for the assessment years 1942-43, 1943-44 and 1944-45. Likewise, for the subsequent years also the ITO, vide his order dated January 29, 1954, revised the assessments of M/s. John Mills and Company after disallowing the depreciation allowance. He also communicated his decision to the Excess Profits Tax Officer, who in his turn, revised the excess profits tax assessment of the firm M/s. John Mills and Company for the years 1942-43 to 1946-47.
9. The petitioners in Writ Petition No. 523 of 1975 are also aggrieved by the recovery proceedings initiated against them in respect of the assessment of the firm known as John and Company for the assessment years 1948-49 to 1956-57.
10. A perusal of the allegations made in the various writ petitions shows that what in substance the petitioners arc challenging is :
1. The validity of the assessments of M/s. John Mills and Company made under Section 34 of the I.T. Act in respect of the assessment years 1942-43 to 1947-48, and that of the proceedings for a recovery of the tax so assessed.
2. The validity of the assessment of M/s. John Mills and Co., made under Section 15 of the Excess Profits Tax Act for the years 1942-43 to 1946-47, and that of the proceedings for the recovery of the tax so assessed.
3. The validity of the recovery proceedings in respect of the income-tax assessed against John and Company for the years 1948-49 to 1956-57.
11. We shall now proceed to deal with the submissions made by the counsel for the parties in respect of each of the matters mentioned above, one after the other.
1. Validity of assessment of M/s. John Mills and Company made under Section 24 of the Indian I.T, Act in respect of the assessment years 1942-43 to 1947-48, and that of the proceedings for a recovery of the tax so assessed.
12. Learned counsel for the petitioners contended that the assessment of the firm M/s. John Mills & Co., for the assessment years 1942-43 to 1946-47 had been reopened under Section 34 of the Indian I.T. Act without service of notice for that purpose either on the petitioners or on any of the partners of the firm. Accordingly, the entire proceedings which culminated in the assessment orders dated January 24, 1952, in respect of the assessment years 1942-43 to 1944-45, and the orders dated January 29, 1954, for the assessment years 1945-46 to 1947-48, were without jurisdiction. The respondents, therefore, cannot take any step to recover any tax due under the orders dated January 24, 1952, and January 29, 1954, from any of the petitioners or from their properties.
13. The stand taken by the respondents is that the assessee in the case was M/s. John Mills and Company, Agra. Notices for the years 1942-43 to 1944-45, enabling the ITO to reopen the assessment were issued on March 28, 1951. They were sent under registered acknowledgment due covers as follows:
1. M/s. John Mills and Co., Agra, postal receipt No. 882. The acknowledgment due in respect of receipt bearing No. 882 is available but the name of the person on whom the service was made is not decipherable,
2. M/s. I.E. John, M. L. John and Mrs. D. Marzano partners of John Mills & Co., Postal receipt No. 883, acknowledgement due in respect of this shows that service on some John (signature not decipherable) was made on March 29, 1951. On the back of this acknowledgment due the details of the contents, i.e., I.T. No. 90 (notices under Section 34) and I.T. No. 11 (return forms for the assessment years 1942-43, 1943-44 and 1944-45), are mentioned and it also bears the post office stamp dated March 30, 1951.
3. Sarvasri M.B. Tawakley and P.S. Mathur, Court Receivers, John Mills and Co., Civil Courts, Agra, postal receipt No. 884. The acknowledgment due in respect of this, bearing postal stamp dated March 30, 1951, showing service on March 29, 1951, and bearing details as in the two above, together with letter dated March 28, 1951, requesting the receiver to transmit the notices for the three assessment years 1942-43, 1943-44 and 1944-45 to the proper person concerned for compliance of these notices. A copy of the letter dated March 31, 1951, received from the Receivers indicates that these notices were handed over to Sri B. D. Agarwal, advocate.
14. The respondents further claim that notices under Section 22(4) were issued on August 22, 1951, for all the three years, i.e., 1942-43, 1943-44 and 1944-45 and were addressed to : (i) Mrs. Doris Marzano, postal receipt No. 838, (ii) I.E. John, postal receipt No. 840 ; (iii) Cap. M.L. John, postal receipt No. 842 ; and (iv) M/s. M.P. Tawakley and P.S. Mathur, postal receipt No. 841. They were despatched by registered acknowledgment due post on August 23, 1951, addressed to these persons. Along with all these notices, letter dated August 22, 1951, was also sent to all the above mentioned persons. The letters sent to Mrs. D. Marzano and I.E. John, were received back on August 27, 1951, with the postal remark "left". Acknowledgment card bearing Nos. 842 and 841 bearing postal stamp dated August 28, 1951, showing service on the addressee on August 27, 1951, is available on the record. The hearing, in these notices, was fixed for September 7, 1951, at 10 A.M. at Agra. Mrs. Marzano, then addressed a letter dated September 6, 1951, acknowledging the receipt of notice under Section. 22(4) and mentioning that Sri V. Sahai, Chartered Accountant, Delhi, was dealing with their income-tax case, requested for three weeks' adjournment for producing the account books. Likewise, Sri V, Sahai, Chartered Accountant, addressed a letter dated September 10, 1951, stating that his client Mrs. Marzano, had forwarded to him the notices under Section 23(4) for these years. It stated that the account books were in the custody of the receiver appointed by the Civil Judge, Agra, and, therefore, two months' further time be allowed to him for producing the account books. However, as neither were any account books produced nor was any return filed up to January 24, 1952, the assessment orders under Section 23(4)/34 were passed and notices of demand and challans and penalty notices under 28(3) were issued in the name of John Mills & Company through M/s. M.B. Tawakley and P.S. Mathur, Court Receivers. The receivers were duly served with the demand notice dated February 28, 1952. The case under Section 22(3) was fixed for March 28, 1952, but subsequently by her letter dated October 3, 1953, Mrs. Marzano, requested for three months' time to file replies and she also prayed for copies of notice under Section 28 as the firm had, by that time, ceased to exist and the mill records were in the office of the court receiver. This, according to the respondents, showed that the assessee had also received the notice of demand for all the three assessment years.
15. So far as notices for reopening the assessments under Section 34 of the Indian I.T. Act, 1922, for the assessment years 1945-46 to 1947-48, were concerned, the respondents claim that they were sent to M.B. Tawakley, receiver, and were served upon him on March 27, 1953, through process server, Narain. On November 26, 1953, notice under Section 22(4) fixing December 7, 1953, addressed to M/s. John Mills and Co., Agfa, was issued and served on Mrs. D. Marzano, partner on November 29, 1953. On December 7, 1953, Mr. M.L. John, a partner, applied for adjournment so as to enable him to comply with the notice under Section 22(4) and the case was fixed for January 10, 1954, at 11.30 A.M. However, neither any account book was produced nor was any return filed up to January 29, 1954, on which date the assessment under Section 23(4)/34 was made. Subsequently, notice under Section 28(3) was issued in the name of John Mills and Co., Agra. Documents relating to the service of these order and notices, etc., are, however, not available on the record. The material on the record, however, indicates that the partners were fully aware of the proceedings.
16. It may, at this stage, be mentioned that the petitioners, in their writ petitions, had complained that the respondents did not permit them to effectively inspect various records in relation to impugned assessment orders and the raising of the demand against them. This court, while permitting the respondents to file a supplementary counter-affidavit, mentioning in detail the manner in which various notices issued under the provisions of the Indian I.T. Act were served on the parties as also the circumstances leading to the making of the reassessment orders, directed the respondents to give an inspection of the relevant records to the petitioners or their counsel. The petitioners claim that an inspection of the record revealed that the reassessments for the years 1942-43 to 1946-47 had been made in the hands of the receivers in their capacity as representative assessees under Section 41 of the Indian I.T. Act. According to them, the reassessments were not made against the original assessees, viz., partners of the firm John Mills and Co. Since the receivers were not during the accounting period relevant to any of the assessment years 1942-43 to 1947-48, in receipt of any income on behalf of the firm John Mills and Co., any assessment made under Section 41 of the 1922 Act, against them was completely without jurisdiction and the respondents have no power to proceed against the properties belonging to the petitioners for recoveries of the tax payable under such reassessment orders. The respondents were permitted to meet this objection raised by the petitioners as well with reference to the material available on the original record which was produced by them for perusal by the court.
17. After hearing learned counsel for the parties at some length and perusing the record of the case produced by the respondents, we find that there is substance in the petitioners' argument that various assessment orders under Section 34 of the Indian I.T. Act, 1922, for the assessment years 1942-43 to 1944-45, have been made treating M/s. P.S. Mathur and M.B. Tawakley, who on May 21, 1949, had been appointed receivers by the Civil Court, Agra, in the suit filed by Sri Loon Karan Sethiya, as representative assessee under Section 4! of the Indian I.T. Act, and the assessment has not been made against the partners of the firm M/s. John Mills & Company.
18. So far as reassessment for the years 1942-43 to 1944-45, are concerned it is admitted by the respondents that after they had issued notices under Section 34(1)(b) of the Indian I.T. Act addressed to : (i) M/s. John Mills & Co. (ii) M/s. I.E. John, M.L. John and D. Marzano ; and (iii) M/s. M.B. Tawakley and P.S. Mathur, Court Receivers (we are, at this stage, not concerned with the validity of the aforementioned notices), on August 26, 1951, the ITO sent a letter (Annex. 13 to the supplementary counter-affidavit of Sri K.K. Saxena) which runs thus , "Dear Sirs, Ref.: John Mills-Assessments to I.T. assessment year 1942-43, 1943-44, 1944-45, your letter No. 188/73, dated July 9, 1951 and your No. 207 dated July 28, 1951.
Kindly refer to above. I enclose herewith fresh notices under Section 22(4) in respect of the assessment years mentioned above for favour of due compliance.
Your attention is invited to Section 41 of the I.T. Act, 1922, under which you, as receiver, arc liable to income-tax, etc. It is suggested that you should please get into touch with the proprietors of the John Mills and Co. and obtain the relevant books, etc., from them to enable you to comply with the requirements, under the I.T. Act, 1922, failing which the cases will have to be disposed of under Section 23(4) of the Indian I.T. Act. Please note that the date fixed is September 7, 1971.
(Sd.) Income-tax Officer, 'A' Ward, Agra.
Copy forwarded to Mrs. D. Marzano.
Copy forwarded to Captain M. L. John.
Copy forworded to Captain I. E. John."
19. This letter addressed to M/s. M.B. Tawakley and P.S. Mathur, Court Receivers, clearly indicates that the ITO was proceeding to reassess the Court. Receivers under Section 41 of the Indian I.T. Act in respect of the income of M/s. John Mill and Co. for the years 1942-43 to 1944-45, as representative assessee. The ITO had, accordingly, required the receivers to produce the relevant account books under Section 23(4) of the Indian I.T. Act. Copies of this letter were forwarded to Mrs. Dona Marzano, Captain M. L. John and Captain I. E. John, only for information so that they may co-operate with the receiver who was to submit the necessary books. The allegation made in the counter-affidavit suggesting that the notices under Section 23(4) were addressed to Mrs. Marzano, Captains M.L. John and I.E. John, is not borne out from the record. The copy of the reassessment order dated January 24, 1952, in respect of the years 1942-43 to 1944-45, contains the following recital:
"Accordingly with the previous permission of the CIT, a notice under Section 34 was issued on March 28, 1951, to assess back the depreciation originally allowed. Notices for the years mentioned above were duly served by post on Court Receivers M/s. M.B. Tawakley and P.S. Mathur on March 29, 1951. No return has been filed in response to these notices, nor have the receivers said anything in this connection, when the case was fixed under Section 22(4)."
20. The reassessment orders further show that the assessee in these cases was M/s. John Mills and Co., Jatni Ka Bagh, Agra, through the receivers, M.B. Tawakley and P.S. Mathur. This, in our opinion, clearly shows that these assessment orders for the years 1942-43 to 1944-45, have been made against the receivers M/s. M. B. Tawakley and P. S. Mathur as representative assessee of John Mills and Co., Agra, under Section 41 of the Indian IT. Act, 1922.
21. So far as the assessment years 1945-46 to 1947-48 are concerned, it is not disputed that notices under Section 34 of the I, T. Act, 1922, were issued and served only on the receivers, M/s. Tawakley and P. S. Mathur. The assessment proceedings for these years also, therefore, had been reopened as against the receivers as representative assessees of the firm M/s. John Mills & Co. under Section 41 of the Indian I.T. Act, and it is they who had been reassessed to tax accordingly.
22. It was seriously contended before us that as M/s. Tawakley and P. S. Mathur had been appointed Receivers by the Civil Courts at Agra, in suit No. 76 of 1949 on May 21, 1949, they had not been so appointed in connection with the business or assets of John Mills and Co. and, as such, they could not be deemed to be representatives of the assessee within the meaning of Section 41 of the Indian I.T. Act. It is not disputed that by May 21, 1949, the business activity of John Mills and Co. had come to an end. A new firm by the name of John Jain Mehra Co. had been constituted. Some of the assets which at one time belonged to M/s. John Mills & Co. had been taken over by the firm John Jain Mehra Co., M/s. P. S. Mathur and M.B. Tawakley were appointed as joint Receiver on May 21, 1949, According to the respondents, they were so appointed over the share of the Johns in that firm.
23. Even though the receivers might have come into possession of some of the assets, which at one time belonged to the firm M/s. John Mills & Co. (the original assessee}, they had not been appointed to receive any business or property income for and on behalf of M/s, John Mills & Co. Section 41(1) of the Indian I.T. Act, 1922, runs thus :
"41. Courts of Wards, etc.--(1) In the case of income, profit, or gains chargeable under this Act which the Courts of Wards, the Administrators-General, the Official Trustees or any receiver or manager (including any person whatever his designation who in fact manages property on behalf of another) appointed by or under any order of a Court, or any trustee or trustees appointed under a trust declared by a duly executed instrument in writing whether testamentary or otherwise (including the trustee or trustees under any Wakf deed which is valid under the Mussalman Wakf Validating Act, 1913), are entitled to receive on behalf of any person, the tax shall be levied upon and recoverable from such Courts of Wards, Administrators-General, Official Trustee, receiver or manager or trustee or trustees, in the like manner and to the same amount as it would be leviable upon and recoverable from the person on whose behalf such income, profits or gains are receivable, and all the provisions of this Act shall apply accordingly."
24. Clearly in the previous years relevant to the assessment years 1942-43 to 1947-48, the two receivers did not receive any income nor were they entitled to receive any income either from the business or from the property for and on behalf of the firm John Mills & Co. They, therefore, could not be assessed as representative of M/s. John Mills & Co. under Section 41 of the Act and any reassessment made in their heads in respect of the income of that firm would be without jurisdiction.
25. Moreover, it has been held by a Division Bench of this court in the case of ITO v. Prem Narain Agarwal (Special Appeal No. 628 of 1965 and W.P, No. 1062 of 1965 decided on November 2, 1972), that a receiver cannot be treated to be a representative assessee, within the meaning of Section 41 of the I.T. Act, in respect of the income derived or derivable for a period prior to his appointment as receiver. For this reason also the reassessment of the income of the firm M/s. John Mills and Co. for the years 1942-43 to 1947-48 in the hands of the receiver is without jurisdiction.
26. Learned counsel for the petitioners also urged that under Section 34(b) of the Indian I.T. Act, 1922, the ITO could reopen the assessment of M/s. John Mills & Co. for the years 1942-43 to 1947-48 only if, in consequence of information in his possession, he had reason to believe that income, profits or gains chargeable to income-tax for any of these years had escaped assessment or had been under assessed at a lower rate, or had been the subject of excessive relief under the Act or that excessive loss or depreciation allowance had been computed. They submitted that in this case when the ITO originally assessed M/s. John Mills & Co., to tax for the years 1942-43 to 1947-48, all the necessary information and facts were available to him. He knew that the receiver appointed by the Bombay High Court had claimed depreciation in respect of the mills' properties in connection with the income derived by him for the assessment years 1942-43 to 1943-44 and the same had been allowed to a certain extent. After taking into consideration this fact as well, the ITO came to the conclusion that the asses-see was entitled to depreciation allowance in respect of the Mills' properties. In the circumstances, the action of the ITO in reopening the firm's assessment on the basis of observations made by the ITAT, Bombay Bench, while increasing the amount of depreciation claimed by the receivers appointed by the Bombay High Court, did not amount to an "information" within the meainng of the expression as used in Section 34(b) of the Indian I.T. Act, 1922.
27. The ITO had merely changed his opinion and this change of opinion did not confer upon him any jurisdiction to reopen the assessment under Section 34(1)(b) of the Indian I.T. Act, 1922. Moreover, under Section 34(1)(b), the ITO can reopen an assessment only by issuing notices to the assessee within four years of the end of the relevant assessment years. In this case, the notices relied upon by the ITO for reopening the assessments for the years 1942-43 to 1947-48, under Section 34(1)(b) of the Act had been issued more than four years after the end of the relevant assessment years (this fact has not been disputed by the respondent). Accordingly, the assessments made under Section 34(1)(b) of the I.T, Act were barred by time and the demands created therein cannot be enforced against any of the petitioners.
28. Learned counsel for the revenue claimed that the observations made by the ITAT Bombay Bench, to the effect that, " any allowance made to the proprietors of the M/s. John Mills & Co., who actually run the Mills but are not the present owners of the plant, machinery or furniture must be said to have been wrongly made," constituted information on the basis of which the ITO could reopen the assessment in question. He, however, did not dispute that the notices under Section 34(1)(b) of the I.T. Act for the years 1942-43 to 1947-48 were issued beyond four years of the end of the relevant assessment years. He invited our attention to the second proviso to Section 34(3) of the Indian I.T. Act which runs thus :
"Provided further that nothing continued in this section limiting the time within which any action may be taken or any order, assessment or reassessment may be made, shall apply to a reassessment made under Section 27 or to an assessment or reassessment made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order under Section 31, Section 33, Section 33A, Section 33B Section 66 or Section 66A."
29. and contended that, as in this case, the reassessment orders have been made in consequence of and to give effect to a finding of the ITAT, Bombay Bench, the period of limitation prescribed for reopening the assessment under Section 34(1)(b) of the Act will not apply to the reassessment in question and the same cannot be held to be barred by time.
30. A perusal of the proviso mentioned above shows that the bar of limitation provided by Section 34(1)(b) is lifted if an assessee or any person has to be reassessed in consequence of or to give effect to any finding or direction in the appellate order passed by the ITAT. The claim of the Revenue is that in the instant case, the bar of limitation is lifted as the present assessee (whether it be M/s. John Mills and Co., or the two receivers appointed by the Civil Court, Agra) falls within the ambit of the expression "any person" used in the said proviso and reassessments were being made in order to give effect to a finding recorded by the ITAT, Bombay Bench. It is, however, clear that if neither the firm M/s. John Mills and Co., nor the receiver appointed by the Civil Court, Agra, fall within the ambit of the expression "any person", the bar of limitation in respect of their assessment would not be lifted and the reassessment proceedings would be without jurisdiction.
31. The provisions of Section 34(1 )(b) of the Indian I.T. Act, 1922, came up for consideration before the Supreme Court in the case of Prashar v. Vasant Sen Dwarkadas [1963] 49 ITR (SC) 1. The Supreme Court ruled that in so fur as this provision affected persons other than the assessee, it contravened the equality clause enshrined in the Constitution and was as such void. However, in the subsequent case of ITO v. Murlidhar Bhagwan Das [1964] 52 ITR 335 (SC), the Supreme Court clarified the position and pointed out that in the context in which the expression "any person" had been used in Section 34(3), it had to be read in a restricted sense. It means, that a person who is intimately connected with the assessment and who would be liable to be assessed for the whole or part of the income which is the subject-matter of the assessment under appeal, revision or reference. For instance, a partner or a member of a family or association would be any person. In the case before. us, it is clear that neither the firm M/s. John Mills and Co., nor the receivers, M/s. Tawakley and P.S. Mathur, appointed by the Civil Court in the year 1949, had anything to do with the income for which the receiver appointed by the Bombay High Court, in the suit filed by Govind Ram Seksariya had been assessed for the assessment years 1942-43 to 1944-45, and in respect of which the order, relied upon by the Revenue, had been made by the ITAT, Bombay Bench. No part of the income which was the subject-matter of the dispute before the ITAT, Bombay, was liable to be assessed in the hands either of M/s. John and Co., or the two receivers appointed by the Civil Court at Agra. Accordingly, the respondents could not, on the basis of the order passed by the ITAT, Bombay Bench, claim to reopen the assessment of M/s. John and Co., beyond four years of the end of the assessment years 1942-43 to 1947-48. In this view of the matter also, the impugned orders and the recovery proceedings following them are liable to be quashed. It is, therefore, not necessary for us to express any opinion on the question as to whether the observations made by the Tribunal, Bombay Bench, constituted material on the basis of which the assessment of M/s. John Mills and Company could be reopened, and, whether or not to give effect to any finding of the Bombay Bench of the Appellate Tribunal.
32. As the impugned demand for the assessment years 1942-43 to 1947-48 is not backed by any valid assessment orders, the same cannot be enforced against any of the petitioners.
33. Validity of assessment of M/s. John Mills and Co., made under Section 15 of the Excess Profits Tax Act, for the assessment years 1942-43 to 1946-47, and that of the proceedings for recovery of the tax so assessed.
34. So far as reassessments of the excess profits tax payable by M/s. John Mills and Co., for the chargeable accounting periods ending between June 30, 194! and June 30, 1946, which are now sought to be enforced against various petitioners are concerned, the case of the petitioners is that the authority reopening those assessments had no jurisdiction to do so. Further, those assessments had been illegally reopened without notice to the assessee, i.e., the firm M/s. John Mills and: Co. The petitioners further claim that as these assessments had been reopened in consequence of reassessments made under Section 34 of the Indian I.T. Act, 1922, for the assessment years 1942-43 to 1947-48, they also would fall, in case, the reassessments made under Section 34 of the Indian I.T. Act, 1922, are found to be without jurisdiction.
35. Learned counsel appearing for the Revenue, however, contended that the authority, making the reassessment under the Excess Profits Tax Act was fully competent to make the assessment and that the reassessment orders were not vitiated for that reason. He urged that the proceedings for reassessment taken under the Excess Profits Tax Act, are independent of the proceedings under the Indian I.T. Act, 1922, and that quashing of such proceedings has no repercussion on the proceedings under the Excess Profit Tax Act. Accordingly, the reassessment orders made in this case under the Excess Profits Tax Act do not get vitiated merely because the reassessment orders passed under Section 34 of the Indian I.T. Act, 1922, for the corresponding period are found not to be sustainable. The reassessment order the Excess Profits Tax Act were made after notice to, and calling upon Sri M.L. John, one of the partners of M/s. John Mills and Co., to file the revised return. In case, the petitioners were aggrieved by such reassessment orders, their remedy was to file an appeal, under the provisions of the Excess Profits Tax Act. It is not open to them, to challenge the correctness of such orders, either at the stage of recovery of tax or by means of a petition under art. 226 of the Constitution.
36. So far as the plea of the respondents that the petitioners should have challenged the validity of reassessment orders made under the Excess Profits Tax Act, by filing an appeal, is concerned, the case of the petitioners is that they could not file the appeal as the respondents neither served the notice of demand nor the copies of the assessment orders on any of the partners of the assessee's firm. They have thus prevented the assessee from going up in an appeal against the impugned assessment orders. As the respondents are proceeding to recover tax from the petitioners it is open to them to question the propriety of the assessment orders by means of a petition under Article 226 of the Constitution. We find that the respondents are not in a position to assert either that the notices of demand or that copies of the impugned assessment orders made under the Excess Profits Tax Act have been served on any of the partners of the assessees' firm. In para. 25 of the supplementary counter-affidavit of Sri K.K. Saxena, filed on behalf of the respondents, it has been stated that as the cases are vary old much of the records are not traceable at present. Under the law as it stands, it is not possible to effect recovery of the tax due under an assessment order without first serving upon the assessees a notice of demand which has to be accompanied by the assessment order. The proceedings for recovery of the tax due under the reassessment order made under the Excess Profits Tax Act, therefore, cannot be sustained at this stage. Assessees' right to challenge the assessment order by filing an appeal and the limitation for filing the same also accrues and commences from the date on which the assessment order is served upon him. Accordingly, if and when such reassessment orders are served upon the assessee, it will be open to him to file an appeal and to urge before the appellate authority all the questions on which it seeks to challenge the validity of these orders before us. In these circumstances, while holding that the proceedings for recovery of tax as a result of reassessment made under the Excess Profits Tax Act are premature, we refrain from expressing any opinion on the validity of reassessment order which if necessary can be questioned by the assessee by way of an appeal under the provisions of the Act itself.
3. Validity of recovery-proceedings in respect of the income-tax assessed against John Mills £ Co. for the years 1948-49 to 1956-57.
37. It is only the petitioners in Writ Petition No, 523 of 1975 who are concerned with the assessment and recovery of tax from John Mills and Co. for the years 1948-49 to 1956-57. In para. 23 of the counter-affidavit, filed on behalf of the respondent, it has been stated that recovery proceedings for the years 1953-54 and 1954-55 are pending. The petitioners have also not specifically stated any fact in their petition with regard to the validity of the assessment or the recovery of tax for those two years. It appears that the controversy before us is confined to the validity of the assessments and the recovery of tax for the years 1948-49, 1952-53 and 1956-57. The petitioners challenge the validity of the proceedings for the recovery of tax for the aforementioned years, inter alia, on the ground that the .respondents had no jurisdiction to recover the same without serving upon them a notice of demand and copies of the assessment orders. The respondent filed a counter-affidavit justifying the making of assessments as also the initiation of recovery proceedings. In the counter-affidavit of Sri P. Dimri, filed on behalf of the respondents, it has also been asserted that the notices of demand were served upon the assessee, which is an unregistered firm of which the petitioners are admittedly the partners. In rejoinder Sri M.L. John reasserted that before initiating the recovery proceedings the respondents did not serve any notice of demand on any of the partners of the assessees' firm. He also pointed out that the respondents, while vaguely asserting that such notice of demand had been served on the partners of the assessees' firm, did not give any particulars of the person on whom and the time when such notices were served. The respondents were given time to file supplementary affidavit which they filed. However, in the supplementary affidavit as well, they did not mention any particulars about the time when, the manner in which and the person upon whom the notices of demand for the relevant assessment years are said to have been served. Learned counsel for the respondent has also not been able to discover these particulars from the records which are in his possession and which he produced for our perusal. In the circumstances, we accept the plea of the petitioners that the notices of demand as also the assessment orders relating to the assessment years in question have not been served on the partners of the assessee-firm and the recovery proceedings in respect thereof are at this stage without jurisdiction. Of course, it will be open to the Revenue to serve the notices of demand and the assessment orders on the correct person and then to initiate proceedings for a recovery of the tax assessed for these years in accordance with law. When such a notice along with the copy of the assessment order is served upon the persons entitled to receive the same on behalf of the assessee, it will be open to the assesses to ventilate its grievance against various assessment orders by filing appeals under the provisions of the Indian I.T. Act. Accordingly, it is not necessary for us to express any opinion on the validity or propriety of the impugned assessment orders.
38. We may also point out that learned counsel for the petitioners relied upon the provisions contained in Section 46(7) of the Indian I.T. Act, which lays down that save and in accordance with the provisions Sub-section (1) of Section 42 or of the proviso to Section 45, no proceedings for the recovery of any sum payable under that Act shall be commenced after the expiration of one year from the last date of the financial year for which any demand is made under the Act, and urged that the recovery proceedings have now become time-barred. A perusal of the aforesaid proviso, however, shows that the limitation provided therein becomes, operative only from the end of the financial year in which any demand is made under the Act. As, in this case, we have accepted the petitioners' case that no demand for the assessment of tax for any of the years in question has yet been made, no question of the recovery proceedings becoming time barred arises.
39. The result of the aforesaid discussion, therefore, is that the orders for the assessment of the income of John Mills & Co. made under Section 34 of the Indian I.T. Act for the years 1942-43 to 1946-47 are found to be without jurisdiction and the tax determined therein cannot be recovered from the petitioners in any of the three connected writ petitions. So far as the recovery proceedings in respect of reassessment of tax under the Excess Profits Tax Act for the chargeable accounting periods falling between June 30, 1940, and June 30, 1941, and the tax assessed under the Indian I.T. Act, for the assessments years 1948-49, 1952-53, 1955-56 and 1956-57 are concerned, they are vitiated inasmuch as the said recovery proceedings have been initiated without serving any notice of demand on the assessee or any other person entitled to receive such notice on its behalf. We have refrained from expressing any opinion on the validity of the concerned assessment orders as the same can be questioned before the appropriate authority after proper notices of demand accompanied by the assessment orders, have been served on the assessee.
40. The petitioners in Writ Petition No. 523 of 1975 and Writ Petition No. 790 of 1975 also took the plea that as they were neither the assessees nor the persons from whom any money was due to the assessee, it was not possible to treat them as assessee in default and to recover the tax dues of the firm John Mills & Co. from them. However, as we have come to the conclusion that the assessment of the tax under Section 34 of the Indian I.T. Act, sought to be enforced against them is invalid; and cannot be enforced, it is not necessary for us to go into this question. We, accordingly, refrain from expressing any opinion on this point.
41. Before parting with these cases we may also point out that as the Revenue was trying to enforce the demand raised against M/s. John Mills & Co. by requiring the tenants of the petitioners in Writ Petition No. 562 of 1975 to pay the rent due from them to the Department, the petitioner approached this court for an order that the respondents be restrained from realising the said rent during the pendency of the writ petition. This court permitted the petitioner N.K. Patni to realise the rent from his tenants and to deposit the same with the ITO. The petitioner has since been depositing the rent of the attached property with the respondents. As, however, we have come to the conclusion that the proceedings for recovery of tax from the petitioners are vitiated, the respondents should take immediate steps to pay back the amount of rent realised and deposited by the petitioner with them under the interim order passed by this court. The respondents are directed to refund the said amount to the petitioner, within two months from today.
42. The petitioner, Munni Lal Mehra, in Writ Petition No. 79 of 1975, contended that a sum of Rs. 96,000 had been deposited on account of compulsory deposit in the year 1943. This amount was refundable to M/s. John Mills & Co. in which the shares of M.L. John, which interest had since been purchased by the petitioner, was one half, the said amount has not been refunded to the petitioner so far and the respondent should accordingly be directed to refund the same to the petitioner. The case of the respondents is that the said amount had been adjusted towards the dues of the assessee M/s. John Mills £ Co. The facts mentioned in the -affidavit do not make it clear as to whether the amount claimed by the petitioners under this head had been adjusted towards the demand which has been held by us not to be enforceable or towards some other demand. We, accordingly, direct the respondents to re-examine the position in the light of our decision and to pass appropriate orders with regard to the petitioners' claim for a refund of the amount of compulsory deposit referred to in para. 28 of the petition within a period of two months from today.
43. In the result, the petitions succeed and are, subject to the observations made above, allowed. The proceedings for the enforcement of the demands impugned in these writ petitions are quashed. The petitioners shall be entitled to their costs in each of these petitioners.