JUDGMENT This is a petition under article 226 of the Constitution.
The prayer contained in the petition is that notices under section 34 of the Income-tax Act in respect of the assessment years 1955-56, 1956-57 and 1957-58 may be quashed. There is a further prayer that proceedings in consequence of the said notices may also be quashed and the Income-tax Officer be prohibited for proceedings further in the matter.
The material facts are that the petitioner is a partnership firm carrying on the business of ornamentation of glass bangles and of selling them. One Raj Nath was in the employment of the firm for two years ending October 18, 1952, as a salesman and as a Munim. He left the service of the firm with effect from that date and entered the employment of another concern, Messrs. Ganga Glass Works, Firozabad. Subsequently, Raj Nath carried on his own business. It is alleged that the business was of purchase of bangles in Firozabad and of sale of the same in Bangalore, Mysore and others States. The sale proceeds were collected by him and sent by bank drafts was deposited in his personal account in the Central Bank of India, Etmadpur and Tundla branches, with which the petitioner firm had no concern. Raj Nath carried on business at Mysore also prior to joining in Mysore but the petitioner firm had no concern with this Ram Saran Lal. In his business Raj Nath employed the services of Chandan Mal Kothari & Co., a banker firm of Firozabad, for discounting hundis drawn in favour of Raj Nath and the said banker maintained an account of the dealing of Raj Nath with which the petitioner firm had nothing to do, the account of the petitioner with Chandan Mal Kothari & Co. being an entirely distinct account. This Raj Nath was an assessee in his own name and in the assessment year 1954-55 he made a statement proceedings for that year in which he admitted the carrying on of a separate business and all other facts as stated above. His statement was recorded by the Income-tax Officer on May 11, 1960, and also on April 25, 1961. Assessments against Raj Nath for the years 1954-55 to 1959-60 were completed.
So far as the petitioner firm was concerned, for the assessment years 1958-59 and 1959-60, regular assessment proceedings were pending before the same Income-tax Officer. So far as the years 1955-56, 1956-57 and 1957-58 were concerned they were sought to be reopened by notice under section 34 dated December 19, 1958. These notices are annexures to the petition and they state that they were being issued after obtaining the satisfaction of the Commissioner. It follows that the notices were under section 34(1)(a). In pursuance of these notices a letter was issued to the petitioner by the Income-tax Officer on December 4, 1959. By this letter it was intimated to the petitioner that the Income-tax Officer took the view that Raj Nath was connected with the petitioners business and in support of this view the Income-tax Officer catalogued the information in his possession in various paragraphs of the letter and asked the petitioner to rebut the said material and also to produce its accounts books. This letter was followed by the another letter dated April 17, 1961, in which the petitioner was required to produce all books of accounts and also Raj Nath, Banwari Lal, Daya Shankar and Shiam Sundar for examination by the Income-tax Officer. Meanwhile, the petitioner required the Income-tax Officer to communicate to it the reasons upon which the Commissioners sanction for proceedings under section 34 had been taken. As there is no provisions in the Act for the communication of such information, naturally, the Income-tax Officer paid no attention to this letter. Another letter dated September 12, 1960, was issued by the Income-tax Officer to the petitioner stating that the Income-tax Officer proposed to assess the amount of the drafts received in the name of Raj Nath as income belonging to the petitioner. Copy of this letter has not been annexed to the affidavit filed by the petitioner. The petitioner says that despite sending a full reply to the Income-tax Officers letters the Income-tax Officer did not desist from continuing the proceedings and hence the petitioner was compelled to file the writ petition. It has further been stated by the petitioner that Raj Nath was produced by him before the Income-tax Officer but the three other persons, namely, Banwari Lal, Daya Shankar and Shiam Sundar had left the petitioners service and as their addresses were not known the petitioner could not produce them before the Income-tax Officer. One other fact remains to be told and that is that on April 25, 1961, the Income-tax Officer completed the assessment of Raj Nath for the years 1954-55 to 1957-58.
Upon these facts the argument which has been addressed to me on behalf of the petitioner is that the Income-tax Officer, having completed the assessment of the alleged escaped income in the hands of Raj Nath, there was not jurisdiction left in him to proceed under section 34 in the respect of the same income against the petitioner for the three assessment years in question, namely, 1955-56, 1956-57 and 1957-58.
Another minor submission which was made before me was that in the three notices which were issued to the petitioner for the said three years it was stated that "income assessable to income-tax for the year 31st March, 1955 (31st March, 1956), 31st March, 1957, has escaped assessment, etc." It was argued that this was clearly erroneous as the end of the relevant years would be 31st March, 1956 (31st March, 1957), 31st March, 1958. I am not satisfied that if there is any error in this respect it caused any prejudice to the petitioner or that the petitioner was in way misled by the same. I accordingly overrule this point.
In respect of the first point learned counsel for the petitioner has relied upon a Supreme Court decision reported in Lalji Haridas v. Income-tax Officer. In this case two persons who happened to be brothers were sought to be proceeded against by assessment proceedings in respect of the same income, whereupon petition under article 226 of the Constitution were filed by the two brothers in the Bombay High Court. Upon dismissal of the petitions, appeals were taken to the Supreme Court and one of the points sought to be raised before the Supreme Court was that there could not be two assessment against two persons in respect of the same income. As no assessment had been made up to that stage learned counsel, who appeared for the appellants before the Supreme Court, was confined to the question whether an enquiry in respect of the same income could proceed against two persons. The Supreme Court held that there was nothing in the Income-tax Act to prevent enquiries against two persons being made in respect of the same income and that for the purpose of the appeals before them it was not necessary to decide the larger question whether under the Income-tax Act two assessment orders could be passed against two persons in respect of the same income. That disputed of the appeals before the Supreme Court but as their Lordships observed they added a direction "in fairness to the appellants". This direction was acceded to by counsel of all the parties who were appearing in these appeals before their Lordships. This direction was that enquiries against the two brothers were to be carried on up to the concluding stage and when that stage was reached then the Income-tax Officer would pass the order either against the one or the other but not against both. I do not see how this decision helps the petitioner in the present case. If at all anything could be concluded on the basis of this decision it is this that the assessment orders against Raj Nath passed on April 25, 1961, should not have been passed and an assessment order under section 23 or a reassessment order under section 34 should have been passed against the one or the other only after the conclusion of the whole enquiry against both of them. Mr. Gopal Behari, appearing for the Income-tax department, has offered before me that in case an order under section 34 is passed against the petitioner, ultimately, suitable steps shall be taken or recall the assessment orders against Raj Nath so far as the same may be necessary. This disposes of the argument on the basis of the Supreme Court decision.
The other case on which reliance was placed is a decision of this court in Joti Prasad Agarwal v. Income-tax Officer, Mathura. In this case a Division Bench of this court, upon an interpretation of the provisions of section 3 of the Income-tax Act, held that various taxable entities were mentioned in that section and, once assessment had been made against certain members of an association, another assessment against the association of persons itself, including the members of the association who had already been assessed earlier, could not be made a second time. Assuming that this decision furnishes any guide to the situation which has arisen in the present petition is quite clear that the two entities who are involved in the present case are an individual, Ran Nath, and a firm, which is the petitioner. Raj Nath is not a partners of the firm. It is, therefore, clear that the two entities are entirely distinct, the one having nothing to do with the other, contrary to a case where the two persons concerned may be as association of persons and the members of that association or a firm and its partners. That two completely unconnected persons can be proceeded against in respect of the same income has been ruled in a later Division Bench case of this court in Moti Chandra v. Income-tax Officer, Kanpur. It may be reemphasised that Joti Prasad Agarwal v. Income-tax Officer, Mathura was not a case in which another wholly unconnected person was being sought to be proceeded against in a proceedings under section 34 of the Income-tax Act. To my mind, therefore, this case also can be of no assistance to the petitioner.
A third argument which was addressed to me but which was not mentioned in the grounds in the writ petition was that, the Income-tax Officer having assessed the income in question in the hands of Raj Nath under the assessment orders dated April 25, 1961, it could not be said that he had any reason to believe that it was the income of the petitioner which had escaped assessment. In this connection reference was made to the date of the notice, viz., December 19, 1958, the date of annexure "D", the letter addressed by the Income-tax Officer to the petitioner, viz., December 4, 1959, the date of the subsequent communication by the Income-tax Officer to the petitioner, viz., September 12, 1960, the date on which another letter was sent to the petitioner asking the petitioner to produce four persons for examination by the Income-tax Officer viz., April 17, 1961, and April 25, 1961, on which date Raj Nath was examined by the Income-tax Officer and the assessment orders against Raj Nath were passed by him. It was urged that in view of the fact that notice under section 34 was issued on December 19, 1958, and that notice was pursued all along until April 25, 1961, and even subsequently and yet an assessment order in respect of the same income having been made on April 25, 1961, which could and must have been made only on the basis that the income in question was the income of Raj Nath, it was not possible to contend that at least after April 25, 1961, the Income-tax Officer could entertain any reasonable belief that the income could be the income of the petitioner and in the absence of such belief it was clear it was clerk that the proceedings under section 34 at least after that date was without jurisdiction. To my mind this argument though plausible is fallacious. From the manner in which the Income-tax Officer was pursuing the notice dated December 19, 1958, all along and even subsequently to April 25, 1961, it seems to me that it is not possible to say that the Income-tax Officer did not have reason to believe or that subsequent to April 25, 1961, he ceased to have reason to believe. If on April 25, 1961, on the statement Raj Nath he assessed the income in the hands of Raj Nath that must be attributable to the admission of Raj Nath that it was his income. It is well known that under the Income-tax Act very frequently assessment are made on income in the hands of persons who offer that income for assessment. That does not, however, mean that the mere fact that a particular income has been assessed in the hands of particular person must be taken to amount to a finding by the Income-tax Officer that that income is the income of that person and cannot be the income of another person even though subsequently on the basis of materials in the possession of the Income-tax Officer or on the basis of enquiry the Income-tax Officer may come to the conclusion that the income was that of another person. It seems to me that in this situation it is immaterial whether the material was already in the possession of the Income-tax Officer on the date on which on the admission of a particular assessee the income was assessed in his hands or the information came into the possession of the Income-tax Officer subsequent. What is material is whether, in the facts and circumstances of a particular case, it can be said that the Income-tax Officer has irrevocably made up his mind upon material before him that it is the income of any particular person and is not income of the any particular person and is to and cannot be the income of the any other person. Thus to my mind there is no force in this alternative argument also.
There is another ground on which these writ petition must be dismissed. The enquiry against the petitioner in respect of this income is not yet concluded. In the circumstances it is difficult to say whether such reason as the Income-tax officer has to believe that the income was of the petitioner can prima facie be held to be invalid. Obviously there is no question of jurisdiction involved in the case. In such a situation, the proper remedy to mind is the remedy of appeal against any order finally passed under section 34. The attempt of the petitioner to short circuit the enquiry by this writ petition was to my mind not justified. The Supreme Court in a recent decision in C. A. Abraham v. Income-tax Officer, Kottayam, has ruled in very definite terms that the remedy under article 226 of the Constitution cannot be allowed to bypass the remedies under the Act.
For all these reasons the writ petition must fail and is dismissed with costs.
Petition dismissed.