1964 (4) TMI 130 - HC - Income Tax

Summary

Issues Involved:
1. Timeliness of the application under Section 27 of the Income Tax Act.
2. Legality of the partnership formed for vending toddy.
3. Validity of the assessment made on the firm or association of persons.
4. Sufficiency of notice served on one partner to bind the other partner.

Detailed Analysis:

1. Timeliness of the Application under Section 27 of the Income Tax Act:
The primary issue was whether the application filed by the assessee under Section 27 of the Income Tax Act was within the permissible time. The Income Tax Officer assessed the firm's business income at Rs. 2,00,000 and served a notice of demand on Kalyanasundara Nadar on 20-3-1953. Subsequently, the personal assessment of A. D. Thiagaraja Pillai included a half share of the business profits, and notice of demand was served on him on 25-3-1953. Thiagaraja Pillai applied under Section 27 on 21-4-1953, claiming he only became aware of the assessment on receiving the order on 16-4-1953. The Income Tax Officer rejected this application as time-barred, a view affirmed by the Appellate Assistant Commissioner and the Income Tax Appellate Tribunal.

2. Legality of the Partnership Formed for Vending Toddy:
The legality of the partnership was questioned based on whether it was formed to exploit a license to vend toddy obtained by certain benamidars. The contention was that such a partnership should be regarded as illegal and the assessment should be on an association of persons. The court referenced previous decisions, including Md. Abdul Kareem and Co. v. Commissioner of Income Tax, Madras, and Velu Padayachi v. Sivasooriam Pillai, which held that partnerships formed to conduct business in arrack or toddy without proper licenses were void ab initio. However, the court also noted that if the partnership was disclosed to and concurred by the Revenue authorities, it would not be illegal, as established in J. D. Italia v. D. Cowasjee.

3. Validity of the Assessment Made on the Firm or Association of Persons:
The court emphasized that the assessment's validity depended on whether the partnership was legal. If legal, the assessment could be made on the firm; if illegal, it should be on the partners as an association of persons. The court noted that the department and Tribunal did not investigate whether the partnership was legal or illegal, which was crucial for determining the validity of the assessment.

4. Sufficiency of Notice Served on One Partner to Bind the Other Partner:
The court examined whether the notice served on Kalyanasundara Nadar was sufficient to bind Thiagaraja Pillai. The Appellate Assistant Commissioner and the Tribunal assumed that service of notice on one partner would bind the other without investigating the legality of the partnership or whether Kalyanasundara Nadar was recognized as the principal officer of the association of persons. The court highlighted that if the partnership was legal, notice to one partner would suffice; if illegal, the assessment should be on an association of persons, requiring notice to the principal officer.

Conclusion:
The court concluded that the Tribunal was not justified in holding that the application under Section 27 was out of time without deciding whether the notice to Kalyanasundara Nadar was sufficient to bind Thiagaraja Pillai. The court emphasized the need for an investigation into the legality of the partnership and the role of Kalyanasundara Nadar as the principal officer. The question was answered accordingly, with no order as to costs.