1967 (3) TMI 118 - HC - Income Tax

Summary

Issues Involved:

1. Proper service of notice under Section 34 of the Indian Income Tax Act, 1922.
2. Assessment of a dissolved firm.
3. Valid service of notice under Section 34 in accordance with Section 63 of the Act and relevant Civil Procedure Code provisions.
4. Service of notice on individual partners.
5. Validity of rectification of individual assessments under Section 35(5) of the Act.

Issue-wise Detailed Analysis:

1. Proper Service of Notice under Section 34:

The appellants contended that the question of proper service of notice under Section 34 of the Indian Income Tax Act, 1922, is a jurisdictional issue. The learned Single Judge rejected the writ petition on the ground that the assessed had an alternative legal remedy. The court noted that there is no absolute rule mandating court interference under Article 226 of the Constitution if a jurisdictional question is raised. Each case must be judged on its merits, considering the facts and circumstances. The court emphasized that the greatest danger to the rights of subjects often comes from over-zealous revenue authorities, acting bona fide. The revenue denied the dissolution of the firm, suggesting it was a subterfuge to avoid tax liability. The service of the notice was effected by affixation due to the proprietor's unavailability. The court found it impossible to determine the facts regarding the firm's dissolution, the necessity of notice service, and the validity of the notice service without further factual determination. The learned Single Judge rightly declined to pronounce on the merits of these contentions due to the ongoing remedies under the Act.

2. Assessment of a Dissolved Firm:

The appellants argued that the firm, having been dissolved, could not be assessed after dissolution. The revenue countered that the dissolution was a subterfuge to avoid tax liability. The court found it impossible to determine whether the firm was dissolved, if it could be assessed post-dissolution, and on whom the notice should have been served without further factual determination. The learned Single Judge rightly declined to pronounce on the merits of these contentions due to the ongoing remedies under the Act.

3. Valid Service of Notice under Section 34:

The appellants contended that there was no valid service of notice under Section 34, considering Section 63 of the Act and relevant Civil Procedure Code provisions. The revenue argued that the service was effected by affixation due to the proprietor's unavailability. The court found it impossible to determine the facts regarding the validity of the notice service without further factual determination. The learned Single Judge rightly declined to pronounce on the merits of these contentions due to the ongoing remedies under the Act.

4. Service of Notice on Individual Partners:

The appellants argued that no notice under Section 34 was served on any of the partners. The revenue countered that the service was effected by affixation due to the proprietor's unavailability. The court found it impossible to determine the facts regarding the necessity and validity of notice service on individual partners without further factual determination. The learned Single Judge rightly declined to pronounce on the merits of these contentions due to the ongoing remedies under the Act.

5. Validity of Rectification under Section 35(5):

The appellants contended that their assessments, completed before 1-4-1952, could not be rectified under Section 35(5) of the Act, which came into force on that date. The court examined the relevant Supreme Court decisions in "Income-Tax Officer, V Circle, Madras, v. S. K. Habibullah" and "Second Additional Income-Tax Officer, Guntur v. Atmala Nagaraj." In "Habibullah's case," the Supreme Court held that the provisions of Section 35(5) were not retrospective and could not be applied to assessments finalized before 1-4-1952. However, the court noted that if the assessment or re-assessment of a firm occurred after 1-4-1952, Section 35(5) would be operative. In "Atmala Nagaraj's case," the Supreme Court reiterated that Section 35(5) did not apply to assessments finalized before 1-4-1952, even if the firm's assessment occurred after that date. The court concluded that the Income-tax Officer rightly applied Section 35(5) in rectifying the error, as the assessment or re-assessment of the firm was completed after 1-4-1952, necessitating the rectification of the partner's assessment.

The appeal was dismissed, with no order as to costs, and the judgment was concurred by Jagjit Singh, J.