TMI Blog2000 (12) TMI 222X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant as a condonable mistake and in all such cases we have taken the appellant as M/s Mamatha Motels. The other two appeals, i.e. by Smt. E.L. Gracy and Shri A. Janaradhanan are against the individual assessments passed in their cases. 2. IT (S S) A. No. 48 (Coch)/98: The main objections to the block assessment order dated 26-8-1998 passed in the case of M/s Mamatha Motels are contained in the appeal filed by M/s Mamatha Motels through the partner Shri K.V. Ramakrishnan. The main objection taken is that there have been number of changes in the constitution of the firm, M/s Mamatha Motels, and so the Assessing Officer erred in passing one assessment order for the entire block assessment period 1-4-1986 to 12-12-1996. For appreciating the validity or otherwise of this contention, certain facts are required to be given. A search under section 132 of the Income-tax Act took place on the residential premises of Shri K.V. Ramakrishnan, a partner in M/s Mamatha Motels, on 12-12-1996. A similar search also took place on the premises of Smt. E.L. Gracy, who was the Chairperson of the assessee-firm for a very long period. No search was conducted on the premises of the assessee-firm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r clause 8, Smt. E.L. Gracy is described as the Chairperson and it is also stipulated that the management of the Hotel will be handled by the Chairperson. Clauses 14 and 15 of the deed read as under: "14. Death--In case of death, retirement, insolvency or lunancy of a partner the partnership firm shall not be dissolved; but shall be the carried on by the remaining partners after satisfying the legal heirs of the deceased partner in respect of their share in the partnership and/or one major legal heir be admitted as a partner in the place of deceased partner. If none of the heirs of the deceased partner is willing to be admitted, the share of such partner be paid to the legal heirs of the deceased partner according to law. 15. Retirement--Any partner may retire from the partnership after giving not less than three calendar months notice in writing and obtaining written consent of the remaining partners. Within three months of the intended date of retirement, the assets and liabilities of the partnership shall be valued according to the books of account of the partnership and the share of the outgoing partner shall be determined and paid off. The retiring partner shall not be ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the assets of the firm, inclusive of the land and building and it is stipulated that the retiring partners should clear of all the liabilities of the firm including sales-tax, income-tax and other liabilities and in case the continuing partners are ever called upon to pay the said dues upto the date of retirement, i.e. 14-8-1996 such amounts paid by the continuing partners, could be recovered by them from the retired partners. The two surviving partners, i.e. the pair of the husband and wife, Shri K.V. Ramakrishnan and Mrs. K.S. Thankam, executed another partnership deed dated 14-8-1996 in which they undertook of share profits and losses equally and clause 13 of this deed also stipulated that death or retirement of any of the partners shall not dissolve the firm and the business of the firm shall be continued by taking in the legal representative or nominee of the deceased or retired partner, as the case may be. It may be observed that a similar clause existed in the earlier deeds also. 4. In the light of the above, it is evident that in each of the partnership deeds concerned, i.e. the deeds dated 23-3-1991,23-5-1996 and 14-8-1996, there are clauses to the effect that the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessments under Chapter XIVB and not before. It is, therefore, incorrect and improper to tax the undisclosed income of the previous firm with 15 partners in the hands of the present firm with 2 partners namely, Mr. K.V. Ramakrishnan and Mrs. K.S. Thankam, who are total strangers to the previous firm. Making an assessment under Chapter XIVB by clubbing the undisclosed income of the two different firms is against the letter and spirit of the law of partnership and taxation. The right course is to make two separate assessments on the two firms under section 158BC and under section 158BD of the Chapter XIVB of the Income-tax Act, and recover the tax separately from the persons concerned. For the above and other reasons that may be adduced at the time of hearing it is prayed that necessary orders be given to make two separate assessments on the firm, i.e. one in respect of the period from 1-4-1992 to 13-8-1996 and another assessment in respect of undisclosed income of the firm for the period 14-8-1996 to 12-12-1996." 6. The thrust of the argument of the learned counsel for the assessee, Shri M.K. Kesavan, is that the assessment under section 158BC is only for the purpose of bringin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtmental Representative, on the other hand, mentioned that there are so many provisions in the Income-tax Act outside Chapter XIVB like the provisions of Chapter XV relating to liability in special cases like that of legal representatives referred to in section 159, which have an application even in the framing of a block assessment under section 158BC and so there is no reason to assume that the provisions of section 187 have no application in the framing of an assessment under section 158BC or under section 158BC read with section 158BD. He also relied on the decision of the Hon'ble Kerala High Court in the case of Excel Productions v. CIT [1971] 80 ITR 356 wherein it had been held that where there is a change in the constitution of a firm during the previous year, separate assessments under section 188 are ruled out and that assessment had to be made on the firm as constituted at the time of making the assessment. He also referred to the provisions of the various partnership deeds which stipulated that retirement or death of a partner does not lead to the dissolution of the firm. So, in view of these clauses it is pleaded that the identity of the firm continued and therefore a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respective shares or in the shares of some of them: Provided that nothing contained in clause (a) shall apply to a case where the firm is dissolved on the death of any of its partners." There was a proviso to section 187, which was omitted by Finance Act, 1992 w.e.f. 1-4-1993 which read as under: "Provided that- (i) the income of the previous year shall, for the purposes of inclusion in the total incomes of the partners, be apportioned between the partners who, in such previous year, were entitled to receive the same; and (ii) when the tax assessed upon a partner cannot be recovered from him, it shall be recovered from the firm as constituted at the time of making the assessment" Clause (b) of section 158BC reads as under: "(b) the Assessing Officer shall proceed to determine the undisclosed income of the block period in the manner laid down in section 158BB and the provisions of section 142, sub-sections (2) and (3) of section 143 and section 144 shall, so far as may be, apply;" Now, the question is what is meant by an assessment under section 143(3) and whether it includes an assessment under section 158BC. If it includes an assessment under section 158BC, it autom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 147/148 is to see whether an assessment under section 143/144 referred to in section 187 includes a reassessment under section 147/148, because an assessment under section 148 may also stand on the same footing as an assessment under section 158BC for the limited purpose of ascertaining the scope of the expression "assessment under section 143/144". If an assessment under section 143 does not include an assessment under section 148, it is arguable that, analogously, it does not include an assessment under section 158BC. If, on the other hand, there is internal evidence in the Act to the effect that an assessment under section 143 includes an assessment under section 148, again, analogously, it may have to be inferred that an assessment under section 143 includes an assessment under section 158BC. This is because even under the provisions of section 148, there is a reference to the other provisions of the Act which includes section 143. The provisions of section 148 reads as under: " 148(1). Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3." In view of the definition of "regular assessment" contained in section 2(40) of the Income-tax Act and the contents of Explanation 2 to section 214 and sub-section (6) of section 215, it appears that an assessment under section 147 is different from an assessment under section 143/144 and is not comprised within the scope of an assessment under section 143. In the case of Modi Industries Ltd. v. CIT [1995] 216-ITR-759 the Apex Court held that 'regular assessment' in the context of section 214 meant only the first assessment under section 143 / 144. The relevant portion of the head note of this decision reads as under: "An assessment" has been given an inclusive meaning in sub-section (8) of section 2. It includes reassessment. 'Regular assessment' has been defined in section 2(40) to mean the assessment made under section 143 or 144. In the context of sections 140A, 141 and 141A "regular assessment" could only mean the original assessment made under section 143 or 144. Having regard to the scheme of the Act and use of the phrase "regular assessment" in various sections of the Act, in section 214 "regular assessment" has been used in no other sense then the first order of as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hink this analogy bears well in the context of the present case. In the first place, the Income-tax Act contains a definition of the expression "person" and there is an obligation to apply the meaning of that expression wherever it occurs in the Act. It is true that if the context requires it to be otherwise understood, it is always open to the courts to come to a different conclusion." We are referring to the above cases only for the limited purpose of holding that the same expression may have to be given different meanings even in the same enactment in different contexts. 9. After the above broad survey of certain provisions of the Income-tax Act relating to "regular assessment", 143(3) assessment, 148 assessment, 158BC assessment, etc., we turn to the scheme of the computation of undisclosed income as laid down under section 158BB(1). We have already extracted the relevant portion of section 158BB(1). Under this section, the aggregate of the total income of the previous years falling within the block period computed in accordance with the provisions of Chapter IV on the basis of evidence found as a result of search action and such other information available with the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revious year during which the change in the constitution took place even under section 148, because the previous year already got determined in such a case in the assessment under section 143(3). In other words, the Assessing Officer cannot make one assessment under section 143(3) for one previous year and two assessments under Section 148 for the same previous year if he were to invoke section 148 in a case where be had completed the assessment under section 143(3) read with section 187. So, evidently reference to section 143(3) in section 187 includes an assessment under section 147/148. The same logic should apply while ascertaining the undisclosed income of a previous year included in the block period under section 158BB(1). The provisions of section 158BB(1) become impossible to be applied if it is held that an assessment under section. 143(3) referred to in section 187 excludes an assessment under section 158BC. Similar is the position for an assessment made under section 158BD read with section 158BC. Thus, we are led to the conclusion that the interpretation sought to be given to the scope of an assessment under section 143(3) referred to in section 187 by the learned couns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any rate, in view of the provisions of section 187, a single assessment, as made by the Assessing Officer, seems to be quite valid in law. 10(a). Section 187 makes the present partners answerable for the actions of the firm when they were not partners. This may look unfair towards the present partners. That is a difficultly inherent in the section and, to our mind, cannot be avoided, whether the assessment is made under section 143(3) of section 148 of section 158BC or section 158BD read with section 158BC. The position remains the same under all these sections or situations. 10(b). Further, we find that there is no basis for making two assessments, one for the period from 1-4-1992 to 13-8-1996 and another for the period 1-4-8-1996 to 12-12-1996, as urged for in the last part of the grounds taken by the assessee, which we have extracted herein above. The only significance of the date 14-8-1996 is that the three old partners, i.e. Smt. Gracy, Shri George and Smt. Rosil Raphael retired, leaving only the pair or husband and wife, i.e. Shri Ramakrishnan and Smt. Thankam, as the surviving partners. Actually, Shri Ramakrishnan and his wife joined as partners on 23-5-1996. As the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erstwhile partners of M/s Mamatha Motels have filed appeals against the block assessment for the period 1-4-1986 to 12-12-1996 and subsequently the partners were advised that a separate appeal should have been filed and accordingly the present appeal is filed. Considering the circumstances of the case, we condone the delay in filing of the appeal. 12. The gist of the grounds taken is that the maxim "Audi Alteram Partem" has not been followed by the Assessing Officer, as the retired partners were not given an opportunity of being heard and that the Asstt. Commissioner of income-tax has gone wrong in relying on the books of account, documents and other materials seized from the residence of the erstwhile managing partner, Smt. Gracy. A vague ground is also taken to the effect that the Asstt. Commissioner of Income-tax had not complied with the procedure for the competition of the block assessment stipulated in Chapter XIVB of the Income-tax Act, but it has not been substantiated in the course of the hearing before us. The learned counsel for the assessee has not explained as to how exactly the Asstt. CIT failed to comply with the said procedure. However, we are of the view that as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or statistical purposes these appeals are treated as allowed. 15. IT(S S) A. No. 64 (Coch)/98--This appeal is filed by Smt. E.L Gracy describing herself as the appellant, but the objection is against the block assessment made on the firm M/s Mamatha Motels and the determination of its undisclosed income at Rs. 1,06,62,370 vide the order of the Assessing Officer dated 26-8-1998. We have already mentioned that in such a situation the appellant should have been described only as the firm M/s Mamatha Motels and we accordingly treat this as an appeal filed by the said firm. 16. One of the important grounds taken reads as under: "The officer should have known that the search was conducted on 10-12-1996 and hence the impugned assessment order dated 26-8-1998 is barred by limitation. On that ground alone the assessment order should be set aside." In the course of the hearing before us no argument has been advanced as to how the assessment order dated 26-8-1998 framed on the firm M/s Mamatha Motels for the block period 1-4-1986 to 12-12-1996 is barred by limitation. It must be noticed that the assessment on the firm vide order in question dated 26-8-1998 is an order passed not simpl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant without giving her an opportunity is against the principles of natural justice. It is also against the provisions of section 158BD of the I.T. Act, 1961. 2. The officer also erred in holding that the appellant is jointly and severally liable especially in view of the fact and his finding that there can be only one block assessment for the assessee-firm, and that there was no dissolution or discontinuance of the firm. 3. Therefore no liability could be fastened on the appellant as per order dated 26-8-1998 when the appellant was admittedly not a partner." 18. We find no merit in the above grounds. We have already held that a single assessment for the entire block period is valid in law. We do not see the import of ground No. 3 above. We do not see how simply because one assessment is made for the entire block period a partner can be exempted from joint and several liability for the demand raised on the firm under the provisions of section 188A of the I.T. Act, or under the provisions of the Partnership Act, as held by the Apex Court in the case of Arunagiri Chettiar. We do not see any merit in ground No. 4 above also because when a single assessment is made, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer did not give any opportunity to him to examine the documents seized from Smt. Gracy. 21. We have set aside, in the context of the other appeals mentioned hereinabove, the assessment framed on the firm M/s Mamatha Motels and remanded the matter to the file of the Assessing Officer for the completion of the assessment de novo as per law after giving an opportunity of being heard to all the retired partners along with the surviving partners. In this view of the matter, we do not find it necessary to deal with the specific grounds taken in this appeal. We may, however, mention that there is one ground wherein it is mentioned that the Assessing Officer erred in sending the notice dated 26-8-1998 to the appellant for clearing the assessed tax on the alleged unaccounted income of the firm. We are of the view that the assessee cannot be exonerated from joint and several liability cast upon the partners, retired and surviving, under the provisions of section 188A of the Income-tax Act, and also by virtue of the decision of the Apex Court in the case of Arunagiri Chettiar. However, the present appeal is against the block assessment in the case of M/s Mamatha Motels and not again ..... X X X X Extracts X X X X X X X X Extracts X X X X
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