TMI Blog1967 (9) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... reason to believe that certain income of the firm had escaped assessment and he consequently decided to take action under section 34 of the Act. The first notice was given under section 34(1)(a), in response to which the assessee submitted a return but no assessment was made on the basis of the said notice. Subsequently, another notice under section 13(1)(b) was served on the 3rd December, 1956. This was a notice issued in the name of the firm of Messrs. Devidayal Sons and it was served on Amirchand, one of the erstwhile partners. In the said reassessment proceedings the Income-tax Officer made an addition of a sum of Rs. 3,00,926 to the originally assessed income. In the appeal against the said reassessment, the order of the Income-tax Officer was confirmed by the Appellate Assistant Commissioner. On second appeal before the Tribunal, the assessee for the first time raised a fresh ground that the proceedings initiated by the Income-tax Officer under section 34(1)(b) were bad in law. In addition to this contention certain other contentions were also raised relating to the quantum and assessability of the profits computed under section 10(2)(vii) of the Act and also some technical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... When the said recovery proceedings were sought to be enforced against the third partner, who had not been served with a notice under section 34, he made a writ petition to the High Court for a writ of certiorari and a writ of mandamus for quashing the assessment orders and for restraining the department from taking any further steps in connection with the said recovery proceedings. The contentions raised were that the notices, which were issued under section 34 to the individual partners, could not form the basis of a valid assessment of the firm or the firm's income and the partners could not be proceeded against for the recovery of tax under that assessment. The second contention raised was that section 44 of the Income-tax Act was not applicable to the case inasmuch as it did not apply to cases of firms which had been dissolved and assuming that it was applicable to the cases of firms that had been dissolved, an assessment to income-tax of its pre-dissolution income can be made only on the persons, who were the partners of the firm at the time of the dissolution jointly and severally and cannot be made on the firm itself. Both these contentions were accepted by the Calcutta Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firm, business whereof had been discontinued, an order imposing penalty under section 28 of the Act could not be passed by virtue of section 44. In dealing with the said contention, the Supreme Court had to consider the scheme of section 44, the material portion of which is as follows : " Where any business ... carried on by a firm ...... has been discontinued... every person who was at the time of such discontinuance... a partner of such firm .... shall in respect of the income, profits and gains of the firm ... be jointly and severally liable to assessment under Chapter IV and for the amount of tax payable and all the provisions of Chapter IV shall, so far as may be, apply to any such assessment ". Their Lordships pointed out that section 44 sets up a machinery for assessing the tax liability of a firm which had discontinued its business and provides for the consequences, namely : (1) that on the discontinuance of the business of a firm every person who was at the time of its discontinuance a partner is liable in respect of the income, profits and gains of the firm to be assessed jointly and severally, (2) that each partner is liable to pay the amount of tax payable by the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, to whom the notice was issued, moved the High Court for a writ of mandamus restraining the income-tax authorities from taking any action under the said notice on the ground that the proceedings were invalid. It was argued that after the dissolution of the firm, its income could not be assessed to tax under section 44 of the Indian Income-tax Act. The Supreme Court, after having referred to its earlier decision in C. A. Abraham v. Income-tax Officer, Kottayam held that where the business of the firm was discontinued and the firm was dissolved, the provisions of section 44 were attracted. Their Lordships pointed out that whereas in the case of an association, discontinuance of business for whatever cause and dissolution with or without discontinuance of business both attracted the application of section 44, it was only where there was discontinuance of business whether as a result of dissolution or other cause that the liability to assessment in respect of the income of the firm under section 44 arose. Since the case before them was one of discontinuance of business by dissolution, the Supreme Court held that section 44 was attracted to the case. In dealing with the application of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and not of those who were members of the association at the time of the dissolution jointly and severally and (2) particularly as against any member on whom notices under sections 34 and 22(4) were not served because of such failure to serve notices on them. According to the High Court, the assessment was not binding on the assessee as no notice under section 22 was issued to him and as he was not assessed severally or jointly with others referred to above and he was also not liable for the amount of tax payable as determined in the order of assessment dated September 30, 1953, as that assessment was not made in conformity with section 44 of the Indian Income-tax Act. In support of the conclusions arrived at by the High Court, it was urged before the Supreme Court that, in the first place, the assessment on the association could not be made after its dissolution and even assuming that such an assessment could be validly made it was binding only on those persons, who were served with a notice calling for a return. It was urged that under section 44 it was provided that every person who was at the time of the dissolution a member of the association shall in respect of the income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the correct view. The result of the Supreme Court decision referred to above is that even after the discontinuance of the business of the firm either by dissolution or otherwise, the firm can be treated as continuing so far as the assessment of its pre-dissolution income is concerned and the assessment or reassessment of such a firm after dissolution under section 44 of the Act could be made in the same manner under Chapter IV as if it had not discontinued its business. In the present case, therefore, the assessment made on the firm could not be treated as invalid as held by the Tribunal. Mr. Kolah, the learned counsel for the assessee, has argued that a firm, which has discontinued its business as a result of its dissolution, is a firm which is dead and no assessment can be made on an assessee that is dead. It is no doubt true, he says, that the discontinuance of the business of the firm will not involve the consequence of escapement of assessment of the pre-dissolution income but in order to bring such income to assessment the provision of the Income-tax Act, which is enacted in section 44, has got to be followed and the income can be brought to assessment only under the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purpose of initiating reassessment proceedings is not a mere procedural requirement. The service of the prescribed notice on the assessee is a condition precedent to the validity of any reassessment made under section 34 of the Act. If no notice is issued or if the notice issued is shown to be invalid, then the proceedings taken by the Income-tax Officer without a notice or in pursuance of an invalid notice would be invalid and void. Mr. Kolah's argument is that section 63(1) requires that service of a notice has to be effected in the same manner as if it were a summons issued by the court under the Code of Civil Procedure. Service of notice in the case of firms, therefore, must be effected in the same manner in which service of summons is directed to be made when persons are sued as partners in the name of the firm. Rule 3 of Order XXX of the Code of Civil Procedure, which prescribes for the service of summons in the case of firms, provides that the service will be required to be made not only on the firm but also on the partners whom the plaintiff seeks to make liable in cases where the firm is dissolved to the knowledge of the plaintiff before institution of the suit. Accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erved by the Supreme Court in Abraham's case : "By a fiction, the firm is deemed to continue after discontinuance for the purpose of assessment under Chapter IV". Under section 44 of the Income-tax Act, therefore, the assessment of a firm which has discontinued its business as a result of dissolution or otherwise, is in precisely the same manner as in the case of a continuing firm and the same procedure has, therefore, to be adopted even in the matter of the service of the notice under section 63(1) as in the case of a continuing firm. It is not denied that in the case of a continuing and existing firm, service of the notice on a partner of the firm is sufficient. The argument of Mr. Kolah that the service of the notice not having been effected on all the partners individually is not valid and proper, cannot, therefore, be accepted. In our opinion the service of the notice issued in the name of the firm and served on one of the partners is quite valid and proper. The view that we are taking is supported by the decision of this court in Ramniwas Hanumanbux Somani v. Income-tax Officer, where it has been held that in a case falling under section 44 of the Income-tax Act notice of rea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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