TMI Blog1974 (4) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... gal infirmity, nor has any been pointed out and the department will act accordingly. - - - - - Dated:- 18-4-1974 - Judge(s) : B. C. MISRA. JUDGMENT B. C. MISRA J.-This judgment will dispose of two writ petitions (Civil Writ No. 387-D of 1963 and Civil Writ No. 388-D of 1963), the former of which has been filed by Shri Ravinder Narain and the latter by Shri Bishan Narain and Shri Sham Narain. They raise common questions of law and fact and are directed against the same action of the Income-tax Officer. The material facts are taken from the second writ petition (C.W. No. 388-D of 1963) filed by Shri Bishan Narain and Shri Sham Narain. It appears that there was an agricultural land situated in Mauza Malikpur Chaoni on the Grand Trunk Road, Delhi. Nine persons had separate defined shares in them. On 22nd July, 1949, they entered into an agreement with Delhi Land and Finance Ltd. for the purpose of development and parcelling out of the land in plots and sale as a residential colony. Delhi Land and Finance Ltd. were appointed as their sole selling agents and a power of attorney was given to them. One of the terms of the agreement was that the company would get 50 per cent. of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . These are the notices which have been challenged in the present writ petitions. The writ petitions were filed in the High Court on or about 23rd May, and they were dismissed in limine by order of the High Court dated 24th May, 1963. Aggrieved by this order, the petitioners filed appeals in the Supreme Court of India with special leave. The appeals were allowed by order dated 22nd November, 1966, and the order of dismissal of the High Court was set aside and the petitions were remanded to this court with the direction to issue the rule and decide the petitions according to law. That is how the petitions have now come up for final hearing. At this stage it would be convenient to refer to the pedigree of the petitioners to indicate the nine parties mentioned above. Shri Munshi Tulsi Dhar, pleader, had three sons, Salig Ram, Raghubar Dayal and Panna Lal. Salig Ram had a son by name, R.B. Suraj Narain, Bar-at-law, advocate, and three other sons, Chand Narain, Radhika Narain and Kirpa Narain. Shri Suraj Narain had died on 24th December, 1957, and is represented by his sons, Shri Bishan Narain and Shri Sham Narain (petitioners in the second writ petition). Raghubar Dayal had a son b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e income received therefrom during the four assessment years mentioned above. The petitioners have challenged the said notices in the two writ petitions and have contended that there was no business activity but only conversion of the capital and there was no income in the nature of revenue receipt and that the order passed in the case of Suraj Narain was final. They have also contended that they never formed any association of persons to carry on any business and, at all events, the Income-tax Officer had exercised his option to assess the parties individually. They also allege that full facts had been disclosed to the Income-tax Officer in connection with the assessments and there was no valid and legal ground to issue notices under section 148 of the Income-tax Act and the notices are consequently legally bad. After the remand of the case to the Supreme Court the notices were issued to the respondents who have filed counter-affidavits in the two writ petitions. They have contended that they wish to assess the nine parties or the same together with the finance company as an association of persons which had carried on the venture in the nature of development and sale of the land ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to tax for the assessment year 1954-55 has escaped assessment within the meaning of section 147 of the Income-tax Act, 1961. I, therefore, propose to assess the income for the said assessment year and I hereby require you to deliver to me within 30 days from the date of service of this notice, a return in the prescribed form of your income assessable for the said assessment year. This notice is being issued after obtaining the necessary satisfaction of the Commissioner of Income-tax, Delhi/the Central Board of Revenue. Sd./-R. M. Malhotra, Income-tax Officer, C-1(1), New Delhi. " Association of persons means an association in which two or more persons join with a common purpose with the object to produce income, profits or gains. It is significant that in the notice the expression "association of persons" is not used for the assessee and in paragraph 8, the return is invited of " your income " and the alternative column " the income of ...... in respect of which you are assessable " is blank and would be presumed to be scored out. It is obvious that there is no indication or mention in this notice whatsoever of any association of persons formed to carry on the busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice or in pursuance of an invalid notice would be illegal and void. This authority has subsequently been followed and the rule of law laid down therein has been reiterated in Calcutta Discount Company Ltd. v. Income-tax Officer, Commissioner of Income-tax v. A. Raman Co., Chhugamal Rajpal v. S. P. Chaliha, and Sheo Nath Singh v. Appellate Assistant Commissioner of Income-tax . In Commissioner of Income-tax v. K. Adinarayana Murty, the material fact was that the correct status of the assessee was that of Hindu undivided family, but the first notice under section 34 of the Act had been issued to the assessee as an individual for making assessment in that status and it was, therefore, manifest that the proceedings taken under that notice were illegal and without jurisdiction. In this connection, the Supreme Court observed : " Under the scheme of the Income-tax Act the 'individual' and the 'Hindu undivided family' are treated as separate units of assessment and if a notice under section 34 of the Act is wrongly issued to the assessee in the status of an 'individual' and not in the correct status of 'Hindu undivided family' the notice is illegal and all proceedings taken under that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer, P. N. Bhagwati C. J., speaking for the Division Bench, held that if a notice under section 34 were issued against a person as a legal representative of a deceased person for making reassessment of the income of the deceased as an individual, the notice could not be availed of for the purpose of taking proceedings for reassessment of the income of the Hindu undivided family and the fact whether the notice had been issued to the undivided family or to the individual would be plainly a question of construction which would have to be determined on a proper interpretation of the language of the impugned notice and the intention of the revenue would hardly be relevant in determining this question. The impugned notices addressed to the petitioner as legal representative of late Patel left no doubt that the impugned notices were issued to the petitioner as legal representative of the deceased and the income which was sought to be assessed was the income of the deceased as an individual and the proceedings could not be continued against the Hindu undivided family. In this decision, the court observed that the notice under section 34 was not merely a procedural requirement and it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or not. All these persons are, therefore, distinct assessees. How a firm, whether registered or unregistered, is assessed and how the assessment is reflected in the income of the individuals is not relevant for purposes of the present petitions. If the Income-tax Officer had intended to proceed against the association, he ought to have made it perfectly plain that he proposed to assess the association formed by nine or ten parties. In that case he would ordinarily have issued a notice addressed to the association or referring to the association in the body of the notice served it on the principal officer of the association, but he addressed it to all the nine or ten persons. In the counter-affidavit it has been asserted that there were two associations of persons, one formed by nine co-owner of the land and the second by them together with the finance company. This again shows the weakness of the stand of the revenue inasmuch as they were not sure of the existence or the status of one or two associations and they were only proceeding to assess the individuals for the income received by them and not any association of persons. Had it been intended to proceed against the association, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that notice to come to the conclusion that the Income-tax Officer was really attempting to assess an association of persons" These observations of the Supreme Court fully support the view I am taking of the notices. I, therefore, hold that the impugned notices are not directed against any association of persons alleged to have been formed by the petitioners. They are, however, addressed to the individuals. As such the Income-tax Officer, in pursuance of the said notice, cannot proceed to assess any association of persons, but there is nothing to prevent him from proceeding against the parties in their individual capacity. It may here be noticed that Mr. Manchanda, in all fairness, submitted that the individual parties have been and are still ready and willing to have their cases reopened and have them decided according to law, but their main objection was to the assessment of the association of persons which was sought to be proceeded against by the Income-tax Officer and which in fact and law did not exist. This submission further assists me in deciding the writ petitions. Mr. Manchanda has further argued in the alternative that assuming that an association of persons existed, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose orders, I would prefer not to rely upon them, unless the correctness of these orders is established. Still, I feel reinforced in my conclusion that the department had in the case of at least Suraj Narain proceeded to assess the parties in their individual capacity and had not proceeded against the association of persons. In this way, he must be deemed to have exercised the option available to him. In Commissioner of Income-tax v. Kanpur Coal Syndicate, Joti Prasad Aggarwal v. Income-tax Officer and Commissioner of Income-tax v. Murlidhar Jhawar and Purna Ginning and Pressing Factory, the principle has been approved that once the option to make an assessment against an individual has been exercised, the department cannot proceed to assess the association formed by him for the same income for the same year. Considered from any point of view, I am satisfied that the impugned notices are in law not directed against the association of persons but are intended only for the individuals. As a result, the writ petitions must succeed. In the view I am taking, it is not necessary to determine whether on the construction of the agreement of July, 1949, executed between the finance compan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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