TMI Blog1967 (3) TMI 118X X X X Extracts X X X X X X X X Extracts X X X X ..... ass's income was determined at ₹ 9,352 and that of Phool Chand at ₹ 18,105. These amounts included their share of profit in the firm. It is alleged in the writ petition that subsequently in proceedings under section 34 of the said Act, the income of appellant Banarsidass was increased to ₹ 10,819 on 27-12-1951 and that of appellant Phool Chand to ₹ 18,747 on 16-5-1951. The firm is alleged to have been dissolved on 28-10-1952 by a deed of dissolution. The appellants claim that in their return for the assessment year 1953-54 filed on 19-1-1953, it was stated at the foto of the return that the old firm had been dissolved. A new firm was allegedly constituted with Jeewan Ram, Banarsidass, Phool Chand and Mandirdass as partners under a partnership deed executed on 19-1-1953. It appears that on 29th March, 1955,proceedings were taken under section 34 of the said Act with a view to reopening the assessment of the firm with respect to the year in question and it is on that date that a notice under section 34 of the said Act was issued to the firm. The allegation of the revenue was that the Fixed Deposit Receipt of about ₹ 3 lacks issued by the firm repr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the share of partner or, if included, is not correct, the inclusion of the share on the assessment or the correction thereof, as the case may be, shall be deemed to be a rectification of a mistake apparent from the record within the meaning of this section, and the provisions of sub-section (1), shall apply thereto accordingly, the period of four years referred to in that sub-section being computed from the date of the final order passed in the case of the firm. Since it will become necessary while dealing with a decision of their Lordships of the Supreme Court in Ahmedabad Manufacturing Calico Printing Co. Ltd. v. S. G. Metha, I. T. Officer to refer to Section 35 (10) of the said Act it is relevant to point out that sub-section (10) of section 35 was inserted by section 19 of the Finance Act 1950 with effect 1st April, 1956 and reads as under: Where in any of the assessment for the years beginning on the 1st day of April of the years 1948 to 1955 inclusive, a rebate of income-tax was allowed to a company on a part of its total income under clause (I) of the proviso to Paragraph B of Part 1 of the relevant Schedule to the Finance Acts specifying the rates of tax for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 226 of Constitution. Each case has to be judged on its own merits having regard to the facts and circumstances. When considering such a question the Courts do bear in mind that the greatest danger to the rights of the subjects lurks in the insidious invasions made sometimes by the over-zealous revenue authorities, though acting perfectly bona fide. For purposes of disposing of the 2nd and the 4th contentions, it is, therefore, necessary to see the facts of the case at hand. The revenue denies that the firm was ever dissolved. Accordingly to Mr. Kirpal, the learned counsel for the revenue, the dissolution has been put up only by way of subterfuge to avoid heavy tax liability which the firm originally managed to escape. On the notice issued under section 34 of the said Act on 29-3-1955, the report of the Process Server received on 30th March, 1955, disclosed that the proprietor was not available. Under these circumstances , the service was effected on the firm by affixation. It is impossible, therefore, to determine in these contentions facts whether or not (i) the firm has been dissolved ; (ii) if dissolved, could it be assessed; (iii) on whom was the notice required to be ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... versy and it is on this aspect of the case that I have felt considerable difficulty. I have already set out the contention of the appellants in this behalf. Mr. Chadha, the learned counsel for the appellants, has relied in support of the contention on two decisions of their Lordships of the Supreme Court - Income-Tax Officer, V Circle, Madras, v. S. K. Habidullah 1962 (44) ITR 809 = (AIR 1962 Sc 918) and Second Additional Income-Tax Officer, Guntur v. Atmala Nagaraj, 1962 (46) ITR (SC) 609. In Habidbullah's case, (1962) 44 ITR 809 = (AIR 1962 Sc 918), the assessed was a partner in two firms. He submitted his return of his income and incorporated therein the admitted share of his losses in the two firms at ₹ 20,000 and Rs, 10,000 for the assessment for the said two years on February 20, 1950 after adopting the estimates furnished by the assessed, but he made a note that the losses accepted were subject to revision on ascertainment of the correct particulars. The assessment of one of the firms for the assessment years 1946-47 and 1947-48 was completed on October 31, 1950 and the proportionate share of the assessed for the losses was computed at a lower figure. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e before April 1, 1952. Let alone this decision shows, as I have said earlier, that where rectification becomes necessary as a result of assessment or re-assessment of a firm made after 1-4-1952, section 35(5) would be operative. But then came the decision in Atmala Nagaraj's case (1962) 46n ITR 609 (SC). In this case, their Lordships of the Supreme Court dealt with two appeals (i) where the respondent was an individual and (ii) where the assessed-respondent was Hindu undivided family. In both the cases, the original assessments of the assesseds were completed on January 22, 1952. The two assesseds held shares in two registered firms and although the assessments of the firm completed the assessment of the assesseds by taking certain amount as their share of profits in the firm. The assessments, of the firm were completed on October 16, 1954 and then it came to light that the aggregate shares of the income from the two firms in the case of each assessed were more. After notice under section 35, the Income-tax Officer rectified the mistakes in exercise of power under sub-section (5) of section 35 of the said Act. In this case, therefore, the assessments of the two firms we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0) of the said Act which came inot force on April 1, 1956 withdrawing the proportionate rebate on the amount of dividend declared. It was held by majority (Sarkar, Hidayatillah and Raghubar Dayal, JJ.) that sub-section (10) of section 35 properly applied to the case. It is for the proper appreciation of this decision that I chose to qutoe sub-section (10) of section 35 in the earlier part of the judgment. Das, J. Representing the minority, with whom Kapur, J. agreeed observed: We may point out, however, that in (1962) 46 I.T.R. 609 (SC) this Court went a step further and held that sub-section (5) of section 35 was not applicable to cases where the assessment of the partner was completed before April 1, 1952, even though the assessment of the firm was completed after April 1, 1952. Learned counsel for the appellant frankly conceded before us that he did not wish to go as far as that and contend that even in a case where a declaration of the dividend was made after April 1, 1956, sub-section (10) would not apply; because that would make sub-section (10) unworkable. The decision in (1962) 46 ITR 609 (SC) may perhaps require reconsideration as to which we need not express any final ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irm as the event giving rise to a particular cause of action. If any re-assessement is made on April 2, 1952 and it must also be necessarily reflected in the partner's assessment made before that date. Can it, then be said that the Legislature intended that even in cases where the crucial event takes place after April 1, 1952, the provision under consideration was not intended to operate for some time. That interpretation will create an artifical dichtoomy even in cases where the firm is assessed or re-assessed after 1-4-1952, and thereby defeat rather than effectutate the purpose of the enactment. When the assessment or re-assessement of a firm is made, the revenue has at that time to see as to how the partner's share of the income is to be included in his assessment. He has to weigh between the two courses: (i) Proceedings under section 34 of the said Act, and (ii) rectifiation of a mistake under section 35 (5) Where the subsequent event necessitating the rectification takes place after coming inot force of sub-section (5) of section 35, the rectification can, in my opinion, be made under that sub-section. No doubt, section 35 (5) affects the vested rights but it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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