TMI Blog1962 (1) TMI 81X X X X Extracts X X X X X X X X Extracts X X X X ..... in March, 1953, the notice of dissolution of the said firm was duly given to the Income-tax Officer, Special Survey Circle III, Calcutta, though this fact is denied on behalf of the income-tax department. By an order dated the 3rd August, 1955, the Central Board of Revenue, in exercise of its powers under sub-section (7A) of section 5 of the Indian Income-tax Act, transferred the income-tax cases of the said firm pending in the office of the Second Income-tax Officer, Bombay, to the Income-tax Officer, Central Circle II, Calcutta. By a letter dated the 29th September, 1955, the then Income-tax Officer, Central Circle II, Calcutta, informed the said firm at 357, Kalbadevi Road, Bombay, that the case of the said firm has been assigned by the Central Board of Revenue to him. By a letter dated the 13th October, 1955, the Income-tax Officer, Central Circle II, Calcutta, called upon the ex-partners of the said firm to produce the books of the firm for the year 2004-05 and particularly all documents of speculation in cotton and silver on November 10, 1955. On October 22, 1955, the said Income-tax Officer issued a notice under section 34 addressed to Shivram Poddar (partner) for and on be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ta, who were partners of the said firm of M/s. Balmukund Radheshyam at the time of its dissolution, are jointly and severally liable to assessment in respect of the income, profits and gains of the said firm before its dissolution and for the amount of tax payable thereon; Now therefore under section 34 read with section 22(2) of the said Act, I require you the said Shivram Poddar to deliver to me within 35 days of the receipt of this notice a return in the attached form, of the total income and the total world income of the said firm assessable for the year ending 31st March, 1950. This notice is issued after the Commissioner of Income-tax (Central), Calcutta, is satisfied that this is a fit case for the issue of this notice. Income-tax Officer (Central) Circle II, Calcutta. On the 17th April, 1958, the appellant addressed a letter to the Income-tax Officer challenging, inter alia, the jurisdiction of the Income-tax Officer and the validity of the said notice issued under section 34 and also asking for certain particulars specified therein. By a letter dated the 23rd July, 1958, the Income-tax Officer insisted on compliance with the notice issued under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The most glaring difference between the two sections is the absence of the word firm in the first part of the old section 44 after the words discontinued or where and the introduction of the word firm into the section by the amending Act of 1958 and so the argument of the learned counsel for the appellant is that a dissolved firm or a partner of dissolved firm was not in any case intended to be covered by the original section 44. Now it is well known that to constitute a partnership the parties must have agreed to carry on business and to share profits in some way in common. This is the concept underlying the definition of partnership as given in section 4 of the Indian Partnership Act, 1932. Section 4 reads as follows: 'Partnership' is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Persons who have entered into partnership with one another are called individually 'partners' and collectively 'a firm', and the name under which their business is carried on is called the 'firm name'. So three elements are necessary to establish a partnership ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bose v. Manindra Lal Goswami [1958] 33 ITR 435. Chakravartti C.J., who delivered the judgment of the court of appeal, made, inter alia, the following observations: The question, as presented to us, turns on the true construction of section 44 of the Indian Income-tax Act. That section speaks of a case where any business, profession or vocation carried on by a firm or association of persons has been discontinued and a case where an association of persons is dissolved. It does not speak of a case, at least expressly, where a firm has been dissolved. It will be noticed that when speaking of the discontinuance of a business, profession or vocation, the section speaks of both a firm and an association of persons, but when speaking of dissolution, it drops the 'firm'. It is, therefore, arguable that the dissolution of a firm is not within the contemplation of section 44 at all and, therefore, the department cannot invoke its aid for the purpose of assessing the income of a dissolved firm. Mr. Meyer agreed that if the department could not rely on section 44, there was no other section in the Act which would authorise it to assess the income of a dissolved firm, but he conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A. Abraham v. Income-tax Officer, Kottayam [1961] 41 ITR 42 [1961] 2 SCR 765; AIR 1961 SC 609, certain observations were made in relation to the provision embodied in section 44 which throw some light on the question before us. In that case Abraham and Thomas were partners of the firm of M.P. Thomas Co. carrying on business in foodgrains at Kottayam. Thomas died on 11th October, 1949. Abraham, as a partner of the said firm, had submitted returns in the years August, 1947, July, 1948, August, 1948, July, 1949 and August, 1949, July, 1950, as returns of the income of the unregistered firm. It was discovered that the firm had not disclosed other incomes earned in fictitious names and so on 29th November, 1954, the Income-tax Officer assessed the suppressed income and after issuing notice for imposition of penalty under section 28 of the Income-tax Act imposed penalty of the total sum of ₹ 29,000 in respect of the three years. After the appeal to the Appellate Assistant Commissioner was dismissed, Abraham applied for a writ under article 226 for quashing the orders of assessment and the orders of imposition of penalty. It was contended on behalf of Abraham that after dissolutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the four partners of a firm of the name of Motilal Somani Co., which was formed in the year 1940. One of the partners of that firm died in 1946 and the new partnership was formed in 1947 in the same name by taking a new fourth partner. This second partnership was dissolved in 1948 and another partnership was formed in the same name with the appellant and another person as partners. This third partnership was finally dissolved in 1955. In spite of these changes in the constitution of the firm the same business was carried on all throughout and it was taken over by the appellant as a proprietary concern and carried on in the same name and at the same place. On the 15th December, 1955, the appellant informed the Income-tax Officer that the firm was dissolved on November 14, 1955, and that the business has become his proprietary concern. On 25th March, 1958, the Income-tax Officer issued a notice under section 34(1) in the name of Motilal Somani Co. initiating reassessment proceedings against the firm for the assessment year, 1949-50, on the ground that certain income had escaped assessment. Tambe J., who delivered the judgment of the Division Bench, after referring to some obser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich I have made a reference, I am inclined to hold that the notice issued is a valid notice and the order made by Sinha J. must be upheld. The learned counsel appearing for the respondent also raised the point that as the Income-tax Act provides a complete machinery for assessment of tax and for obtaining relief in the case of an improper order passed by the income-tax authorities a person aggrieved cannot be permitted to abandon resort to that machinery and to invoke the jurisdiction of the High Court under article 226 of the Constitution. In other words his argument is that the alternative remedy provided by the Income-tax Act bars resort to article 226 of the Constitution. Reference was made by the counsel for the parties to the cases of C.A. Abraham v. Income-tax Officer, Kottayam [1961] 41 ITR 425; [1961] 2 SCR 765; AIR 1961 SC 609; Carl Still G. m. b. H. v. State of Bihar [1961] 12 STC 449; [1962] 2 SCR 81; AIR 1961 SC 1615 and Venkateswaran v. Ramchand Sobhraj Wadhwani [1962] 1 SCR 753; AIR 1961 SC 1506, and to the cases of Calcutta Discount Co. v. Income-tax Officer, Calcutta [1961] 41 ITR 191 , 207-208; [1961] 2 SCR 241, and Bidi Supply Co. v. Union of India [1956] 29 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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