TMI Blog1957 (3) TMI 71X X X X Extracts X X X X X X X X Extracts X X X X ..... artment on or about 14th of January, 1947. The Department did not admit or deny receipt of the notice, but since it is seeking to justify the assessment as an assessment on a dissolved firm, the question whether a notice of dissolution was or was not given is not material. It does not appear whether the firm had previously been assessed to income-tax, but towards the end of 1944, the Income tax Officer, District III (1), Calcutta, came to be of opinion that the firm's income for the assessment year 1943-44 had escaped assessment. Acting on that view, the Income-tax Officer issued a notice under section 34 of the Income-tax Act on 25th of November, 1944, to the respondent. He was described as M.L. Goswami, Esqr., Partner of Messrs. Dyes and Chemical Agency , and the income which had been discovered to have escaped assessment was described as your income . The notice ended by requiring the respondent to deliver to the Income-tax Officer by a certain date a return of your total income and total world income assessable for the said year ending 31st March, 1944. It is said that a similar notice was addressed to another partner of the firm, named B.R. Das Gupta, in similar terms, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of February, 1953. On receipt of the notice under section 7 of the Act, the respondent and P.C. Mukherji filed objection under section 9 of the Act, but those were rejected by the certificate officer on 30th of November, 1953. Thereafter, the respondent preferred an appeal to the Commissioner of the Presidency Division and when that appeal was pending, moved this court under article 226 of the Constitution on 25th of August, 1954. The rule obtained by him was a rule on the appellant and the Union of India, directing them to show cause why an order in the nature of a writ of certiorari should not be made by this court for the production of the records relating to the assessment proceedings and why an order in the nature of a writ of mandamus should not be made, commanding the respondents to refrain from taking any further steps in connection with the certificate proceedings. Although the first part of the rule did not say that the records were to be produced before this court in order that the order of assessment might be quashed, the clear implication was that the assessment order was the object of the challenge. The rule was thus a two-pronged one, being directed against the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment preferred the present appeal. The Union of India is not an appellant, nor has it been impleaded as a respondent. The first question is whether on the notice or notices under section 34 as issued, there could be any assessment of the firm at all and whether a partner of the firm could be proceeded against for the recovery of the tax imposed by such an assessment. The appellant's case is that even after the dissolution of a firm, assessment of the firm's income in the firm's name is warranted by law, namely, section 44 of the Indian Income-tax Act. The respondent's case is that after the dissolution of a firm, its income earned during the period prior to the date of dissolution can be assessed only in the name and hands of the partners at the relevant time, jointly and severally. Whichever of these views may be correct, it seems perfectly clear to me that the notice under section 34, as issued in this case, could not possibly be the basis of a valid assessment of the firm or the firm's income. I have already referred to the terms of the notice, as served upon the respondent. He was addressed by name at the top of the notice. In the body of the n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n proceed in the case of an unregistered firm either against the firm as such or against the partners individually and that in the particular case before him, the Income-tax Officer had elected to proceed according to the latter method. The observation of the learned Judge seems to suggest that, according to him, there can be an assessment of the partners of an unregistered firm individually even from the beginning. If that was what the learned Judge thought, he was not right. Whether a firm be a registered firm or an unregistered firm, the Income-tax Officer cannot in any circumstances proceed against the partners individually at the beginning. In both cases, the proceedings, when commenced, are proceedings as against the firm. In the case of registered firms, the proceeding, after the amount of the assessable income has been determined, does not proceed further, but what is done is that the income, so determined, is distributed among the several partners in accordance with their shares and the share allotted to each is transferred to his own income-tax account, to be assessed there along with his other income. In the case of an unregistered firm, the proceedings may remain proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 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 contended that discontinuance included dissolution. I am unable to accept that contention, because although the dissolution of a firm must involve discontinuance of its business, the converse need not necessarily be true and a firm may conceivably conti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision for that liability, but it has added a new liability which is a liability to assessment. I can see no escape, in view of this language, from the conclusion that if the pre-dissolution income of a firm falls to be assessed after the dissolution, the assessment can be made only on the partners at the time of the dissolution, jointly and severally, and that the method laid down in section 23(5)(a) or section 23(5)(b) can no longer be followed. Section 44, it appears to me, makes no distinction between registered and unregistered firms, but prescribes a common procedure for the assessment of pre-dissolution income of dissolved firms of both classes. It was contended that by adding the words to assessment , the amended section had not added to the content of the old section, but had merely stated the liability for the tax twice. Otherwise, it was said, there was no reason why the section should continue to speak of the liability for the amount of tax payable , because such liability would follow from the liability to assessment, if the section really meant that the partners themselves were to be jointly and severally assessed. I do not think that after the amended section h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artition, the joint family is still to be assessed as a joint family and it is not that the members of the family are to be assessed, either jointly and severally, on the total income of the family during the period concerned or on their shares of the income, taken along with any other income that they may have. The only difference which the section makes between the assessment of the income of an unpartitioned Hindu joint family and the assessment of a pre-partition income of such a family, is that, in the former case, the individual members of the family or groups of such members are protected by section 14(1) from having to pay any tax in respect of the share he or they have received of the joint family income, whereas, in the latter case, individual members or group of members have to pay proportionate shares of the tax. The reason for this difference is obvious, because in the former case, the tax on the family income is paid by the family itself out of joint family assets and when a share of the income comes to the hands of an individual member, it comes as income which has already paid tax. In the case of a partitioned family, there is no longer any joint family assets out o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r income-the personal income of the partners from other sources not coming into the account at all. It remains to deal with a case which was cited on behalf of the appellant and which the learned Judge has held to be applicable, but, according to him, wrongly decided. In support of its contention that even after the dissolution of a firm, an assessment of its pre-dissolution income could be made on the firm in the firm name, reliance was placed on the decision of the Madras High Court in the case of A.G. Pandu Rao v. The Collector of Madras [1954] 26 ITR 99 . The decision relates to sections 13 and 14 of the Excess Profits Tax Act, read with section 44 of the Income-tax Act, as adapted by the Central Board of Revenue and it is extremely unfortunate that the learned Judge should have been told that the law applicable to cases of excess profits tax was the same as that under the Indian Income-tax Act. Apparently, on that statement being made without protest from the respondent, the learned Judge did not consider it necessary to compare the provisions of the two Acts. If such a comparison is made, it will be found at once that, taken as a decision on sections 13 and 14 of the Exces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of the firm or association, be jointly and severally liable to assessment under section 14 of the Excess Profits Tax Act, 1940, and for the amount of tax payable, and all the provisions of the said Act shall, so far as may be, apply to any such assessment. It will thus be seen that in the case of excess profits tax, there is no difference in the method of assessment prescribed for the assessment of the profits of a running business and that prescribed for the assessment of the past profits of a business carried on by a firm, since dissolved. In the case of a running business too, the assessment is to be made on the persons, carrying on the business, jointly. In the case of the business of a firm which has been dissolved, it is to be made on the partners jointly and severally; and since section 44 of the Act is made applicable to the assessment of pre-dissolution profits of the business of a dissolved firm, such assessment can obviously be made in the partnership name. It was obviously in view of these provisions that the learned Judge in the Madras case stated that even assuming that the firm had been dissolved by the date of the issue of the notice under section 13, still, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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