TMI Blog1958 (10) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... roceeded on a wrong assumption about the existence of the firm. In our opinion, there is no difficulty in holding that rule 6B is obviously intended to carry out the purpose of the Act and since it is not inconsistent with any of the provisions of the Act its validity is not open to doubt. Rules 2 and 6 of the rules framed under section 59 of the Indian Income-tax Act are not ultra vires the rule-making authority. All that the appellants would be able to argue on this ground would be that the course adopted by the Income-tax Officer in making orders of fresh assessment is irregular and illogical and should be corrected. That is a matter concerning the merits of the orders of assessment and by no stretch of imagination can it be said to raise any question of jurisdiction under article 226. That is why we express no opinion on this point. Appeal dismissed. - C.A. 317 OF 1957 - - - Dated:- 15-10-1958 - Judge(s) : A. K.SARKAR., GAJENDRAGADKAR., VENKATARAMA AIYAR JUDGMENT The judgment of the court was delivered by GAJENDRAGADKAR, J.--These four appeals arise from four petitions filed against the Income-tax Officer, Nellore Circle, Nellore, respondent No. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibiting the first respondent from continuing the proceedings as per his notice of August 14, 1951, and from enforcing the order of fresh assessment passed in the said proceedings on August 14, 1952, in regard to the assessment year 1943-1944. In respect of the same firm Chilla Pitchayya sought for a similar relief by Writ Petition No. 201 of 1953 in regard to the proceedings and assessment order for the assessment year 1944-45. The same Chilla Pitchayya also filed Writ Petitions Nos. 629 of 1952 and 202 of 1953 in respect of the proceedings taken and fresh assessment orders passed against the two remaining firms for the assessment years 1943-44 and 1944-45 respectively. The four petitions were heard together by the High Court and were dismissed on March 5, 1954. The petitioners then applied for and obtained from the High Court a certificate under article 133 read with Order XLV, rules 1, 2, 3 and 8 that the value of the subject-matter in the petitions before the High Court as well as of the appeals before this court was more than Rs. 20,000. It is with this certificate that the four appeals have come before this court. Y. Narayana Chetty is the appellant in Civil Appeal No. 317 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts necessary for his assessment for that year, income, profits or gains chargeable to income-tax has been under-assessed", he may, within the time prescribed, "serve on the assessee a notice containing all or any of the requirements which may be included in the notice under sub-section (2) of section 22 and may proceed to re-assess such income, profits or gains." The argument is that the service of the requisite notice on the assessee is a condition precedent to the validity of any reassessment made under section 34 ; and if a valid notice is not issued as required, proceedings taken by the Income-tax Officer in pursuance of an invalid notice and consequent orders of re-assessment passed by him would be void and inoperative. In our opinion, this contention is well-founded. The notice prescribed by section 34 cannot be regarded as a mere procedural requirement ; it is only if the said notice is served on the assessee as required that the Income-tax Officer would be justified in taking proceedings against him. If no notice is issued or if the notice issued is shown to be invalid then the validity of the proceedings taken by the Income-tax Officer without a notice or in pursuance of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the amendment introduced in 1956. The effect of the said provisions was that "the sum payable by the firm itself shall not be determined but the total income of each partner of the firm including therein his share of its income, profits and gains in the previous year shall be assessed and the sum payable by him on the basis of such assessment shall be determined" ; so that what the Income-tax Officer had to do in assessment proceedings against a registered firm was to determine the total income of each partner of the firm and not to determine the sum payable by the firm itself. The argument is that this provision shows that the person liable to pay the tax was each individual partner of the firm and so it is the individual partners of the firm who are entitled to the statutory notice under section 34(1)(a). In our opinion, this argument is not well-founded. Section 3 of the Act which is the charging section provides inter alia that "where any Central Act enacts that income-tax can be charged for any year at any rate or rates, tax at that rate or those rates shall be charged for that year in accordance with and subject to the provisions of this Act in respect of the total in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sum payable by him on the basis of such assessment shall be determined :" and so it is clear that the registered firm does not at all cease to be an assessee under this provision. In this connection it would be relevant to refer to section 23(4). This sub-section provides : "If any person fails to make the return required by any notice given under sub-section (2) of section 22 and has not made a return or a revised return under sub-section (3) of the same section or fails to comply with all the terms of a notice issued under sub-section (4) of the same section or, having made a return, fails to comply with all the terms of a notice issued under sub-section (2) of this section, the Income-tax Officer shall make the assessment to the best of his judgment and determine the sum payable by the assessee on the basis of such assessment and, in the case of a firm, may refuse to register it or may cancel its registration if it is already registered : Provided that the registration of a firm shall not be cancelled until fourteen days have elapsed from the issue of a notice by the Income-tax Officer to the firm intimating his intention to cancel its registration." This provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant has in fact been served personally and the other partners who may not have been served have made no grievance in the matter. We are, therefore, satisfied that it is not open to the appellants to contend that the proceedings taken by the Income-tax Officer under section 34(1)(a) are invalid in that notices of these proceedings have not been served on the other alleged partners of the firms. Incidentally it may be pointed out that the finding of the Income-tax Officer in respect of all the three firms is that the only persons who had interest in the business carried on by the said firms were B. Audeyya and C. Pitchayya. It is remarkable that B. Audeyya has not cared to challenge the proceedings or to question the validity of the fresh assessment orders passed by the Income-tax Officer in the present proceedings. Mr. Sastri then challenges the validity of the cancellation of the registration of the three firms on the ground that rule 6B under which the Income-tax Officer purported to act is ultra vires. Rule 6B provides that in the event of the Income-tax Officer being satisfied that the certificate granted under rule 4 or under rule 6A has been obtained without there being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 26A, when can such registration be cancelled ? The appellant suggests that the only cases in which such registration can be cancelled are those prescribed in section 23(4). We have no doubt that this argument is fallacious. The cancellation of registration under section 23(4) is in the nature of a penalty and the penalty can be imposed against a firm if it is guilty of any of the defaults mentioned in the said sub-section. It would be noticed that where registration is cancelled under section 23(4), there is no doubt that the application for registration had been properly granted. The basis of an order under section 23(4) is not that the firm which had been registered was a fictitious one, but that, though the registered firm was genuine, by its failure to comply with the requirements of law it had incurred the penalty of having its registration cancelled. That is the effect of the provisions of section 23(4). On the other hand, rule 6B deals with cases where the Income-tax Officer is satisfied that a certificate of registration has been granted under rule 4 or under rule 6A without there being a genuine firm in existence ; that is to say an application for registration h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of a firm is cancelled. If the power under rule 6B is exercised by the Income-tax Officer against a firm without giving it a notice in that behalf and without affording it an opportunity to satisfy the Officer that it is a genuine firm, it may be open to the firm to question the validity of the order on that ground. We are, however, not called upon to deal with such a case in the present appeals. In this connection we may incidentally refer to the decision of this court in Ravulu Subba Rao v. Commissioner of Income-tax where this court has held that rules 2 and 6 of the rules framed under section 59 of the Indian Income-tax Act are not ultra vires the rule-making authority. The last argument which Mr. Sastri sought to raise before us was that the revised assessment is completely illogical, and therefore illegal, in each case inasmuch as the original assessment for the two assessment years still remains as on the basis that the firms in question are registered and the fresh assessment in respect of the escaped income for the same years is made on the basis that the said firms are not registered. Mr. Sastri says that it is not open to the Income-tax Officer to adopt such a c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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