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Issues Involved:
1. Existence of an association of persons. 2. Continuation of the association post-business cessation. 3. Double taxation on the same income. 4. Jurisdiction of the Income-tax Officer and the applicability of Article 226. Issue-wise Detailed Analysis: 1. Existence of an association of persons: The petitioners argued that there was no voluntary association of persons within the meaning of Section 3 of the Indian Income-tax Act, as they joined under compulsion. However, the court found no evidence of compulsion. The petitioners joined voluntarily to continue their business of selling khandsari sugar as wholesale dealers. The Association was formed by an agreement among its members, who contributed different amounts of capital, indicating a voluntary association. The court rejected the petitioners' reliance on two Nagpur High Court cases, distinguishing them based on the facts that, in those cases, there was no evidence of an association formed to carry on business with separate capital. 2. Continuation of the association post-business cessation: The petitioners claimed that the association ceased to function from 6-1-1948, and thus, could not be assessed for tax thereafter. The court noted that there was no assertion that the association ceased to exist, only that it ceased business operations. The continued existence of the association was implied by the petitioners' own actions, such as depositing money with the President for tax liabilities after business cessation. Therefore, the court held that the association continued to exist and could be assessed for income earned while it was operational. 3. Double taxation on the same income: The court accepted the petitioners' argument that the same income could not be taxed twice. The income earned by the Association had already been assessed and charged to tax in the hands of the individual members. Section 3 of the Income-tax Act implies that income is to be charged only once, and there is no provision allowing for the same income to be taxed again in the hands of the association. The court emphasized that the Income-tax Officer's action of assessing the same income again in the hands of the Association was without jurisdiction. 4. Jurisdiction of the Income-tax Officer and the applicability of Article 226: The court addressed the argument that the petitioners should have sought remedies under the Income-tax Act, rather than filing a writ petition. The court distinguished the present case from the Punjab High Court decision, stating that it raised a jurisdictional question about the Income-tax Officer's right to assess income already taxed in the hands of individual members. The court cited Supreme Court cases to support the issuance of a writ of certiorari for correcting errors of jurisdiction or manifest errors apparent on the face of the proceedings. The court found that the Income-tax Officer had ignored Section 3 of the Income-tax Act, committing a manifest error. Conclusion: The court allowed the petition, quashing the assessment orders dated 23-4-1955. It held that the subsequent recovery proceedings automatically became null and void as the original assessment orders were quashed. The petitioners were awarded costs of Rs. 200/-.
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