1960 (1) TMI 46 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the assessment order under section 23(4) of the Indian Income-tax Act.
2. Liability of the applicant for the tax payable as determined in the assessment order under section 44 of the Indian Income-tax Act.

Detailed Analysis:

1. Validity of the Assessment Order under Section 23(4):

The primary issue was whether the assessment made by the Income-tax Officer (ITO) on September 30, 1953, under section 23(4) was valid. The facts revealed that the "Nizamabad Group Liquor Shops" association, formed by three individuals, had dissolved before the assessment proceedings began. Notices under section 34 and section 22(4) were issued to one member, Baba Gowd, but not to other members. The ITO made the assessment treating the association as an "association of persons" (AOP).

The court held that the assessment was invalid for two main reasons:
- The assessment was made on the association instead of the individual members who were part of the association at the time of its dissolution. According to section 44, the income of a dissolved association should be assessed on the members jointly and severally, not on the association itself.
- The absence of notices to all members invalidated the assessment. The court cited precedents like *Y. Narayana Chetty v. Income-tax Officer* and *Navinchandra Mafatlal v. CIT*, which established that proper notice is a condition precedent for a valid assessment.

2. Liability of the Applicant for the Tax Payable:

Given the invalidity of the assessment order, the second issue was whether the applicant was liable for the tax determined in that order. The court found that since the assessment was not made in conformity with section 44, the applicant could not be held liable. Section 44 mandates that in case of dissolution, the assessment should be made on the members jointly and severally. The court noted that the assessment order dated September 30, 1953, failed to comply with this requirement, rendering it invalid.

Conclusion:

The court concluded:
- The assessment order dated September 30, 1953, was bad in law because it assessed the association instead of its members jointly and severally.
- The applicant was not liable for the tax determined in the invalid assessment order.

Result:

The court answered question No. 1 in the affirmative, indicating the assessment order was invalid. Consequently, question No. 2 did not arise. The court awarded costs to the applicant to be paid by the other party.