1954 (3) TMI 82 - HC - Income Tax

Summary

Issues:
- Jurisdiction of proceedings under Section 34 of the Income Tax Act
- Legality of cancellation of registration under Rule 6-B
- Assessment of escaped income on an unregistered firm

Analysis:

Issue 1: Jurisdiction of Proceedings under Section 34
The petitioners challenged the jurisdiction of proceedings under Section 34 against three firms. The court clarified that even in the case of a registered firm, the firm remains the assessee under Section 23 of the Act. The term "assessee" includes the registered firm, and the tax liability is apportioned among the partners. The court emphasized that the income of the firm is assessed under both Section 23 and Section 34, with the latter addressing escaped income. Therefore, the contention that only partners are liable under Section 34 was dismissed.

Issue 2: Legality of Cancellation of Registration under Rule 6-B
The petitioners argued that Rule 6-B, allowing cancellation of registration, exceeded the rule-making powers conferred by the Act. The court disagreed, stating that Rule 6-B was not punitive but aimed at addressing fictitious firms defrauding the tax department. The court found no basis to deem Rule 6-B ultra vires, as it aligned with the Act's provisions and the registration rules under Section 26-A. The court noted that partners were given opportunities to participate in assessment proceedings before registration cancellation.

Issue 3: Assessment of Escaped Income on an Unregistered Firm
The petitioners contended that assessing escaped income on an unregistered firm contradicted the original assessment based on registration. The court clarified that under Section 34, the Income Tax Officer can assess escaped income of a firm without altering the original assessment under Section 23. The court affirmed that the officer could exercise all powers under Section 23 while assessing escaped income, allowing assessment on the basis of an unregistered firm post-registration cancellation.

In conclusion, the court dismissed the petitions, upholding the jurisdiction of proceedings under Section 34, legality of registration cancellation under Rule 6-B, and the assessment of escaped income on unregistered firms. Costs were awarded in favor of the respondents in some cases.