1961 (3) TMI 141 - HC - Income Tax

Summary

Issues Involved:

1. Validity of notice under Section 34 addressed to a dissolved firm.
2. Validity of service of notice by affixation under Section 34.

Issue-wise Detailed Analysis:

1. Validity of Notice under Section 34 Addressed to a Dissolved Firm:

The appellant challenged the validity of the notice under Section 34 issued to Messrs. Motilal Somani & Co., a firm dissolved in 1948, arguing that the notice should have been addressed to the individual partners. The appellant contended that since the firm was not in existence in 1958, the notice in the firm's name was invalid. The appellant also argued that Section 26(2) of the Income-tax Act, which deals with the apportionment of profits in cases of succession, did not apply since the succession did not occur in the middle of the accounting year but at its end.

The court, however, held that the case fell under Section 26(2), as the business was succeeded by another partnership. The court emphasized that Section 34 allows the Income-tax Officer to issue a notice to the assessee whose income had escaped assessment, treating the notice as if it were originally issued under Section 22(2). The court found that the second partnership was the original assessee and thus, the notice issued under Section 34 in the firm's name was valid. The court supported its view with precedents from the Supreme Court, including Lakshminarain Bhadani v. Commissioner of Income-tax and Y. Narayana Chetty v. Income-tax Officer, Nellore, where notices were upheld even though issued to dissolved entities.

2. Validity of Service of Notice by Affixation under Section 34:

The appellant argued that the service of notice by affixation was invalid due to non-compliance with Order V, Rule 19 of the Civil Procedure Code, which requires the serving officer to report the affixation to the Income-tax Officer, who must then verify and confirm the service.

The court rejected this contention, noting that the serving officer, Mr. Thade, had made a report to the Income-tax Officer before and after affixing the notice. The Income-tax Officer reviewed the report and confirmed the service as valid. The court concluded that the procedural requirements were met, and thus, the service by affixation was legally valid.

Conclusion:

The court dismissed the appeal, holding that the notice under Section 34 issued to the dissolved firm was valid and that the service of notice by affixation complied with legal requirements. The appeal was dismissed with costs.