1955 (12) TMI 52 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the notice under Section 34 of the Indian Income-tax Act.
2. Assessment of the firm after its discontinuance.
3. Liability of partners for the firm's tax dues.
4. Adequacy of alternative legal remedies for the petitioner.

Issue-wise Detailed Analysis:

1. Validity of the Notice under Section 34 of the Indian Income-tax Act:
The notice under Section 34 was issued to an individual partner, requiring the return of his total world income, including income from the firm and other sources. The petitioner received the notice but did not act on it, while another partner, B. R. Das Gupta, filed a return. The firm was assessed based on Das Gupta's return, showing a net loss, but the Income-tax Department assessed the firm on a total income of Rs. 45,101/-. The petitioner argued that the notice was not validly served on the firm but on individual partners, which led to an erroneous assessment procedure.

2. Assessment of the Firm after its Discontinuance:
The firm was discontinued on 31-3-1944, and notice of dissolution was served on the Income-tax Officer in January 1947. Despite this, the Income-tax Officer issued a certificate for recovery against the firm. The Certificate Officer added the names of the partners to the certificate under Section 4 of the Public Demands Recovery Act. The Commissioner later held that without notice under Section 25(2) of the Indian Income-tax Act, Section 44 could not apply, and the Certificate Officer could not proceed against the partners. The assessment against the unregistered firm was thus set aside.

3. Liability of Partners for the Firm's Tax Dues:
The court examined Section 44 of the Indian Income-tax Act, which states that upon discontinuance of a firm, partners are jointly and severally liable to assessment and tax payable. The court referred to precedents, noting that partners could be assessed jointly or severally after the firm's discontinuance. However, the court concluded that the assessment must be against the partners individually, not the firm, after its discontinuance. The court found that the procedure followed by the Income-tax Department was erroneous as it assessed the firm instead of the partners individually.

4. Adequacy of Alternative Legal Remedies for the Petitioner:
The petitioner argued that he had no adequate alternative legal remedy. He could not appeal the assessment order as it was not against him, and no demand notice was served on him. By the time he became aware of the assessment, the time for appeal had expired. The court agreed that the petitioner lacked an adequate alternative legal remedy.

Conclusion:
The court made the Rule absolute in part, prohibiting the enforcement of the assessment order dated 12-12-1947 against the petitioner. The court issued a writ of Mandamus directing the respondents to refrain from enforcing the assessment order against the petitioner. However, this did not exonerate the petitioner from liability or prevent proceedings against him or any partner of the dissolved firm in accordance with the law. The validity of the notice under Section 34 issued on 25-11-1944 was not affected by this order. There was no order as to costs.