1974 (7) TMI 35 - HC - Income Tax

Summary

Issues Involved:

1. Validity of reopening the assessments of the firm M/s. Naraindas Dwarkadas for the assessment years 1951-52 and 1952-53.
2. Whether the reassessment should be made on the individual partner, Bhagwandas, or on the firm.
3. Validity of the notice issued under section 34 for reassessment.

Issue-wise Detailed Analysis:

1. Validity of Reopening the Assessments:

The court examined if the Income-tax Officer (ITO) had validly reopened the assessments of the firm M/s. Naraindas Dwarkadas for the assessment years 1951-52 and 1952-53. Initially, Bhagwandas Naraindas, a partner in the firm, was assessed as a resident and ordinarily resident. However, the ITO later discovered that Bhagwandas had been out of India from August 31, 1949, to December 2, 1958, and should have been assessed as a non-resident at the maximum rate due to the absence of a requisite declaration under section 17(1) of the Act. Consequently, the ITO reopened the assessments under section 34, which was contested by Bhagwandas. The Appellate Assistant Commissioner (AAC) accepted Bhagwandas' contention that his share of profit should have been assessed on the firm under the second proviso to section 23(5)(a) and canceled the revised assessments against him personally.

2. Reassessment on Individual Partner vs. Firm:

The AAC directed that the income of the non-resident partner, Bhagwandas, should be assessed on the firm. The ITO issued notices for reassessment to "Shri Bhagwandas Naraindas, non-resident, as represented by the firm, M/s. Naraindas Dwarkadas." The Tribunal found that the reassessment should be on the firm, not on Bhagwandas individually. The court agreed, stating that under section 23(5)(a) and its second proviso, the firm is the entity to be assessed for the non-resident partner's share of income. The court emphasized that the assessee is the firm, and the total income to be assessed is that of the firm, with the liability to pay tax resting on the firm.

3. Validity of Notice Issued Under Section 34:

The court addressed whether the notice issued under section 34 was valid. The notice was issued to "Shri Bhagwandas Naraindas, non-resident, as represented by the firm, M/s. Naraindas Dwarkadas." The court found that this notice was directed at the individual partner, Bhagwandas, through the firm, rather than directly at the firm itself. The court held that a proper notice under section 34 must be served on the entity to be reassessed, which in this case was the firm. Since the notice was not served on the firm, the reassessment proceedings were deemed ab initio void.

Conclusion:

The court concluded that the reassessment proceedings against the firm M/s. Naraindas Dwarkadas were invalid due to the improper notice served. The answer to the question referred was in the negative, and the revenue was directed to pay the costs of the assessee. The entire reassessment process was declared void, and the orders passed as a result of such notices were set aside.

Question answered in the negative.