1963 (11) TMI 3 - SC - Income Tax

Whether on the facts and in the circumstances of the case was the order of assessment made by the Income-tax Officer under section 23(4) on September 30 1953 bad in law? If the answer to the above question is in the negative was not the applicant liable for the amount of tax payable as determined in that order of assessment by reason of the terms of section 44 of the Income-tax Act ? Held that - The answer to the first question will be in the negative. If the order of assessment is held to be valid the application made by the respondent for setting aside the assessment on the ground that he was not served with the notice of assessment must fail. The second question will be answered as follows The applicant was liable for the amount of tax payable under the order of assessment. Appeal allowed.

Summary

Issues:
1. Validity of assessment made by Income-tax Officer under section 23(4)
2. Liability of the applicant for tax payable as determined in the order of assessment

Analysis:
The case involved an association of persons called "Nizamabad Group Liquor Shops," which carried on business in liquor contracts until its dissolution. The Income-tax Officer assessed the taxable income of the Group under section 23(4) and determined the tax payable. A notice of demand was issued to one member, but the assessment was challenged by another member, leading to a series of appeals and the matter reaching the High Court.

The High Court held that the assessment was invalid as it was made against the association and not the individual members, and those not served with notices were not bound by the assessment. However, the Supreme Court analyzed the provisions of section 44 of the Income-tax Act, which make every member of a discontinued association jointly and severally liable for assessment and tax payable. The Court emphasized that the assessment proceedings could continue against the association members, even after dissolution, ensuring continuity in tax liability imposition.

The Court rejected the argument that only members served with notices could be bound by the assessment, stating that the Act does not provide for partial assessment based on individual service of notices. It clarified that the assessment is on the income of the association as a whole, not individual members' shares. The Court highlighted the purpose of section 44 to tax the association's income post-dissolution and upheld the validity of the assessment made under section 23(4).

Furthermore, the Court dismissed the contention that the original assessment was invalid due to improper service of notice, as it was not raised before the Tribunal. The respondent's plea for setting aside the assessment on grounds of lack of notice service was rejected. Ultimately, the Court held the respondent liable for the tax payable under the assessment order.

In conclusion, the Supreme Court allowed the appeal, directing the respondent to pay the costs of the appeal. The judgment clarified the principles of assessment of discontinued associations under the Income-tax Act, emphasizing the joint and several liability of members and the continuity of assessment proceedings even after dissolution.