2003 (10) TMI 265 - AT - Income Tax

Summary

Issues Involved:
1. Locus Standi of the Appellants
2. Joint and Several Liability of Partners
3. Right to Appeal of Affected Parties
4. Interpretation of "Assessee" under the Income-tax Act
5. Application of Natural Justice Principles

Issue-wise Detailed Analysis:

1. Locus Standi of the Appellants:
The learned departmental representative raised a preliminary objection regarding the admission of the appeal, arguing that the appellants were not the partners who filed the return and thus could not be treated as assessees with the locus standi to file the appeal. The Tribunal decided to address this preliminary objection first.

2. Joint and Several Liability of Partners:
The firm M/s. Mamatha Motels underwent several changes in its partnership composition during the block period from 1-4-1986 to 12-12-1996. Initially constituted by 15 partners, the firm saw 12 partners retire in May 1996, followed by the retirement of the remaining three in August 1996, leaving Shri K.V. Ramakrishnan and his wife, Mrs. Thankam, as the current partners. Despite these changes, the Tribunal emphasized that under Section 25 of the Partnership Act, 1932, partners are jointly and severally liable for acts done while they were partners. This liability extends to the present appellants, who were partners during the block period.

3. Right to Appeal of Affected Parties:
The Tribunal considered the argument that the appellants, though not current partners, were adversely affected by the assessment order. Section 2(7) of the Income-tax Act defines 'assessee' broadly, including any person liable to pay tax or any other sum under the Act. The Tribunal highlighted that the right to appeal should not be denied to affected parties based on technicalities, such as not having filed the return. The Tribunal cited the Supreme Court's decision in National Thermal Power Co. Ltd v. CIT, which allows questions of law to be raised at any stage to correctly assess tax liability.

4. Interpretation of "Assessee" under the Income-tax Act:
The Tribunal analyzed the inclusive definition of 'assessee' under Section 2(7) of the Income-tax Act, which encompasses anyone liable to pay tax due to an assessment order. The Tribunal rejected the department's narrow interpretation that only those who filed the return could be considered assessees. The Tribunal emphasized that the appellants were served a notice of demand under Section 156, making them assessees within the Act's extended meaning.

5. Application of Natural Justice Principles:
The Tribunal underscored the importance of natural justice, stating that denying the appellants the right to appeal would be against judicial principles. The Tribunal referenced the Supreme Court's decision in State of Kerala v. K.T. Shaduli Grocery Dealer Yussuff, which mandates compliance with natural justice principles in tax assessments. The Tribunal also cited the case of Gokuldas v. Kikabhai Abdulali, where the Bombay High Court held that an assessment order passed without notice to affected partners was liable to be set aside.

Conclusion:
The Tribunal overruled the preliminary objection, holding that the appellants were competent to file the appeal. The Tribunal emphasized that the right to appeal should not be denied on technical grounds and that affected parties must be heard. The appeal was admitted, and the Registry was directed to post the appeal for hearing on 8-1-2004.