1967 (9) TMI 14 - HC - Income Tax

Firm dissolved - Reassessment for the income escaped prior to the dissolution - service of notice on one partner alone was sufficient

Issues Involved:
1. Validity of reassessment proceedings under section 34(1)(b) of the Indian Income-tax Act.
2. Applicability of section 44 of the Indian Income-tax Act to dissolved firms.
3. Proper service of notice under section 63 of the Indian Income-tax Act.

Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 34(1)(b):
The primary issue was whether the reassessment proceedings initiated under section 34(1)(b) were valid. The original assessment was completed on November 8, 1952, but the firm had dissolved on October 30, 1951. The Income-tax Officer (ITO) later issued a notice under section 34(1)(b) on December 3, 1956, which led to the reassessment. The Tribunal initially accepted the assessee's contention that the reassessment was invalid as it was made on a dissolved firm, referencing the cases of R. N. Bose v. Manindra Lal Goswami and Sumat Parshad v. Income-tax Officer. These cases supported the view that assessments should be made on individual partners of a dissolved firm.

However, the court found that subsequent Supreme Court decisions in C. A. Abraham v. Income-tax Officer, Commissioner of Income-tax v. Raja Reddy Mallaram, and Shivram Poddar v. Income-tax Officer contradicted this view. These decisions clarified that section 44 of the Act allowed for the assessment of a firm's pre-dissolution income as if the firm continued to exist. Therefore, the reassessment made on the firm was valid.

2. Applicability of Section 44 to Dissolved Firms:
The court examined whether section 44 applied to firms that had dissolved. Section 44 states that upon discontinuance of a firm's business, every partner is jointly and severally liable for the firm's income, profits, and gains, and all provisions of Chapter IV apply to such assessment. The Supreme Court in Abraham's case interpreted "assessment" to include not just the computation of income but also the imposition of tax liability and the machinery for enforcement. The court concluded that section 44 ensures continuity in the application of the assessment machinery, treating the firm as continuing for the purpose of assessment even after dissolution.

Therefore, the court held that the assessment on the dissolved firm was valid, rejecting the Tribunal's reliance on the Calcutta and Punjab High Court decisions.

3. Proper Service of Notice under Section 63:
The assessee argued that the notice under section 34 was invalid because it was not served on all partners individually, as required by section 63(1) and Order XXX Rule 3 of the Code of Civil Procedure. The court, however, found that section 63(1) only prescribes the mode of service, and service on one partner is sufficient for a continuing firm. Since section 44 treats a dissolved firm as continuing for assessment purposes, the same procedure applies. The court also noted that section 63(2) allows for notices to be addressed to any partner of the firm, and the fact that the notice was served on one partner and accepted by him was sufficient.

Therefore, the court concluded that the service of the notice was valid and proper.

Conclusion:
The court held that the reassessment proceedings initiated under section 34(1)(b) were valid and legal. The assessment made on the dissolved firm was permissible under section 44, and the service of notice on one partner was sufficient. The Tribunal's decision was overturned, and the reassessment was upheld. The assessee was ordered to pay the costs of the Commissioner.

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