1967 (8) TMI 19 - HC - Income Tax

Proceedings u/s 34(1)(a) - service of notices u/s 34(1)(a) on D who was only one of the legal heirs of the deceased - since sanction of the Commissioner for initiating proceedings against the assessee was given in the status of association of persons proceedings against the assessee was invalid

Issues Involved:
1. Liability of the assessee to be assessed in the taxable territories for the assessment years 1946-47 and 1947-48.
2. Validity of assessments without first assessing the amount in the hands of the firm of Messrs. Daulatram Chooharmal.
3. Validity of initiating proceedings under section 34(1)(a) instead of section 34(1A).
4. Validity of assessments in the status of an individual when the sanction was given for an association of persons.
5. Validity of proceedings initiated by serving notices on only one of the legal heirs of the deceased.

Detailed Analysis:

1. Liability of the Assessee to be Assessed in the Taxable Territories:
The court addressed whether the assessee, who was a resident in Karachi (now part of Pakistan) during the relevant assessment years, could be assessed by Indian revenue authorities. The court concluded that since Karachi was part of British India during the relevant years, the assessee was liable to be assessed under the Indian Income-tax Act. This conclusion was supported by the decision in *Lilaram Thawerdas v. Commissioner of Income-tax*. The court held that the subsequent change in political boundaries did not absolve the assessee from liability to Indian income-tax. The first question was therefore answered against the assessee.

2. Validity of Assessments Without First Assessing the Amount in the Hands of the Firm:
The court examined whether the revenue could assess the assessee directly without first assessing the firm of Messrs. Daulatram Chooharmal. It was held that the revenue has the option to assess either the firm or the individual partners. This principle was supported by previous decisions such as *J. C. Thakkar v. Commissioner of Income-tax* and *Commissioner of Income-tax v. Murlidhar Jhawar and Purna Ginning and Pressing Factory*. The second question was thus answered against the assessee, affirming the revenue's right to directly assess the assessee's share.

3. Validity of Initiating Proceedings Under Section 34(1)(a) Instead of Section 34(1A):
This issue was not pressed by the assessee's advocate and therefore was not considered by the court.

4. Validity of Assessments in the Status of an Individual:
The court addressed whether the assessments were invalid because the sanction was given for an association of persons while the assessments were made in the status of an individual. The court found that the applications for sanction clearly indicated that the proceedings were to be initiated against "Shri Chooharmal Wadhuram by his legal representatives, Daulatram and others." The incorrect description of status as an association of persons was deemed a mistake that did not invalidate the proceedings. The court emphasized that the sanction was for reassessing the profits derived by Chooharmal Wadhuram during his lifetime, and this assessment was correctly made in the status of an individual. The fourth question, as reframed, was answered in the negative, meaning the initiation of proceedings was not invalid due to the status description error.

5. Validity of Proceedings Initiated by Serving Notices on Only One Legal Heir:
The court considered whether the proceedings were valid when notices under section 34(1)(a) were served only on Daulatram, one of the legal heirs. The Tribunal's view was that Daulatram had administered the part of the estate related to the amounts deposited with Messrs. Narayandas Purshottamdas, making the notice sufficient. The court referred to the Supreme Court's observations in *First Addl. Income-tax Officer v. Mrs. Suseela Sadanandan*, which suggested that all legal representatives should be served unless diligent and bona fide inquiry indicated otherwise. The court directed the Tribunal to submit a supplemental statement on whether the Income-tax Officer believed Daulatram to be the sole legal representative after diligent and bona fide inquiry. The fifth question was thus left pending until the receipt of this supplemental statement.

Conclusion:
The court answered the first and second questions in the affirmative, meaning the assessee was liable to be assessed in the taxable territories and the revenue could directly assess the assessee's share without first assessing the firm. The fourth question, as reframed, was answered in the negative, indicating that the incorrect status description did not invalidate the proceedings. The fifth question was left pending for further findings from the Tribunal.

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