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TMI Blog1978 (9) TMI 87X X X X Extracts X X X X X X X X Extracts X X X X ..... ess of that firm was at Chandni Chowk,Delhi. The said firm was dissolved on22nd June, 1949. The dissolution of the firm was brought about by arbitration. The Sole Arbitrator, Shri Trilok Chand gave his award on20th June, 1949whereby Shri Ram Rattan Dass was given certain assets and Shri Purshotam Dass and Lachman Dass were given the rights in the shop situated at Scindia House,New Delhi. After division of the assets of the dissolved firm, the branch office at Scindia House was taken over by a New firm constituted under the style of M/s Kanjimal & Sons with the principal place of its business in Scindia House New Delhi. This firm consisted of Late L. Purshottam Dass and Shri Lachman Dass having equal shares in terms of the first partnership deed executed by them on29th June, 1949. The present firm was reconstituted under a new partnership deed dt.18th March, 1961taking two more partners, Shri Rajesh Kumar and Shri Vijay Kumar. In the reconstituted firm, all the four partners had equal shares. Thereafter Purshottam Dass died on21st Sept., 1967and the firm stood dissolved on that date as per dissolution deed dt.27th Sept., 1967. The firm was reconstituted under a deed of partnership d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ponse to the notice under s. 148 filed a return on 16th March, 1968 with the address of the firm Kanji Mal & Sons, Regd. Firm, Delhi declaring an income of Rs. 62,521 as per original assessment on the firm at Chandni Chowk, Delhi and also submitted a note with the return stating that the return was being submitted without prejudice to the assessee's objections regarding (a) the jurisdiction, (b) the validity of the proceedings, (c) validity of the notice under s. 148 and (d) limitation for assessment and other proceedings referred to in his letter dt.23rd April, 1964. He also intimated the ITO in that note that the firm which the ITO was seeking to assess was dissolved on 20th June, 1969 and that the present firm, as constituted, was not in existence during the accounting year, relevant to the asst. yr. 1947-48. 7. The ITO, it appears, did not decide the above objections but completed the assessment Ex-parte under s. 144 on29th March, 1968on the ground that the assessee had deliberately withheld the production of the books of account of the firm. This assessment was made on the firm, M/s Kanji Mal & Sons, Scindia House,New Delhi. The assessee moved an application under s. 146 for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any, the assessee was prevented by sufficient cause from complying with the requirements of statutory notices. All we would say at the present stage was that the earlier controversy was not concluded before him as the AAC had stated in his order and that it will be open to both the parties to keep their options open in regard to this aspect of the matter." 10. After the above decision of the Tribunal, the ITO took up the reassessment and issued notices under s. 143(2) and 142(1) dt.27th June, 1974. The assessee filed a written reply dt.3rd Aug., 1974. The assessee filed a written reply dt.3rd Aug., 1974stating, Inter-alia, as follows: "The firm in question was not in existence during asst. yr. 1947-48 or any accounting period covered by 1947-48 assessment. As such, there is no liability to assessment to Income-tax with the addressee firm for the asst. yr. 1947-48. Accordingly, the validity of the aforesaid notices is questioned and your jurisdiction for proceeding with the assessment against the addressee firm is not accepted. The firm M/s Kanji Mal & Sons at Chandni Chowk was an entity altogether different from the present firm M/s Kanji Mal & Sons at Scindia House. The present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of business by the erstwhile two partners is nothing but the period for arranging the affairs and the continuity of the business was not affected thereby. He also observed that since the proceedings under s. 147 were initiated with the approval of the Central Board of Direct Taxes, the question was of academic nature. As regards the question of jurisdiction, the ITO expressed the opinion that an assessee is not entitled to raise it before an Income-tax authority unless he states which other particular authority (ITO in this case) has jurisdiction over his case which has not been done here. His conclusion was that the assessee could not plead without pointing out as to which ITO has jurisdiction over his case. He then referred to the letter dt.4th Feb., 1964to the CIT relating to the asst. yr. 1946-47 and pointed out that similar objection raised for the asst. yr. 1948-49 was over-ruled. With these observations, he made the re-assessment on18th Aug., 1975on a total income of Rs. 2,62,521. 12. The assessee appealed to the AAC of Income-tax. After referring to the above facts and contentions raised by the above facts and contentions raised by the parties before him, the AAC annulled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso the evidence is on record that there was an arbitration award as a consequence of which Shri Ram Rattan Dass retired and the branch business at New Delhi and goodwill was handed over to Purshottam Dass & Lachman Dass who carried on the business at Scindia House as their principal place of business as against the firm constituted under the partnership deed dt.2nd May, 1945which carried on its business both at Chandni Chowk and Scindia House but with Chandhi Chowk as the principal place of business. The words discontinuity or discontinuance do not cover mere change of ownership or a change in constitution of the firm but refer to a complete cessation of business. Where discontinuance takes place under circumstances not amounting to succession, the business itself is terminated or extinguished. A disassociation in the firm on the other hand takes place when the legal tie binding all the partners is dissolved. Where however, a firm carries on several business, s. 189 would only operate if all the businesses carried on by it are discontinued. Since this circumstance did not happen in the instant case, it is not the case of discontinuance of business. The firm alone in the instant ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i vs. CIT). This did not happen in the instant case. As succession pre-supposes the preservation of substance of identity and continuity of business, if its goodwill is sold along with other assets that would be an important factor in determining whether the case is one of succession. According to the decision in the case of Industrial Development & Investment Co. Ltd. vs. CEPT (31 ITR 688) there is no succession where a business terminates and a different though similar business carried on by another person or by a newly constituted firm. In the case under consideration, the firm as constituted, during the previous year relevant to the asst. yr. 1947-48 stood dissolved on 20th June, 1949 and business ceased to be carried on by any one for a week and the Scindia House business was restarted by S/Shri Lachman Dass and Purshottam Dass as partners having received as their share a part of the assets and liabilities allotted by the arbitrator to them. The ITO had also mentioned that the formation of the new partnership after the arbitrator's award was similar to the change in the constitution that occurred on18th March, 1961when two new partners were admitted by S/Shri Lachman Dass & Pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1488 of the Act was rejected. A para of the said letter of the CIT dt.4th Feb., 1964quoted in the assessment order is reproduced below: "Reg. 46-47-The assessee has challenged the jurisdiction of the ITO holding jurisdiction of the area known as "Scindia House" Con. Circus,New Delhi. The file of the firm M/s Kanji Mal & Sons was previously with the ITO WT Cir. IV, who had issued the notice under s. 146 for 46-47. The ITO had then jurisdiction over cases of "Scindia House, Con. Circus,New Delhi, Wherein there were wealth-tax proceedings for any year of assessment. The notice was, therefore, issued by the ITO holding jurisdiction over the assessee. The other objection is that the firm had been dissolved and the partners were then doing business in Chandi Chowk,Delhi, so proceedings should have been initiated by the ITO having jurisdiction over that area. Since there was succession and at a later date the assessee firm shifted to Scindia House,New Delhi, the jurisdiction for earlier proceedings as well rested with the ITO having jurisdiction when the notice under s. 148 was issued. In view of these facts, the notice was correctly issued". If it is a case of succession as stated in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isdiction of the ITO to make the assessment in this case was to be determined by the CIT under s. 124(4) of the IT Act, 1961. The learned Departmental Representative relied on the decision of the Supreme Court in Rai Bahadur Seth Teomal vs. CIT and Another (1), in support of his contention that objection to the place of assessment cannot be raised in an appeal before the AAC or the Tribunal or even on a reference to the High Court. He also relied on Kanga & Palkhiwala's Law & Practice of Income-tax, 7th Edition, Pages 779 and 782 in support of the above submissions and a further submission that if the CIT did not determined the question of jurisdiction under s. 124(4), it was for the assessee to have filed a writ in the High Court under Article 226 of the Constitution of India for a writ of Mandamus directing the Commissioner to do so. Since this was not done by the assessee, it was submitted by the Departmental Representative, that he cannot raise this objection in the appeal against assessment either before the AAC or before the Tribunal and the Tribunal is not competent to decide this point. The Departmental Representative also filed a copy of the order of the CIT dt.4th Feb., 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted, were raised before the ITO but he wrongfully over-ruled the same. It was further submitted that it was not for the assessee to point out as to which ITO had jurisdiction, in view of the decision in the case of Manilal Ram Chand vs. CIT, Gujarat (4). The learned counsel relied on the decision of the Supreme Court in Raza Textiles Ltd. vs. ITO Rampur (5) in support of his submission that if an Income-tax authority wrongfully decides a jurisdictional fact, an appeal lie from such an order. 15. We have carefully considered the submissions of the parties, In our opinion, two questions arise for determination in this case. First, whether the ITO, Spl. Circle 11,New Delhi, who made the assessment under appeal, had jurisdiction to make this assessment. Second, whether the assessment made on the assessee, namely, M/s Kanji Mal & Sons, Scindia House,New Delhiis illegal. Our answer to the first question is in the negative and to the second question in the affirmative. It is true that it was a case of territorial jurisdiction of the ITO with regard to the place of assessment, which is different from inherent lack of jurisdiction. It however, an assessee takes on objection to the ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of jurisdiction by the CIT in terms of s.124. (This is without prejudice to the objections herein regarding the availability of jurisdiction, cause of action, or liability of the assessee)". "In his above mentioned letter dt.12th Feb., 1968the assessee has challenged by jurisdiction on the plea that the firm under consideration never had its principal place of business at Scindia House and its major partners late Shri Ram Rattan Dass and late Shri Purshottam Dass resident in oldDelhiduring the year under consideration. The assessee's objection is without any basis since the question of jurisdiction has already been decided by the learned CIT,New Delhivide his order No. ITO/SIB/25090 dt.4th Feb., 1964, communicated to me". 16. On facts, therefore, there can be no dispute in this case that a specific objection to the jurisdiction of the ITO was raised in this case with full facts as to why the assessing ITO had no jurisdiction in the matter. Where the question of jurisdiction is raised in this manner, the ITO, if he does not agree with the assessee, is bound to refer the matter to the Commissioner for determination under s. 124(4) of the Act of 1961. In these circumstances, the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court still holds the field on this point and there being no contrary decision of any other High Court, we have to follow the same. 17. It has also to be noted that since the ITO had no jurisdiction to assess the assessee firm, he had also no jurisdiction to issue notice under s. 148 of the Act. Consequently, the notice under s. 148, in pursuance of which this assessment was reopened and reframed on this assessee, is without jurisdiction and invalid. 18. The second question, whether the assessment made on this assessee, namely, M/s Kanji Mal & Sons, Scindia House, New,Delhi, is illegal and has also to be decided in favour of the assessee. On facts, there is no dispute that the business, in respect of which this assessment for the asst. yr. 1947-48 was made, was carried on by M/s Kanji Mal & Sons, Jewellers, Chandni Chowk,Delhi. Their principal place of business evidently, therefore, was Chandni Chowk. This firm was dissolved in 1949. The original assessment was rightly made by the ITO, 1stContractor Circle, having jurisdiction in Chandni Chowk area on the dissolved firm of M/s Kanji Mal & Sons, Jewellers, Chandni Chowk,Delhi. That assessment was made on30th Dec., 1950under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the asst. yr. 1947-48, that he did not decide the question of jurisdiction of the ITO. He simply stated that the proceedings under s. 147 should be started if the case file is being sent to the ITO he should go ahead with the proceedings but as a measure of precaution, the ITO holding jurisdiction over the area where the dissolved firm then existed should also start proceedings. It appears that the Commissioner of Income-tax also had in his mind that it was the ITO holding jurisdiction over the area where the principal place of business of the dissolved firm existed has jurisdiction to make this assessment. In any case under s. 189 of the ITO having jurisdiction over the area where the dissolved firm existed had alone jurisdiction under s. 189 of the Income-tax Act, 1961. Since the Commissioner did not determine the question of jurisdiction but asked both the ITOs to make the assessments, he evidently abdicated his functions and did not act in accordance with the provisions of s. 124(4). In other words, there was a complete failure of compliance with the provisions of s. 124(4) and on the ratio of the decision of the Allahabad High Court in the case of Dina Nath Hem Raj (2), th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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