9911796707
TMI Blog1972 (4) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... . The facts are that two limited companies, Raza Sugar Co. Ltd. and Buland Sugar Co. Ltd., Rampur, entered into a partnership and formed an agricultural company in the name of Agricultural Company, Rampur. The case relates to the last mentioned company which is the assessee in this case. The assessee took on lease some lands from the erstwhile Rampur State for the purpose of growing sugarcane. Subsequently, Raza Sugar Co. Ltd. merged with Buland Sugar Co. Ltd. as a result of the High Court's order dated 25th July, 1957. According to the above order, the merger was with retrospective effect from 1st November, 1955. The Income-tax Officer had, in the meantime, started proceedings under section 34 against the assessee company and had issued a notice on 20th March, 1957, addressed to the assessee-company. He also made assessments in the status of an unregistered firm for both these assessment years. The assessee being aggrieved, filed appeals before the Appellate Assistant Commissioner wherein it raised several contentions regarding validity of the assessments under section 34 of the Income-tax Act and the income being from agriculture, it was contended that it was exempt from ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments could be made on a dissolved firm. It was also urged that according to the order of the High Court dated 25th July, 1957, there was a merger of the two companies with retrospective effect from 1st November, 1955, and as such neither the firm nor any of its partners were liable to tax pursuant to a notice issued on 20th March, 1957. We did not agree with the submission made on behalf of the petitioner but as in our opinion the validity of the notice (sic), we felt that the question of assessment was clearly inter-related with the question. of validity of the notice and, therefore, it was not necessary to raise a separate question about the validity of the assessments. I The questions referred to us relate to the validity of the notice and also to the service of the notice under section 34 of the Income tax Act, 1922, and, therefore, raise points relating to the construction of section 34 and section 63 of the Act but in a way they also relate to the provisions of the Companies Act, 1956. We have seen that the order of amalgamation was made by the High Court of Allahabad on 25th July, 1957. By then the Companies Act, 1956, had come into force repealing the earlier Act of 1913 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... having jurisdiction to deal with these matters. In the instant case, we have already stated that there was an amalgamation of the two companies, namely, Raza Sugar Co. Ltd. and Buland Sugar Co. Ltd., Rampur, which together constituted the partnership firm known by the name of Agricultural Company, Rampur. But when there was an order of the High Court dated 25th July, 1957, merging or amalgamating the two companies with effect from 1st November, 1955, it is contended by the assessee that with effect from that date the firm itself stood dissolved. Since the assessment under section 34 relates to the assessment years 1948-49 and 1949-50 when the firm was in existence, the question involved in the case thus relates to the assessments of the dissolved firm because the notice of assessments itself was issued on 20th March, 1957. The question for determination, therefore, is whether such a notice could be issued on 20th March, 1957, for the purpose of making assessments on a dissolved firm under section 23(3) read with section 34 of the Indian Income-tax Act, 1922. Counsel for the assessee drew our attention to a single Bench decision of the Calcutta High Court in Manindra Lal Goswamn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artners of the firm. Notice to the partners was, therefore, necessary and the reassessment based on the notice to the firm which had discontinued its business was not valid. Counsel for the assessee next referred to a decision of the Supreme Court in C. A. Abraham v. Income-tax Officer, Kottayam. The Division Bench decision of the Calcutta High Court was not noticed in this case but, while dealing with the provisions of section 44, it was observed: " Section 44 sets up machinery for assessing the tax ax liability of firms which have discontinued their business and provides for three consequences: (1) that on the discontinuance of the business of a firm, every person who was at the time of its discontinuance a partner is liable, in respect of income, profits and gains of the firm, to be assessed jointly and severally, (2) each partner is liable to pay the amount of tax payable by the firm, and (3) that the provisions of Chapter IV, so far as may be, apply to such assessment. The liability declared by section 44 is undoubtedly to assessment under Chapter IV, but the expression ' assessment ' used therein does not merely mean computation of income. The expression ' assessment ', a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but the court could not adjudicate upon the validity of the order imposing penalty without deciding whether there was a valid assessment, for an order imposing penalty postulates a valid assessment. On behalf of the assessee, it was contended that all the members who were sought to be assessed must be individually served with notices of assessments and those not served will not be bound by the assessment. The argument was repelled. Counsel for the assessee then contended that the original assessment made under section 23(4) was invalid because notice of assessment was not served in the manner provided by section 63(2) of the Income-tax Act. This contention was negatived because it had not been raised before the Tribunal. The observations of Chakravartti C. J. in R. N. Bose v. Manindra Lal Goswami, at page 441, were held to be obiter and it was pointed out that the learned Chief Justice had himself observed that the parties boore him had throughout proceeded on the footing that section 44 applied to the case of a dissolved firm and that he would also proceed on the assumption that section 44 applied to the case of a dissolved firm. This case made it clear that section 44 op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts business assessment could be made on the firm in respect of income earned by it before dissolution. Counsel for the assessee then sought to draw a distinction between the provisions of sections 25, 26 and 44 of the Income-tax Act, 1922. Section 25(1), it was urged, applied to a case where any business, profession or vocation was discontinued in any year, the assessment could be made in that year on the basis of the income, profits or gains of the previous year. Section 26, on the other hand, related to a change in the constitution of a firm. Under subsection (1) of section 26 where at the time of making assessment under section 23, it is found that a change has occurred in the constitution of a firm or that a firm has been newly constituted, the assessment shall be made on the firm as constituted at the time of making the assessment provided that the income, profits and gains of the previous year shall, for the purpose of inclusion in the total income of the partner, apportioned between the partners who in such previous years were entitled to receive the same. There is also another proviso to this sub-section which lays down that when the tax assessed upon a partner cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt furnishes the reason for omitting reference to dissolution of a firm from section 44 when such dissolution is not accompanied by discon. tinuance of the business. " In other words, section 44 applied to those cases only in which there had been discontinuance of the, business and not to cases where business continued after the reconstitution of the firm, or there was succession to the business. Cases of reconstitution of the firm or succession to the business of the firm are covered by section 26(1) and section 26(2) of the Act. This position was made clear in another decision of the Supreme Court in Commissioner of Income-tax v. Kirkond Coal Co. where Shah J., who had delivered judgments in the earlier cases of Shivram Poddar and C. A. Abraham, reiterated and explained his views in those cases. Counsel for the assessee sought to draw assistance from another judgment of the Supreme Court in Kalva Suryanarayana v. Income-tax Officer, A-3 Ward, Hyderabad, and urged that after discontinuance of business and dissolution of the firm the recovery of tax can be made from individual partners and not from the firm. From this he concluded that the assessment itself should be made on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity is fixed by section 3 of the Act and section 44 is merely an enabling provision. Counsel for the revenue cited a decision of the Allahabad High Court in Ram Niranjan Satyanarain v. Commissioner of income-tax. What had happened in that case was that a firm was dissolved on October 13, 1951, but in respect of the profits of the firm for the accounting year October 17, 1948, to October 6, 1949, notices under section 22(2) and section 22(4) had been served on the firm before the firm was dissolved. An assessment was made on the firm in 1955. It was held that the assessment was not invalid on the ground that it was made on the dissolved firm and not on the partners. This judgment clearly shows that even though a partner is liable, the liability does not cease after dissolution. The case, therefore, has the support of the Supreme Court's judgment in Shivram Poddar's case 2. Counsel for the revenue also referred us to another decision of the Allahabad High Court in Nand Kishore Sita Ram v. Commissioner of Income-tax, where the contention of the applicant was that the assessment was invalid as the firm had been dissolved before issue of the notice and no separate notices were serve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was not possible to do so. The two partners of the dissolved firm were limited companies and it is only the principal officer of one of the companies that would accept service of notice on behalf of one of them. The most significant thing in the present case is that a return was filed by the assessee in pursuance of the notice which was accepted by the accounts officer of one of the companies who, according to the statement of case, was not only looking after the work for the assessee-firm, but also the work of the two companies. In Commissioner of Income-tax v. Bhanji Kanji's Shop a notice was received by a temporary employee of a dissolved firm. It was held that there was service of notice on the assessee and reassessment proceedings had been properly instituted against it. It was said in that case and we agree with the observations made in that behalf that the provisions contained in section 63(1) are not exhaustive and it is permissible to have a notice served in a way not mentioned in section 63(1) of the Indian Income-tax Act, 1922. All that matters is that the notice must have been received by and on behalf of the assessee and a return must have been filed by the asses ..... 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