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TMI Blog1972 (7) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) of the Indian Income-tax Act, 1922: " (1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessment on the association was invalid? (2) Whether the Tribunal was within its powers to re-hear the entire appeal and decide all issues which did not form the subject-matter of the reference before the High Court without any direction from the High Court? (3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Appellate Assistant Commissioner has the power under law to uphold the ex parte assessment on the basis of an alleged non-compliance by D. D. Italia when the Income-tax Officer making the ex parte assessment did not refer to that default at all in the assessment order ?" The material facts, so far as they are relevant for answering the above questions, are: D. D. Italia, a member of the Hyderabad Deccan Liquor Syndicate (hereinafter referred to as "the Syndicate"), filed return of his individual income for the assessment year 1358 Fasli, which included his share income from the Syndicate of Rs. 77,972. According to him, the Syndicate had earned from its l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bers of the Syndicate, namely, D. D. Italia, was served with such a notice. The Appellate Assistant Commissioner rejected all the contentions raised by the assessee and confirmed the assessment. In further appeal to the Income-tax Appellate Tribunal the assessee raised four objections. The first objection was that the assessment made on the A.O.P. was bad in law, as it was made on the A.O.P. which was admittedly, defunct on the date of the assessment. The Tribunal considered that the first objection raised by the assessee went to the very root of the matter and, therefore, considered only that objection, and did not go into other objections. On the strength of the decision of this court in Raja Reddy Mallaram v. Commissioner of Income-tax the Tribunal upheld the contention of the assessee and set aside the assessment, as no notices were served on all the members of the erstwhile association of persons before making the assessment. At the instance of them Commissioner of Income-tax, the following question of law was referred to this court: " Whether an assessment can be made on a dissolved association of persons without service of notice on all the erstwhile members of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to receive from the association on which tax has already been paid by the association. Section 56 of the Hyderabad Act (section 44 of the Indian Income-tax Act of 1922) provides that if the A.O.P. is dissolved, every person who was, at the time of its dissolution, a member of such association, shall in respect of the income of the association, be jointly and severally liable to assessment and for the amount of tax payable. Provisions of Chapter IV relating to deductions and assessment, apply to the assessment. The decision of the Supreme Court in Income-tax Officer v. Bachu Lal Kapoor will not lend any assistance to the department. That was a case in which the Hindu undivided family was first assessed to tax and then after accepting the claim of partition of the Hindu undivided family the Income-tax Officer made assessments against the members of the Hindu undivided family. Subba Rao J. (as he then was), observed that after the proceedings initiated against the Hindu undivided family under section 34 culminated in the assessment of the Hindu undivided family, appropriate adjustments had to be made by the Income-tax Officer in respect of the tax realised by the revenue o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... association of persons and the individual members of an association as two distinct and different assessable entities. On the terms of the section the tax can be levied on either of the said two entities according to the provisions of the Act." The exercise of the option to assess one or the other of the two entities under section 3 of the Income-tax Act assumes knowledge on the part of the Income-tax Officer of the existence of two alternatives. In Rajareddy, Mallaram v. Commissioner of Income-tax the facts were almost identical with the facts of this case. After serving notice under section 34 of the Indian Income-tax Act, 1922, on one member of the A.O.P., the Income-tax Officer made an ex parte assessment on the A.O.P. for the year 1358 Fasli, and tried to recover the tax from another member of the A.O.P., Raja Reddy Mallaram. Raja Reddy Mallaram then challenged the legality of the assessment before this court. This court held that the assessment bad in law, as the assessment was made on the A.O.P. and not on the members of the A.O.P., at the time of its dissolution jointly and severally and, therefore, the demand of tax could not be enforced particularly against any member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... existed, he is bound to make up his mind either to assess the A.O.P., or its individual members in respect of the income of the A.O.P. The Income-tax Officer cannot assess both the A.O.P. and its individual members in respect of the income of the A.O.P. Even after the dissolution of the A.O.P., the assessment has to be made on the A.O.P. as if it continued to exist and, in such a case, the same procedure for assessment which would be applicable to an existing A.O.P. would also be applicable to a dissolved A.O.P. In the case of an assessment on an A.O.P. after its dissolution, in respect of its pre-dissolution income, notices for assessment need not be served on all those persons, who were members of the A.O.P. at the time of its dissolution. It is sufficient to serve the notice of assessment on the appropriate member of the association. It is immaterial whethere all the individual members of the A.O.P. are assessed to tax in respect of their share incomes of the A.O.P. or some of them. In either case, the Income-tax Officer will be considered to have elected to assess the individual members of the association, and that would be a bar to the making of assessment on the A.O.P. once a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of persons carrying on business, is also borne out by what he said in the assessment order itself. This is what he said : "The assessment of the Syndicate is still pending. The income admitted by the assessee is provisionally accepted and will be revised in respect of information from the Income-tax Officer, 'B' Ward, who holds jurisdiction to assess the Syndicate." It was then incumbent on the Income-tax Officer to make a further probe into the matter in order to find out whether that group of persons was an A.O.P. or a firm, or whether it was granted registration, etc., whether he made such investigation or not, it is abundantly clear that he was aware that there was an association of persons which carried on business within his jurisdiction and earned an income which attracted tax. At that time, the Income-tax Officer should have been careful enough to exercise the option and to elect to assess either the A.O.P. or the members of the association. We are, therefore, satisfied that the assessments on the individual members of the A.O.P. may, at best, be considered to have been made by the Income-tax Officer under an erroneous impression of law, rather than under ignorance of n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hyderabad Act. The same view has been taken by the Calcutta High Court in Sewlal Daga v. Commissioner of Income-tax, and by the Mysore High Court in C. N. Nataraj v. Fifth Income-tax Officer, City Circle No. II, Bangalore. It was then argued that the service of such a notice cannot be waived as held by the Allahabad High Court in Benarasi Silk Palace v. Commissioner of Income-tax. Notices under the Income-tax Act have to be served in the same manner as summons under the provisions of the Civil Procedure Code. Section 78 of the Hyderabad Income-tax Act provides that the provisions of the Hyderabad Civil Procedure Code (No. III) of 1323-Fasli will apply to the service of such notices, whereas under section 63 of the Indian Income-tax Act, 1922, the provisions of the Indian Civil Procedure Code (No. V of 1908) will apply to service of notices. Sub-section (1) of section 63 of the Indian Income-tax Act, 1922, provides that a notice may be served on the person therein named either by registered post or, as if it were a summons issued by a court under the code of Civil Procedure Sub-section (2) of section 63 provides that, in the case of an A.O.P., notice may be served on the princ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidered Bansilal as the principal officer of the association of persons. The very fact that the Income-tax Officer had considered the service of notice on Bansilal for making the assessment on the A.O.P. shows that he had recognized Bansilal as the principal officer of the association. Neither D.D. Italia was the agent of the A.O.P. nor was he treated by the Income-tax Officer as the principal officer of the association after service of notice. Valid service of notice under section 30(2) read with section 46(l) of the Hyderabad Income-tax Act on Bansilal, who was the principal officer of the A.O.P., was, therefore, a condition precedent for making a valid assessment on the A.O.P. We will consider the question of the necessity of service of a valid notice on Bansilal for making a valid assessment on the A.O.P. from a different angle. Indian Finance Act (No. 25 of 1950) which came into force on April 1, 1950, extended the application of the Indian Income-tax Act of 1922 to the Part B State of Hyderabad and repealed the Hyderabad Act. Section 13 of that Act preserves the operation of the State income-tax law for the purposes of levy, assessment and collection of tax in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 46(1) has been made on Bansilal. This is a finding of fact arrived at by the Tribunal after discussing at great length the material which has been brought on record by the income-tax authorities. In a reference under the Income-tax Act, the High Court is not a court of appeal and it is not open to it to embark upon a re-appraisal of the evidence and to arrive at a finding of fact contrary to the Tribunal. It is the duty of the High Court to confine itself to the facts as found by the Tribunal and answer the question of law referred to it in the setting and context of those facts. In Commissioner of Income-tax v. Kamal Singh Rampuria, the Supreme Court observed that: "...in a reference the High Court must accept the findings of fact reached by the Appellate Tribunal and it is for the party who applied for a reference to challenge those findings of fact, first, by an application under section 66(1). If the party concerned has failed to file an application under section 66(1) expressly raising the question about the validity of the findings of fact he is not entitled to urge before the High Court that the finding was vitiated for any reason." Since the department has not asked ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ank Ltd. v. Bansen and Company. Sinha J. observed thus: "What constitutes 'due and reasonable diligence' depends on the facts and circumstances of each case ; but the mere temporary absence of a defendant from his residence or place of business does not justify service by affixation. The question as to what was 'a reasonable time' must be decided against the background of a particular case, and no hard and fast rule can be laid down. If the person is absent from his residence, then all possible enquiries are to be made to find out as to when he was likely to return or else when he was likely to be found at his residence. The result of such enquiry must be tested against all the known facts about the defendant, his habits, his station in life, his occupation and so forth. There no doubt exist inveterate process dodgers who are bent upon being obstructive. That, however, is no justification for relaxing the requirements of the law. If determined efforts are made, service can be satisfactorily effected in the majority of cases. In a really difficult case, the Code has provided an adequate remedy......... In the case of a service by affixation, it is not sufficient to state in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Order III, rule 6, of the Civil Procedure Code, duly constituted to accept service of summons issued in the name of D. D.Italia. We, therefore, hold that there was no valid service of notice on D. D. Italia under section 30(2) read with section 46(1) of the Hyderabad Act. Even assuming that a procedural irregularity in the service of a notice of reassessment can be waived or ignored, if the assessee has admitted to have received the notice, or on facts it could be found so, still it must be established that D. D. Italia had admitted that he had received the notice. There is no evidence on record to show that D. D. Italia had anywhere admitted to have received the notice issued by the Income-tax Officer under section 30(2) read with section 46(1) requiring him to file a return on behalf of the A. O. P. Thus, the assessment on the A. O. P. is bad for two reasons: one is that the Income-tax Officer had assessed to tax the individual members of the A. O. P. in respect of their share incomes from the A. O. P. and in doing so, he had elected to assess the individual members of the association. It was not, thereafter, open to him, in law, to make an assessment on the A. O. P. and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or determined by the Income-tax Officer in the assessment order. Considering the powers of the Appellate Assistant Commissioner in disposing of an appeal before him, we are of the opinion that the objection raised by the assessee's counsel is untenable. In Ramgopal Ganpatrai Sons Ltd. v. Commissioner of Excess Profits Tax, the Bombay High Court held that the appellate court may even reverse or modify the order on a point of law taken by itself suo motu without being asked to do so by the appellant. Consequently, under section 17 of the Excess Profits Tax Act, 1940, the Appellate Assistant Commissioner has jurisdiction to deal with an order of the Excess Profits Tax Officer on any ground of law which applies to the facts on which that order was based. In Commissioner of Income-tax v. Shapoorji Pallonji Mistry, the Supreme Court has pointed out that in an appeal filed by an assessee, the Appellate Assistant Commissioner has no power to enhance the assessment by discovering new sources of income not mentioned in the return of the assessee or considered by the Income-tax Officer in the order appealed against. That does not, however, mean that the Appellate Assistant Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X
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