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TMI Blog1960 (5) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... ess was carried on in the name and style of Messrs. Roopnarain Ramchandra at Kanpur and this business belonged to a firm which in the relevant accounting period was constituted under an instrument of partnership dated the 28th of March 1947. The constitution of the firm, according to this instrument of partnership, a copy of which is annexure 'C' to the affidavit filed in support of petition No. 1370 of 1959 was as follows : 1. Lala Ajodhya Prasad 3/20 2. Lala Sharwanlal 3/20 3. Lala Moti Chandra 2/20 4. Lala Musaddi Lal 3/40 5. Lala Shiva Prasad 3/40 6. Lala Radhey Lal 3/40 7. Lala Shree Kishan 3/40 and 8. Lala Moti Chandra (minor) admitted to benefits of partnership to the extent of 6/20. 2. The firm was assessed to tax for the assessment years 1949-50 and 1950-51 in the status of a registered firm and the instrument of partnership dated the 28th of March 1947 was the basis of the registration of the firm under Section 26-A of the Income Tax Act. It appears that on the 27th of November 1952, another instrument of partnership was executed according to which the constitution of the firm became as follows: 1. Shri. Ajodhya Prasad 24/160 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciation of persons. This view was upheld by the Appellate Assistant Commissioner. 4. An appeal was then preferred to the Income Tax Appellate Tribunal and a copy of the order passed by that Tribunal is appended to the affidavit in writ petition No. 1553 of 1958. This order shows that while two members of the Tribunal agreed with the assessee and found that the persons who had ostensibly actually entered into the agreement of the partnership were the only partners, the third member found in favour of the Income tax Officer and held that the view taken by the Appellate Assistant Commissioner was correct. Learned counsel for the department informs us that an application under Section 66(1) of the Income Tax Act has been moved and is still pending before the Tribunal. 5. In the meantime on the strength of the finding of the Appellate Assistant Commissioner the Income tax Officer felt that the assessment made in some of the earlier years on the business income of Messrs. Rup Narain Ram Chandra in the status of a registered firm had been wrongly made and believed that the income of the persons who really shared the profits had escaped assessment On this belief he issued notices und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act did not provide for any appeal against the order passed by the Income Tax Officer under Rule 6-B of the Income Tax Rules and the assessee would thus be left without any remedy unless they are allowed to question the notices by moving this Court by a writ petition. 7. There is not much controversy as to the legal position about the circumstances in which a notice under Section 34 of the Income Tax Act may be issued. Cases have been cited at the Bar to show that this section cannot be used for merely reviewing of revising the opinion on the same facts. The language of Section 34 has undergone change more than once. For some years the provision required that the Income Tax Officer should be in possession of definite information on which his belief that income had escaped assessment should be founded. This Court took the view in Subharan Sekseria v. Commissioner of Income Tax, . MANU/UP/0229/1950 : [1950]18ITR773(All) that there should be a causal connection between the definite information which the Income Tax Officer had received and the discovery which he made that income has escaped assessment. This view was affirmed in a later case but the legislature intervened and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his firm or the members of his family partners in the new firm joined by him. He relied particularly on Ram Kumar Ramniwas v. Commr. of Income Tax MANU/UP/0067/1953 : AIR1953All150 , where a Bench of this Court laid down that if there be a partnership between the Karta of a Hindu undivided family And a stranger it is the Karta alone who is partner in the firm and not the other members of the Hindu undivided family. The same view was taken by the Calcutta High Court in Commissioner of Income Tax v. Pudwala and Co. MANU/WB/0107/1950 : [1950]18ITR653(Cal) and this view was affirmed by the Supreme Court in Kshetra Mohan Sannyasi Charan v. Commissioner of Excess Profits Tax MANU/SC/0049/1953 : [1953]24ITR488(SC) . The learned Advocate General contended, relying on this case, that all that the Income Tax Officer relied upon while issuing the notice was the inference he could draw from the same facts relating to the legal character of the body which carried on the business in the name and style of Messrs. Rup Narain Ram Chandra. The legal inference that this body was an association of persons was not possible and the entire basis therefore on which the Income Tax Officer sought to make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the contrivance was nothing but a fraud on the revenue, the Income Tax Officer would be perfectly justified in assessing them in the status of an association of persons on the entire income of the association. Learned Counsel contended that the facts being not admitted this Court should be reluctant to exercise its jurisdiction under Article 226 of the Constitution in a matter like this. 9. After hearing learned counsel and considering the facts of the case it appears to us that there is some dispute about the facts on which the parties would rely in connection with the question of determining the legal character of the body carrying on business as Messrs. Rup Narain Ram Chandra. In this connection it is necessary to point out that the findings of the Income Tax Officer and the Appellate Assistant Commissioner and the Income Tax Appellate Tribunal all relate to the instrument of partnership dated 27th November 1952. This document was not the one which was registered for the years 1949-50, and 1950-51 the year now in dispute. The constitution of the firm also was not exactly the same in 1952 as it was according to the document dated 28th March 1947 which was registered i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice. He had the jurisdiction to do so and his power to issue the notice depended on his own belief. Thus the facts on which the legal status of Messrs. Rup Narain Ram Chandra is to be determined are in dispute and have still to be ascertained. In the exercise of its writ jurisdiction this Court cannot be expected to go into these seriously disputed questions of fact. It is therefore not possible to quash the notice under Section 34 of the Act on the ground that no other view of the facts is possible or that the Income Tax Officer is only going to review or revise his opinion on facts already known to him. 10. The second ground that no notice could be issued as the association of persons sought to be assessed was not in existence on the date the notices were issued hardly merits any serious consideration. Section 44 of the Act provides for the assessment of a dissolved firm or Association and this section has been referred to by the Income Tax Officer specifically in the notices under Section 34. Besides, all the 29 persons to whom the notices under Section 34 have been issued may not be assessed as members of a dissolved firm or Association in respect of the two assessment ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and have not been vacated. It is therefore not open to the Income Tax Officer to start proceedings for subjecting the same income to tax in the status of an association of persons. 12. In Joti Prasad's case [1959]37ITR107(All) an association formed under a scheme formulated by the Collector for distribution of Khandsari sugar at controlled rates functioned between January 8, 1947 and January 6, 1948. There were 30 members of the association, 23 of them were assessed to income tax. In their individual assessments their respective shares of the profits earned by the association during the period were included and the tax levied thereon, was paid by them. Later the Income Tax Officer initiated assessment proceedings and assessed the income of the association in its hands and served notices of demand. Ten of the members of the association thereupon applied to this Court for relief against the order of assessment. It was held on the facts of the case (a) that there was an association of persons with a separate capital for the purpose of carrying on a business and sharing profit of that business, (b) that once the income of the association was charged to income tax in the hand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly as a firm. According to ordinary law the income of each partner actually is his share of the income of the firm and according to the ordinary law the income of the other partners cannot be considered to be his income. According to the Income Tax Act a firm is regarded as a unit and every partner is liable to tax not only on his share of income but also on the entire income of the firm. In the case of an unregistered firm the assessment when made creates a liability on each and every partner of the firm. Similarly in the case of an association the body, unless incorporated or registered as such under the Indian Companies Act or the Societies Registration Act would have no legal recognition and every member of the association would be individually and severally liable for the acts or omissions of the association. The income Tax Act however provides for the assessment of an association of persons, though such, an association may not be an incorporated or registered body. In the ordinary law there is some scope for a dispute as to whether the income earned by a body of persons as a firm may be said to be the income of a partner and the income earned by a body of persons as an ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rse of the judgment which are relied upon by the Advocate General. At page 111 (of ITR): (at p. 458 of AIR) it is said: Section 3 of the Act which is the main charging section, only talks of charging the income of certain persons and does not talk of income tax being charged on persons. This implies that the charge is to be levied on an income only once. Whether it is to be charged in the hands of one person or another can certainly be determined under Section 3 and other relevant provisions of the Income Tax Act. Section 3 is clear enough to indicate that the same income cannot be charged repeatedly in the hands of different persons or in the hands of the same persons . After, considering the arguments addressed to us we are of opinion that the decision in Joti Prasad's case MANU/UP/0113/1959 : [1959]37ITR107(All) depended plainly on the ground already mentioned and it was not quite essential to go into the question, of the nature or the liability to tax under Section 3. Section 3 does say that the tax is to be levied on the income but it also says clearly that the tax is to be levied on the income of an individual, Hindu undivided family and so on. It appears diffic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t with Section 2(12) of the Act. Section 63(2) of the Act says : ''63(2) Any such notice or requisition may, in the case of a firm or a Hindu undivided family, be addressed to any member of the firm or to the manager, or any adult male member of the family and, in the case of any other association of persons be addressed to the principal officer thereof . Section 2(12) of the Act defines principal officer'' as follows :-- 2. (12) principal officer used with reference to a local authority or a company or any other Public body or any association, means- (a) the secretary, treasurer, manager or agent of the authority, company, body or association, or (b) any person, connected, with, the authority, company, body or association upon whom the Income Tax Officer has served a notice of his intention of treating him as the principal officer thereof, Section 63(1) provides for the manner in which notices under the Income Tax Act are to be served. It lays down that a notice under the Act may be served on the person named therein either by post or as if it were a summons issued by a court under the C.P.C. The second part of the section says that in the case of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered necessary. We do not consider it proper to quash the notices for that reason. 16. In writ No. 1370 of 1959 there is a similar clause in which the Income Tax Officer says: I require you the said Shri Shrawan Lal or Shri Moti Chandra to deliver to me within 83 days........... A. In this notice he asks either Sri Shrawan Lal or Sri Moti Chandra to file the return. The notice is again addressed and sent to file 29 persons mentioned in the notice and we cannot ignore the fact that the Income Tax Officer expressly says that these persons were members of the association of persons and were jointly and severally liable to assessment in respect of the income which had escaped assessment. Mohammad Hanif's case, MANU/UP/0361/1954 : [1955]27ITR447(All) (supra) affords no parallel. In that case an association of four persons had been assessed to tax. Thereafter a notice under Section 34 was addressed to Mohammad Hanif who was one of those four persons. Mohammad Hanif filed a return in the status of an individual. The Income Tax Officer made an assessment on an association of two persons other than Mohammad Hanif himself. On appeal this assessment was converted into ..... X X X X Extracts X X X X X X X X Extracts X X X X
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