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TMI Blog1960 (1) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... ssolved at the end of 1358 Fasli. The association had ceased to exist altogether and the business done by it has been discontinued. On the facts concerned in this case, there does not seem to be any need to draw a distinction between discontinuance and dissolution , so far as the association is concerned. The Income-tax Officer took cognisance of the matter and issued notice under section 34 of the Act to Baba Gowd, one of the members of the association on March 2, 1953, after obtaining the approval of the Commissioner of Income-tax. The said notice was served on Baba Gowd on March 11, 1953, and the return was due on or before April 16, 1953. Baba Gowd did not file any return. The Income-tax Officer sent a notice under section 22(4) on July 11, 1953, asking the association to submit the account of the Nizamabad Group Liquor Shops. Baba Gowd did not file a return but sent a reply dated July 20, 1953, stating that the books of account were in the- possession of Pirkit Venkata Raj Reddy. The Income-tax Officer made enquiries and learnt that Pirkit Venkata. Raj Reddy was dead and issued another notice to Baba Gowd dated August 20, 1953, to file a return. Baba Gowd did not file any r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st Raja Reddy Mallaram who was also a member of the original association which had done the business. The arguments before us proceeded on the undisputed basis that the association had become dissolved at the end of 1358 Fasli that is, even before the assessment proceedings were started. Section 44 of the Indian Income-tax Act as it stood and was in force at the relevant time ran as follows: 44. Where any business, profession or vocation carried on by a firm or association of persons has been discontinued, or where an association of persons is dissolved, every person who was at the time of such discontinuance or dissolution a partner of such firm or a member of such association shall, in respect of the income, profits and gains of the firm or association, be jointly and severally liable to assessment under Chapter IV and for the amount of tax payable and all the provisions of Chapter IV shall, so far as may be, apply to any such assessment. Section 14(3) of the Excess Profits Tax Act runs as follows: 14. (3) Where two or more persons were carrying on the business jointly in the chargeable accounting period, the assessment shall be made upon them jointly and, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ..Amongst such sections, which are made applicable sections 44 and 63 are important. Section 25-A of the Income-tax Act has not been made applicable to proceedings under the Excess Profits Tax Act .... But no such difficulty arises in the case of a dissolved partnership, as section 44 of the Income-tax Act, which is made applicable to Excess Profits Tax Act by section 21 of the said Act, and which was modified by the Central Board of Revenue under its rule-making power provides that ..The result of section 44 as amended by the Central Board of Revenue is to attract the procedure applicable to an undissolved firm to a dissolved firm, and, therefore, if two or three persons carry on business as a firm, the assessment could be made on the partnership in the partnership name and the persons who carried on business during the chargeable accounting period will be liable to pay the tax as provided by sub-section (2) of section 14 read with section 44 of the Income-tax Act as modified by the Central Board of Revenue. As section 63 of the Income-tax Act is also made applicable to proceedings under the Excess Profits Tax Act, if during the chargeable accounting period, the firm carried ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad been discovered to have escaped assessment was described as ' your income', and he was required to submit a return of ' your total income and total world income' assessable for the year ending March 31, 1944. A similar notice was addressed to B but no notice was issued to C. B submitted a return disclosing a loss which was not accepted and the Income-tax Officer determined the total income of the firm and made an assessment on the firm and on the basis of that assessment proceedings for recovery of tax were initiated: Held, that the notice under section 34 as issued on A and B could not form the basis of a valid assessment of the firm or the firm's income and A and B could not be proceeded against for recovery of the tax due under that assessment Assuming that section 44 of the Income-tax Act applies, after the dissolution of a firm, whether it be a registered firm or an unregistered firm, an assessment to income-tax of its pre-dissolution income can only be made on the persons who were the partners of the firm at the time of the dissolution jointly and severally, and cannot be made on the firm. Regarding the decision of the Madras High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly; and since section 44 of the Act is made applicable to the assessment of pre-dissolution profits of the business of a dissolved firm, such assessment can obviously be made in the partner ship name .These observations made by the learned judge (in A.G. Pandu Rao's case (supra)) , are clearly warranted by the special language of section 14(3) of the Excess Profits Tax Act, read with section 44 of the Income-tax Act, as recast by the Central Board of Revenue. They have no bearing whatsoever to a case of the assessment of income-tax on the pre-dissolution income of a dissolved firm under the provisions of section 44 of the Act as it stands in the statute itself. The above decision was passed on June 3, 1957, on appeal from the decision by a single judge of the Calcutta High Court, which was pronounced on December 19, 1955, in Manindra Lal Goswami v. Income-tax Officer [1956] 30 ITR 550 . In the latter decision, the learned judge differed from the decision in A.G. Pandu Rao v. Collector of Madras [1954] 25 ITR 99, observing as follows: Where however the firm is discontinued after assessment, section 44 clearly makes the partners individually or jointly liable to pay t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cessity for a further notice of demand under section 29 on the petitioner (Kumaraswami Chettiar), who was also in law an assessee; vide the definition of 'assessee' in section 2(2) of the Act. Their Lordships also observed as follows regarding the decision in Manindra Lal Goswami v. Income-tax Officer [1956] 30 ITR 550 : Learned counsel for the petitioner relied upon the decision of a single judge of the Calcutta High Court reported in Manindra Lal Goswami v. Income-tax Officer [1956] 30 ITR 550 . But that decision has no bearing on the facts of this case. In that case, there does not appear to have been a notice of demand served on any one representing the partnership which had been dissolved. In the absence of any such demand, it was held that proceedings for the recovery of the tax from individual partners without serving even a demand notice on the partners individually were not valid. From the facts of that case, in Kumaraswami Chettiar v. Additional Income-tax Officer [1957] 31 ITR 457 , it would appear that assessment was made of the dissolved association as assessee but it does not appear that any question was raised in that case about the validity of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Officer had to make an assessment of the total income of the family as if no partition had taken place, calculate the amount of tax payable thereon as if it was payable by one unit and apportion the amount payable by the unit amongst the members of the family according to the portion of the joint family property allotted to each of them. That decision was justified on the basis of the specific provisions in section 25A(2) which read: Where such an order has been passed [under section 25A(i )]....the Income-tax Officer shall make an assessment of the total income received by or on behalf of the joint family as such, as if no partition had taken place, and each member or group of members shall .be liable for a share of the tax on the income so assessed according to the portion of the joint family property allotted to him or it The principle laid down in this decision would be applicable to the association, if section 44, which is applicable to the association, were to the same effect as section 25A(2) in the relevant aspect. In fact, section 44 of the Income-tax Act in its present form, as introduced by the Finance Act of 1958 with effect from April 1, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... una in section 44, the Legislature amended section 44 recasting that section and inserting the word 'penalty' and thereby authorising the Department to levy 'penalty' even under section 44. The section as amended runs thus:.... It is worthy of note that clause (2) of the amended section 44 specifically deals with the imposition of penalty as distinct from the assessment spoken to in clause (1). Again, in clause (3), it is stated that the provisions of Chapter IV shall apply to assessment or imposition of penalty. This also indicates that the Legislature thought that prior to the amendment, the word assessment was incapable of being construed as including penalty. By adopting a similar line of reasoning, it appears reasonable to infer that the Legislature thought that prior to the amendment the provision in section 44 was incapable of being construed as enabling an assessment to be made of the total income of a dissolved association of persons to be made as if no such dissolution had taken place. The distinction made in Bose v. Manindra Lal Goswami [1958] 33 ITR 435 by a Bench of the Calcutta High Court regarding the decision of the Madras High Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent to income-tax of the pre-dissolution income of the association can only be made on the persons who were members of the association at the time of the dissolution (as assessees) so as to be jointly and severally liable and cannot be made on the firm as assessee. As assessment has to be made of ex-members of the dissolved association as assessees and assessment cannot be made of the association as a unit, notice to each member is necessary, so that there might be an assessment binding on him and valid as against him. In Y. Narayana Chetty v. Income-tax Officer [1959] 35 ITR 388 it was held by the Supreme Court as follows: The notice prescribed by section 34 of the Income-tax Act for the purpose of initiating reassessment proceedings is not a mere procedural requirement: the service of the prescribed notice on the assessee is a condition precedent to the validity of any reassessment made under section 34. If no notice is issued or if the notice issued is shown to be invalid then the proceedings taken by the Income-tax Officer without a notice or in pursuance of an invalid notice would be illegal and void. In Navinchandra Mafatlal v. CIT [1955] 27 ITR 245 also, it has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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