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TMI Blog1978 (8) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... ve-said partners excluding the petitioner. Respondent No. 1 issued notice No. 83 of demand asking the petitioner to pay the amount of Rs. 2,55,600 allegedly as arrears of tax of the defunct firm of Kashmir Motors. This notice forms annex. " B " to this petition. The petitioner submitted his objections and pleaded that the responsibility to pay the tax amount did not rest with the petitioner inasmuch as he was not a partner of the defunct firm He also pleaded that no demand or notice of assessment as required under ss. 143 and 156 of the I.T. Act or that of imposing a penalty under s. 274 had been given to him. The petitioner also raised either factual and legal plea before the I.T. authority. The respondent, however, recorded that no notice to the petitioner was necessary as notice to one of the parties of the firm would be deemed a notice on the petitioner also and on this ground the recovery of the tax was ordered. Consequently, the respondent issued three notices of demand amounting to Rs. 2,55,600 out of which Rs. 1,55,505 related to the penalty imposed by virtue of certificate No. 5354 dated March 20, 1974. The remaining sum of Rs. 50,309 and Rs. 50,632 were in response to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this effect were executed on December 30, 1960. Subsequently Bakshi Ghulam Ahmed also retired and was succeeded by Bakshi Abdul Majid. The original assessment was made on " Kashmir Motors " in the status of a registered firm under s. 143(3) and a notice of demand was also issued under s. 156 and was served upon Bakshi Ghulam Hassan through his father. Notice under s. 148 was issued for the assessment years 1960-61 and 1961-62 on July 31, 1965, and served through partners on August 3, 1965. These proceedings were initiated at the instance of the petitioner who had at that time pleaded that the other partners had deceived him and on the declaration that on December 27, 1960, the assets exceeded the liabilities by Rs. 9,07,086 the petitioner furnished the returns in response to the notice under s. 148 of the I.T. Act. The return of the income was signed by the petitioner himself and was filed under his covering letter duly signed by the petitioner himself. During the assessment proceedings the petitioner was actively co-operative with the department and gave a statement before the ITO concerned which can be produced in the court. This completely gives a lie to the theory of the petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t years 1960-61 and 1961-62 on July 31, 1965, and served through the partners on August 3, 1965, it is clear that such service could not be deemed service on the assessee and could not bind the petitioner as no notice was admittedly served on the petitioner but only to the partners who had already retired. The impugned order was, therefore, violative of the provisions of the I.T. Act and the assessment proceedings are void and without jurisdiction. There was no acquiescence by conduct on the part of the petitioner as alleged by the respondent in his affidavit. The matter relates to the enquiry proceedings started by Mr.Anand Prakash, ITO, who was deputed by the Central Government to make a special enquiry into the affairs of the firms of the family of Bakshi Ghulam Mohammad. An statement made by the petitioner referred to in the reply affidavit of the respondent was not a statement in the assessment proceedings of " Kashmir Motors " but related in general to the firms of the family of Bakshi Ghulam Mohammad as in the same sequence enquiry was held by Mr. Justice Iyyangar. The statements made by the petitioner before Mr Anand Prakash, ITO, or Mr. Justice Iyyangar, which are sought t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relating to emergency, the case was revived and was posted for hearing. Shri R. N. Kaul appeared on behalf of Bakshi Ghulam Hassan on October 18, 1977, but thereafter nobody appeared on his behalf. I have heard the learned counsel for the parties before me. Let me first of all deal with the argument raised at the bar that as the statutory remedy by way of appeal was available to the petitioner and as he did not avail of it, therefore, the writ petition should be thrown out on that ground. It is not disputed, before me that the petitioner could prefer an appeal under the I.T. Act against the impugned assessment but in this connection important facts have to be taken into consideration. It is admitted that in this case no notice as required by s. 148 of the I.T. Act was served on the petitioner and by the time the impugned order was issued the time for filing the appeal had run out. According to the petitioner this prevented him from filing the appeal. To this averment, made in the rejoinder affidavit, there is no reply forthcoming from the respondents. Secondly, the alternate remedy by way of appeal is, indeed, an onerous one inasmuch as the petitioner will be called upon to de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k that the objection raised by the respondent is not tenable. In the instant case, the writ petition was filed and admitted as early as in the year 1974 and, thereafter, because of the operation of the Presidential Order issued under art. 359 of the Constitution of India, proceedings remained suspended for some time and were revived after the revocation of the Presidential Order. The case has since proceeded in the court. Final arguments have also been addressed. It is now too late in the day to ask the petitioner to pursue the remedy by way of appeal when it is not legally possible for him to do so at this late stage ; more so, when final arguments in the case have also been concluded. Moreover, as already observed, the remedy is so onerous that it cannot prove easy and efficacious for the petitioner. I now proceed to deal with the second aspect of the matter which is, undoubtedly, of very great significance. According to the petitioner it was a case of dissolution of the firm. The petitioner has referred to an agreement by virtue, Of which the original firm was constituted of four partners which was dissolved on December, 31, 1960, after the statement of assets and liabilities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... making the assessment. For the purpose of this section change in the constitution of a firm would mean if one or more of the partners cease to be partners, or one or more partners are admitted in such circumstances that one or more partners who were partners of the firm before the change continue as partner or partners of the firm. This section clearly indicates that where some of the partners retire from the firm but at least one of the, partners before the change continues as a partner of the firm, then it is not a case of dissolution of the firm but of reconstitution of the firm. If on the other hand, all the old partners go out and an entirely new set of partners come in, it would not amount to change in the constitution of the firm but would amount to succession of one firm by another and s. 188 of the Act would apply. In the instant case, the petitioner continued to be a partner of the firm. At the time of the assessment in the year 1965 the firm had been reconstituted. Under s. 187 of the Act, assessment has to be made on the firm as constituted at the time of making the assessment. The assessment was required to be made of the firm as it existed at the time of assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erved that where a firm is dissolved on account of the death of a partner by virtue of s. 42(c) of the Partnership Act, and the business is continued by the remaining partners or by the remaining partners and another in the place of the deceased partner, there being only a change in the constitution of the firm within the meaning of s. 187(2)(a), the assessment of the firm for the previous year or years must invariably be made under. s. 187, and if there be succession to the firm by another separate entity owned by altogether different partners, assessment has to be made under s. 188 as it would squarely fall under s. 188. Succession involves change in ownership from one entity to another, although the continuity of the business and its nature are preserved intact. It contemplates or postulates the existence of two separate and distinct entities owned by two different groups of persons and, none of the old partners should continue to be partners in the new or reconstituted firm. However, if there are one or more of the old partners continuing as partners in the second firm, it must be construed to be only a change in the constitution of the firm within the meaning of s. 187 but not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s no acquiescence is alleged by the respondents. In reply to the filing of the returns, he replied that the matter of filing the return related to the enquiry proceedings started by Shri Anand Prakash, the ITO, who was specially deputed by the Central Government to make a special inquiry into the affairs of the firms of the family of Bakshi Ghulam Mohammad. This was a much later act. Any statement made by the petitioner which is referred to in the reply affidavit was not a statement in the particular assessment proceeding of " Kashmir Motors " but related in general to the firms of the family of Bakshi Gulam Mohammad and, in the same sequence, enquiry was held by Justice Iyyengar. This has not been rebutted by the respondent in any manner. It is, therefore, clear that the affirmations made in the reply affidavit have reference to distinct and separate matter and, proceeding and has no reference to the time when the assessment of the firm was made in the year 1965. For the foregoing reasons, as the petitioner had no notice either under s. 143 or ss. 156 and 274 of the I.T. Act and, therefore, the impugned orders suffer from serious legal infirmity and are not sustainable in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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