1957 (4) TMI 74 - HC - Income Tax

Court Invalidates Assessment for Improper Notice Service

Myitkyina Trading Depot Versus Deputy Tahsildar

Myitkyina Trading Depot Versus Deputy Tahsildar - [1957] 32 ITR 393 (MAD.) Issues Involved:1. Validity of the assessment under section 34 for the year 1939-40.2. Validity of the proceedings taken by the Collector to recover arrears for the years 1940-41 and 1941-42.Detailed Analysis:1. Validity of the Assessment under Section 34 for the Year 1939-40The petitioner firm, consisting of two partners, was unregistered for income-tax purposes. The firm operated primarily in Rangoon with a branch office in Madras. Both partners left for Burma in 1941, and communications between India and Burma were severed during the war. The firm lodged a return for the assessment year 1939-40, showing income below the assessable limit, and the assessment was completed on 6th March 1940, without considering the Burma income due to enemy occupation.Proceedings under section 34 were initiated in January 1942, but both partners were in Burma by then. Notices were served by affixture at their residence in Ilayangudi, where their wives lived, but the partners had no knowledge of these proceedings. The assessment was completed in their absence on 22nd March 1944.The petitioner challenged the validity of the assessment on two grounds:- Improper Service of Notices: The notices initiating the proceedings were not duly served on the firm or its partners. The statutory provisions under section 63 of the Income-tax Act and the relevant provisions of the Civil Procedure Code, particularly Order V, rules 12, 17, 19, 20, 25, and 31, were examined. The court found that the service by affixture did not meet the requirements of due service under Order V, rules 17 and 19, as the partners were known to be in Rangoon, and it was futile to look for them at Ilayangudi. The service was reduced to a meaningless ritual, and there was no proper or due service of the notice on the assessee.- Lack of Definite Information: The Department did not have 'definite information' to initiate proceedings under section 34. The court acknowledged this but did not base its decision solely on this ground.The court concluded that the assessment under section 34 was invalid due to improper service of notices. The rule was made absolute in W.P. No. 250 of 1955, and the order of assessment under section 34 was set aside. The petition was allowed with costs.2. Validity of the Proceedings Taken by the Collector to Recover Arrears for the Years 1940-41 and 1941-42For the assessment years 1940-41 and 1941-42, the assessments were completed under section 23(4) of the Act in February 1942, and notices of demand were served by affixture at the partners' residence in Ilayangudi. The petitioner challenged the validity of these proceedings on the ground that the notices of demand were not duly served.The court examined whether the notices of demand issued under section 29 were duly served. It found that the notices were served by affixture when it was known or should have been known that the partners were still in Burma. The certificates under section 46(2) of the Act were issued when the partners were in Burma, without any means of knowing they had been assessed to tax. The issue of the certificate and the further proceedings of the Revenue authorities were without jurisdiction.The court concluded that the notices of demand were not duly served, and the petitioner firm could not have been in default under section 45. The certificates issued under section 46(2) were set aside. The petitions W.P. Nos. 251 and 252 of 1955 were allowed to this extent, with no order as to costs.