Escaped-income reassessment for registered firms upheld, with cancellation of registration valid where notice was given in assessment proceedings.

Reassessment under the escaped-income provision was held to apply to a registered firm because the firm remained the assessee for income-tax purposes, even though tax on assessed income was apportioned among partners. The rule enabling cancellation of registration was upheld as within the rule-making power, and the absence of a separate notice did not invalidate cancellation where the parties had notice and participated in the assessment proceedings. Escaped income could then be assessed for the relevant years on the footing of an unregistered firm once registration was cancelled for that assessment year.

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Issues: (i) whether reassessment proceedings under the escaped-income provision were without jurisdiction against registered firms; (ii) whether the rule providing for cancellation of registration was ultra vires the rule-making authority and invalid for want of notice; (iii) whether escaped income could be assessed against an unregistered firm where the original assessments had been made on the footing of registration.

Issue (i): whether reassessment proceedings under the escaped-income provision were without jurisdiction against registered firms

Analysis: The statutory scheme treated the firm as the assessee even where it was registered, though the tax on assessed income was apportioned among the partners. The escaped-income provision operated on the income of the firm, and the reassessment jurisdiction was therefore not excluded merely because the firm had been registered for the relevant assessment years.

Conclusion: The reassessment proceedings were within jurisdiction.

Issue (ii): whether the rule providing for cancellation of registration was ultra vires the rule-making authority and invalid for want of notice

Analysis: The rule-making power was wide enough to support a rule enabling cancellation where the purported firm was found to be fictitious and the registration had been obtained in fraud of the revenue. In the cases before the Court, the cancellation was made in the course of assessment proceedings in which the concerned persons had notice and an opportunity to participate, so the absence of a separate notice under the rule did not invalidate the action taken.

Conclusion: The rule was not ultra vires, and the cancellation of registration was valid.

Issue (iii): whether escaped income could be assessed against an unregistered firm where the original assessments had been made on the footing of registration

Analysis: Reassessment under the escaped-income provision could proceed on the basis of the legal position found on inquiry for the relevant assessment year, and the Officer was not bound by the earlier registered status once the registration was cancelled for that year. The operation was necessarily retrospective in the sense that it related back to the assessment year in question.

Conclusion: Escaped income could validly be assessed on the footing of an unregistered firm for the relevant years.

Final Conclusion: The writ petitions failed because all three challenges to the reassessment and cancellation of registration were rejected on merits.

Ratio Decidendi: A registered firm remains the assessee for income-tax purposes, and escaped-income reassessment may be made for the relevant assessment year on the footing found on inquiry, including cancellation of registration where the purported firm is fictitious and the parties had notice in the assessment proceedings.

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