Reassessment notice to dissolved firm upheld; affixation service valid where substituted service requirements were substantially complied with.

For reassessment under section 34 of the Income-tax Act, 1922, notice could validly be issued in the name of the original assessee even after dissolution of the firm, because reassessment continues the original assessment machinery and section 26(2) was wide enough to cover succession on the facts. The challenge based on section 44 also failed. Service by affixation at the last known business premises was upheld because the serving officer first attempted personal service, then affixed the notice on directions, and the Income-tax Officer recorded satisfaction that service was in order. The reassessment proceedings were therefore properly initiated and the notices were valid.

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Issues: (i) Whether notice under section 34 of the Income-tax Act, 1922 could validly be issued in the name of a firm which had already been dissolved, and whether the case fell under section 26(2) or section 44 of the Act; (ii) Whether service of the notice by affixation at the business premises was valid.

Issue (i): Whether notice under section 34 of the Income-tax Act, 1922 could validly be issued in the name of a firm which had already been dissolved, and whether the case fell under section 26(2) or section 44 of the Act.

Analysis: The liability to be proceeded against under section 34 is that of the original assessee whose income had escaped assessment. The facts and pleadings did not establish that the later firm had succeeded to the earlier firm in a manner excluding the applicability of the reassessment machinery. Even on the footing that the business had been succeeded at the end of the accounting year, section 26(2) was wide enough to cover such succession. In any event, dissolution of the firm did not prevent issue of notice under section 34 in the name of the original assessee, because reassessment proceedings are treated as continuing the original assessment machinery.

Conclusion: The notice under section 34 in the name of the dissolved firm was valid, and the challenge based on section 26(2) and section 44 failed.

Issue (ii): Whether service of the notice by affixation at the business premises was valid.

Analysis: The record showed that the serving officer attempted personal service, reported back, received directions for affixation, effected affixation at the last known business premises, and thereafter reported the facts to the Income-tax Officer, who recorded satisfaction that service was in order. The requirements governing substituted service were thus substantially complied with.

Conclusion: Service by affixation was valid.

Final Conclusion: The reassessment proceedings were competent and properly initiated, and the appellant's challenge to the notices failed.

Ratio Decidendi: For reassessment under section 34 of the Income-tax Act, 1922, notice may validly issue to the original assessee even after dissolution of a firm, and substituted service at the last known business premises is valid when the prescribed service requirements are substantially complied with.

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