Court quashes orders, directs compliance with law despite non-exhaustion of remedies. Invalid assessment notices due to lack of service.

The court allowed the writ petition, quashed the impugned orders, and directed the respondent to proceed according to law. It held that the writ petition was maintainable despite the non-exhaustion of statutory remedies, emphasized the distinction between dissolution and reconstitution of the partnership firm, and ruled that the assessment and demand notices were invalid due to non-service on the petitioner. The court highlighted the legal significance of proper notice and the necessity for adherence to procedural requirements under the Income Tax Act.

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Issues Involved:
1. Maintainability of the writ petition due to non-exhaustion of statutory remedies.
2. Dissolution vs. Reconstitution of the partnership firm.
3. Validity of the assessment and demand notices under the Income Tax Act.
4. Legal implications of non-service of notice to the petitioner.

Issue-wise Detailed Analysis:

1. Maintainability of the writ petition due to non-exhaustion of statutory remedies:

The respondent argued that the writ petition was not maintainable as the petitioner had not exhausted the statutory remedy available under the Income Tax Act before approaching the High Court. The petitioner contended that no notice as required by Section 148 of the Income Tax Act was served on him, and by the time the impugned order was issued, the time for filing an appeal had expired. Additionally, the alternate remedy was deemed onerous as it required the deposit of a significant amount of tax before an appeal could be filed. The court, referencing Himmatlal Harilal Mehta v. State of M.P. and other cases, held that the writ petition could not be rejected on the ground of non-exhaustion of statutory remedies, especially since the writ petition had been admitted and heard on merits.

2. Dissolution vs. Reconstitution of the partnership firm:

The petitioner claimed that the firm "Kashmir Motors" was dissolved on December 31, 1960, and he did not take over the tax liabilities of the dissolved firm. The respondent argued that it was a case of reconstitution, not dissolution, as the petitioner continued as a partner along with a new partner, Bakshi Abdul Majid, after the retirement of the other partners. The court concluded that it was a case of reconstitution under Section 187 of the Income Tax Act, as the petitioner remained a partner in the reconstituted firm. Therefore, the assessment should have been made on the firm as constituted at the time of making the assessment.

3. Validity of the assessment and demand notices under the Income Tax Act:

The petitioner argued that no notice of demand or assessment as required under Sections 143, 156, and 274 of the Income Tax Act was given to him. The respondent contended that notice to one of the partners of the firm would be deemed notice to the petitioner. The court found that no notice was sent to the petitioner but to the father of a retired partner, Bakshi Ghulam Hassan, who was not a partner at the time of assessment. The court held that the issue of notices is a mandatory requirement of law, and the impugned orders were not sustainable due to the lack of proper notice to the petitioner.

4. Legal implications of non-service of notice to the petitioner:

The court emphasized that the non-service of notice to the petitioner was a significant legal infirmity. The petitioner had not been associated with the assessment proceedings of 1965, and the affirmations made by the respondent regarding the petitioner's involvement were not substantiated. The court held that the impugned orders suffered from serious legal infirmity due to the lack of notice under Sections 143, 156, and 274 of the Income Tax Act, and therefore, the orders were quashed.

Conclusion:

The court quashed the impugned orders and allowed the writ petition, directing the respondent to proceed according to law. The judgment emphasized the importance of proper notice and the distinction between dissolution and reconstitution of a partnership firm under the Income Tax Act.

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