Constructive notice and deemed rectification sustain enhanced demand for partner's share income under income-tax law

A rectification affecting a partner's share income was treated as a valid correction where the statute deemed inclusion or adjustment of that share income, on assessment of the firm, to be a rectification of a mistake apparent from the record. The challenge to demand notices therefore failed because the statutory basis for rectification was satisfied. The absence of formal notice under the proviso to section 35(1) did not invalidate the enhanced demand where the assessee had knowledge of the proceedings, participated in them, and had a reasonable opportunity to be heard. On that footing, the impugned demand notices were upheld.

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Issues: (i) Whether the notices of demand issued under section 156 of the Income-tax Act, 1961 were invalid for want of prior rectification orders under section 35(5) of the Indian Income-tax Act, 1922. (ii) Whether the rectification and enhanced demand were invalid for want of notice under the proviso to section 35(1) of the Indian Income-tax Act, 1922.

Issue (i): Whether the notices of demand issued under section 156 of the Income-tax Act, 1961 were invalid for want of prior rectification orders under section 35(5) of the Indian Income-tax Act, 1922.

Analysis: The share income from the firm had been included in the assessee's assessment on the basis of information received after the firm was assessed, and the order sheets showed that the Income-tax Officer had taken steps to rectify the assessments and include the correct share income in the assessee's hands. Section 35(5) treated such inclusion or correction, upon assessment or reassessment of the firm, as a rectification of a mistake apparent from the record. The statutory requirements were therefore satisfied.

Conclusion: The challenge to the notices of demand on this ground failed and was rejected against the assessee.

Issue (ii): Whether the rectification and enhanced demand were invalid for want of notice under the proviso to section 35(1) of the Indian Income-tax Act, 1922.

Analysis: The assessee had knowledge of the rectification proceedings and participated in them. The legal requirement was not confined to written notice alone; constructive notice and a reasonable opportunity of being heard were sufficient where the assessee was aware of and discussed the matter. Applying that principle, the absence of formal notice did not invalidate the rectification order.

Conclusion: The objection based on want of notice failed and was rejected against the assessee.

Final Conclusion: The impugned demand notices were upheld, and the writ petition was dismissed with costs.

Ratio Decidendi: A rectification affecting a partner's share income is valid where the statute deems the inclusion or correction of such share income, upon assessment of the firm, to be a rectification of a mistake apparent from the record, and the requirement of notice is satisfied by constructive notice and a reasonable opportunity of hearing.

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