AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
1958 (10) TMI 10
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....n its business in the name and style of Prabhat Textiles. This firm was formed on December 1, 1941, and it was dissolved by a decree of the civil court passed on December 22, 1949, this dissolution having taken effect from January 1, 1949. All the three firms were carrying on business in yarn and cloth and all of them were registered under section 26A of the Act. It appears that for the purpose of assessing the income of these firms for the years 1943-44 and 1944-45, respondent No. 1 was satisfied on making enquiries that each of the three firms was a separate entity and so separate assessment orders were passed in respect of the income of each one of them for the said two years. Subsequently, on August 14, 1951, respondent No. 1 issued notice against the firm of Prabhat Textiles under section 34 of the Act. In the proceedings thus commenced, respondent No. 1 held that the firm of Prabhat Textiles was a fictitious firm and that the real partners were C. Pitchayya and B. Audeyya. As a result of this finding respondent No. 1 cancelled the registration of the said firm under rule 6B of the Income-tax Rules and passed fresh orders of assessment against the said firm on the basis that....
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....against them under section 34 on the ground that it was illegal to assess escaped income under section 34 on the basis that the firms were unregistered firms while maintaining the original assessment for the said firms on the basis that they had been duly registered under section 26A of the Act. The High Court has held against the appellants on all these points. Besides the High Court has stated in its judgment that it was admitted by the appellants before it that appeals had been filed against each one of the orders challenged in the writ proceedings and the High Court thought that that itself would suffice to justify its refusal to exercise its jurisdiction under article 226 of the Constitution. However, since the primary relief asked for by the appellants in their respective petitions was the issue of a writ of prohibition, the High Court felt that it may as well deal with the merits of the contentions raised by the appellants. That is why the High Court examined the merits of the said contentions. On behalf of the appellants, Mr. Viswanatha Sastri has raised the same three points before us. The first point raised by Mr. Sastri is that the proceedings taken by respondent No. 1....
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....been under-assessed in the relevant years of assessment. The notice further required the assessee to deliver to the Officer within thirty-five days of the receipt of the notice a return in the attached form of the total income and total world income of the assessee assessable for the relevant period. In pursuance of this notice the appellant Pitchayya in fact appeared before the Officer during the course of the proceedings commenced under section 34. Mr. Sastri contends that this notice is defective because it purports to be issued against the firm and no notice has been issued against the respective partners of the firm. According to Mr. Sastri the assessee who is entitled to a notice under section 34(1)(a) is not the firm but each individual partner of the firm. He also suggests that each individual partner should have been called upon to make a return of his total income assessable for the relevant year ; inasmuch as the notice is issued against the firm and not against individual partners it is invalid. In support of this argument Mr. Sastri has referred us to the definition of the word "assessee" under section 2, clause (2) as it stood prior to the amendment of 1953. Under the....
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....tion 23(5) is also not valid because it is obvious that for the purposes of assessment at all relevant and material stages under sections 22 and 23 it is the firm that is treated as an assessee. When a return of the income is made for the relevant year, it is a return with regard to the total income of the firm that has to be submitted under section 22 ; and when assessment is levied under section 3, the Income-tax Officer determines and can determine the total income of each partner of the firm only after ascertaining the total income of the firm itself. It is true that section 23(5) as it then stood required the Income-tax Officer to determine the total income of each partner of the firm including his share of the firm's income and to assess each partner in respect of such income, and in that sense individual partners of the firm undoubtedly become liable to pay income-tax ; but it is clear that in determining the total income of each partner his share in the firm's income has to be included and so the firm does not cease to be an assessee for the purpose of section 23(5). This position is now clarified by the provisions of section 23(5)(a)(i) and (ii) as amended in 1956. The pre....
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....gated and examined and when the total income of the firm is ascertained, it is allocated to its individual partners in proportion to their respective shares. The result of such allocation undoubtedly is to make the partners liable to pay tax in respect of their taxable income thus allocated ; but that cannot justify the inference that the firm is not an assessee in the relevant proceedings. Even when the notice is issued under section 34(1)(a) the Income-tax Officer proceeds to act on the ground that the income, profits and gains of the firm which are chargeable to income-tax have been underassessed ; it is the income of the firm which is initially ascertained in the assessment proceedings under section 23 and it is in respect of the said income of the firm that the Income-tax Officer finds that a part of it has escaped assessment. We do not, therefore, think that the appellant's argument that the notice issued against the firm and served on the appellant was invalid under section 34(1)(a) can be accepted. It is then urged that the Income-tax Officer was bound to issue notices to individual partners of the firms because at the material time all the firms had been dissolved. Mr.....
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....A of the Act. Section 59(5) provides that the rules made under the said section shall be published in the official gazette and shall thereupon have effect as if enacted in this Act. Thus there is no doubt that the rules are statutory rules and once they are published in the official gazette they are operative as if they were a part of the Act. Mr. Sastri concedes this position ; but he argues that rule 6B is inconsistent with the material provisions in the Act and is therefore ultra vires the Central Board of Revenue. This argument is based substantially on the provisions of section 23(4). We have already referred to the provisions of this sub-section. Mr. Sastri contends that it is only where the requirements of section 23(4) are satisfied that the registration of a firm can be cancelled. The procedure for registration of firms is laid down in section 26A of the Act. An application has to be made to the Income-tax Officer on behalf of any firm constituted under the instrument of partnership specifying the individual shares of the partners for registration for the purposes of the Act and of any other enactment for the time being in force and relating to income-tax and super-tax. Su....
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....ously granted to a firm which did not exist. Rule 6B has been made to clarify this position and to confer on the Income-tax Officer in express and specific terms such authority to review his own decision in the matter of the registration of the firm when he discovers that his earlier decision proceeded on a wrong assumption about the existence of the firm. In our opinion, there is no difficulty in holding that rule 6B is obviously intended to carry out the purpose of the Act and since it is not inconsistent with any of the provisions of the Act its validity is not open to doubt. It is, however, urged that whereas the firm aggrieved by the order passed by the Income-tax Officer under section 23(4) can challenge the correctness or propriety of the order in an appeal against the final assessment order passed under section 23, no such remedy is available to the firm whose registration is cancelled under rule 6B. We are not impressed by this argument. The validity of the rule cannot, in our opinion, be challenged merely on the ground that no appeal has been provided against the order passed under the impugned rule. It is also true that whereas before taking action under section 23(4) ....