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Income‑tax Reference No. 24 of 1965, decided on 16th August 1967.
Income earned in Karachi prior to Partition‑ Whether liable to re‑assessment‑Re‑assessment of partner whether can be made without prior assessment of firm‑Sanction for re‑assessment obtained describing assessee as association of persons‑ Re‑assessment of assessee in the status of individual whether permissible ‑ Notice ‑ Notice served on one of several legal representatives‑Re‑assessment proceedings whether valid‑Indian Income‑tax Act, 1922, Ss. 24‑B & 34(1)(a).
One Chooharmal Wadhuram carried on business in partnership with another person in Karachi prior to Partition. Subsequent to Partition he carne to India and the partnership was dissolved. In the books of account of a firm in Petlad certain amounts were found credited to the firm of Chooharmal Wadhuram for the financial years 1945‑46 and 1946‑47. After the death of Chooharmal in 1952, notice under section 34(1)(a) was served op D As his legal representative, Sanction for reassessment proceedings was obtained describing D as an association of persons. Against the reassessment proceedings the assessee contended that: (i) he was not liable to be taxed in the taxable territories for the assessment years 1945‑47; and 1947‑48 ; (ii) he could not be assessed in respect of the deposits in the Petlad firm without the amount being assessed in the hands of the firm of which he was partner ; (iii) assessment could not be made in the status of an individual as sanction for proceedings had been given in respect of an association of persons and (iv) the proceedings had not been validly initiated as notice had been served on one only of several legal representatives.
Held, (i) An assessee, who was resident in British India prior to partition, would be assessable under the Indian Income‑tax Act, though the territory subsequently formed part of Pakistan.
(ii) The revenue has an option to assess a firm or the partners of the firm as individuals. It is not bound to proceed first against the firm before proceeding against the partners.
(iii) The facts showed that sanction for reassessment had been obtained against D as the legal representative of Chooharmal. Though the status of the assessee had been wrongly described, it would not invalidate the reassessment proceedings as the assessee proceeded against by the Income‑tax Officer was the same in respect of whom sanction was given by the Commissioner.
(iv) The notice and reassessment proceedings would be valid if the Income‑tax Officer after diligent and bona fide enquiry believed D to be sole legal representative of Chooharmal.
[Case sent back to Tribunal for supplemental statement of case on this point.]
If an Income‑tax Officer after diligent and bona fide enquiry ascertains who the legal representatives of a deceased are, such legal representatives sufficiently represent the estate of the deceased. A decision obtained with them on record will bind not merely those impleaded but the entire estate including those not brought on record.
Daya Ram v. Shyam Sundari A I R 1965 S C 1049 applied.
Commissioner of Income‑tax v. K Adinarayana Murthy (1967) 65 I T R 607 (S C) ; Commissioner of Income‑tax v. Muralidhar Jhawar and Purna Ginning and Pressing Factory (1966) 60 I T R 95 (S C) ; First Additional Income‑tax Officer v. Mrs. Suseela Sadanandam (1965) 57 I T R 168 (S C) ; Fulchand Purshottam v. Vasavada, Income‑tax Officer (1963) 4 G L R 591 and Thakkar (J C.) v. Commissioner of Income‑tax (1955) 27 I T R 658 ref.
By these applications, which are considered together, the assessee requires the Appellate Tribunal to refer to the High Court certain questions of law which are said to arise out of the orders of the Tribunal in I. T. As. Nos 7800 to '1805 of 1963‑64. Since, in our opinion, certain questions of law do arise out of the aforesaid orders of the Tribunal, we hereby draw up a statement of the case and refer it to the High Court of Gujarat at Ahmedabad under section 66(2) of the Indian Income‑tax Act, 1922, for opinion.
2. The assessee is one late Shri Chooharmal Wadhuram represented by Shri Daulatram Chooharmal, one of his heirs and legal representatives. The assessment years in question are 1946‑47, 1947‑48, 1950‑51, 1951‑52, 1952‑53 and 1953‑54. The corresponding previous years for, the first five assessment years are financial years 1945‑46, 1946‑47, 1919‑50, 1950‑51 and 1951‑52 and the previous year for the assessment year 1953‑54 covered the period from April 1, 195 2, to 28th August 1952, when Shri Chooharmal died.
3. Shri Chooharmal was doing business in partnership with one Muljibhai Dahyabhai in the name of Daulatram Chooharmal at Karachi. The partnership was dissolved by an agreement dated November 7, 1948. Chooharmal and Mu1jibhai came to India after Partition. There is no evidence to show that Shri Chooharmal was assessed to income‑tax in respect of the assessment years 1946‑47 and 1947 48 at Karachi. But a notice under section 22(4) issued to him for the assessment year 1945‑46 by the Income‑tax Authorities at Karachi was produced before the income‑tax authorities and the Tribunal. Shri Chooharmal was a member of the Yarn Syndicate at Karachi and tax in respect of his share from the Syndicate was collected from the Syndicate for the assessment years 1946‑47 and 1947‑48 and the Syndicate in its turn sent him an advice note accordingly. After coming to India he died on August 28, 1952. The notice under section 22(4) issued by the income‑tax Officer, Karachi, and the intimation received from the Yarn Syndicate are made annexures "A" and "B", respectively, and form parts of the case.
4. In the meantime, there was an account in the books of one Messrs Narayandas Purshottamdas of Petlad (in Gujarat State) in the name of Daulatram Chooharmal Vahivatkarta Shah Muljibhai Dahyabhai, Karachi.
In this account there were credits of Rs. 18,000 on January 3 1, 1946, Rs. 32,000 on January 28, 1946, Rs. 10,000 on February 16, 1946, Rs. 10,000 on March 15, 1946, Rs. 15,000 on May 10, 1946, and Rs. 15,000 on August 6, 1946. These credits had come by cheques on Habib Bank Ltd., Bombay, from one Damodar Rahmandas. Interest also was credited to this account from year to year and there were small credits and withdrawals also. In S. Y. 2008 (ending on 18th October 1952) an amount of Rs. 74,000 was debited to this account and the recital for this debit was that Rs. 2,500 were cash taken by the creditor and an amount of Its. 71,000 was adjusted by way of the creditor taking over the debts of two persons, viz. Nana Mahiji and Ranchhod Bakor who in their turn, were indebted to Narayandas Purshottamdas. Similarly, an amount of Rs. 7,047 was debited to this account with the recital that a flour factory called Pancball Ranchhod Dhura Flour Factory was transferred to the creditor. Thereafter a small amount was carried forward in that account.
5. The Income‑tax Officer, Petlad, started proceedings against Muljibhai Dahyabhai in respect of the amounts credited to the account referred to in the earlier paragraph in the books of Narayandas Purshottamdas in the accounting period relevant to the assessment years 1946‑47 and 1947‑48. Proceedings for the year 1946‑47 became ineffective as a result of the order of the Appellate Assistant Commissioner as they were time‑barred under the Income‑tax Act of Baroda State, by which income‑tax proceedings in Petlad were governed at the relevant time. In the course of proceedings for 1946‑47 and 1947‑48, Mu1jibhai had died. The case put forward on behalf of Muljibhai was that the account did not belong to him, that in his will dated July 19, 1945, this account with Narayandas Purshottamdas was not mentioned and that the account really belonged to Chooharmal and his heirs. An assessment was made by the Income‑tax Officer on the legal heirs of Muljibhai on a total income of Rs. 37,701 for 1947‑48. The matter ultimately went to the Tribunal and the Tribunal by its order dated 16th January 1.960, in I. T. A. No. 8258 of 1958‑59 recorded the finding that "Muljibhai was carrying on business jointly with Chooharmal. Muljibhai would not have been just an employee of Chooharmal because even in 1945 he was in the position of creditor to Narayandas Purshottamdas to the extent of over Rs. 15,000 and he had the authority to enter into monetary transactions on behalf of the concern Daulatram Chooharmal. Since the basis of assessment is the fact of a credit of Rs. 30,000 in the account year in the books of Narayandas Purshottamdas, it will be reasonable to estimate the assessee's share of income accruing to him at Karachi at of the figure estimated by the Income‑tax Officer, i.e. Rs. 17,500." The order of the Tribunal in I. T. A. No. 8255 of 1958‑59 dated 16th January 1960, is made Annexure "C" and forms part of the case.
6. In the meantime, the Income‑tax Officer, Surat, started proceedings under section 34(I)(a) against the legal heirs of Chooharmal Wadhuram for the assessment years 1946‑47 and 1947‑48 in respect of the amounts deposited in the account of Daulatram Chooharmal referred to earlier. Approval of the Commissioner was taken for initiating the proceedings for the assessments of the amounts in the hands of the legal heirs who were described as "association of persons". Notice for the assessment year 1946‑47 was served on March 29, 1955, while the notice for the assessment year 1947‑48 was served on March 29, 1956. The notices were issued in the name of Shri Chooharmal Wadhuram by his legal representatives, Shri Daulatram and others. The notices were served on Daulatram and it was Daulatram who attended in the course of the proceedings. The assessments were completed in the first instance on March 24, 1956 for 1946‑47 and on January 31, 1957, for 1947‑48 under section 23(4). But they were set aside by the Appellate Assistant Commissioner on February 17, 1958, who directed the Income‑tax officer to make fresh assessments after giving the assessees a proper opportunity to explain their position. And it is the assessments made under the direction of the Appellate Assistant Commissioner which are the subject‑matter of reference. The original as well as subsequent orders of the Income‑tax Officer for the assessment years 1946‑47 and 1941‑48 (collectively), the order of the Appellate Assistant Commissioner setting aside the original orders, notices under section 34 issued by the Income‑tax Officer (collectively), report of the Income‑tax Officer to the Commissioner at the time of initiating proceedings under section 34 and the order of sanction by the Commissioner are all made Annexures "D", "E", "F", "G" and "H", respectively, and form parts of the case.
7. For the assessment years 1950‑51 to 1953‑54 also proceedings were taken under section 34 after taking the Commissioner's approval. For these years, however, the proposals themselves indicated the status of the assessee to be that of an individual. Notices under section 34 were served on the assessee on March 6, 1959 and they were issued in the names of Daulatram Chooharmal, Arjandas Chooharmal, Sobraj Chooharmal, Sukhdas Choobarmal and Bai Lila, widow of Chooharmal Wadburam, legal representatives of the deceased, Shri Chooharmal Wadhuram, and served on each of the legal representatives separately for all these years. The assessments were completed on November 25, 1959, but they were set aside by the Appellate Assistant Commissioner for fuller inquiries on October 5, 1960. And it is the fresh assessments made in consequence of the Appellate Assistant Commissioner's order that are the subject‑matter of dispute. The original orders dated November 25, 1959 (collectively), the order of the Appellate Assistant Commissioner setting aside the assessments, and the subsequent assessment orders (collectively) made in pursuance of the order of the Appellate Assistant Commissioner are made Annexures "I", "J" and "K", respectively, and form parts of the case.
8. The Income‑tax Officer took the view that the whole of the amounts credited to the account of Daulatram Chooharmal with Narayandas Purshottamdas belonged to the late Shri Chooharmal and he added an amount of Rs. 70,000 in the assessment year 1946‑47 and Rs. 30,000 in the assessment year 1947‑48. He also added the full amounts of interest credited to the account for the assessment years 1946‑47 and 1947‑48 as also for the subsequent years. For the assessment year 1946‑47 he further estimated business income at Rs. 6,001 out of business of yarn which the assessee was doing in that year. For the assessment year 1947‑48 he similarly made an addition of Rs. 7,000. When the matters went up to the Appellate Assistant Commissioner he held, bearing in mind the order of the Tribunal in I. T. A. No. 8258 of 19 8‑59, that only an amount of Rs. 35,000 could be added to the income of Chooharmal for the assessment year 1946‑47 and an amount of Rs. 15,000 for the assessment year 1947‑48. With regard to the interest he held that for the assessment years 1946‑47 and 1947‑48 only half the interest credited to the account was includible in the assessments but in the remaining years the whole interest was to be added to the assessment because ultimately the amounts lying to the credit of the account were taken over by Daulatram, one of the legal heirs of late Shri Choobarmal. The Appellate Assistant Commissioner confirmed the additions of Rs. 6,000 and Rs. 5,000 on account of yarn business in the assessment years 1946‑47 and 1947 48. The consolidated order of the Appellate Assistant Commissioner dated 23rd July 1963, is made Annexure "L" and forms part of the case. (Orders of the Income tax Officer are already made Annexures in earlier paragraphs). The statement of Sakerchand Dahyabhai, brother of Muljibhai Dahyabhai, and the statement of Cbimanlal Damodardas, document writer recorded by the Income‑tax Officer, Surat, are also made Annexures "M" and "N", respectively, and forms part of the case. A copy of the dissolution agreement dated November 7, 1948 for dissolution of the partnership between Muljibhai and Chooharmal referred to in the order of the Appellate Assistant Commissioner is also made Annexure "O" and forms part of the case.
9. The assessee thereafter appealed to the Tribunal and it was inter alia contended on his behalf (1) that the Income‑tax Officer, Surat, did not have the jurisdiction to assess the legal heirs of Chooharmal for the assessment years 1946‑47 and 1947‑48 since Chooharmal was a resident of and/or was carrying on business at Karachi and he was assessed to income‑tax in Pakistan and, therefore, only Pakistani Income‑tax Officer had the jurisdiction to assess him under the agreement of avoidance of double taxation, (2) that since the sanction of the Commissioner of Income‑tax was obtained for the purpose of initiation of proceedings under section 34 of the Act in the status of an association of persons, the assessments made in the status of an individual were all invalid and illegal in law, (3) that the assessments made directly on partner Chooharmal without assessing the firm whose funds were impugned were bad, invalid and illegal in law, (4) that notices under section 34(1)(a) of the Act for the assessment years 1946‑47 and 1947‑48 were bad in law since they were issued before March 31, 1956, (5) that the assessments made were all invalid and illegal in law because the service of the notice under section 34 of the Act only on Daulatram, was defective, particularly in view of the fact to at the Income‑tax Officer was aware of the existence of other legal heirs as was clear from the assessments for 1952‑53 and 1953‑54 made on Bai Lilabai as legal representatives and (6) that there was neither any evidence that the said amounts of Rs. 70,000 and Rs. 35,000 belonged to Chooharmal, nor that the said amounts were concealed or undisclosed income of Chooharmal, or that the amounts of Rs. 6,000 and Rs. 5,000 were earned from any business carried on by Chooharmal in the relevant years of account. The department in course of its appeals for the years 1946‑47 and 1947‑48 objected to the reduction of the amounts added by way of income from undisclosed sources in the years 1946‑47 and 1947‑48 given by the Appellate Assistant Commissioner and reliance was placed on behalf of the department on the orders of the Income‑tax Officer which are already made annexures.
10. The Tribunal held, (1), that even after partition, assessments both in India and Pakistan had to be made according to the laws in force in each country and the only relief that the assessee would be entitled to was by way of abatement under the agreement of avoidance of double taxation for the assessment year 1947‑48 onwards and that before any relief could be given to the assessee he had to establish that he was assessed to tax in Pakistan which in this case he had failed to do ; (2) that only for the assessment years 1946‑47 and 1947‑48 sanction was obtained from the Commissioner for starting proceedings against an association of persons but that even for those years it was clear that the authority was given to proceed against the estate of late Shri Chooharmal in respect of income which it was believed belonged to him in his lifetime, that at worst specifying of a wrong status was an error in the nature of an irregularity which did not vitiate the sanction and that in any case since the items of income were reasonably indicated and the assessee whose income had escaped assessment was identified with reasonable accuracy, the mistake in the definition of status did not nullify the sanction ; (3) that there can be no bar to the assessee's share in the deposits in the name of the firm, which were not satisfactorily explained, being assessed in his hands without assessment being made in the hands of the firm in the first instance ; (4) that provisions of section 34 (1‑A) were not applicable to the assessment years 1946‑47 and 1947‑48 in this case and that notices under section 34(1)(a) were issued within time for the assessment years 1946‑47 and 1947‑48 ; (5) that there was nothing wrong in the income‑tax authorities serving the notices only on Daulatram as legal representative of the deceased because that part of the estate of late Shri Chooharmal which was the subject‑matter of the dispute was administered by Daulatram and in the notices it is clearly stated that they were meant for all the legal heirs of late Shri Chooharmal and Daulatram accepted them as such without a murmur ; (6) that the income‑tax authorities were justified in treating the amount of Rs. 35,000 in the first year and Rs. 15,000 in the second year as the assessee's income from undisclosed sources ; (7) that only half the interest credited to the account of Daulatram Chooharmal in the Petlad firm could be added to the total income of the assessee in the years in question and (8) that the estimates of business profits at Rs. 6,000 and Rs. 5,000 for the assessment years 1946‑47 and 1947‑48 were justified. The order of the Tribunal is made annexure "P" and forms part of the case.
11. The assessee claimed that the following questions of law arose from the order of the Tribunal and requested that the same should be referred to the High Court.
"(1) Whether the Tribunal was right and or misdirected itself and/or justified in law in holding that half of the deposits viz, Rs. 70,000 and Rs. 30,000, belonged to deceased Chooharmal
(2) Whether there was any evidence or material before the Tribunal to hold (a) that half of the deposits ; viz., Rs. 70,000 and Rs. 30,000, belonged to the deceased and/or (b) that the same was the undisclosed income of the deceased
(3) Whether the Tribunal was right and/or misdirected itself and/or justified in law contrary to or inconsistent with or without any evidence or material on record in holding that (a) the assessee had failed to explain the source of the said amount: of Rs. 35,000 and/or Its. 15,030 and/or that the primary responsibility to explain the source of the funds in so far as the half share was concerned was on the assessee
(4) Whether the Tribunal was right and/or justified and/or misdirected itself in law and/or acted without or contrary to or inconsistant with the evidence or material on record in holding that at least half the interest on the said amount of deposits viz. Rs. 70,000 and Rs. 30,000, should be included in the income of the deceased or the assessee on the ground of accrual or otherwise
(5) Whether, on the facts and in the circumstances of the case, the Tribunal was right and/or justified and/or misdirected itself in law and/or acted contrary to or inconsistent with and/or without any evidence or material on record in holding that (a) the Income-tax Officer in India had jurisdiction to assess the income of the deceased and/or (b) that there was nothing to show that the deceased was assessed under the Income‑tax Act in Pakistan
(6) Whether, on the facts and in the circumstances of the case, and particularly in view of the fact that the Commissioner of Income‑tax's sanction was obtained by the Income‑tax Officer against and/or the status of association of persons constituted by the legal heirs of the deceased, the assessment made or completed in the status of an individual' was proper or valid in law
(7) Whether, on the facts and in the circumstances of the case, the Tribunal was right and/or justified and/or misdirected itself in law in holding that half the amount of deposits, viz., Rs. 70,000 and Rs. 30,000 could be assessed or included in the income of the deceased without the same being assessed in the hands of the firm
(8) Whether, on the facts and in the circumstances of the case, notices issued under section 34(t)(a) of the Act were valid in law
(9) Whether, on the facts and in the circumstances of the case, the Tribunal was right and/or justified and/or misdirected itself in law in holding that there was nothing wrong in the Income‑tax Officer serving the notices only on Daulatram inspite of the facts that there were other legal heirs known to the Income‑tax Officer as the legal representatives of the deceased and/or the assessments made after such service of notice was proper or valid in law
(10) Whether there was any evidence or material before the Tribunal to hold that the deceased had made profit of Rs. 6,000 in the assessment year 1946‑47 and Rs. 5,000 in the assessment year 1947‑48 "
12. Questions Nos. (1), (2), (3) (4) and (10) relate to the findings of the Tribunal which are pure findings of fact based on the evidence on record. This is clear from the following extract from the order of the Tribunal concerning the additions of R s. 35,000 and Rs. 15,OU0 on the account of the deposits in the account with the Petlad firm;
"(8) In our view, the conclusion of the Appellate Assistant Commissioner that half of the deposits belonged to late Shri Chooharmal is quite logical and in conformity with the facts as we read them. That was also the view of the Tribunal in I. T. A. No. 8258 of 1958‑59 and after considering the facts de novo we are in respectful agreement with that view. We find it impossible to dissociate Chooharmal and his legal heirs from at least the part ownership of the deposits in the account in the light of admitted facts that large amounts had been adjusted in that account by Daulatram taking over some of the assets of the debtor. The claim now made that the take‑over was on behalf of Muljibhai is not supported by any contemporaneous evidence. It is clear that, while Muljibhai did have some degree of control over the account, at least in the years of account in question and till his death, it has so happened that the bulk of the amounts have been paid to the legal heirs of Chooharmal. The most reasonable conclusion in the circumstances would, therefore, be that the account belonged jointly to Muljibhai and Chooharmal and each one of them was under an obligation to explain the source of the deposits to the extent of his respective share. Muljibhai's legal heirs have already been saddled with the liability in respect of his share and it is but fair that the remaining half of the liability should be fastened on the legal heirs of Chooharmal. We are unable to accept the contention of the learned counsel that the amounts in the account could not be treated as income from undisclosed sources. The primary responsibility to explain the source of the funds in so far as his half share was concerned was on the assessee and on the failure on his part or on the part of his legal heirs to explain the source, the amounts could rightly be treated as his income from undisclosed sources."
Question No. (10) relates to the additions of profits from business for the assessment years 1946‑47 and 1947‑48 and the Tribunal has endorsed the conclusion of the Appellate Assistant Commissioner on the grounds relied on by him. The grounds given by the Appellate Assistant Commissioner are contained in the following extract from his order;
"(8) The appellant contends that Chooharmal started yarn business only after he came to Surat in 1949 or so and during the previous year relevant to the assessments for 1946‑47 and 1947‑48 he was in Karachi and there was no income accruing to him then. This statement, however, is not supported by any evidence at all. On the other hand, it is altogether unlikely that Chooharmal did not have any business at Karachi. He had a number of sons to support who were all minors in 1945‑46 and 1946.47. There was also the partnership with Muljibhai and according to the Income‑tax Appellate Tribunal, Muljibhai's half share of profits in this business came to Rs. 17,500 for the assessment year 1947‑48, taking into account his share in the credits of Rs. 30,000 in the books of Narayandas Parshottamdas of Petlad during the account year. Considering all the circumstances, the Income‑tax Officer was clearly justified in making additions in 1946‑47 and 1947‑48 assessments of income from business accruing to Chooharmal Wadhuram during the previous years. His estimates of such income at R s. 6,000 and Rs. 5,000 are quite reasonable and are upheld. These grounds taken by the appellant are dismissed."
13. These findings which are findings of fact would not, in our opinion, give rise to any questions of law in the manner suggested by the applicant. We would, therefore, refer only the following questions to the honourable Court for opinion.
"(1) Whether, on the facts and in the circumstances of the case, the assessee was liable to be assessed in the taxable territories for the assessment years 1946‑47 and 1947‑48
(2) If the answer to the first question is in the affirmative whether, on the facts and in the circumstances of the case, the assessments for the years 1946‑47 and 1947‑48 could be made on the assessee in respect of the deposits in the account of Daulatram Chooharmal with the Petlad firm without the amount being first assessed in the hands of the firm of Messrs Daulatram Chooharmal
(3) If the answer to question No. (2) is in the affirmative, whether, on the facts and in the circumstances of the case, the proceedings for the assessment of the amounts in question could be initiated under section 34(1)(3) and not under section 34(1‑A)
(4) Whether, on the facts and in the circumstances of the case, the assessments for the years 1946‑47 and 1947‑48 could be completed on the assess‑.e in the status of an individual when the sanction of the Commissioner for starting proceedings was given in respect of an association of persons
(5) Whether, on the facts and in the circumstances of the case, proceedings under section 34(1)(3) for the assessment years 1946‑47 and 1947‑48 were validly initiated by serving notices under section 34(1)(3) on Daulatram who was only one of the legal heirs of the deceased "
14. In the result, R. As. Nos. 2067, 2068, 2069 and 2070 of 1964‑55 are rejected because no question referable to the High Court arises in connection with those assessments.
15. The statement was circulated to the parties. They agree that all the relevant facts have been fully and correctly set out in the statement.
Dilip H. Dwarkadas with B. G. Thakore for the Assessee.
J. M. Thakore (Advocate‑General) with M. M. Thakore, M. G. Doshi and K. L. Talsania for the Commissioner.
The assessments for six assess ment year namely, 1946‑47, 1947‑48,1950‑51, 1951‑52, 1952‑53 and 1953‑54, were the subject‑matter of different appeals before the Tribunal, but the present reference relates only to the assessments for the assessment years 1946‑47 and 1947‑48 and we will, therefore, state only so much of the fact as relate to the assessments for those assessment years. The assessee is one Chooharmal Wadhuram represented by Daulatram and others as his legal representatives. Prior to the partition of India which took place on 15th August 1947, the assessee was residing in Karachi and he carried on business in partnership with one Muljibhai in the name of Daulatram Chooharmal at Karachi. Subsequent to the partition of India, the assessee and Muljibhai came down to India and it is common ground that the partnership between them was dissolved by an agreement dated 7th November 1948. The record does not show that the assessee was assessed to income‑tax in Karachi for the assessment years 1946‑47 and 1947‑48 and the case before the revenue authorities throughout proceeded on the basis that no assessment of the assessee to income‑tax was made in Karachi for those assessment years. The assessee died in India on 28th August 1952, leaving behind him Daulatram and others as his legal representatives. Now it appears that in the books of account of a firm named Messrs Narayandas Purshottamdas, which was carrying on business in Petlad, there was an account in the name of "Daulatram Chooharmal Vahivatkarta Shah Muljibhai Dahyabhi, Karachi" and in that account diverse amounts were credited on different dates between 31st January 1946, and 6th August 1946. The total amount credited during the financial year 1945‑46 came to Rs. 70,000 and that credited during the financial year 1946‑47 came to Rs. 30,000. During Samvat year 2008, that is Samvat year ending on 18th October 1952, a sum of Rs. 74,030 was debited in this account and the narration in the debit entry was that Rs. 2,500 were withdrawn by the owner of the amount and Rs. 71,500 were adjusted by means of a Havala entry under which the owner of the account took over the debts owed by two persons by the names of Nana Mahiji and Ranchhod Bakor to Messrs Narayandas Purshottamdas. There was also a further sum of Rs. 7,047 debited in this account with the recital that a flour factory called Panchal Ranchhod Dhura Flour Factory was transferred to the owner of the account in consideration of the said amount. It was the case of the revenue that all these adjustments were made with Messrs Narayandas Purshottamdas by Daulatram on behalf of the owner of the account. The Income‑tax Officer was of the view that the various amounts deposited in the aforesaid account with Messrs Narayandas Purshottamdas belonged to the assessee and that they represented undisclosed income of the assessee which was diverted in the shape of deposits in that account and the Income-tax Officer, therefore, sought the sanction of the Commissioner for initiating proceedings against the assessee by his legal representatives, Daulatram and others, under section 34(1)(3). The deposits were in the previous years relevant to the assessment years 1946‑47 and 1917‑48 and the sanction for initiating proceedings under section 34(1)(3) was, therefore, sought by the income‑tax Officer by two separate applications, one for the assessment year 1946‑47 and the other for the assessment year 1947‑48: In each of the applications the name of the assessee sought to be proceeded against was shown as "Shri Chooharmal Wadhuram by his legal representatives, Daulatram and others" and the status of the assessee was shown as "association of persons". There was a report enclosed with each application and the report stated : "It is possible that Chooharmal may have diverted his un‑taxed profits in the benami account of his son through the medium of N9uljibhai. Approval is, therefore, sought for under section 34(1)(a) to assess him". The Commissioner gave his sanction on each of the applications and the Income‑tax Officer thereafter issued two notices to Chooharmal Wadhuram, legal representatives, Daulatram and others. These two notices were served only on Daulatram and were not served on the other legal representatives. The notice for the assessment year 1946‑47 was served on Daulatram on 29th March 1955, while the notice for the assessment year 1947‑48 was served on him on 29th March 1956. Pursuant to these two notices Daulatram attended before the Income‑tax Officer from time to time and ultimately the assessment for the assessment year 1946‑47 was completed on 24th March 1956, and the assessment for the assessment year 1947‑48 was completed on 31st January 1957. There were appeals against the assessment orders and the Appellate Assistant Commissioner set aside the assessment orders and directed the Income‑tax Officer to make fresh assessments after giving the assessee a proper opportunity of being heard. The Income‑tax Officer thereupon gave a proper hearing to the assessee and made fresh orders of assessment. The Income‑tax Officer took the view that the amounts deposited in the name of Daulatram Chooharmal with Messrs Narayandas Purshottamdas belonged wholly to the assessee and he accordingly added a sum of Rs. 70,000 in the assessment for the assessment year 1946‑47 and a sum of Rs. 30,000 in the assessment for the assessment year 1947‑48 together with the full amounts of interest credited in this account in the account years corresponding to those respective assessment years. The Income‑tax Officer also held that the assessee carried on yarn business during the relevant previous years and he estimated the income of the assessee from such business at Rs. 6,000 for the assessment year 1946‑47 and Rs. 5,000 for the assessment year 1947‑48. These assessment orders were followed by appeals to the Appellate Assistant Commissioner and the appeals were partly successful. The Appellate Assistant Commissioner held that only one half of the amounts deposited in the account in the name of Daulatram Chooharmal with Messrs Narayandas Purshottamdas could be said to belong to the assessee and he, therefore, allowed only Rs. 35,000 to be added in the assessment for the assessment year 1946‑47 and Rs. 15,000 to be added in the assessment for the assessment year 1947‑48 together with half the amounts of interest credited in the account for the respective assessment years. He, however, confirmed the addition of Rs. 6 000 for the assessment year 1946‑47 and the addition of Rs. 5,000 for the assessment year 1947‑48. There were further appeals to the Tribunal against the orders of the Appellate Assistant Commissioner and in the appeal various contentions were raised which have given rise to the present reference before us. We shall presently refer to these contentions but it may be sufficient to state at the moment that these contentions were all rejected by the Tribunal and the Tribunal confirmed the orders made by the Appellate Assistant Commissioner. The assessees thereupon applied for a reference and according to the assessee there were ten questions of law which arose out of the order of the Tribunal but the Tribunal took the view that some of the questions sought to be raised by the assessee were questions of fact and the Tribunal, therefore referred only five questions for the opinion of the Court. These questions are;
"(1) Whether on the facts and in the circumstances of the case the assessee was liable to be assessed in the taxable territories for the assessment years 19‑16‑47 and 1947‑48
(2) If the answer to the first question is in the affirmative, whether, on the facts and in the circumstances of the case, the assessments for the years 1946‑47 and 1947‑48 could be made on the assessee in respect of the deposits in the account of Daulatram C iooharmil with the Petlad firm without the amount being first assessed in the hands of the firm of Messrs Daulatram Chooharmal
(3) If the answer to question No. (2) is in the affirmative, whether, on the facts anti in the circumstances of the case, the proceedings for the assessment of the amounts in question could be initiated under section 34(I)(a) and not under section 31(1‑A)
(4) Whether, on the facts and in the circumstances of the case, the assessments for the years 1946‑47 and 1947‑48 could be completed on the asscssee in the status of an individual when the sanction of the Commissioner for starting proceedings was given in respect of an association of persons
(5) Whether, on the facts and in the circumstances of the case, proceedings under section 34(1)(a) for the assessment year 1946‑47 and 1947‑48 were validly initiated by serving notices under section 34(1)(a) on Daulatram, who was only one of the legal heirs of the deceased "
We may point out at the outset that question No. 3 was not pressed by Mr. Dwarkadas, learned Advocate appearing on behalf of the assessee, and it is, therefore, not necessary to say anything about it. The only question which require to be considered are questions Nos. 1, 2, 4 and 5. We shall proceed to consider these questions according to their serial order.
So far as the first question is concerned it is difficult to appreciate the argument on which the assessee wants us to answer this question in his favour. The contention of the assessee seems to be that, since the assessee was during the previous years relevant to the assessment years 1946‑47 anal 1947‑48 resident in Karachi which is now a part of Pakistan, proceedings for assessment or reassessment of the assessee for those assessment years can be taken only by the revenue authorities in Pakistan and not by the revenue authorities in India. But this contention ignores the fact that during the relevant previous years Karachi was a part of British India and its income was liable to be assessed under the Income‑tax Act and merely because subsequently Karachi, which was the place of residence of the assessee, became part of Pakistan, the assessee cannot escape his liability to Indian income‑tax. This conclusion is undisputable on principle but apart from principle there is a direct decision of a Division Bench of the Bombay High Court in support of it and that is the decision in Lilaram Thawerdas v. Commissioner of Income‑tax ((1957) 31 I T R 753), Income tax Reference No. 60 of 1956, which is unreported in any authorised series but of which a report Is to be found in Unreported Income‑tax Judgments of the Bombay High Court, Book two, published by the Western India Regional Council of the Institute of Chartered Accountants of India; Bombay. The assessee in this case was a resident of Karachi on 1st January 1948, and for the assessment year 1946‑47, the Income‑tax Officer in Pakistan assessed him to tax on an income of Rs. 1,05,173 earned by him from business in Africa. Subsequently, in 1954, the Income‑tax Officer in India issued notice to the assessee under section 34(1)(a) seeking to tax the identical amount and in assessing him for that amount he gave double taxation relief under the provisions for such relief between India and Pakistan. The assessee, however, contended that he was not liable to be taxed at all in India and was only liable to pay tax in Pakistan. This contention was negatived by the Division Bench which held that as in the assessment year 1946‑47, the assessee was resident in a territory which was then a part of British India, the assessee was a resident within the taxable territories as defined in section 4(1)(b), though those territories subsequently became part of Pakistan and, therefore, the assessee could not dispute his liability to be taxed under section 4(1)(b)(ii). This decision concludes the determination of the first question against the asssessee. Some reliance was placed on behalf of the assessee on the agreement for avoidance of double taxation between India and Pakistan but we do not see how that agreement helps the assessee in disputing his liability to be assessed to Indian Income‑tax. There is nothing in this agreement which says or even remotely suggests that an assessee who was resident in territories, subsequently forming part of Pakistan, during the previous years relevant to the assessment years 1946‑47 and 1947‑48, should not be assessable in the taxable territories under the Indian Income‑tax Act. The first question must, therefore, be answered against the assessee.
The position of the assessee is equally hopeless, when we turn to the second question. We will assume for the purpose of the second question, as the Tribunal seems to have done, that the amounts deposited in the account of Daulj tram Chooharmal with Messrs Narayandas Purshottamdas belonged to the firm of Messrs Daulatrarn Chooharmal consisting of the assessee and Muljibhai as partners with equal shares. But that does not preclude the revenue from assessing the assessee to tax in respect of his half share in the said amounts. It is now well‑settled, as a result of the decision of the Bombay High Court in J. C. Thakkar v. Commissioner of Income‑tax ((1955) 27 I T R 658), the decision of this Court in Fulchand Purshottam v. Vasavada, Income‑tax Officer ((1963) 4 G L R 591), and the decision of the Supreme Court in Commissioner of Income‑tax v. Murlidhar Jhawar and Purna Ginning and Pressing Factory ((1966) 60 I T R 95), that in the case of a firm, the revenue has an option either to assess the firm or to assess the partners of the firm as individuals. The revenue is not bound to proceed first against the firm before proceeding against the partners of the firm. It was, therefore, competent to the revenue in the present case to assess the assessee as a partner of the firm of Messrs Daulatram Chooharmal in respect of his half share in the amounts deposited in the name of Messrs Daulatram Chooharmal on the basis that they represented the undisclosed income of the said firm. The decision of the second question must also, therefore, be given against the assessee.
That takes us to the fourth question which challenges the validity of the assessments made on the assessee on the ground that the assessments were made on the assessee in the status of individual, though the sanction of the Commissioner for initiating the proceedings was given on the basis that the proceedings were going to be initiated against the assessee in the status of an association of persons. This contention of the assessee is also in our opinion futile. The applications made by the Income‑tax Officer to the Commissioner for obtaining his sanction for the initiation of proceedings under section 34(1)(a) clearly show that the assessee against whom the proceedings were sought to be initiated by the Income‑tax Officer was "Shri Chooharmal Wadhuram, legal representatives Daulatram and others." The reports enclosed with these applications also show that the Income‑tax Officer was of the view that the amounts deposited in the name of Messrs Daulatram Chooharmal with Messrs. Narayandas Purshottamdas represented the undisclosed profits of Chooharmal Wadhuram and the Income‑tax Officer sought the sanction of the Commissioner for the purpose of assessing Chooharmal Wadhuram under section 34(1)(a). It can, therefore, hardly be disputed that the sanction of the Commissioner sought by the Income‑tax Officer was for initiation of proceedings for reassessment of the profit derived by Chooharmal Wadhuram during his lifetime and the assessment was sought to be made by the Income‑tax Officer on Daulatram and others as legal representatives of Chooharmal Wadhuram under section 24‑B(1). This assessment could obviously be made only in the status of individual and not in the status of association of persons. But thorough some oversight the applications made by the Income‑tax Officer to the Commissioner showed the status of the assessee as association of persons. This was clearly a mistake and the question is whether this mistake bad any invalidating consequence on the subsequent proceedings for assessment initiated by the Income‑tax Officer after the grant of the sanction by the Commissioner. We do not think that the wrong description of the status of an assessee can have the effect of invalidating the proceedings for assessment initiated after obtaining the sanction of the Commissioner when the sanction is in terms granted to the initiation of proceedings against the assessee. If the status of the assessee was wrongly described, it can always be corrected by the Income‑tax Officer in the course of the assessment proceedings but that cannot affect the validity of the assessment proceedings. The position would of course be different where the status is so inextricably mixed up with the question as to who is the assessee that the description of the status one way would be referable to one assessee while the description of the status the other way would be referable to another assessee. Where such is the case the description of the status may be indicative of the fact that a particular assessee is sought to be proceeded against and if sanction of the Commissioner is obtained for proceeding against that assessee, such sanction cannot be availed of for the purpose of initiating proceedings against another assessee who would be indicated by the description of the status the other way. Such a case may arise where proceedings are sought to be initiated against either as individual or as Hindu undivided family. If the sanction of the Commissioner is given to the initiation of proceedings against A in the status of an individual, the Income‑tax Officer cannot proceed against A in the status of Hindu undivided family and vice versa, for the sanction having been given to initiate proceedings against one assessee, the Income‑tax Officer cannot avail of such sanction for the purpose of proceeding against another. That was the case in Commissioner of Income‑tax v. K. Adinarayanamurty ((19671) 65 I T R 607, 610 (S C)), Civil Appeal No. 632 of 1966, decided by the Supreme Court on 3rd April 1967. The Income‑tax Officer in that case obtained sanction of the Com missioner for the purpose of proceeding against the respondent in the status of individual and issued notice under section 31(1)(a) for reassessing the income of the respondent. The respondent filed a return in the status of Hindu undivided family but before the return could be processed, it was decided by the Appellate Assistant Commissioner in an appeal preferred to him in respect of another assessment year that the status of the respondent was that of Hindu undivided family and not individual. The Income tax Officer, therefore, issued a fresh notice to the respondent in the status of Hindu undivided family and sought to proceed against the Hindu undivided family for the purpose of reassessing its income. The respondent challenged the initiation of the proceedings by issue of a fresh notice and the ground of challenge was that the respondent having already filed a return in the status of Hindu undivided family pursuant to the first notice, it was not competent to the Income‑tax Officer to issue a fresh notice to the respondent in the status of Hindu undivided family under section 34(1)(a). The Supreme Court negatived the challenge on the ground that the sanction of the Commissioner having been given to the initiation of proceedings against the respondent in the status of individual and the first notice having been issued pursuant to such sanction, the proceedings initiated by the issue of such notice were invalid and ultra vires in so far as they were directed towards reassessing the income of the respondent in the status of a Hindu undivided family and it was, therefore, competent to the Income‑tax Officer to issue a fresh notice against the respondent in the status of Hindu undivided family for the purpose of reassessing the income of the Hindu undivided family. Ramaswami J., speaking on behalf of the Supreme Court pointed out;
"The correct status of the assessee was that of Hindu undivided family' as was held by the Appellate Assistant Commissioner in the assessment for the year 1954‑55 and since the first notice under section 34 was issued to the assessee as an individual' for making assessment in that status, it is manifest that the proceedings taken under that notice were illegal and without jurisdiction. Under the scheme of the Income‑tax Act the individual' and the Hindu undivided family' are treated as separate units of assessment and if a notice under section 34 of the Act is wrongly issued to the assessee in the status of an individual' and not in the correct status of Hindu undivided family' the notice is illegal and all proceedings taken under that notice are ultra vires and without jurisdiction."
The present case stands on an entirely different basis. Here the attempt of the Income‑tax Officer is not to proceed against an assessee different from the one in respect of whom sanction has been given by the Commissioner. The sanction of the Commissioner is given to initiation of proceedings under section 34(1)(a) for the purpose of assessing the profits derived by Chooharmal Wadburam during his lifetime by proceeding against Chooharmal Wahduram by his legal representatives, Daulatram and others, under section 24‑B(1) and that is exactly what the Income‑tax Officer has done. It is true that in the applications made by the Income‑tax Officer to the Commissioner the status was wrongly described as association of persons and even in the original order of assessment, the Income‑tax Officer wrongly described the status as association of person, but that cannot affect the validity of the initiation of the proceedings, since the assessee proceeded against by the Income‑tax Officer is the same in respect of whom sanction is given by the Commissioner. The fourth question would also, therefore, have to be answered against the assessee.
The last question arises under these circumstances. The notice under section 34(1)(a) was addressed to "Chooharmal Wadhuram legal representatives Daulatram and others" and though there were admittedly, apart from Daulatram, other legal representatives of Chooharmal Wadhuram, the notice was served only on Daulatram and was not served on the other legal representatives. On these facts the assessee contended that since the notice was not served on all the legal representatives of Chooharmal Wadhuram, the proceedings were not validly initiated and the orders of assessment made against the assessee were invalid. The Tribunal took the view that so far as the account in the name of Daulatranm Chooharmal with Messrs Narayandas Purshottamdas was concerned, Daulatram bad operated on this account and all the adjustments which bad been made in this account were the result of negotiations between Daulatram and Messrs Narayandas Purshottamdas and Daulatram had, therefore, administered that part of the estate of Chooharmal Wadhuram which consisted of the amounts deposited in this account in the circumstances the notice served on Daulatram as legal representative of the deceased was sufficient to bind his estate. The validity of this view taken by the Tribunal was challenged before us on behalf of the assessee and in support of the challenge strong reliance was placed' on a decision of the Supreme Court in First Addl. Income‑tax Officer v. Mrs. Suseela Sadanandan ((1965) 57 I T R 168 (S C)). The question which arose before the Supreme Court in this decision was almost identical with the one before us except that in the case before the Supreme Court, the assessee had died leaving a will appointing three executors and the notice under section 34(1)(a) was served only on one of the executors whereas in the case before us Chooharmal Wadhuram died intestate leaving several heirs and the notice under section 34(1)(a) was served only on one of the heirs, namely, Daulatram. Discussing the question whether notice served on one of the executors or heirs would be sufficient to bind the estate of the assessee, Subba Rao, J., as he then was, speaking on behalf of tile Supreme Court, made certain observations in regard to what he, prima facie, conceived to be the correct approach to the question and since the question had not been approached from that point of view by the High Court, he formulated four points for the consideration of the High Court and remanded the matter to the High Court to come to its own conclusions in regard to those points. The learned Judge made it clear that the observations made by the Supreme Court were not intended to be the final decision of the Supreme Court on the various aspects of the question but were only intended to afford guidance to the High Court to come to its own conclusions on those points. The observations of the Supreme Court in thin case do not, therefore, lay down the law on the subject which is binding upon this Court and the assessee was not prepared to accept these observations as laying down the correct law on the subject. But he pointed out that even if these observations were held to represent to correct law on the subject, it was not sufficient for the revenue to establish that Daulatram had administered a part of the estate of Chooharmal Wadhuram represented by the amounts deposited with Messrs Narayandas Purshottamdas but it was further necessary for the revenue to show that the Income tax Officer after diligent and bona fide inquiry believed Daulatratn to be the sole legal representative of Chooharmal Wadhuram. Now, there can be no doubt that, according to the observations made by the Supreme Court, where a person dies intestate leaving behind him more than one heir, all of them together represent the estate of the deceased and if the Income‑tax Officer wants to proceed under section 24‑B he must proceed to assess the total income of the deceased against all the heirs and the notice must, therefore, be served on all the heirs. But the Supreme Court observed that the principle laid down in Daya Ram v. Shyam Sundari (A I R 1965 S C 1049), that, where a plaintiff' or an appellant after diligent and bona fide enquiry ascertains who the legal representatives of a deceased defendant or respondent are and brings them on record within the time limited by law, there is no abatement of the suit or appeal, that the impleaded legal representatives sufficiently represent the estate of the deceased and that a decision obtained with them on record will bind not merely those impleaded but the entire estate including those not brought on record, although laid down in the context of suits or appeals, is one of general application and there is no reason why this principle cannot be invoked in the case of assessment of income of a deceased person in the hands of his legal representatives. If this principle is applicable in the case of assessment of the income of a deceased person in the hands of his legal representatives as the Supreme Court was prima facie inclined to hold, it is necessary to have a finding of the Tribunal whether the Income‑tax Officer after diligent and bona fide inquiry believed Daulatram to be the sole legal representative of Chooharmal Wadhuram. If he did, Daulatram would sufficiently represent the estate of the deceased in the proceedings for assessment of the income of Chooharmal Wadhuram and the service of the notice under section 34(1)(a) on him would have to be held to be valid. We would, therefore, direct the Tribunal to submit a supple mental statement of the case containing its findings on the question whether the Income‑tax Officer initiating proceedings by serving notice under section 34(1)(a) on Daulatram, after diligent and bona fide inquiry, believed Daulatram to be the sole legal representative of Chooharmal Wadhuram. The Tribunal will give its finding on the material already on record and will submit the supplemental statement of the case within six months of the receipt of the writ by it. We may make it clear that after receipt of the finding it will be open to the parties to contend before us as to what is the correct law on the subject and whether, even if the Income‑tax Officer after diligent and bona fide inquiry believed Daulatram to be the sole legal representative of Chooharmal Wadhuram and accordingly served the notice under section 34(1)(a) on him alone, that would be sufficient service of the notice for the purpose of binding the estate of Chooharmal Wadhuram. It would also be open to the revenue to contend that in any event, service of the notice on Daulatram was sufficient service so as to bind the estate of Chooharmal Wadhuram and if for the purpose of this contention, any further material which is already on record is sought to be relied upon on behalf of the revenue, the revenue would be at liberty to ask the 'tribunal to bring it before us in the supplemental statement of the case.
We, therefore, answer the first and the second questions in the affirmative. So far as the fourth question is concerned, it does not bring out properly the real controversy between the parties and it is, therefore necessary to reframe it as follows;
"Whether, on the facts and in the circumstances of the case, the initiation of proceedings against the assessee for the assessment years 1946‑47 and 1947‑48 was invalid In view of the fact that the sanction of the Commissioner for initiating proceedings against the assessee was given in the status of association of persons' "
Our answer to the question as refrained is in the negative. So far as the fifth question is concerned, the reference will stand over until after receipt of the supplemental statement of the case from the Tribunal.
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