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Civil Miscellaneous Writ No. 1706 of 1960, decided on 8th August 1960.

Ss. 29, 44 & 46‑Unregistered firm ‑ Dissolution ‑ Assessment before coming into force of Constitution‑Recovery from partners without service of notice of demand‑High Court‑Writ declaring proceedings invalid‑Notice served on partners thereafter‑Explanation that notices were issued in consequence of order of High Court‑Effect‑Mistake in dis cretion of partner's status‑Deletion of preference in notice to right of appeal‑Effect.

An order of assessment was passed in respect of an un registered firm for the assessment year 1944‑45 on February 22, 1949. When proceedings for recovery of tax assessed on the firm were taken against the partners an application was made to the High Court for a writ and the proceedings were challenged on the ground that the firm had been dissolved before the date of assessment. The High Court held that the validity of the assessment order which was passed before the Constitution came into force could not be disputed in the writ proceedings but that proceedings for the recovery of the tax assessed on the unregistered firm could not be taken against the partners unless they had themselves been served with notices of demand under section 29 of the Income‑tax Act, 1922. Thereafter the Income‑tax Officer issued a notice of demand under section 29 in regard to the assessment on the firm and had it served on one of the partners, P, his status being shown as that of an unregistered firm. That paragraph of the notice which mentioned that an appeal may be preferred under section 30 to the Appellate Assistant Commissioner was scored out. With the notice of demand the Income‑tax Officer had forwarded a letter mentioning that the notice was being sent in consequence of the order of the High Court in that writ petition. The partners again presented a writ petition to the High Court for a writ to quash the notice of demand served on P :

Held, (i) that the liability of the partners was directly traceable to the assessment on the firm, and the explanatory letter of the Income‑tax Officer could not be considered as meaning that the notice was itself based on a liability created or imposed by the order of the Court ;

(ii) that the validity of the assessment on the firm in the status of an unregistered firm could not be questioned in these proceedings;

(iii) that the firm was under a liability to pay income‑tax when the income itself eras earned and the mere fact that the assessment or determination of the tax took place after its dissolution did not absolve the partners of their liability to pay the tax earned by the firm : it was a liability of the firm and after its dissolution it became the joint and several liability of the partners ;

(iv) that the partner of a dissolved firm "was a person liable to pay such tax" within the meaning of section 29 of the Income‑tax Act, 1922, in regard to the tax assessed on the firm ; and therefore the notice of demand issued was legal ;

(v) that the fact that the status of the partner was incorrectly shown in the notice did not make the notice illegal or void ;

(vi) that the scoring out of that portion of the notice which informed the person concerned that he may prefer an appeal under section 30 did not render the notice invalid. Inviting the attention of a person to his statutory right of appeal is not an essential condition of the notice of demand.

Suraj Mall Mohta & Co. v. Visranatha Sastri (1954) 26 I T R 1 (S C) ref.

R. L. Gulathi for Petitioner.

Gopal Behari for the Opposite‑party,

‑This is an application under Article 226 of the Constitution by two persons who were partners of a firm which carried on business in the name and style of Indian Distillery at Anwarganj, Kanpur, praying for the issue of a writ of certiorari quashing the notices of demand dated October 24, 1959, and a writ of prohibition or mandamus directing the respon dent, Income‑tax Officer, Kanpur, not to recover from the petitioners a sum of Rs. 11,125.62 in pursuance of the notices of demand dated October 24, 1959, mentioned above and for the issue of any other appropriate direction or order that may appear to be just and proper to this Court. Reference has been made in the affidavit and the petition to an earlier petition filed in this Court (Civil Miscellaneous Writ No. 321 of 1956) which was disposed of by an order of this Court on February 17, 1959. That case related to proceedings taken by the Income‑tax Officer for the realisation of the tax in respect of which the present petition has been filed. In that case several grounds were urged but the Court found that in view of the fact that the petitioners had not been served with any notice of demand under section 29 of the Income‑tax Act no recovery proceedings were maintainable against them. That petition was, therefore, allowed.

After the decision of this Court it appears that the Income tax Officer issued notices of demand to the persons who were partners of the aforesaid firm at the time of its dissolution and in the relevant year. These notices are dated October 24, 1959. It is mentioned in the affidavit by the petitioners that they were served with these notices on March 9, 1960. It is contended that the assessment in respect of which these notices of demand have been issued was made on the firm itself in the status of an unregistered firm. When such an assessment is made the firm itself is liable and under the Income‑tax Act the firm is an entity which may be dealt with according to law. No assessment was made on the partners as such and as a notice of demand can be issued only to require a person assessed to pay tax the present notices were illegal and could not have been issued by the Income tax Officer. It is also contended that the assessment itself was illegal because it was made on a firm which was not in existence on the dare of tire assessment. Another ground urged is that the notice under section 29 was accompanied by a letter from the Income‑tax Officer saying that this notice of demand under section 29 was being issued in consequence of an order of this Court. Learned counsel contends that no notice of demand under section 29 may be issued according to law in consequence of an order of this Court on a writ petition. Only orders under the Income‑tax Act could be followed by a notice under section 29 and the notice in dispute in the present case is invalid for that reason also. The last contention raised is that the notice served on Sri Purshottam was incorrect and invalid because though addressed Sri Parshottam Das his status was shown in the notice as that of an unregistered firm, and paragraph 7 of the notice, which mentions that the person who was served with the notice may prefer an appeal under section 30 of the Act to the Appellate Assistant Commissioner, was scored of. So far as the contention relating to the validity of the assessment itself is concerned it was disposed of by the Court in the earlier writ. The contention of learned counsel for the petitioners in the earlier writ was that the order of assessment in question which related to the assessment year 1944‑45 was passed by the Income‑tax Officer on February 22, 1949, on the firm as an assessee when the firm had been dissolved earlier on February 7, 1948. It was contended that after the firm had been dissolved it became non‑existent and there could be no assessment on a non‑existent entity. This contention was challenged on behalf of the department in the earlier writ and it was urged that as that assessment was made before the coming into force of the Constitution this Court could not dispute the validity of that assessment in writ proceedings. The view expressed in this connection by the Supreme Court in Suraj Mall Mohta & Co. v. Visvanatha Sastri ((1954) 26 I T R 1 (S C)) was considered and this Court found that the validity of that assessment could not be adjudicated upon by this Court. The Court held ((1960) 39 I T R 497, 501 (All.)) : "The result is that we are now not com petent to exercise our powers under Article 226 of the Constitution to quash the order". This decision in our opinion disposes of the above contention relating to the validity of the assessment. We must, therefore, proceed on the assumption that the assess ment is valid.

The contention that the Income‑tax Officer had mentioned in the accompanying letter that the notice under section 29 was being sent in consequence of the order of this Court in the writ petition aforesaid and, therefore, the notice was not a valid notice is in our opinion without substance. The notice itself evidently related to the assessment made on the unregistered firm. All that this Court held was that proceedings for the recovery of the tax assessed on the unregistered firm could not be held against the partners unless they had themselves been served with notices of demand under section 29 of the Act. When the Income‑tax Officer says that he was issuing the notice under section 29 in consequence of the order passed by this Court he was obviously referring to the above order with a view to explain how so many years after the assessment on the unregistered firm was made he found it necessary to issue the notices to the partners of the firm. This explanatory letter could not be considered as meaning that the notices of demand themselves were based on nothing but a liability created by or imposed by an order of this Court. The liability was directly traceable to the assessment made on the unregistered firm and the contention that the notice of demand was not relevant to an assessment made under the Act but was related to an order of this Court is in our opinion quite untenable. Learned counsel has invited our attention to the provisions of sections 29 and 44 of the Income‑tax Act and contends that before a partner of a dissolved firm may be served with a notice of demand it is essential that an assessment must be made as against him. Section 44 of the Act reads as follows :

"44. Where any business, profession or vocation carried on by a firm or association of persons has been discontinued, or where an association of persons is dissolved, every person who was at the time of such discoutinuance or dissolution a partner of such firm or a member of such association shall, in respect of the income, profits and gains of the firm or association, be jointly and severally liable to assessment under Chapter IV and for the amount of tax payable and all the provisions of Chapter IV shall, so far as may be, apply to any such assessment."

This section provides that partners of a dissolved firm and members of a dissolved association are liable to assessment under Chapter IV of the Act and for the amount payable and that all the provisions of that Chapter would apply to such an assessment so far as may be. This section appears to provide for proceedings under the Income‑tax Act to determine the liability of the partners of a dissolved firm or members of a dissolved association but it appears difficult to hold that in the absence of any such assessment on the partners themselves they would not be liable to tax at all. A firm may be assessed to tax before its dissolution and the tax assessed may have to be recovered after dissolution. We find no justification for taking the view that before the tax may be recovered from the partners of the dissolved firm they must again be severally assessed to tax under section 44 of the Act. Nor has learned counsel drawn our attention to any provision of the Act which would provide for the realisation of tax imposed on but not paid by a firm before its dissolution. In that case evidently the tax assessed on the firm would be a liability on the firm and the partners of the firm at the relevant time would be liable to meet that liability under the provisions of the Indian Partnership Act. We see no reason to assume that they will not be liable for the tax payable by the firm though they would be liable for the business debts of their partnership.

There may again be a case where a firm has to be assessed to tax and proceedings are started for the purpose but before they terminate in an assessment the firm is dissolved. It is open to the Income‑tax Officer to proceed against the partners by invoking the aid of section 44 of the Act and to make an assessment and demand the tax from them.

In the instant case it is admitted that the firm was assessed to tax in the status of an unregistered firm. The validity of that assessment cannot now be questioned in these proceedings. As a result the short point which has to be determined is as to whether the partners of the firm at the time of its dissolution would be liable to pay the tax which was assessed on the business activities of the firm during its existence. In our opinion the firm had the liability to pay income‑tax when the income itself was earned and the mere fact that the assessment or deter mination of the tax took place after dissolution will not take away from the liability of the partners to pay the tar which was found due on the income earned by their firm. It was a liability of the firm and after its dissolution it became the liability of the partners jointly and severally. We do not think that section 44 of the Income‑tax Act intends to be an exhaustive provision to deal with all kinds of cases relating to the liabilities of the partners of a dissolved firm relating to income‑tax. A reference to section 2') appears to support this view. Section 29 says :

"29. When any tax, penalty or interest is due in consequ ence of any order passed under or in pursuance of this Act, the Income‑tax Officer shall serve upon the assessee or other person liable to pay such tax, penalty or interest, a notice of demand in the prescribed form specifying the sum so payable."

The sum now demanded was payable in consequence of the assessment made on the firm under the Income‑tax Act. The Income‑tax Officer could not serve a notice of demand on the assessee as he appears to have done soon after the assessment was made. He is also empowered under this section to serve a notice of demand on other persons liable to pay such tax. A partner of a dissolved firm, as observed above, is liable to pay the tax assessed and as he is not a person against whom an assess ment has been made, under the Act he comes within the meaning of the expression "other person" used in section 29 of the Act. In our view the notice issued under section 29 is perfectly legal.

The contention that the notice under section 29 is incorrect and illegal because the status of the partners was incorrectly mentioned has no force. The status appears to have been mentioned as in the original notice issued to the unregistered firm and the status might correctly have been shown as that of an ex- partner of an unregistered firm. The notice was otherwise in the form prescribed and the object of the service of a notice of demand asking the person concerned to pay the amount was clearly expressed in that notice. The notice is not ambiguous. Nor has it been made out that it misguided or caused any mis apprehension or doubt in the mind of the petitioners. This clerical error, therefore, would not justify quashing of that notice. If the Income‑tax Officer scored out the last portion which informs the person concerned that he may prefer an appeal under section 30 of the Act we do not think he did anything which rendered the notice invalid. Inviting the attention of a person to his statutory right of appeal cannot be considered to be an essential condition in the notice. Every citizen is expected to know the law and even if this notice did not contain that intimation to the assessee we do not think the notice of demand could be held to be invalid for that reason. The assessment was made several years ago and there was considerable litigation thereafter. If in the circumstances the Income‑tax Officer did not imagine that any question of preferring an appeal relating to the assessment itself arose and scored of this part of the printed notice we cannot hold that he rendered the notice invalid by doing so. It may also be contended that the right of appeal accrued after the notice was issued in the name of the firm itself. That notice could be served on any partner and all the partners of the dissolved firm could then prefer an appeal against the assessment. These stages have all apparently passed. We find ourselves unable to accept the contention of learned counsel therefore that these inaccuracies in the notice make it invalid in law. We do not consider this to be a fit case where the petitioners may be helped to avoid payment which they are otherwise liable to pay by relying on such technicalities.

The contention that the Income‑tax officer could not enforce the joint liability of the partners after he had once invited them to pay rateably according to their shares has also no force. The liability of the partners is joint as well as several. If the Income‑tax Officer tried to collect from the several persons portions of the tax but failed we see no reason why he could not enforce the joint liability of the partners and demand the entire tax from one or more of them.

In the light of the above observations we are of opinion that this petition has no force and it is accordingly rejected.

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