Madhav Motor Stores vs The Commissioner of Income Tax

Vimadalal, J.—This is a Reference at the instance of the assessee u/s 66(1) of the Indian Income Tax Act, 1922, in which the only question that arises is whether notices for reassessment u/s 34(1A) of the Indian Income Tax Act issued in the name of a firm are valid notices on which an assessment order can be passed against a Hindu Undivided Family. The short facts necessary for the purpose of this Reference are that the Shri Krishna Baijnath was carrying on business in petrol in the name of Madhav Motor Stores, the income from which was being assessed in the status of H.U.F. He died some time in 1933 leaving behind him three sons, who, after the death, started new businesses in 1939, 1941 and 1942. On 15th December 1941, the three brothers entered into an agreement in which it was stated that they had effected a severance of status amongst themselves, but it was mentioned that the first two businesses could not be divided and were, accordingly held by them as tenants-in-common in equal shares. On the same date, a partnership relating to those two businesses was entered into. Assessments were made in respect of the income of those businesses against assessees in the status H.U.F., and the appeals filed therefrom were infructuous. Subsequent to the original assessments, proceedings were initiated to bring to tax what was considered to be escaped income, and notices u/s 34(1A) addressed to Madhav Motor Stores were served which were accompanied in the usual way by notices u/s 22(2) in which all the units of assessment other that "firm" were scored out. Attempts at settlement having failed, reassessment proceedings were continued and concluded, and were confirmed, on appeal, by the Appellate Assistant Commissioner for each of the four years in the question, viz. assessment years 1942-43 to 1945-46. On further appeal to the Tribunal, it was contended that the re-assessment notices having been issued to the firm, no assessment could be made on the H.U.F. pursuant to those notices. The Tribunal took the view that that contention had no merit, and also held that it had not been raised at the earlier stage, and it, therefore, rejected the same. It is from that order of the Tribunal, that the following question has been referred to us for out decision.

"Whether on the facts and in the circumstances of the case, the issue and service of notices u/s 34(1A) for the years 1942-43 to 1945-46 as in Annexure ''D'' are valid ?"

In my opinion, the question as submitted to us, does not bring out the real question arising from the Tribunal''s order which we have to decide, and I would, therefore, re-frame the question as follows :-

"Whether notices u/s 34(1A) of the Indian Income Tax Act, 1922, for the assessment year 1942-43 to 1945-46 having been served on the assessee as a firm, their assessments in the status of H.U.F. consequent thereon are valid ?"

It is true that the notices issued in the present case u/s 34(1A) do not themselves specify that they are notices against Madhav Motor Stores as a firm, but these notices were accompanied by notice u/s 22(2), as is the usual practice. In fact, what section 34 requires is that a notice u/s 34 should contain all or any of the requirements which may be included in a notice u/s 22(2), but the practice as, for the sake of convenience, been that instead of including the requirement of a notice u/s 22(2) in a notice u/s 34, a separate notice u/s 22(2) accompanies the notice u/s 34. The position, therefore, clearly is that these two notices must really be regarded in law as one notice, and indeed, Mr. Joshi has very fairly not disputed that, having regard to the fact that the notice u/s 22(2) is addressed to the assessee as a firm, the notice u/s 34 also be regarded as having been issued to the assessee in the capacity of a firm of assessment.

Viewed in that light, the question is completely covered by the decision of the Supreme Court in the case of Commissioner of Income Tax Andhra Pradesh Vs. K. Adinarayan Murty, in which it has been laid down that under the scheme of the Income Tax Act there are separate units of assessment; and if a notice under if a section 34 of the Act is issued to an assessee in one status, all proceedings taken under that notice are illegal, if the real status of the assessee is another status. In that connection, if has further been pointed out by the Supermen Court that even the submission of a return by the assessee will not make and difference to the character of the proceedings. Following that decision, which is binding upon us, I would, therefore, hold that the notices in question in the present case having been issued to the assessees in the status of a firm, the assessment of the assessees in the status of an H.U.F. in pursuance of those notices was not valid.

S.K. Deasi, J.

I agree that the questions to be reframed as indicated in the judgment just delivered, as also in all other as also in all other respects thereof, and have nothing to add.

By the Court :- The question as reframed by us, is answered in the negative. Each party to bear its own costs of the Reference, as Mr. Kaka has not seriously pressed for costs.