Sethi Wine Stores vs Commissioner of Income Tax

Muley, J.—The following questions of law have been referred to this Court for its opinion, by the Tribunal, Indore Bench, Indore, u/s 256(1) of the income tax Act, 1961 (''the Act'') at the instance of the assessee:

Whether, on the facts and in the circumstances of the case, the Tribunal has erred in upholding action of the ITO u/s 147(a) of the income tax Act, 1961?

Whether, on the facts and in the circumstances of the case, the Tribunal has erred in not quashing the notice u/s 148 of the ground of limitation?

The facts of the case, as per the statement of the case submitted by the Tribunal, may be stated thus : A deed of partnership was executed on 23-6-1961 in the name of Pagoda Hotel and Restaurant, in which Shri Ramlal Setlii, Vikramjit Sethi and Inderjit Sethi were equal partners with equal shares. The said partnership was made effective from 16-6-1981. This firm had two activities, of which one was of running hotel and restaurant known as Pagoda Hotel and Restaurant and the second was running of a wine shop in the name of ''Sethi Wine Stores'', Hamidia Road, Bhopal, dealing in foreign liquor. Sethi Wine Stores was run as a branch of Pagoda Hotel and Restaurant. The return was filed in the name of Pagoda Hotel and Restaurant showing the income from the hotel business as well as the wine business and the status claimed was that of a registered firm. The assessing ITO for the assessment years 1962-63 to 1965-66 noted that since the licence for running the wine business was in the name of Ramlal Sethi, no legally constituted firm came into existence because of rule 6 of the Excise Rules as framed by the Madhya Pradesh State Government, according to which, no transfer or subletting of the licence would he permissible without the written permission of the Collector. The ITO, therefore, rejected the claim for registration of the assessee and assessed the income from both the wine and hotel businesses in the status of AOP.

The matter ultimately came up before the Tribunal, which by its order dated 21-9-1972 allowed registration in respect of hotel business by observing as under:

The activities of conducting wine shop were illegal and income derived from that activity cannot be taken to be an income of the validly constituted firm. It will still remain the income of AOP consisting of the partners of the firm. In any case income from the wine shop would be clubbed in the income of the registered firm. It is, therefore, necessary to bifurcate this income and to assess them separately, as the status itself was changed.

At the instance of the Commissioner, the Tribunal made a reference to this Court u/s 66(1) of the Indian income tax Act, 1922 (''the 1922 Act'') which was as under:

Whether, on the facts and in the circumstances of the case, the assessee-firm was an illegal firm not entitled to registration. (p. 272)

This Court answered the question as under:

..........That the partnership so far as it relates to the wine shops is illegal and cannot be registered, but so far as it relates to the hotel business, it is a valid partnership and is entitled to be registered under the income tax Act.... (p. 274)

This decision is reported in Commissioner of Income Tax Vs. Pagoda Hotel and Restaurant, .

The ITO, accordingly, passed a consequential order and assessed Pagoda Hotel and Restaurant in respect of its income in the status of registered firm.

For the assessment year 1965-66, the ITO took action u/s 147(a) of the Act, in respect of the income of Sethi Wine Stores relating to the period 1-4-1964 to 28-2-1965 for the assessment year 1965-66. This assessment order was taken by the assessee before the Tribunal and by its order dated 6-10-1976, the Tribunal held that the assessment has been made on non-existent persons since Sethi Wine Stores came into effect only from 1-3-1965 and earlier to that, i.e., from 23-6-1961 to 28-2-1965, the person to be assessed was Pagoda Hotel and Restaurant of which Sethi Wine Stores was only a branch.

After the order of the Tribunal, the ITO again initiated action u/s 147(a) on Sethi Wine Stores and completed the assessment vide order dated 27-3-1981 in respect of these years. Against these subsequent orders of the ITO, the assessee took the issue before the AAC contending that for those years the assessment was done on a non-existent assessee, namely, Sethi Wine Stores as AOP on the ground that the assessment in respect of wine business was already made in the status of AOP much earlier by the ITO. The AAC, relying on the decisions of this Court referred to above, upheld the action of the ITO, who made the original assessment, refusing to grant registration to the firm as the licence for the wine business was only in the name of one of the partners and the assessee was not entitled to transfer or sublet the licence though it is not in dispute that the partners of Pagoda Hotel and Restaurant were also the partners of Sethi Wine Stores, which firm came into existence on 1-3-1965.

The matter again went up before the Tribunal for the assessment years 1962-63 to 1965-66, which by its order dated 20-12-1982 came to the conclusion that the earlier decision of the Tribunal in respect of Sethi Wine Stores related to the assessment year 1966-67 only and could not apply to the facts of the assessee of Sethi Wine Stores for the earlier years during which wine business was carried on as a branch of Pagoda Hotel and Restaurant; that AOP to which the income from the wine business continued to belong had not filed any return as such and, therefore, much income from the wine business had not been assessed in the hands of the said AOP, though the members of AOP were the same persons who were the partners of Pagoda Hotel and Restaurant. In other words, it came to the conclusion that the present AOP or the members thereof are not strangers to the proceeding as such. Therefore, the Tribunal was of opinion that the action of the ITO u/s 147(a) and the subsequent issue of notice u/s 148 of the Act was quite proper and valid. Hence this reference.

The learned counsel for the petitioner contended that no person in the name of Sethi Wine Stores existed during the period from 23-6-1961 to 28-3-1965 on which the assessments could be framed. He also submitted that according to the earlier orders of the Tribunal, the assessment of income of the wine business in the status of AOP was done earlier and, therefore, the reassessment of the same income in the same status was not permissible in law. He also submitted that the assessee, Pagoda Hotel and Restaurant had placed full facts and the necessary materials for the assessment before the ITO in which they had also shown the income derived from the business carried on in the name of Sethi Wine Stores, which was a department run along with the Hotel and Restaurant business of which income was also shown in their returns. He, therefore, submitted that there was no omission of any nature on the part of the assessee to enable the ITO to take the action u/s 148. He, therefore, submitted that as the earlier assessment was already made as AOP, the same could not be reassessed by issuing a notice u/s 147(a) as has been done in this case and in support of this submission he placed reliance on the decisions reported in K.P. Narayanappa Setty and Co. Vs. Commissioner of Income Tax, Income Tax Officer, "E" Ward and Others Vs. Chandi Prasad Modi, , Additional Commissioner of Income Tax, Madras-I Vs. Automobile Association of Southern India, , Commissioner of Income Tax, Gujarat II Vs. Kurban Hussain Ibrahimji Mithiborwala, Commissioner of Income Tax, New Delhi Vs. Rao Thakur Narayan Singh, and Manoo Lal Kedarnath Vs. Union of India (UOI) and Others,

On the other hand, the learned counsel for the revenue contended that the Tribunal by its detailed and exhaustive order has considered the facts of this case and has also placed reliance on certain decisions which have been referred to by them in that order. He, there fore, submitted that the earlier assessment, though made in the capacity of AOP, did not relate to Sethi Wine Stores, of which the partners were the same as that of Pagoda Hotel and Restaurant. He, therefore, submitted that it was the duty of the owners to file their returns for the income derived from the wine business, which having not been done, it is not necessary to interfere with the view taken by the Tribunal and in support of his submissions he placed reliance on the decisions reported in Daffadar Bhagat Singh and Sons Vs. The Income Tax Officer, A-Ward, Ferozepore, , Mrs. Gladys S. Koder Vs. Income Tax Officer, A-Ward, Commissioner of Income Tax, Delhi, New Delhi Vs. Rajinder Nath and Others, and Rajinder Mohan Bhandari Vs. Income Tax Officer and Others,

After hearing the learned counsel and after going through the authorities cited on behalf of the assessee;, we are of the opinion that the authorities cited on behalf of the assessee are distinguishable on facts. There can be no doubt that under the scheme of the Act ''association of persons'' and ''firm'' are treated as separate units of assessment and the return submitted with the status as a firm could not be considered to be a return submitted by AOP. Section 4 of the Act provides that income tax shall be charged in respect of the total income of the previous year or years in respect of every person. Therefore, in the return submitted by Pagoda Hotel and Restaurant the name of the persons who carried on the business in the name of Sethi Wine Stores as a department of the said concern was shown and it having been found by this Court that the same has to be bifurcated, it is only the income of Pagoda Hotel and Restaurant which can be taken into consideration as a partnership firm of which registration could be granted under the Act. Therefore, it is clear that though Sethi Wine Stores by name as such did not exist prior to the partnership firm in the same name came into existence in 1965, still, in our opinion, the submission of the learned counsel for the petitioner that as initially they were assessed as AOP, there could not be reassessment for that period, cannot be accepted as admittedly no returns were filed earlier by them.

It may be noted that the High Court on reference before it does not act as a Court of appeal. The jurisdiction is advisory and no more. The High Court is empowered to decide the question of law referred to it and to return its answer to the Tribunal. The Tribunal then takes up the appeal and then disposes it of in conformity with the answer returned by the High Court. It is not part of the jurisdiction of the High Court to interfere and modify or set aside the appellate order of the Tribunal. Considered in this light, we are of the opinion that the questions referred to this Court have to be answered against the assessee and in favour of the revenue.

Our answer to the questions, therefore, are as follows:

On the facts and in the circumstances of the case, the Tribunal has not erred in upholding the action of the ITO u/s 147(a).

On the facts and in the circumstances of the case, the Tribunal has not erred in not quashing the notice u/s 148 on the ground of limitation.

The reference is answered, accordingly, with no order as to costs.