P.B.GAJENDRAGADKAR - (1.) J. : These four appeals arise from four petitions filed against the Income-tax Officer, Nellore Circle, Nellore, respondent 1, in respect of the proceedings taken by him against three firms under S. 34, Income-tax Act (hereinafter called the Act). The firm M/s. Bellapu Audeyya and Chilla Pitchayya was formed on 20-4-1936, and it was dissolved on 31-3-l948. It consisted of two partners, Chilla Pitchayya and Bellapu Audeyya. Chilla Pitchayya had started another firm in the name and style of G. Pitchayya & Co. with another partner R. Subba Rao. This firm was formed on 30-7-1941, and it was dissolved on 31-3-1949. Bellapu Audeyya and Chilla Pitchayya had also formed another firm along with five other partners which carried on its business in the name and style of Prabhat Textiles. This firm was formed on 1-12-1941, and it was dissolved by a decree of the civil Court passed on 22-12-1949, the dissolution having taken effect from 1-1-1949. All the three firms were carrying on business in yarn and cloth and all of them were registered under S. 26A of the Act. It appears that for the purpose of assessing the income of these firms for the years 1943-44 and 1944-45, respondent 1 was satisfied on making enquiries that each of the three firms was a separate entity and so separate assessment orders were passed in respect of the income of each one of them for the said two years.
(2.) SUBSEQUENTLY on 14-8-1951, respondent 1 issued notice against the firm of Prabhat Textiles under S. 34 of the Act. In the proceedings thus commenced, respondent 1 held that the firm of Prabhat Textiles was a fictitious firm and that the real partners were C. Pitchayya and B. Audeyya. As a result of this finding, respondent 1 cancelled the registration of the said firm under R. 6B of the Income-tax Rules and passed fresh orders of assessment against the said firm on the basis that it was an unregistered firm for the assessment years 1943-44 and 1944-45.on 14-8-1952, and 25-2 1953, respectively. Similar action was taken by respondent 1 in respect of the two other firms on the same dates. Thereupon Y. Narayayana Chetty, one of the partners of the Prabhat Textiles file a writ petition in the High Court of Madras, No. 613 of 1952, against respondent 1 under Art. 216 of the Constitution and prayed that the High Court should issue a writ of prohibition or any other appropriate writ, order or direction prohibiting the first respondent from continuing the proceedings as per his notice of 14-8-1951, and from enforcing the order of fresh assessment passed in the said proceedings on 14.8-1952, in regard to the assessment year 1943-1944. In respect of the same firm Chilla Pitchayya sought for a similar relief by Writ Petition No. 201 of 1953 in regard to the proceedings and assessment order for the assessment year 1944-45. The same Chilla Pitchayya also filed Writ Petitions Nos. 629 of 1952 and 202 of 1953 in respect of the proceedings taken and fresh assessment orders passed against the two remaining firms for the assessment years 1943-44 and 1944-45 respectively. The four petitions were heard together by the High Court and were dismissed on 5-3-1954. The petitioners then applied for and obtained from the High Court a certificate under Art. 133 read with O. 45, Rr. 1, 2, 3 and 8 that the value of the subject-matter in the petitions before the High Court as well as of the appeals before this Court was more than Rs. 20,000. It is with this certificate that the four appeals have come before this Court. Y. Narayana Chetty is the appellant in Civil Appeal No. 317 of 1957 whereas Chilla Pitchayya is the appellant in Civil Appeals Nos. 318, 319 and 320 of 1957. In the High Court it was urged by the appellants that the proceedings taken under S. 34 against each of the said firms were without jurisdiction and void. It was also contended that the cancellation of the registration of each of the firms was similarly void and without jurisdiction inasmuch as R. 6B under which the said order of cancellation was passed was 'ultra vires' the Central Board of Revenue which promulgated the rules under the powers conferred on it by the Act. Besides the appellants attacked the validity of the orders passed against them under S. 34 on the ground that it was illegal to assess escaped income under S. 34 on the basis that the firms were unregistered firms while maintaining the original assessment for the said firms on the basis that they had been duly registered under S. 26A of the Act. The High Court has held against the appellants on all these points. Besides the High Court has stated in its judgment that it was admitted by the appellants before it that appeals had been filed against each one of the orders challenged in the writ proceedings and the High Court thought that that itself would suffice to justify its refusal to exercise its jurisdiction under Art. 226 of the Constitution. However, since the primary relief asked or by the appellants in their respective petitions was the issue of a writ of prohibition the High Court felt that it may as well deal with the merits of the contentions raised by the appellants. That is why the High Court examined the merits of the said contentions. On behalf of the appellants, Mr. Viswanatha Sastri has raised the same three points before us.
(3.) THE first point raised by Mr. Sastri is that the proceedings taken by respondent 1 under S. 34 of the Act are invalid because the notice required to be issued under the said section has not been issued against the assessees contemplated therein. In the present case the Income-tax Officer has purported to act under, S. 34 (1) (a) against the three firms. THE said sub-section provides inter alia' that "if the Income-tax Officer has reason to believe that by reason of the omission or failure on the part of the assessee to make a return of his income under S. 22 for any year or to disclose fully and truly all material facts necessary for his assessment for that year, income, profits or gains chargeable to income-tax has been under-assesse ," he may, within the time prescribed, "serve on the assessee a notice containing all or any of the requirements which may be included in the notice under sub-s. (2) of S. 22 and may proceed to re-assess such income, profits or gains." THE argument is that the service of the requisite notice on the assessee is a condition precedent to the validity of any re-assessment made under S. 34; and if a valid notice is not issued as required, proceedings taken by the Income-tax Officer in pursuance of an invalid notice and consequent orders of re-assessment passed by him would be void and inoperative. In our opinion, this contention is well-founded. THE notice prescribed by S. 34 cannot be regarded as a mere procedural requirement; it is only if the said notice is served on the assessee as required that the Income- tax Officer would be justified in taking proceedings against him. If no notice is issued or if the notice issued is shown to be invalid then the validity of the proceedings taken by the Income-tax Officer without a notice or in pursuance of an invalid notice would be illegal and void. That is the view taken by the Bombay and Calcutta High Courts in the Commr. of I. T., Bombay City v. Ramsukh Motilal, 1955-27 I. T. R. 54 : A. I. R. 1955 Bom 227) and R. K. Das & Co. v. Commissioner of I. T., West Bengal, 1956-30 I.T. R. 439 : (A. I. R. 1956 Cal 161) and we think that that view is right. Let us then consider the nature of the notice issued by the Income-tax Officer in the present proceedings. It is conceded by Mr. Sastri that the notice issued by the Income-tax Officer was served on the appellant C. Pitchayya on behalf of the firms in question and that in each case the notice specifically averred that the Income-tax Officer had reason to believe that the income of the assessee had been under-assessed in the relevant years of assessment. The notice further required the assessee to deliver to the officer within thirty five days of the receipt of the notice a return in the attached form of the total income and total world income of the assessee assessable for the relevant period. In pursuance of this notice the appellant Pitchayya in fact appeared before the officer during the course of the proceedings commenced under S. 34. Mr. Sastri contends that this notice is defective because it purports to be issued against the firm and no notice has been issued against the respective partners of the firm. According to Mr. Sastri the asseessee who is entitled to a notice under S. 34(1) (a) is not the firm but each individual partner of the firm. He also suggests that each individual partner should have been called upon to make a return of his total income assessable for the relevant year; inasmuch as the notice is issued against the firm and not against individual partners it is invalid. In support of this argument Mr. Sastri has referred us to the definition of the word "assessee" under S. 2, cl. (2) as it stood prior to the amendment of 1958. Under the said clause, assessee meant "a person by whom income tax is clearly payable". In the case of a registered firm income-tax is clearly payable by the individual partners of the firm under S. 23(5) of the Act, says Mr. Sastri ; and so, if the Income-tax Officer intended to take action under S. 34 it was his duty to issue the requisite notice against individual partners in respect of their respective incomes for which they were liable to pay the tax. This argument purports to derive support from the provisions of S. 23 (5) as they stood before the amendment introduced in 1956. The effect of the said provisions was that "the sum payable by the firm itself shall not be determined but the total income of each partner of the firm including therein his share of its income, profits and gains in the previous year shall be assessed and the sum payable by him on the basis of such assessment shall be determined" ; so that what the Income-tax Officer had to do in assessment proceedings against a registered firm was to determine the total income of each partner of the firm and no to determine the sum payable by the firm itself. The argument is that this provision shows that the person liable to pay the tax was each individual partner of the firm and so it is the individual partners of the firm who are entitled to the statutory notice under S. 34 (1) (a). In our opinion, this argument is not well-founded. S. 3 of the Act which is the charging section provides inter alia that "where any Central Act enacts that income-tax can be charged for any year at any rate or rates, tax at that rate or those rates shall be charged for that year in accordance with and subject to the provisions of this Act in respect of the total income of the previous year of every firm;" in other words, a firm is specifically treated as an assessee by S. 3. Besides, the word "person" used by S. 2 Sub-s. (2) of the Act while defining the assessee, would obviously include a firm under S. 3 (39) of the General Clauses Act since it provides that a person includes "any company or association or body of individuals whether incorporated or not". Therefore, it would not be correct to say that an assessee under S. 2, sub-s. (2) of the Act necessarily means an individual partner and does not include a firm. The argument based upon the relevant provisions of S. 23 (5 ) it also not valid because it is obvious that for the purposes of assessment at all relevant and material stages under Ss. 22 and 23 it is the firm that is treated as an assessee. When a return of the income is made for the relevant year, it is a return with regard to the total income of the firm that has to be submitted under S. 22; and when assessment is levied under S. 23, the Income-tax Officer determines and can determine the total income of each partner of the firm only after ascertaining the total income of the firm itself. It is true that S. 23(5) as it then stood required the Income-tax Officer to determine the total income of each partner of the firm including his share of the firm's income and to assess each partner in respect of such income, and in that sense individual partner of the firm undoubtedly became liable to pay income-tax; but it is clear that in determining the total income of each partner his share in the firm's income has to be included and so the firm does not cease to be an assessee for the purpose of S. 23(5). This position is now clarified by the provisions of S. 23 (5) (a) (i) and (ii) as amended in 1956 The present S. 23 (5) (a) (i) and (ii) provides " S. 23 (5 ) (a ) (i ) and (ii) : (5) Notwithstanding anything contained in the foregoing sub-sections, when the assessee is a firm and the total income of the firm has been assessed under sub-section (1), sub-section (3) or sub-section (4), as the case may be- (a) in the case of a registered firm (1) the income-tax payable by the firm itself shall be determined ; and (ii) the total income of each partner of the firm, including therein his share of its income, profits and gains of the previous year, shall be assessed and the sum payable by him on the basis of such assessment shall be determined :" and so it is clear that the registered firm does not at all cease to be an assessee under this provision.;