- (1.) THIS is a reference under section 66 (2) of the Indian Income-tax Act and the two points that have been referred to us for decision are as follows :- 1. Whether in the facts and circumstances of this case the notice issued to Mohd. Hanif under section 34 was bad in law and whether it is necessary to mention that the notice issued to him represented himself and others, i.e., to an association of individuals ?
(2.) WHETHER on the above facts and circumstances of this case, it was open to the Tribunal to convert an assessment made against Mohd. Hanif as representing an association of individuals composed of Mohd. Husain and Mohd. Jan and assess him as representing an association of individuals composed of himself, Mohd. Zahir, Anwar Ali and Abdul Hasan ? The facts of the case are not complicated though some difficulty has been created by reason of the way the case was dealt with at its various stages by the Income-tax authorities and further by reason of the fact that certain papers, which we would have liked to examine, were not available. On some date in the year 1935 or 1936 a notice, for the assessment year 1936-37, was served on Mohd. Hanif under section 22 of the Indian Income-tax Act to file a return of his income up to 31st March, 1936. The notice is not available and it is not known in what status Mohd. Hanif was required to submit his return. He, however, submitted his return in the status of an individual and claimed that he had suffered a loss of Rs. 1,364. Mohd. Hanif was a resident of village Kotwari, District Ballia, where money-lending business was carried on by members of his family. The family tree given in the statement of the case is as follows :- JUDGEMENT_447_ITR27_1955Html1.htm The family had also some income from interest received from a private limited company known as Sugauli Sugar Works. The loan had been made to the company, so far as we could ascertain, in the name of Mohammad Hanif alone. The Income-tax Officer passed the assessment order on the 19th of October, 1938. He disallowed certain expenses claimed and held that Mohammed Hanif was liable to pay a sum of Rs. 115-10-0 as income-tax. The Income-tax Officer, however, passed the assessment order against Mohammad Hanif not in the status of an individual but in the status of an association of individuals of which he was held to be the principle officer. The relevant portion of the order is as follows :- In the return of income the assessee declared himself to be individual. However the account books showed capital is contributed by four persons namely, Mohd. Hanif, Mohd. Zahir, Mohd. Anwar and Abul Hasan. There is a common account in the name of Mohd. Hanif, Mohd. Zahir, Mohd. Anwar and Abul Hasan to which final profit or loss is transferred. The profit and loss is not divided. From the account books of assessee it is clear that the assessees status is that of an association of individuals. However in the company (Sugauli Sugar Works) the deposit has been made and the shares have been purchased in the name of Mohd. Hanif alone. In my opinion according to accounts the status is clearly that of an association of individuals with Mohd. Hanif as principal officer. On the same date the Income-tax Officer made the assessments for the years 1937-38 and 1938-39 and in all these three years the status in which the assessment was made was association of individuals. Mohammed Hanif did not object to the assessment, nor did he file any appeal. He had pleaded before the Appellate Tribunal that he did not know in what status he was being assessed but that plea was given up by learned counsel before the Tribunal.
(3.) DURING the assessment proceedings for the assessment year 1939-40 the Income-tax Officer received definite information that a business in hides was being carried on in Calcutta in the name of Mohammed Hussain Mohammad Jan by the same association of individuals, that is, Mohammad Hanif, Mohammad Zahir, Anwar Ali and Abul Hasan. The Calcutta firm was assessed to income-tax there with Mohammad Hussain and Mohammed Jan as proprietors of the firm. The Income-tax Officer at Ballia was, however, of the opinion that the income of the tax Calcutta business should have been included in the return for the assessment year 1938-39 filed at Ballia and that income had thus escaped assessment at least partially and issued a notice under section 34 of the Income-tax Act on the 5th of March, 1940. This notice was sent to Mohammed Hanif, son of Chhote Mohd. Hussain, village Kotwari, at present at Sugauli and was follows :- Whereas I have reason to believe that your income from business which arose, accrued or was received in the previous year ending 31st March, 1938, and which should have been assessed for the financial year ending the 31st March, 1939 :- (a) has partially escaped assessment, (b) has been assessed at too low a rate, and I therefore propose - (a) to assess the said income that has escaped assessment, (b) to re-assess your said income at the correct rate, I hereby require you to deliver to me, not later than 10th April, 1940, or within 30 days of the receipt of this notice, a return in the attached form of your income from all sources which was assessable in the said year ending the 31st March, 1939. Two things are here noticeable : The notice was to Mohd. Hanif and it was not indicated that the notice to him was as principal officer of the association of individuals consisting of himself and three others, nor was any indication given that the Income-tax Officer was referring to the income of the Calcutta firm Haji Mohammad Hussain Mohammed Jan. On the 3rd of May, 1940, Mohammad Hanif filed a fresh return for the assessment year 1938-39 and submitted that the Calcutta firm Haji Mohammad Husain Mohammad Jan was a separate and independent firm and its income had, therefore, not been included in the return. The notice was characterised as ultra vires, invalid and illegal and it was submitted that the return was filed under protest. ;