- (1.) THIS petition under Article 226 of the Constitution has been filed by M/s. Sidh Gopal Gajanand, described as an "alleged association of persons" and by Budhoolal Mehrotra and Sidh Gopal Kapur.
(2.) THE petitioners say that M/s. Sidh Gopal Gajanand was a partnership firm, constituted under an instrument of partnership dated April 1, 1948, with its head office at Bombay and a brunch business at Kanpur styled as M/s. Ganga Textiles. THE partnership firm is said to have consisted of 19 members, two of whom are the petitioners, Budhoolal Mehrotra and Sidh Gopal Kapur. THE petitioners allege that the firm carried on wholesale cloth business from March 13, 1948, to July 1, 1949, and was dissolved on the latter date. THE firm was registered under Section 26A of the Indian Income-tax Act, 1922, for the assessment year 1949-50 and was assessed to income-tax accordingly. For the assessment year 1950-51, however, it was assessed as an unregistered firm. THE firm was assessed at Bombay. On February 26, 1958, a notice under Section 34 was served upon the second and third petitioners as partners of the dissolved firm stating that the income of the firm for the assessment year 1949-50 had been under assessed and that the several partners were jointly and severally liable to assessment under Section 44 of the Income-tax Act in respect of the income of the firm and called upon them to furnish a return of the income of the firm. It was also recited that the Commissioner of Income-tax, Bombay, was satisfied that the notice should be issued. It appears that the Central Board of Revenue considered it desirable to transfer the case of the firm from Bombay to Kanpur and the Commissioner of Income-tax, U.P., and the Commissioner of Income-tax, Bombay, were directed to submit a report as to any objections which the firm could have against the proposal. Accordingly, the Commissioner of Income-tax, U.P., issued a notice to the members of the firm, stating that the Central Board of Revenue was of opinion that the case of the firm should be transferred from the Income-tax Officer, Bombay, to the Income-tax Officer, B-Ward, Special Circle, Kanpur, and invited objections to the proposal. The Commissioner of Income-tax, Bombay, similarly notified the members of the firm of the proposal to transfer its case to Kanpur and invited objections. On September 4, 1958, the Central Board of Revenue made an order under Section 5(7A) of the Indian Income-tax Act, 1922, transferring the case of the dissolved firm from the First Income-tax Officer, A-B Ward, Bombay, to the Income-tax Officer, B-Ward, Special Circle, Kanpur. It was stated that the transfer had been made for facility of investigation and proper assessment and the order had been passed after giving the partners of the firm an opportunity of being heard and after considering their representations objecting to the transfer.
(3.) AFTER the proceedings under Section 34 in respect of the firm had been commenced, it appears that the income-tax department came into information that another group of 18 persons, who included some of the members of the firm, had been carrying on business under the same name, M/s. Sidh Gopal Gajanand and had applied to the Chartered Bank of Australia and China, Kanpur, on July 26, 1948, for opening an account in their name. As the constitution of this entity was materially different from that of the firm the Income-tax Officer considered it reasonable to believe that this group of 18 persons was a different entity. They included the second and third petitioners. As no return had been filed by this entity and it had not been assessed to tax, the Income-tax Officer, A-B Ward, Bombay, issued a notice under Section 34 to the second petitioner calling upon him to file a return for the assessment year 1949-50. Apparently as the notice was issued to the petitioner in his individual capacity, a second notice dated January 5, 1962, was issued under Section 34 by the said Income-tax Officer to the second petitioner as member of an association of persons, M/s. Sidh Gopal Gajanand. The notices recited that the Commissioner of Income-tax, Bombay, was satisfied that it should be issued. A similar notice was served upon the third petitioner. As this notice also appeared to be invalid, a fresh notice dated February 28, 1962, under Section 34 was issued by the Income-tax Officer, A-B Ward, Bombay, to the second and the third petitioners "for and on behalf of the association of persons M/s. Sidh Gopal Gajanand" and recited that it was issued after obtaining the necessary sanction of the Central Board of Revenue, New Delhi. On March 27, 1962, a notice in the same terms addressed to 18 persons, including the second and third petitioners, was published in the Times of India. While the proceedings in respect of the association of persons were pending, the Central Board of Revenue on July 30, 1963, issued a notice under Section 5(7A) to the second petitioner and other members of the association of persons informing them of a proposal to transfer the case of the association of persons from the Income-tax Officer, A-B Ward, Bombay, to the Income-tax Officer, Special Circle-C, Kanpur, and invited objections to the proposal. Objections were filed. On October 22, 1963, the Central Board of Revenue made an order under Section 5(7A) transferring the case of the aforesaid association of persons to the Income-tax Officer, Special Investigation Circle-C, Kanpur. Assessment proceedings were not taken by the Income-tax Officer, Special Investigation Circle-C, Kanpur, in respect of the aforesaid association of persons. On August 9, 1955, he issued a notice under Section 22(4) and under Section 23(2) and by a letter of the same date also clarified the reasons for the proceedings against the association of persons. He stated that there was material indicating that the association of persons which carried on extensive cloth business at Bombay and Kanpur had earned profits amounting to nearly Rs. 80 lakhs during the previous year relevant to the assessment year 1949-50. He called upon the second petitioner to show why the profit of Rs. 80 lakhs should not be assessed as the income of the association of persons and informed him that he could inspect the evidence in possession of the income-tax department. Another letter, dated September 1, 1965, by the Income-tax Officer, further clarified the position. He stated that the firm had been originally assessed in 1954, on the basis of the partnership deed. It was found subsequently that substantial income had escaped assessment and, therefore, proceeding under Section 34 was taken. During the course of investigation it was discovered that the partnership deed was a sham document and was executed much later than the date which appeared on it and from a perusal of a large volume of documentary evidence it emerged that apart from the 19 persons there were other persons who were participating in the business and enjoying its profits. As a partnership firm could not have 20 members, proceedings were taken against the entity as an association of persons. Then on November 2, 1965, in response to enquiries made by the petitioners, the Income-tax Officer, Special Investigation Circle-A, Kanpur, to whom the case had meanwhile been transferred disclosed that as many as 32 persons had been found so far to be members of the association of persons and informed them that the witnesses mentioned in the letter had been summoned by him and were available for cross-examination. Thereafter, it appears that the case was transferred to the Income-tax Officer, Central Circle III, Kanpur.;