Appeals nos
317 to 320 of 1957
Appeal from the judgment and order dated March 5 1954 of the Madras High Court in Writ Petitions Nos 613 and 629 of 1952 and 201 and 202 of 1953
A V Viswanatha Sastri and B K B Naidu for the appellants
191 A N Kripal R H Dhebar and D Gupta for respondent No 1 1958
October 15
The Judgment of the Court was delivered by GAJENDRAGADKAR 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 section 34 of the Indian Income tax Act hereinafter called the Act
The firm Ms Bellapu Audeyya and Chilla Pitchayya was formed on April 20 1936 and it was dissolved on March 31 1948
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 July 30 1941 and it was dissolved on March 31 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 Prabbat Textiles
This firm was formed on December 1 1941 and it  as dissolved by a decree of the civil court Passed oil December 22 1949 the dissolution having taken effect from January 1 1949
All the three firms were carrying on business in yarn and cloth and all of them were registered under section 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
Subsequently on August 14 1951 respondent I issued notice against the firm of Prabliat Textiles under s34 of the Act
In the proceedings thus commenced respondent I hold that the firm of Prabhat Textiles was a fictitious tirm and that the real partners ere C Pitchayya and B Audeyya
As a result of this finding respondent I 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 192 basis that it was an unregistered firm for the assessment years 1943 44 and 1944 45 on August 14 1952 and February 25 1953 respectively
Similar action was taken by respondent I in respect of the two other firms on the same dates
Thereupon Y Narayana Chetty one of the partners of the Prabhat Textiles filed a writ petition in the High Court of Madras No 613 of 1952 against respondent I under article 226 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 August 14 1951 and from enforcing the order of fresh assessment passed in the said proceedings oil August 14 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 March 5 1954
The petitioners then applied for and obtained from the High Court a certificate under article 133 read with 0
XLV r 1 2 3 and 8 that the value of the subject matter in the peti tions before the High Court as well as of the appeals before this Court was more than Rs 20000
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 Chilia 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 section 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 section 31 on the ground that it was illegal to assess escaped income under section 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 duty registered under section 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 article 226 of the Constitution
However since the primary relief asked for by the appellants in their respective petitions was the issue of writ of prohibition the If 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
The first point raised by Mr Sastri is that the proceedings taken by respondent I under section 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 section 34Ia 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 section 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 assessed he may within the nine prescribed  serve on the assessee a notice containing all or any of the requirements which may 194 be included in the notice under sub section
2 of section 22 and may proceed to reassess 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 reassessment made under section 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 reassessment passed by him would be void and inoperative
In our opinion this contention is well founded
The notice prescribed by section 34 cannot be regarded as a more procedural requirement it is only if the said notice is served on the assessee as required that the lncome 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 Commissioner of Incometax Bombay City vs Ramsukh Motilal 1 and B K Das  Co vs Commissioner of Income tax West Bengal 2 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 assersed 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 s34
Mr Sastri contends that this notice is defective be cause it purports to be issued Against the firm and no 1 1955 27 ITR 54
2 195 notice has been issued against the respective partners of the firm
According to Mr Sastri the assessee who is entitled to a notice under section 341a 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 section 2 cl
2 as it stood prior to the amendment of 1953
Under the said clause assessee meant  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 section 235 of the Act savs Mr Sastri and so if the Income tax Officer intended to take action under section 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 section 235 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 not 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 section 341a
In our opinion this argument is not well founded
Section 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 196 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 section 3
Besides the word person used by section 2 sub section 2 of the Act while defining the assessee would obviously include a firm under section 342 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 section 2 sub section
2 of the Act necessarily means an individual partner and does not include a firm
The argument based upon the relevant provisions of section 235 is also not valid be
cause it is obvious that for the purposes of assessment at all relevant and material stages under sections 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 section 22 and when assessment is levied under section 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 section 235 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 partners 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 section 235
This position is now clarified by the provisions of section 235ai and ii as amended in 1956
The present section 235ai and ii provides section 235ai 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 subsection 1 sub section 3 or sub section 4 as the case may be 197 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
In this connection it would be relevant to refer to section 234
This subsection provides  If any person fails to make the return required by any notice given under subsection 2 of section 22 and has not made a return or a revised return under sub section 3 of the same section or fails to comply with all the terms of a notice issued under sub section 4 of the same section or having made a return fails to comply with all the terms of a notice issued under subsection 2 of this section the Income tax Officer shall make the assessment to the best of his judgment and determine the sum payable by the assessee on the basis of such assessment and in the case of a firm may refuse to register it or may cancel its registration if it is already registered Provided that the registration of a firm shall not be cancelled until fourteen days have elapsed from the issue of a notice by the Income tax Officerto the firm intimatiiig his intention to cancel its registration This provision clearly shows that the person to whom the first part of the provision refers includes a firm and it lays down that if a firm commits a default as indicated the Income tax Officer may refuse to register it or may cancel its registration if it is already registered
Thus there can be no doubt that section 234 treats the fit in as an assessee and provides for the imposition of penalty against the firm in case the firm commits any of the defaults indicated in the sub section
The effect of the relevant provisions of section 23 therefore is that for the assessment of the total taxable income it is the affairs of the assessee firm that are investigated and 198 examined and when the total income of the firm is ascertained it is allocated to its individual partners in proportion to their respective shares
The result of such allocation undoubtedly is to make the partners liable to pay tax in respect of their taxable income thus allocated  but that cannot justify the inference that the firm is not an assessee in the relevant proceedings
Even when the notice is issued under section 341a the Income tax Officer proceeds to act on the ground that the income profits and gains of the firm which are chargeable to an income tax have been under assessed it is the income of the firm which is initially ascertained in the assessment proceedings under section 23 and it is in respect of the said income of the firm that the Income tax Officer finds that a part of it has escaped assessment
We do not therefore think that the appellant s argument that the notice issued against the firm and served on the appellant was invalid under section 341a can be accepted
It is then urged that the Income tax Officer was bound to issue notices to individual partners of the firms because at the material time all the firms had been dissolved
Mr Sastri concedes that under section 63 2 a notice or requisition under the Act may in the case of a firm be addressed to any member of the firm but his contention is that this applies to a firm in existence and not to a firm dissolved
If the appellants  case is that as a result of dissolution of the firms the firms had discontinued their business as from the respective dates of dissolution they ought to have given notices of such discontinuance of their business under section 252 of the Act
Besides in the present case the main appellant has in fact been served personally and the other partners who may not have been served have made no grievance in the matter
We are therefore satisfied that it is not open to the appellants to contend that the proceedings taken by the Income tax Officer under section 341a are invalid in that notices of these proceedings have not been served on the other alleged partners of the firms
Incidentally it may be pointed out that the finding of 199 the Income tax Officer in respect of all the three firms is that the only persons who had interest in the business carried on by the said firms were B Audeyya and C Pitchayya
It is remarkable that B Audeyya has not cared to challenge the proceedings or to question the validity of the fresh assessment orders passed by the Income tax Officer in the present proceedings
Mr Sastri then challenges the validity of the cancellation of the registration of the three firms on the ground that r 6B under which the Income tax Officer purported to act is ultra vires
Rule 6B provides that in the event of the Income tax Officer being satisfied that the certificate granted under r 4 or under r 6A has been obtained without there being a genuine firm in existence he may cancel the certificate so granted
The material rules of which r 6B is a part have been framed by the Central Board of Revenue under the authority conferred by section 59 of the Act
This section empowers the Central Board of Revenue subject to the control of the Central Government to make rules inter alia for carrying out the purposes of the Act
Section 59 2e lays down that such rules may provide for any matter which by this Act is to be prescribed and the rules preceding r 6B deal with the procedure to be followed and prescribe the application to be made for the registration of firms under section 26A of the Act
Section 595 provides that the rules made under the said section shall be published in the official gazette and shall thereupon have effect as if enacted in this Act
Thus there is no doubt that the rules are statutory rules and once they are published in the official gazette they are operative as if they were a part of the Act
Mr Sastri concedes this position but he argues that r 6B is inconsistent with the material provisions in the Act and is therefore ultra vires the Central Board of Revenue
This argument is based substantially on the provisions of section 234
We have already referred to the provisions of this subsection
Mr Sastri contends that it is only where the requirements of section 234 are satisfied that the registration of a firm can be cancelled
The procedure for registration of firms is laid down in section 26A of 200 the Act
An application has to be made to the Incometax Officer on behalf of any firm constituted Linder the instrument of partnership specifying the individual shares of the partners for registration for the purposes of the Act and of any other enactment for the time being in force and relating to income tax and supertax
Sub section 2 requires that the said application hall be made by such person or persons and at such times and shall contain such particulars and shall be in such form and be verified in such manner as may be prescribed and it shall be dealt with by the Incometax Officer in such manner as may be prescribed
It is in pursuance of the requirements of section 262 that the relevant rules for the registration of the firms have been made
The question which arises for our decision in this connection is if a firm has been registered Linder section 26A when can such registration be cancelled  The appellant suggests that the only cases in which such registration can be cancelled are those prescribed in section 234
We have no doubt that this argument is fallacious
The cancellation of registration under section 234 is in the nature of a penalty and the penalty can be imposed against a firm if it is guilty of any of the defaults mentioned in the said subsection
It would be noticed that where registration is cancelled under section 234 there is no doubt that the application for registration had been properly granted
The basis of an order under section 234 is not that the firm which had been registered was a fictitious one but that though the registered firm was geniuine by its failure to comply with the requirements of law it had incurred the penalty of having its registration cancelled
That is the effect of the provisions of section 234
On the other hand r 6B deals with cases where the Income tax Officer is satisfied that a certificate of registration has been granted under r 4 or under r 6A without there being a genuine firm in existence  that is to gay an application for registration had been made in the name of a firm which really did not exist and on that ground the Income tax Officer proposes to set right the matter by cancelling the certificate which should never have been granted to the 201 alleged firm
That being the effect of r 6B it is im possible to accede to the argument that the provisions of this rule are inconsistent with the provisions of section 234 of the Act
If the Income tax Officer is empowered under section 26A read with the relevant rules to grant or refuse the request of the firm for registration it would normally be open to him to cancel such registration if he discovers that registration had been erroneously granted to a firm which did not exist
Rule 6B has been made to clarify this position and to confer on the Income tax Officer in express and specific terms such authority to review his own decision in the matter of the registration of the firm when he dis covers that his earlier decision proceeded on a wrong assumption about the existence of the firm
In our opinion there is no difficulty in holding that r 6B is obviously intended to carry out the purpose of the Act and since it is not inconsistent with any of the provisions of the Act its validity is not open to doubt
It is however urged that whereas the firm aggrieved by the order passed by the Income tax Officer under section 234 can challenge the correctness or propriety of the order in an appeal against the final assessment order passed under section 23 no such remedy is available to the firm whose registration is cancelled under r 6B
We are not impressed by this argument
The validity of the rule cannot in our opinion be challenged merely on the ground that no appeal has been provided against the order passed under the impugned rule
It is also true that whereas before taking action under section 234 the Income tax Officer is required to issue a notice to the firm no such provision is made under r 6B
Mr Sastri has however conceded that the appellant before us had notice and was given an opportunity to satisfy the Income tax Officer that the respective firms were genuine and not fictitious
Thai being so we do not think that it would be open to the appellant to contend that the order passed against him under r 6B is invalid on the purely academic ground that r 6 B does not require notice to be issued before the registration of a firm is cancelled
If the power 26 202 under r 6B is exercised by the Income tax Officer against a firm without giving it a notice in that behalf and without affording it an opportunity to satisfy the officer that it is a genuine firm it may be open to the firm to question the validity of the order on that ground
We are however not called upon to deal with such a case in the present appeals
In this connection we may incidentally refer to the decision of this Court in Ravula Subba Rao vs Commissioner of 1
T Madras 1 where this Court has held that rules 2 and 6 of the rules framed under section 59 of the Indian Income tax Act are not ultra vires the rule making authority
The last argument which Mr Sastri sought to raise before us was that the revised assessment is completely illogical and therefore illegal in each case inasmuch as the original assessment for the two assessment years still remains as on the basis that the firms in question are registered and the fresh assessment in respect of the escaped income for the same years is made on the basis that the said firms are not registered
Mr Sastri says that it is not open to the Income tax Officer to adopt such a course
If registration has been cancelled the whole of the assessment should be made on that footing the department cannot treat the firm as registered for part of the income and unregistered for the balance during the same assessment years that is Mr Sastri s grievance
We do not propose to deal with the merits of this contention
There can be no doubt that it would be open to the appellants to raise this contention in the appeals which they have filed against the fresh orders of assessment
We understand that applications have been made by the appellants in respect of the said orders of assessment under section 27 of the Act
If that be so the appellants may if it is open to them to do so ventilate their grievance in the said proceedings also
We hold that this contention cannot be urged in petitions for writs of prohibition under article 226 of the Constitution since they do not raise any question of jurisdiction
All that the appellants would be able to argue on this ground 1 1956 SCR 577
203 would be that the course adopted by the Income tax Officer in making orders of fresh assessment is irregular and illogical and should be corrected
That is a matter concerning the merits of the orders of assessment and by no stretch of imagination can it be said to raise any question of jurisdiction under article 226
That is why we express no opinion  on this point
Before we part with this case we would like to observe that Mr Kripal for the respondent sought to raise three preliminary objections
He urged that the issue of a writ is a discretionary matter and since the High Court has refused to exercise its discretion in favour of the appellants the appeals would be virtually incompetent inasmuch as this Court would be slow to interfere with the exercise of discretion by the High Court
He also argued that the original petitions to the High Court are incompetent under article 226 since under the Act the appellants had an alternative effective remedy available to them in the form of appeals against the impugned orders and in fact they had filed such appeals and had also made applications under section 27 of the Act
Mr Kripal also contended that the High Court would have no jurisdiction to issue a writ of prohibition against the tax authorities
We do not propose to consider these objections because as we have already indicated we are satisfied that the view taken by the High Court on the points raised before it is right
These objections may have to be considered in future on a suitable occasion
The result is the appeals fail and must be dismissed with costs
Appeals dismissed


Summary:
The appellants purchased properties in auction sales conducted by the Tax Recovery Officer for recovery of income tax and were issued sale certificates
Copies of certifi cates were also sent to the SubRegistrar as required under Rule 21 of the Income Tax Certificate Proceedings Rules ITCP Rules
The appellants approached the SubRegis trar for getting the properties registered in their names but the Sub Registrar and the Collector of Stamps refused to do so unless stamp duty was paid on the certificate of sale
At the appellants  request the Tax Recovery Officer also addressed the two officers for getting the entries made in the Register on the basis of the copy of sale certificate
He also informed the Collector of Stamps that according to the legal advice given to him no stamp duty was payable on the certificate of sale
However no action was taken by either of the officers
The appellants  request to Delhi Administration and Municipal Corporation to effect mutation entries in the Corporation Register was also not acceded to on account of the appellants  failure to pay the transfer fees leviable as additional stamp duty under the Delhi Municipal Act
Therefore the appellants filed writ peti tions before the High Court praying for directions to the respondents to register the certificate of sale and mutate the property in the name of the appellants
The High Court dismissed the petitions holding that in the absence of specific contract to the contrary the liability to pay the stamp duty was that of the purchaser
628 Allowing the appeals by the purchasers partly this Court HELD 1
Under section 894 every Revenue Officer granting a certificate of sale of immovable property or public auction should send a copy of such certificate to the registering officer within the local limits of whose juris diction the whole or any part of the immovable property comprised in such certificate is situate and such register ing officer shall file the copy or copies as the case may be in his Book No 1
So far as sales for recovery of income tax are concerned rule 21 of the ITCP Rules makes a like provision requiring the concerned TRO to send a copy of the certificate of sale to the registering officer con cerned
632E G There is no need to read the term revenue officer  in any restricted sense
It is wide and comprehensive enough to include the TRO who effects a compulsory sale for the recovery of an income tax demand
The registration officer has to act in terms of section 894 of the Indian Registra tion Act read with Rule 21 of the ITCP Rules and file the copy of the certificate of sale received by him from the TRO in his Book No 1
633A B 2
Section 172xii of the makes it clear that the certificate of sale issued in a court sale or by a revenue officer does not need registra tion
Though this provision like section 89 relates only to a certificate of sale granted to the purchaser of any property sold by public auction by a civil court or revenue officer the certificate issued by the TRO is also cov ered by this provision
It is therefore not obligatory on the purchaser of property in a tax recovery sale to get the certificate of sale registered in order to perfect his title
However if he presents the original certificate of sale to the Registration Officer for registration the Registration Officer will have to comply with the relevant statutory provision in this regard
636F H 31 The Certificate of sale itself not being a compulso rily registerable document vide section 172xii the transfer of title in favour of the purchaser is not vitiated by the non registration of the certificate
The copy of the certificate filed in Book No 1 contains all the relevant details
These details are reflected in the indices main tained under section 55 which are open to inspection to all persons
These requirements are sufficient to ensure that any person intending to purchase or deal with the property is put on notice about the principal contents of the certif icate of sale provided he inspects the relevant book andor index
635A C 629 32 Therefore in the instant case all that the Sub Registrar is required to do is to file the copy of the certificate in Book No 1 and no more
He does not have to copy out the certificate or make any other entries in Book No 1
635C 41 Under Sections 3 29f and Article 18 of Schedule I of the Stamp Act 1899 the liability to pay stamp duty is of the purchaser to the contrary can be spelt out
635D In the instant case the auction notice did not promise any exemption from stamp duty
The Tax Recovery Inspectors  Manual which states that both the certificate and copies are liable to stamp duty also renders it unlikely that any promise was given by TRO at the time of sale that no stamp duty will be payable
However the TRO s letter to the Collector of stamps referring to the legal advice given to him strikes a some what inconsistent note
However the issue of stamp duty is felt to be adjudicated upon in the normal course as and when found necessary
635E G 42 The payability of municipal transfer fee depends upon the payability of stamp duty
It will be open to the appellants to contest this levy in other appropriate pro ceedings
637B 5
The Sub Registrar is directed to file the copy of the certificate of sale received by him from the TRO in his Book No 1 as required by section 894 of the read with Rule 21 of the IncomeTax Certificate Proceed ings Rules 1962
637D Fatteh Singh vs
Daropadi 1908 Punj
Case No 142 Sirajun nissa vs Jan Muhammad  Masarat un nissa vs Adit Ram All 568 FB and Premier Vegetable P Ltd vs State AIR 1986 MP 258
referred to