Case: Commissioner Of Income-Tax,Hyderabad Vs. Sri Rajareddy Mallaram

was whether penalty for concealing the particulars of income or for deliberately furnishing inaccurate particulars of income in the return could lawfully be imposed after discontinuance of the business. It is true that the validity of the order assessing the firm was not expressly challenged, though at the date of the order of assessment the firm stood dissolved, and its business was discontinued, but the Court could not adjudicate upon the validity of the order imposing penalty without deciding whether there was a valid assessment, for an order imposing penalty postulates a valid assessment.4. Counsel for the respondent contended that even if the assessment after dissolution of the Group be regarded as valid, it is binding upon only those persons who were served with the notice calling for a return, and in support of this plea relied upon the clause "every person who was at the time of such X X dissolution, a member of such association shall in respect of the income X X of the association be jointly and severally liable to assessment". He urged that the expression "every person" in S. 44 means all persons, and that by enacting that such persons, shall be liable to assessment "jointly and severally" it was intended that after the association is dissolved only the members at the date of dissolution can be assessed in respect of the income of the association. As a corollary to the argument it was submitted that all members who are sought to be assessed must be individually served with notice of assessment, and those not served will not be bound by the assessment. The argument is plainly inconsistent with what was observed by this Court in Abrahams case, (1961) 2 SCR 765 : (AIR 1961) SC 609). If by S. 44 the continuity of the firm or association is for the purpose of assessment ensured no question of assessing the individual members of the association can arise. Under Ch. IV of the Income-tax Act an association of persons may be assessed as a unit of assessment, or the individual members may be assessed separately in respect of their respective shares of the income, but the Act contains no machinery for assessing the income received by an association, in the hands of its members collectively. The unit of assessment in respect of the income earned by the association is either the association or each individual member in respect of his share in the income. This is so when the association is exiting, and after it is dissolved as well. There can be no partial assessment of the income of an association, limited to the share of the member who is served with notice of assessment. For the purpose of assessment the Income-tax Act invests an association with a personality apart from the members constituting it and if that personality is for the purposes of Ch. IV, insofar as it relates to assessment, continued, the theory of assessment binding only upon members who were served with the notice of assessment can have no validity. This view is supported by the use of the expression "tax payable" in Section 44 which in the context in which it occurs can only mean tax which the association but for dissolution, or discontinuance of its business would have been assessed to pay. Since the primary purpose of S. 44 is to bring to tax the income of the association after it is dissolved or its business is discontinued, assessment of an aliquot share of that income is not contemplated by S. 44 of the Income-tax Act.5. The effect of S. 44 is, as we have stated, merely to ensure continuity in the application of the machinery provided in Ch. IV of the Act for assessment and for imposition of tax liability notwithstanding discontinuance of the business of the association or its dissolution. By virtue of S. 44 the personality of the association is continued for the purpose of assessment and Ch. IV applies thereto. What can be assessed is the income of the association received prior to its dissolution and the members of the association would be jointly and severally assessed thereto in their capacity as members of the association. For the purpose of such assessment, the procedure is that applicable for assessment of the income of the association as if it had continued. A notice to the appropriate person under S. 63(2) would, therefore, be sufficient to enable the authority to assess to tax the association. The plea that the respondent not having been served personally with the notice of assessment is not liable to pay the tax assessed cannot therefore be sustained.6. Counsel for the respondent then contended that the original assessment made under S. 23(4) was invalid, because notice of assessment was not served upon the Group in the manner provided by S. 63(2) of the Indian Income-tax Act, Baba Gowd who was served with the notice not being the principal officer who could be served with notice on behalf of the Group. But no such contention was raised before the Tribunal. It does not arise out of the order of the Tribunal, and the question referred by the Tribunal to the High Court does not justify consideration of that plea. The respondent cannot be permitted to raise a question which did not arise out of the order of the Tribunal, and has not been referred. The case must be decided on the footing that notice of assessment was properly served on Baba Gowd and that the assessment was properly made by the Income-tax Officer under S. 23(4).7. We hold that answer to the first question will be in the negative. If the order of assessment is held to be valid, the application made by the respondent for setting aside the assessment on the ground that he was not served with the notice of assessment must fail. The second question will be answered as follows:"The applicant was liable for the amount of tax payable under the order assessment".

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]5. The effect of S. 44 is, as we have stated, merely to ensure continuity in the application of the machinery provided in Ch. IV of the Act for assessment and for imposition of tax liability notwithstanding discontinuance of the business of the association or its dissolution. By virtue of S. 44 the personality of the association is continued for the purpose of assessment and Ch. IV applies thereto. What can be assessed is the income of the association received prior to its dissolution and the members of the association would be jointly and severally assessed thereto in their capacity as members of the association. For the purpose of such assessment, the procedure is that applicable for assessment of the income of the association as if it had continued. A notice to the appropriate person under S. 63(2) would, therefore, be sufficient to enable the authority to assess to tax the association. The plea that the respondent not having been served personally with the notice of assessment is not liable to pay the tax assessed cannot therefore berespondent cannot be permitted to raise a question which did not arise out of the order of the Tribunal, and has not been referred. The case must be decided on the footing that notice of assessment was properly served on Baba Gowd and that the assessment was properly made by the Income-tax Officer under S. 23(4).7. We hold that answer to the first question will be in the negative. If the order of assessment is held to be valid, the application made by the respondent for setting aside the assessment on the ground that he was not served with the notice of assessment must fail. The second question will be answered asapplicant was liable for the amount of tax payable under the order assessment".