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1980 Supreme(All) 194
HIGH COURT OF ALLAHABAD
H.N. SETH, V.K. MEHROTRA, JJ.
M.L. John And Anr, - Appellant
Versus
Income-Tax Officer And Ors. - Respondent
Civil Miscellaneous Writ Petition 523, 562 and 790 of 1975
Decided on : Apr 08, 1980
Sudhir Chandra, J. Swarup, R.K. Gaulati, Radha Krishna, Prakash Krishna, Swami Dayal, Ashok Gupta, R.R. Agarwal
Headnote:
INCOME TAX - REASSESSMENT - JURISDICTION - REPRESENTATIVE ASSESSEE - RECEIVER - LIMITATION - EXCESS PROFITS TAX - RECOVERY OF TAX - NOTICE OF DEMAND - LIMITATION.
Fact of the Case:
The petitioners challenged the validity of the various reassessment orders under the Indian I.T. Act, 1922, and the Excess Profits Tax Act, for the assessment years 1942-43 to 1947-48, as also that of the reassessment orders under the I.T. Act for the assessment years 1948-49 to 1956-57. They prayed that notices of attachment of movable and immovable properties for a realisation of the tax assessed under the impugned assessment orders be quashed and the respondents be restrained from taking any step to recover the said demands amounting to Rs. 26,72,662-66 from the petitioners.
Finding of the Court:
1. The reassessment orders for the years 1942-43 to 1944-45, have been made treating M/s. P.S. Mathur and M.B. Tawakley, who on May 21, 1949, had been appointed receivers by the Civil Court, Agra, in the suit filed by Sri Loon Karan Sethiya, as representative assessee under Section 41 of the Indian I.T. Act, and the assessment has not been made against the partners of the firm M/s. John Mills and Company. 2. The receivers did not receive any income nor were they entitled to receive any income either from the business or from the property for and on behalf of M/s, John Mills and Co. They, therefore, could not be assessed as representative of M/s. John Mills and Co. under Section 41 of the Act and any reassessment made in their heads in respect of the income of that firm would be without jurisdiction. 3. The reassessment of the income of the firm M/s. John Mills and Co. for the years 1942-43 to 1947-48 in the hands of the receiver is without jurisdiction. 4. The reassessments were being made in consequence of and to give effect to a finding recorded by the ITAT, Bombay Bench. Neither the firm M/s. John Mills and Co., nor the receivers, M/s. Tawakley and P.S. Mathur, appointed by the Civil Court at Agra, had anything to do with the income for which the receiver appointed by the Bombay High Court, in the suit filed by Govind Ram Seksariya had been assessed for the assessment years 1942-43 to 1944-45, and in respect of which the order, relied upon by the Revenue, had been made by the ITAT, Bombay Bench. No part of the income which was the subject-matter of the dispute before the ITAT, Bombay, was liable to be assessed in the hands either of M/s. John and Co., or the two receivers appointed by the Civil Court at Agra. Accordingly, the respondents could not, on the basis of the order passed by the ITAT, Bombay Bench, claim to reopen the assessment of M/s. John and Co., beyond four years of the end of the assessment years 1942-43 to 1947-48. 5. The impugned demand for the assessment years 1942-43 to 1947-48 is not backed by any valid assessment orders, the same cannot be enforced against any of the petitioners. 6. The reassessment orders made under the Excess Profits Tax Act were made after notice to, and calling upon Sri M.L. John, one of the partners of M/s. John Mills and Co., to file the revised return. In case, the petitioners were aggrieved by such reassessment orders, their remedy was to file an appeal, under the provisions of the Excess Profits Tax Act. It is not open to them, to challenge the correctness of such orders, either at the stage of recovery of tax or by means of a petition under art. 226 of the Constitution. 7. The proceedings for recovery of tax as a result of reassessment made under the Excess Profits Tax Act are premature. 8. The recovery proceedings for the years 1953-54 and 1954-55 are pending. The controversy before us is confined to the validity of the assessments and the recovery of tax for the years 1948-49, 1952-53 and 1956-57. 9. The notices of demand as also the assessment orders relating to the assessment years in question have not been served on the partners of the assessee-firm and the recovery proceedings in respect thereof are at this stage without jurisdiction.
Issues: None
Ratio Decidendi: 1. A receiver cannot be treated to be a representative assessee, within the meaning of Section 41 of the I.T. Act, in respect of the income derived or derivable for a period prior to his appointment as receiver. 2. The bar of limitation provided by Section 34(1)(b) is lifted if an assessee or any person has to be reassessed in consequence of or to give effect to any finding or direction in the appellate order passed by the ITAT. 3. The expression "any person" used in the proviso to Section 34(3) of the Indian I.T. Act, 1922, has to be read in a restricted sense. It means, that a person who is intimately connected with the assessment and who would be liable to be assessed for the whole or part of the income which is the subject-matter of the assessment under appeal, revision or reference. For instance, a partner or a member of a family or association would be any person. 4. The proceedings for recovery of tax due under an assessment order without first serving upon the assessees a notice of demand which has to be accompanied by the assessment order are not sustainable.
Final Decision: The petitions succeed and are, subject to the observations made above, allowed. The proceedings for the enforcement of the demands impugned in these writ petitions are quashed. The petitioners shall be entitled to their costs in each of these petitioners.
H.N. Seth, J.
1. THESE three petitions under Article 226 are being disposed of by a common judgment.
2. WRIT petition No. 523 of 1975 is by M.L. John and I.E. John. The two petitioners question the validity of the various reassessment orders under the Indian I.T. Act, 1922, and the Excess Profits Tax Act, for the assessment years 1942-43 to 1947-48, as also that of the reassessment orders under the I.T. Act for the assessment years 1948-49 to 1956-57, made in the case of the unregistered firms known as John Mills and Co. and John and Co. They pray that notices of attachment of movable and immovable properties for a realisation of the tax assessed under the impugned assessment orders be quashed and the respondents be restrained from taking any step to recover the said demands amounting to Rs. 26,72,662-66 from the petitioners.
Writ Petitions Nos. 562 of 1975 and 790 of 1975 are by N.K. Patni and Munni Lal Mehra. By these petitions, the two petitioners also question the validity of the recovery proceedings, in respect of the aforesaid demands, initiated against them. The respondents have, however, clarified that they were proceeding to recover from the petitioners only the sum representing the demand created as a result of the reassessment proceedings under the Indian I.T. Act, 1922 and the Excess Profits Tax Act, taken against the firm John Mills and Company for the assessment years 1942-43 to 1944-45.
3. BRIEFLY stated, the facts giving rise to these petitions are that at one stage four brothers G.A. John, A.U. John, Edven John and H.C. John owned three spinning mills and one flour mill at Agra. They ran those mills under the name and style of John Brothers. During the course of their business, John Brothers took some loan from one Govind Ram Saksaria of Bombay after mortgaging the mill properties with him. Govind Ram Saksaria filed a suit against John Brothers in the Bombay High Court for the recovery of the aforesaid loan advanced by him. The Bombay High Court appointed a receiver to take possession of the mills. In the meantime, some time before the year 1940, G.A. John died and, his interest in the mills devolved upon his three sons and a daughter, i.e., M.L. John, I.E. John, R.E. John and Mrs. Doris Marzano. Before the Bombay High Court, the parties resolved their dispute and the court passed compromise decree in the year 1940, providing that A.U. John (uncle of the petitioner) and R.E. John (one of the brothers of the petitioner) and I.E. John (one of the petitioners) would run the mills as lessees of the receiver appointed by the court and that they would continue to pay the rent thereof, to the receiver till such time as the mortgage debt, together with interest due thereon, and the expenses of litigation, was not liquidated. Thereafter, A.U. John, M.L. John and I.E. John ran the said mills in the name and style of M/s. John Mills and Company. It is claimed that the respective shares of the three partners in the said business were not in proportion to their proprietary interest in the mills.
4. MAJOR A.U. John, one of the partners of John Mills Co. died on May 8, 1943, and, thereafter, M.L. John and I.E. John filed suit No. 28/1943 in the Civil Courts at Agra, claiming a decree for the dissolution of the firm and for accounting. A preliminary decree was passed in February, 1944, but the proceedings in preparation for final decree are still pending. Thereafter, according to the petitioners, R.E. John ran the mills till May 23, 1946, in the name and style of John Mills Company (1943) as his proprietory concern. The case of the respondent, on the other hand, is that as per the returns filed by Sri M.L. John, it was run by the remaining partners of the firm John Mills and Company i.e., R.E. John, M.L. John and I.E. John in the name of John Mills Company (1943). John Mills and Co. and the business income thereof was assessed as such. At this stage R.E. John sold his proprietary interest in three mills to his two brot
