# /11har and Orissa '" Appeal allowed. Shri Uuniakrisll'na lJ<'O Y. NAP.AYANA CHETTY & ANOTHER v. THE INCOME-TAX Ol!'F'ICER, NI!~LLORE AND OTHERS

- **Citation:** [1959] Supp. 1 S.C.R. 189
- **Court:** Supreme Court of India
- **Decided:** 1959
- **Bench:** Venkatarama Aiyar, GAJENDRAGADKAlt, A. K. Sarkar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/11har-and-orissa-appeal-allowed-shri-uuniakrisll-na-lj-o-y-nap-ayana-chetty-1632
- **Pages:** 15

## Headnote

Income-tax-Rule empowering Income-tax Officer to cancel
r.:gistration of firm found not he genuine-Validity of-Registered
firm, if an assessee-Service of notice on firm through partner, if
valid a11d proper-Writ P.ctition, ijlies 11gai11st illegal assessmentIndian Income-tax Act, z922 (XI of z922), ss. 23, 34-:-Income-tax
Rules, r. 6B-Constitution of India, Art. 226.
Two persons, B ai;id C, formed a partnership firm on April
20, i936, and the firm was dissolved on March 31, i948. B ancl .c
aloug with R formed a second firm on July 3'>. HJ41, an<! it was
dissolved on March 31, 1949· B and C along with five others
formed a third firm on December l, 1941, and it was dissolved on
January I, 1949· All the three firms were carrying on business in
yarn and cloth and all of them were registered under s. 26-A of
the Income-tax Act. For the years 1943-44 and 1944-45 the
said firms were treated as separate entities and separate assessment orders were passed in respect of the income of each one of
them for the said years. Subsequently, the Income-tax Officer
served notices under s. 34 of the Act on C on behalf of the firms
and after hearing the parties he held that the firms were ficti-'
tious and so cancelled their registration under r. 68 of
tl1t~
income-tax Rules and passed fresh orders of assessment against
them on the basis that they were unregistered firms.
One Y
who was a partner in the third firm and C filed four writ petitions under Art. 226 of the Constitution in the High Court chalknging the validity of the orders passed. The High Court di~
missed the petitions but granted certificates of fitness to appeal
Vfokularatna
Aiyur ].
October 15.
190
SUPREME COURT REPORTS
[1959] Supp.
1958
under Art. 133· The appellants contended that r. 6B was
inconsistent with s. 23(4) of the Act and was ultra vires, that conY. N•••y.na
sequently the cancellation of registration of the firms was withChelly & Anoth" out jurisdiction and was void and that the proceedings taken
v.
under s. 34 of the Act were invalid as the required notice was
The Income-Tax not issued against the individual partners who were the assesOfficer. Nello,·e
sees.
and Othe"
Held, that r. 6B of the Income-tax Rules was not inconsistent with s. 23(4) of the Act and was not ultra vires.
Rule 6B
dealt with cancellation of registration in cases where the certificate of registration had been granted without there being a
genuine firm in existence, while s. 23(4) dealt with cancellation
of registration on account of failure to comply with the requirements of law, though the registered firm was genuine.
Rule 6ll
was obviously intended to carry out the purpose of the ·Act and
was valid.. The fact that no appeal had been provided against
an order made under r. 6B was no ground for challenging its
validity. It was also not open to the appellants to contend that
the orders passed under s. 6B were invalid on the ground that
the rule did not require the giving of any notice before the cancellation of registration as in the present case notice had actually
been given and th~ appellants had been afforded an opportunity
of being heard.
H cld, further, that iri the cases of registered firms, the fir1ns
themselves were the assessees and as such the notices issued
under s. 34 against the firms and served upon C were valid and
proper notices, ;and it was not necessary to serve notices upon
the individual partners of the firms.
The notice prescribed by
s. 34 was not a mere procedural requirement. If no notice was
issued or if the notice issued was shown to be invalid then the
proceedings taken by the Income-tax Officer would be illegal and
void.
Commissioner of Income-tax, Bombay City v. Ramsukh Motilal,
[1955] 27 I.T.R. 54 and R. K. Das 0- Co. v. Commissioner of
Income-tax, West Bengal, [1956] 30 I.T.R. 439, approved.
.
The contention that the assessments were completely illogical
'
and therefore illegal could not be urged in a petition under Art.
226 of the Constitution since it did not raise a

## Text

(1) S,C.R. SUPREME COURT H.EPOl{iTS
189
In the result, this appeal is allowed, tho order of
the Court below is set aside and the reference is
answered in the affirm<\tive.
'fhe respondent will
pay the costs of the appellant here and in the Court
below.
The Con1111issim1er
of luconw-Tax.
/11har and Orissa
'"
Appeal allowed.
Shri Uuniakrisll'na
lJ<'O
Y. NAP.AYANA CHETTY & ANOTHER
v.
THE INCOME-TAX Ol!'F'ICER, NI!~LLORE
AND OTHERS
(VENKATARAMA AIYAR, GAJENDRAGADKAlt and
A. K. SARKAR, JJ.)
Income-tax-Rule empowering Income-tax Officer to cancel
r.:gistration of firm found not he genuine-Validity of-Registered
firm, if an assessee-Service of notice on firm through partner, if
valid a11d proper-Writ P.ctition, ijlies 11gai11st illegal assessmentIndian Income-tax Act, z922 (XI of z922), ss. 23, 34-:-Income-tax
Rules, r. 6B-Constitution of India, Art. 226.
Two persons, B ai;id C, formed a partnership firm on April
20, i936, and the firm was dissolved on March 31, i948. B ancl .c
aloug with R formed a second firm on July 3'>. HJ41, an<! it was
dissolved on March 31, 1949· B and C along with five others
formed a third firm on December l, 1941, and it was dissolved on
January I, 1949· All the three firms were carrying on business in
yarn and cloth and all of them were registered under s. 26-A of
the Income-tax Act. For the years 1943-44 and 1944-45 the
said firms were treated as separate entities and separate assessment orders were passed in respect of the income of each one of
them for the said years. Subsequently, the Income-tax Officer
served notices under s. 34 of the Act on C on behalf of the firms
and after hearing the parties he held that the firms were ficti-'
tious and so cancelled their registration under r. 68 of
tl1t~
income-tax Rules and passed fresh orders of assessment against
them on the basis that they were unregistered firms.
One Y
who was a partner in the third firm and C filed four writ petitions under Art. 226 of the Constitution in the High Court chalknging the validity of the orders passed. The High Court di~
missed the petitions but granted certificates of fitness to appeal
Vfokularatna
Aiyur ].
October 15.
190
SUPREME COURT REPORTS
[1959] Supp.
1958
under Art. 133· The appellants contended that r. 6B was
inconsistent with s. 23(4) of the Act and was ultra vires, that conY. N•••y.na
sequently the cancellation of registration of the firms was withChelly & Anoth" out jurisdiction and was void and that the proceedings taken
v.
under s. 34 of the Act were invalid as the required notice was
The Income-Tax not issued against the individual partners who were the assesOfficer. Nello,·e
sees.
and Othe"
Held, that r. 6B of the Income-tax Rules was not inconsistent with s. 23(4) of the Act and was not ultra vires.
Rule 6B
dealt with cancellation of registration in cases where the certificate of registration had been granted without there being a
genuine firm in existence, while s. 23(4) dealt with cancellation
of registration on account of failure to comply with the requirements of law, though the registered firm was genuine.
Rule 6ll
was obviously intended to carry out the purpose of the ·Act and
was valid.. The fact that no appeal had been provided against
an order made under r. 6B was no ground for challenging its
validity. It was also not open to the appellants to contend that
the orders passed under s. 6B were invalid on the ground that
the rule did not require the giving of any notice before the cancellation of registration as in the present case notice had actually
been given and th~ appellants had been afforded an opportunity
of being heard.
H cld, further, that iri the cases of registered firms, the fir1ns
themselves were the assessees and as such the notices issued
under s. 34 against the firms and served upon C were valid and
proper notices, ;and it was not necessary to serve notices upon
the individual partners of the firms.
The notice prescribed by
s. 34 was not a mere procedural requirement. If no notice was
issued or if the notice issued was shown to be invalid then the
proceedings taken by the Income-tax Officer would be illegal and
void.
Commissioner of Income-tax, Bombay City v. Ramsukh Motilal,
[1955] 27 I.T.R. 54 and R. K. Das 0- Co. v. Commissioner of
Income-tax, West Bengal, [1956] 30 I.T.R. 439, approved.
.
The contention that the assessments were completely illogical
'
and therefore illegal could not be urged in a petition under Art.
226 of the Constitution since it did not raise any question of
jurisdiction.
CrvrL APPELLATE JURISDICTION:
Civil 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.
(1) s.c.n..
RUPREME COURT REPORTS
101
H. Dhebar and D. Gupta, for
1958
A. N. Kripal, R.
respondent No. 1.
1958. October 15.
1lnliv1wed by
l' . N ar avat1a
The ,J udgmcnt of Lho Court was Cl1etty e. At1otl1er
v.
The Ineome-Ta:t
CA.JENDRAG:\.DlL\Jt, .T.-Tlwso four app<·als arise
nfficer, N;/lon
from four petitions filed ngainr-;t the hwome-tnx Officer,
all(l Others
Xollore ,Circle, Xellore, respondent 1, in respect of the
.
-
proceedings taken by him against three firms underGa;eudmgadkar J.
s. 34 of the Indian Income-tax Act (hereinafter called
tho Act). The firm M/s. Bellapu Audeyya and Chilla
Pltchayya was formed on April 20, 1936, and it was
dissolved on March 31, 1948. It consisted of two
partners, Chilla Pitehayya and Bellapu Audeyya.
Chilla Pitehay:va had started another firm in the name
and style of <J: 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 a.long with five other partners which
carried on its business in the name and stv le of Prabhat
Textiles. This firm w:ts formed on Dec~mber 1, 1941,
and it was dissolved by a decree of the civil court
passed on 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 s. 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 1 issued notice against the firm of Prabhat Textiles under
s. 34 of the Act. In the proceedings thus commenced,
respondent 1 held that the firm of Prabhat Textiles
was a fictitious firm and that the real partners were
C. Pitchayya and B. Audeyya. As a result of this finding, respondent 1 cancelled the registration of the said
tirm under r. 6B of the Income-tax l>.ulcs and passed
fresh orders of assessmeut against the i;iaid firm on the
192
SUPREME COURT REPORTS [1959] Supp.
'?58
basis that it was an unregistered firm for the assessY. Nn,ayana
ment years 1943-44 and 1944-4? on Au~us.t 14, 19?2,
Chetty o; Anoth" and February 25, 1953, respe<ltively. S1m1lar act10n
v.
was taken by respondent l in respect of the two other
1·h, Incomc-Tnx firms on the same dates.
Offim, Ndi°'e
Thereupon Y. Narayana Chetty, one of the partners
and~""
of the Prabhat Textiles filed a writ petition in the High
Gujwhagadha, ;. Court of Madras, No. 613 of 1952, against respondent
l under Art. 226 of the Constitution and prayed that
the High Court. should issue a writ of prohibition or
any other appropriate writ, order or dirnction prohibiting the first respondent from continuing the proceedings as per his notice of August 14, 1951, and fro1n
enforcing the order of fresh assessment passed in the
said proceedings on August 14, 1952, in regard to the
nssessment year 1943-1944. In respect of the same.
firm Chilla Pitchayya sought for a similar relief by
\Vrit 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 Art. 133 read with 0. XLV, r. I, 2, 3
and 8 that the value of the subject-matter in the petitions before the High Court as well as of the appeals
before this Court was more than Rs. 20,000. It is
with this -0ertificate that the. four appeals have come
before this Court. Y. Narayana Chetty is the appellant in Civil Appeal No. 317 of 1957 whereas Cbilla
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 s. 34 against each of
the said firms were without jurisdiction and void. It
was also contended that the cancellation of the registraLion of each of the firms was similarly void and
without jurisdiction inasmuch as r. 6B under which
(1) S.C.R. SUPREME COURT REPORTS
193
t,he said order of cancellation was passed was ultra
x958
vires the Central Board of Revenue which promulgated
the rules under the powers conferred on it by the Act. c[.;1YN;:;:0~:.,
Besides the appellants attacked the validity of the
v.
orders passed against them under s. 34 on the ground / he Income-Tax
t,ha.t it was illegal to assess escaped income under s. 34
Officer, Nel/ore
on the basis that the firms were unregistered firms
and Others
while maintaining the original assessment for the said
-
firms on the basis that they had been duly registered Gnjendragndknr f.
under s. 26A of the Act. The High Court has held
against the a.pp.ella.nts 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
tho writ proceedings and the High Court thought that
that itself would suffice to justi(y its refusal to exercise
its jurisdiction under A rt. 226 of the Constitution.
However, since tho primary relief asked for by the
appellants in their respective petitions was the issue of
a writ of prohibition the 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
l'xamined the merits of the said contentions. On behalf
of the appellants, Mr. Viswa,natha Sastri has raised the
same three points before us.
The first point raised by Mr. Sastri is that the
proceedings taken by respondent 1 under s. 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
s. 34(l)(a) 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 pa.rt of the aasessee to make a. return of
his income under s. 22 for any year or to disclose fully
and truly all material facts necessary for his assessment for tha.~ year, income, profits or gains chargeable
to income-tax has been under-assessed'', he may, within
the time prescribed, "serve on the assc1>see a notice
containing all or any of the requirements which may
25
194
SUPREME COURT REPORTS
[1959) Supp.
r958
be included in the notice under sub-s. (2) of s. 22 and
may procePd to re-assess such income, profilH or gains."
Y. Nuray•111ui
Tl
·
h
h
·
f }
·
10 anmment 1s t at t e service o tie requisite notice
Clutty (<;.. Anolhrr
v
v.
on the assesscc is a condition precedent to the validity
ne Jncnmr-Tax of any re-a~sessment made uuder s. 34 ; and if a valid
OJJim, Nrllore notice is not issued as required, proceedings taken by
and Oll•m
the Income-tax Officer in pursuance of an invalid
G . d-lk
1 notice and consequent orders of re-assessment passed
a;eu """' ar
· b
I ·
J I b
"d
d ·
'
I
· '
..
y nm won (
e vm an moperative.
n our op1111on,
this contention is well-founded. Tho notice prescribed
by s. 34 cannot be regarded as a mere procedural
req uil"ement ; it is only if the said notice is served on
the assessee as required that the Ineome-tax Officer
would be justified in taking proceedings against him.
If no notice is issued or if the notice issued is shown to
be in vtilid then the validity of the proceedings taken
. by the Income-tax Officer without a notice or in
pursuance of an in valid notice would be illegal and
void. That is the view taken by the Bombity and
Calcutta High Courts in the Cornrnissioner of I ncorneta:c, Bombay City v. Rarnsukh .Motikzl (')and R. J(. Das
& Co. v. Cominissioner of Income-tax, West Bengal(")
and we t.l1ink that that view is right.
Let u~ then consider the nature of the notice issued
by t.he Income-tax Officer in the present. proreedings.
It. is conceded bv Mr. Sa.stri that the ·notice issued bv
the Income-tax' Officer was served on the appclln1~t
C. Pitchayyii on behalf of the firms in question mHI
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-assesserl in the
relevant years of assessment. The notice fu1·ther require<! the assessee to deliver to the officer with in
thirt.y-five days of the receipt of the notice a return in
the at.taohed form of the total income and total wodd
income of the assessee assessable for the relev1int
period. In pursuance of this notice the appellant
Pit.clmyya in fact appeare<I before the officer during
the eonrse of the proceedings commenced under s. 3,t
l\l.r. Sttstri contends that this notice is <lefecLi ve h"-
canse it purports to be issued against the firm ttnd no
(1) (1955] 27 l.T.R. 54.
(2) [<956J 30 l.T.R 439.
(l) S.C.R.
SUPREME COURT REPORTS
195
notice has been issued against the respective partners
x958
of the firm.
According to Mr. Sastri the assessee who
b
Y. Nar.1yanq
is entitled to a notice under s. 34(l)(a) is not the nrm Chetty & Another
but each individual partner of the firm.
He also sugv.
gests that each individual partner should have been The Income-Tax
called upon to make a return of his total income assessOfficer, Ne/lore
able for the relevant year; inasmuch as the notice is
and Others
issued against the firm and not against individual Gnjendra .. adkar J
partners it is invalid. In support of this argument
0
•
MIP. Sastri has referred us to the definition of the word
"a.ssessec" under s. 2, cl. (2) as it stood prior to the
amendment Of 1953. Under the said clause, assessee
meant "a person by whom income-tax is clearly payable". In the case of a registered firm income-tax is
dearly payable by the individual partners of the firm
nnder s. 23(5) of the Act, says Mr. Sastri; and so, if the
Income.tax Officer intended to take action under s. 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 s. 23(5) 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-tn,x 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 i.'l that this provision shows that the person
liable to pa.y the tax was each individual partner of
the firm and so it is the individual partners of the firm
who arc entitled to the statutory notice under s. 34(l)(a).
In our opinion, this argument is not well-founded.
8cction 3 of the Act which is the charging section
provides inter alia that "where any Central Act enacts
tlrn.t income.tax can be charged for any year at any
rate or rates, tax at that rate or those rates shall be
196
SUPREME COURT REPORTS [1959] Supp.
r958
charged for that year in accordance with and subject
to the provisions of this Aot in respect of the total
Y. Nornyona
•
f th
·
·
f
fi
" '
h
ch,ttv.,. Anoth" mcome o
e .rrevm?s year o every rm ;
m ot er
· v.
words, a firm is spec1fica.lly treated as aμ assessee by
The Income-Tax s. 3. Besides, the word "person" used by s. 2, snb-s. (2)
Officer. Nellore of the Act while defining the assessee, would obviously
and Others
include a firm under s. 3(42) of the Genera.I Clauses
G . d-Jl
1 Act since it provides that a person includes "any com-
•J•n ••K• '"' · pa.ny or association or body of individuals ~hether
incorporated or not ".
Therefore, it would not bo
correct to say that an assessee under s. 2, suh-s. (2) of
the Act necessarily means an individnal' partner anrl
does not include a firm.
The argument based upon
the relevant provisions of s. 23(5) is also not valid because it is obvious that for the purposes of assessment
at all relevant and material stages under ss. 22 and 23
it is the firm that is treated as an a.ssessee.
When :~
return of the income is ma.de for the relevant year, it
is a return with regard to the total income of the firm
that has to be submitted under s. 22; and when assessment is levied under s. 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 s. 23(5) 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 assoss
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
s. 23(5).
This p•>sition is now clarified by the provisions of s. 23(5)(a)(i) and (ii) as amended iu 1956. The
present s. 23(5)(a)(i) and (ii) provides:
"S. 23(5)(a)(i) and (ii):
(5) Notwithstanding anything contained in tho
foregoing sub-sections, when the assessee is a firm and
the total income of the firm has been assessed under
sub-section (1), sub-section (3) or sub-section (4), as the
case may be-
(1) S.C.R.
SUPREME COURT REPORTS
197
(a) in the case of a registered firm-
(i) the income-tax payable by the firm itself shall
Y. Naroyona
be determined; and
Chetty & AnotheY
(ii) the total income of each partner of the firm,
including therein his share of its income, profits and
gains of the previous year, Rhall be assessed and the
sum payable by him on the ha.sis of snch assessment
v.
The Income-Tnx
Officer, N ello1 e
and Other.<
shall be determined : "
·
Gnj•ndragodkor ].
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
s. 23(4).
This sub-section provides:
"If any person fails to make the return required
by any notice given under sub-section (2) of section 22
aud ·has not made a return 01· 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 fo comply with all the terms of a notice issued
under sub-section (2) of this s!'ction, the Income-tax
Officer shall make the assessment to the best of his
judgment and determine the sum payable by the
asse.ssee 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 ca.ncclled until fourteen days have elapsed from the
issne of a, notice by the Income-tax Officer to the firm
intimating 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.
'.L'hus there can be no doubt thats. 23(4) treats the firm
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 s. 23 therefore is that for
the a::;scssmcnt of tho total taxable income it is the
affairs of the assessee firm that are investigated and
198
SUPREME COURT REPORTS (1959) Supp.
1958
examined and when the total income of the firm is
ascertained, it is allocated to .its individual partners in
Y. Narayan•
t•
th •
t•
h
Th
I
f
Ch 11 · & A
th
propor wn to
.eir respec 1ve s a.res.
e resu t 0
• Y v. •• '' such allocation undoubtedly is to make the partners
TAe Income-r.~ liable to pay tax in respect of their taxable .income
Officer, Nello" thus allocated; but that cannot justify the inference
and Othm
that the firm is not rm assessee iu .the relevant proceed-
.
-
ings. ·
Ga1endragadkar j.
E
h
h
.
. _ .
d
d
·
ven w en t e·nohce 1s issue un er s. 34(1)(a) the
Income-tax Officer proceeds to a.ct on the ground that
the income, profits and gains of the firm which are
chargeable to an income-tax have boon under-asResscd; it is the income of the firm which is initially
aRcertained in the assessment proceedings under s. 23
and it is in respect of the said income of the firm .that
the Income-tax Officer finds t.hat a pa.rt 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 s. 34(l)(a) 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 s. 63
(2) a 1.1otice 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 s. 25(2) 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 a.re; therefore, satisfied that it is not open
to the appellants to contend that the proceedings
taken by the Income-tax Officer under s. 34(l)(a.) a.re
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
(1) S.U.l{,. SUPHEME COURT REPORTS
199
the Income-tax Officer in respect of all the three firms
r95s
is that. the only persons who had interest in the busiJ:". Na:ra.vana
ness carried on by the said firms were B. Audeyya and Chetty o;. Another
C. Pit chayya. It is remarkable that B. Audeyya has
v.
not cared to challenge the proceedings or to question The Income-Tax
the validity of the fresh assessment orders passed
Officer. Ne/lore
by the Income-tax Officer in the present proceedings.
a"~thers
Mr. Sastri then challenges the validity of the can- Gaje11!lrag41l/1ar J.
cellation 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 exi8tence 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 s. 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 (2)(e) lays down that such
rules may provide for any matter which by this Act
is to be prescribed and the rules preceding r. 6 B
deal with the procedure to be followed, and prescribe
the application to be made, for the registration of
firms under s. 26A of the Act.
Section 59(5) 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 nu
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 t. 6B is inconsistent
with the material provisions .in the Act and is therefore ultrn vires the Central Board of Revenue. This
argument is based substantially on the provisions of
s. 23( 4 ).
We ha vc already referred to the provisiomi
of this sub-section. Mr. Sast.ri contends that it is oniv
where the requirements of s. 23(4) are satisfit·cl that
the registration of a firm can be cancelled. The procedure for registration of firms is laid down in s. 26A of
200
SUPREME COURT l~EPORTS [1959] Supp.
r95a
the Act. An application has to be made to the lncomeY. Narayan•
ta.x Officer on behalf of any firm constituted under
Chetty & Anoth" the instrmnent of partnership specifying the individual
v.
shares of the partners for registration for the purposes
The Tncon"- Tax of the Act and of any other enactment for the time
Officer. Ne'lo" being in force and relating to iucome-tax and super.
and Others
.....,
,....,
_
tax. Sub-section (2) requires that the said application
Gajendragadk .. r J. shall 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 Income.
tax Office1· in such manner as may be prescribed. It
is in pursuance of the requirements of s. 26(2) 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 under s. 26A, when can such regi8tration be
cancelled? The appellant suggests that the only cases
in which such registration can be cancelled are those
prescribed in s. 23(4).
We have no doubt, that this
argument is fallacious.
The cancellation of registration under s. 23(4)
i~ in the nature of a penalty and
the peimlty can be imposed against a firm if it is
guilty of any of the defaults mentioned in the said
sub-section. It would be noticed that where registration is ca.ncelled under s. 23(4), there is no doubt that
the application for registration had been properly
granted. The basis of an order under s. 23(4) is not
that the firm which had been registered was a fictitious
one, but that, though the ~egistered firm was genuine,
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
s. 23(4).
On the other ht\nd, r. 68 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 say an applicatfon for registration
had been made in the name of a firm which really did
not l'Xist; 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
(1) S.C.R. SUPREME COURT REPORTS
201
alleged firm.
That being the effect of r. 6B it is imc95B
P?ssi?le to accede. to the. argume1~t that the p~o.visions
v. Narayana
of this rule are mcons1stent with the prov1s1~ns of Chetty o;. Another
s. 23(4) of the Act. If the Income-tax Officer· is emv.
powered under s. 26A read with the relevant rules to The Income-Ta:r
grant or refuse the request of the firm for registration,
Officer, Ne/lore
it would normally be open to him to cancel such regiand Others
stration if he discovers that registration had been erro- Gajendragadkar ].
neously 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 discovers 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 s. 23(4) can challenge the correctness or propriety
of the order in an appeal against the final assessment
order passed under s. 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 t,hat whereas before taking action under
s. 23(4) the Income-tax Officer is required to issue a
notice to the firm, no such provision is made under
r. 6B.
Mr. 8astri has, however, conceded that the
appellant before us had notice and was given an
opportunity to satisfy the Income-tax Officer th&t the
respective firms were genuine and not fictitious.
That
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
SUPREME COURT REPORTS [1959] Supp.
'958
under r. 6B is exercised by the Income-tax Officer
Y. Narayana
against. a firm with~ut ~iving it a noti?e in that. behalf
Chetty e;. Another and without affordmg it an opportumty to satisfy the
v.
officer that it is a genuine firm, it may be open to the
The Income-Tax firm to question the validity of the order on that
Officer, Neu,,, ground. We are, however, not called upon to deal with
· and Othm
such a case in the present appeals. In this connecGajendragadkar J. tion we may incidentally refer to the decision of this
Court in Ravula Subba Rao v. Commissioner of I. T.,
Madras (1) where this Court has held that rules (2) and
(6) of the rules framed under s. 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
s. 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 Art. 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] S.C.R. 577.
(1) S.C.R. SUPREME COURT REPORTS
203
would be that the course adopted by the Income-tax
I958
Officer in making orders of fresh assessment is irregular
" N
•
•
.1•.
arayana
and illogwal and should be corrected. That IS a matter Chetty 0 Another
concerning the merits of the orders of assessment and
v.
by no stretch of imagination can it be said to raise any Ttw lrtcome-Tax
question of jurisdiction under Art. 226. That is why
OJ!icer, Ne/tore·
h
and Others
we express no opinion on t is point.
Before we part with this case we would like to Gajeudragadlw J.
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 alflo argued that the original pctit.ions to
the High Court are incompetent under Art. 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 s. 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 d·isrn.issed.