FULCHAND PURSHOTTAM Vs. VASAVADA I T O

JUDGEMENT

(1.) The petitioners have prayed for a writ direction or order quashing and setting aside a notice under section 34 of the Indian Income-tax Act 1922 issued against Messrs. C.J. & Co. the second petitioner herein and restraining the Income-tax Officer Ward C Jamnagar who is the respondent from taking any further proceedings in pursuance of the said notice.

(2.) A notice was issued against Shri Fulchand Purshottam the first petitioner under sec. 34(1)(a) of the Indian Income-tax Act 1922 as a non-resident for the assessment year 1948-49. In response to the said notice the first petitioner filed a return of income on 31st July 1957 for the accounting Samvat Year 2003 showing a loss of Rs. 12 0 0 in Saurashtra and an income of Rs. 5 43 in the territories then known as British India. In the course of investigation the Income-tax Officer found that in the books of account of the first petitioner for Samvat Year 2003 there was a sum of Rs. 4 19 0 which was debited to the account of Messrs. C. J. & Company the second petitioner being the amount of profits of Messrs. C. J. & Co which was divided amongst the five partners of Messrs. C. J. & Co. The sum of Rs. 4 19 0 was credited in the accounts of the five partners of the firm of C. J & Co. in the following proportions :- @@@ Shri Fulchand Purshottam (1st petitioner). 9/17 Sharatchandra Jethalal 3/17 Tribhovan Tejpal 2/17 Chhaganlal Popatlal 2/17 Narsidas Liladhar 1/17 1/17 The amount that came to the share of the first petitioner was Rs. 2 20 500 This sum of Rs. 4 19 0 represented the profit made by the firm of C. J. & Co. in connection with transactions of 1 200 bars of silver. It so happened that on 25th March 1947 the first petitioner had obtained a permit from the erstwhile State of Nawanagar to import 2 0 bars of silver from Hong Kong. That permit was subsequently amended on 5th April 1947. The amendment is not material for the purpose of the present petition. It is stated by the first petitioner that thereafter he agreed with certain other persons to carry on in partnership the business of purchase and sale of silver bars to be imported under the said permit issued to the first petitioner. It is stated that the first petitioner who looked after the entire business obtained overdraft and other facilities from the Central Bank of India Limited Jamnagar and ultimately imported 1 200 bars of silver. 300 bars of silver were received in Saurashtra and were subsequently sold in Saurashtra. The remaining 900 bars were shipped to Bedi Port Jamnagar; but by reason of a notification dated 24th June 1947 of the Government of India the same could not be cleared in that Saurashtra Port and hence the said 900 bars were received at Bombay. The said 900 bars were cleared through the Customs by the Central Bank of India Limited Bombay on behalf of their Jamnagar Branch and remained in their custody. Subsequently the same were sold and the sale proceeds were collected by the Central Bank of India Limited Bombay and credited to the account of their Jamnagar Branch who in turn credited the same in Jamnagar to the credit of the first petitioner. The sum of Rs. 4 19 0 represented the profit on the sale of these 1 200 bars and the same was distributed amongst the various partners of C. J. & Co. as stated above. The Income-tax Officer assessed to tax the profit of Rs. 2 20 500 coming to the share of the first petitioner from the profits made by the firm of C J. & Co. The assessment order is dated 26th March 1958. The assessment order makes reference to other income received by the assessee in British India. The first petitioner being aggrieved by the said order preferred an appeal to the Appellate Assistant Commissioner on 8th July 1958. On 29th June 1959 the Appellate Assistant Commissioner confirmed the order of the Incometax Officer In the meantime on 18th September 1958 the Income-tax Officer addressed a notice to the second petitioner firm in which it was stated that he proposed to initiate action under sec. 34(1)(a) against the second petitioner firm for the assessment year 1948-49 as it appeared to him to be clear that three-fourth of the aforesaid profit of Rs. 4 19 0 accrued or arose and had been received in Bombay and that the firm had earned a profit which was assessable under the Indian Income-tax Act The second petitioner in reply by the letter dated 1st October 1958 contended that the respondent firm was constituted in Jamnagar in order to effect sales of silver bars imported from Hong Kong and that the firm earned Rs. 4 19 0 the said deal but the profit could not be said to have accrued arisen or received in Bombay as the business was con- trolled from Jamnagar and requested the Income-tax Officer to drop the proceedings contemplated to be taken. On 3rd March 1959 the Incometax Officer issued a notice under sec. 34(1)(a) of the Income-tax Act against the second petitioner stating that he had reason to believe that the income of the second petitioner assessable to income-tax for the year ending 31st March 1949 had escaped assessment and required the firm to file its return within 35 days from the date of receipt of the said notice. The aforesaid notice was issued after the necessary satisfaction of the Central Board of Revenue. The petitioner on 11th April 1959 sent a reply challenging the validity of the aforesaid proceeding initiated against the firm contending inter alia that the Income-tax Officer had acted in excess of his jurisdiction in assessing the entity when one of its co-sharers had been previously assessed before the issue of the notice under sec. 34(1)(a). This notice under sec. 34(1)(a) issued against the second petitioner firm is now sought to be challenged by this Special Civil Application.

(3.) Before coming to the points of law raised in this petition it would not be out of place to mention that the first petitioner against whom the order of assessment had been passed being aggrieved by the decision of the Appellate Assistant Commissioner preferred an appeal to the Incometax Tribunal on 6th August 1959. Various grounds have been set out in support of the appeal. One of the grounds taken in the appeal is that the notice that had been issued under sec. 34 against the first petitioner himself was invalid. On 4th October 1961 the Tribunal passed an order of remand calling for a report after due investigation in respect of certain matters which they considered to be necessary for the purpose of disposing of the appeal pending before it. In the order of remand itself it has been stated that the points other than those referred to therein would be dealt with by the Income-tax Tribunal at the time of the final disposal of the appeal.