Income Tax Appellate Tribunal - Cochin
Mamatha Motels vs Assistant Commissioner Of Income-Tax on 8 December, 2000
Equivalent citations: [2003]84ITD582(COCH)
ORDER
M.V.R. Prasad, Accountant Member
1. All these appeals were heard together and they are disposed of by this common order. The above appeals, except those by Smt. E.L. Gracy and Shri A. Janardhanan, are directed against the order of the Assessing Officer dated 26-8-1998 under Section 158BC read with Section 158BD of the Income-tax Act, in the case of M/s Mamatha Motels, a partnership firm, for the block period 1-4-1986 to 12-12-1996. Among such 17 appeals, only in two appeals, i.e. those filed by Shri K.V. Ramakrishnan and Shri K.L. George the appellant is described as Mamatha Motels. In the balance 15 appeals, the name of the partner who has filed the appeal is given as the appellant, which is wrong. As the objection is only against the order passed in the case of the firm, the appellant has to be the firm, though it is filed through the partners. Accordingly we have treated the wrong mention of the appellant as a condonable mistake and in all such cases we have taken the appellant as M/s Mamatha Motels. The other two appeals, i.e. by Smt. E.L. Gracy and Shri A. Janaradhanan are against the individual assessments passed in their cases.
2. IT (S&S) A. No. 48 (Coch)/98: The main objections to the block assessment order dated 26-8-1998 passed in the case of M/s Mamatha Motels are contained in the appeal filed by M/s Mamatha Motels through the partner Shri K.V. Ramakrishnan. The main objection taken is that there have been number of changes in the constitution of the firm, M/s Mamatha Motels and so the Assessing Officer erred in passing one assessment order for the entire block assessment period 1-4-1986 to 12-12-1996. For appreciating the validity or otherwise of this contention, certain facts are required to be given. A search under Section 132 of the Income-tax Act took place on the residential premises of Shri K.V. Ramakrishnan, a partner in M/s Mamatha Motels, on 12-12-1996. A similar search also took place on the premises of Smt. E.L. Gracy, who was the Chairperson of the assessee-firm for a very long period. No search was conducted on the premises of the assessee-firm, M/s Mamatha Motels. By virtue of, what are described by the Assessing Officer as certain incriminating documents that revealed large suppression of income, notice under Section 158BC read with Section 158BD of the Income-tax Act was issued to the assessee-firm on 1-8-1997. The assessee filed a return of income for the block period 1-4-1986 to 12-12-1996 showing undisclosed income at Rs. 22,09,789. After issue of notices under Section 143(2) and Section 142(1), the assessment was completed by the Assessing Officer on an undisclosed income for the block period of Rs. 1,06,62,373 and accordingly the tax thereon was determined at Rs. 63,97,422.
Besides serving the demand notice on the assessee-firm, he also served a letter dated 27-8-1998 along with the demand notice under Section 156 of the I.T. Act on each of the partners calling upon them to pay the tax and this letter read as under :
Sir/Madam, Sub : Income-tax dues on the basis of the block assessment of the firm M/s Mamatha Motels, Kechery, Trichur - payment - regarding-
A copy of the Block assessment order dated 26-8-1998 and demand notice of M/s Mamatha Motels, Kechery is enclosed. Since you were the partner of the said firm, as per Section 189 of the Income-tax Act, you are jointly and severally liable for the amount of tax payable.
You are, therefore, requested to clear the dues within the date stipulated in the demand notice enclosed.
End : As above.
Yours faithfully Sd/ P. Krishnan Asstt. CIT, Inv.Cir. 1, Dvn. I, Tricbur.
3. The assessee-firm came into existence vide a deed dated 3-12-1990. However, none of the parties filed before us a copy of this deed and tor the purposes of this order it is not material because the first assessment year for which the undisclosed income has been determined by the Assessing Officer in his impugned order dated 26-8-1998 is the assessment year 1993-94. So, for the purposes of these appeals, the first relevant partnership deed governing the assessee-firm is the deed dated 23-3-1991. As per this deed, there were 15 partners sharing the profits and losses equally. The names of the partners are as under :
1. E.L. Gracy
2. Sethumadhavan
3. George
4. Leela
5. Haridas
6. Rosil Raphael
7. Kochukunjan
8. Balan
9. Meenakumari
10. Velappan
11. Narayanan
12. K. Prabhakaran Nair
13. E. Ramesh Kumar
14. P.J. Bessy
15. E.L. Francis As per Clause 8, Smt. E.L. Gracy is described as the Chairperson and it is also stipulated that the management of the Hotel will be handled by the Chairperson. Clauses 14 and 15 of the deed read as under :
14. Death - In case of death, retirement, insolvency or lunancy of a partner the partnership firm shall not be dissolved; but shall be the carried on by the remaining partners after satisfying the legal heirs of the deceased partner in respect of their share in the partnership and/ or one major legal heir be admitted as a partner in the place of deceased partner.
If none of the heirs of the deceased partner is willing to be admitted, the share of such partner be paid to the legal heirs of the deceased partner according to law.
15. Retirement - Any partner may retire from the partnership after giving not less than three calendar months notice in writing and obtaining written consent of the remaining partners. Within three months of the intended date of retirement, the assets and liabilities of the partnership shall be valued according to the books of account of the partnership and the share of the outgoing partner shall be determined and paid off. The retiring partner shall not be entitled to any share in the goodwill of the partnership as a matter of rights.' The firm with the above constitution of 15 partners continued upto 22-5-1996. When two more partners, Shri K.V. Ramakrishnan and his wife Smt. K.S. Thankam joined as partners with effect from 23-5-1996 vide a deed of the same date, i.e. 23-5-1996. So, at this stage, the firm had as many as 17 partners, 15 old partners and two new partners. All the 17 partners shared profits and losses equally. As per Clause 8 of this deed, Smt. Gracy is described as the Chairperson and it is mentioned that she is responsible for the day-to-day conduct of the affairs and management of the firm. Three days thereafter, i.e. on 26-5-1996 vide a deed described as deed to retirement of the same date, as may as 12 out of the 15 old partners retired from the firm, leaving only Smt. E.L. Gracy, Shri George, Mrs. Roshil Raphael, Shri K.V. Ramakrishnan and Mrs. K.S. Thankam as the surviving partners. Clauses 4, 5 and 6 of this retirement deed dated 26-5-1996 reads as under :
4. The continuing partners have taken over all the assets of the firm including 24.743 cents of land situated in survey Nos. 289 and 290 of Eranellur village, Kechery Desam, Trichur District owned by the firm together with the hotel and restaurant building constructed thereon. The continuing partners have also taken over all the licences for conducting the restaurant and bar in the above premises together with the telephone connection with No. 562083 attached to Kechery Exchange. The retiring partners have no rights on any of the assets of the firm including the balance with banks, cash on hand, etc.
5. The retiring partners shall clear off all the liabilities if any of the firm including sales-tax, income-tax and other liabilities in respect of all transactions carried on upto this date.
6. If the continuing partners are called upon to pay any amount due upto this date, such amounts paid by the continuing partners can be recovered by the continuing partners from the retired partners.
This firm of five partners continued upto 14-8-1996 when three of the old partners, i.e. Smt. E.L. Gracy, Shri George and Mrs. Roshil Raphael, retired vide a deed of retirement dated 14-8-1996. Clauses 4, 5 and 6 of this deed are in similar terms as those of the retirement deed dated 26-5-1996 and as per this deed the continuing partners took over all the assets of the firm, inclusive of the land and building and it is stipulated that the retiring partners should clear of all the liabilities of the firm including sales-tax, income-tax and other liabilities and in case the continuing partners are ever called upon to pay the said dues upto the date of retirement, i.e. 14-8-1996 such amounts paid by the continuing partners, could be recovered by them from the retired partners. The two surviving partners, i.e. the pair of the husband and wife, Shri K.V. Ramakrishnan and Mrs. K.S. Thankam, executed another partnership deed dated 14-8-1996 in which they undertook of share profits and losses equally and Clause 13 of this deed also stipulated that death or retirement of any of the partners shall not dissolve the firm and the business of the firm shall be continued by taking in the legal representative or nominee of the deceased or retired partner, as the case may be. It may be observed that a similar clause existed in the earlier deeds also.
4. In the light of the above, it is evident that in each of the partnership deeds concerned, i.e. the deeds dated 23-3-1991,23-5-1996 and 14-8-1996, there are clauses to the effect that the retirement or death of a partner does not dissolve the firm and the business of the firm would continue. It is also to be noted that Smt. E.L. Gracy is shown as the Chairperson responsible for the management of the affairs of the firm in the deed dated 23-3-1991 and also in the deed dated 23-5-1996 and she continued as such till her retirement from the firm on 14-8-1996.
5. The operative portion of the objections taken in this appeal, i.e. IT (S&S) A. No. 48 (Coch.)/98 read as under :
Chapter XIV-B of the Income-tax Act introduced w.e.f. 1-7-1995 is a self-contained code prescribing special procedure for assessment of search cases. The special procedure supersedes the general procedure. The normal mode of making assessments does not apply to assessments made under this chapter, the assessment is for a block period of 10 years preceding the date of search. If a person is in existence for less than 10 years naturally the assessment will have to be for the lesser period. The 10 year limit is evidently the outer limit.
The purpose of a block assessment under Section 158BC is to determine the undisclosed income for a block period of 10 years or less, as the case may be, of a person who have been searched under Section 132 of the Income-tax Act. The undisclosed income that the department is trying to get at is the undisclosed income of the searched person. If in that process the department happens to lay hands on the undisclosed income of another person then that person can also be proceeded against as a connected case under Section 158BD.
A block assessment in the case of a firm with a particular constitution does not permit the clubbing of the undisclosed income of that firm with the undisclosed income of all the firms that proceeded it with different composition and legal status. The block assessment is a special kind of assessment for taxing concealed income detected as a result of search and should strictly confirm to Chapter XXVB. The deviations prescribed under Section 187, Section 188, etc. of the Income-tax Act are for making regular assessments under Section 143 or Section 144 of firms and as such cannot have any application to block assessments. The saving clause in Section 158BH also makes it clear that the other provisions of the Act shall apply to assessments made under this Chapter. In other words, those provisions can be invoked only after making assessments under Chapter XIVB and not before.
It is, therefore, incorrect and improper to tax the undisclosed income of the previous firm with 15 partners in the hands of the present firm with 2 partners namely, Mr. K.V. Ramakrishnan and Mrs. K.S. Thankam, who arc total strangers to the previous firm. Making an assessment under Chapter XIVB by clubbing the undisclosed income of the two different firms is against the letter and spirit of the law of partnership and taxation. The right course is to make two separate assessments on the two firms under Section 158BC and under Section 158 BD of the Chapter XIVB of the Income-tax Act and recover the tax separately from the persons concerned.
For the above and other reasons that may be adduced at the time of hearing it is prayed that necessary orders be given to make two separate assessments on the firm, i.e, one in respect of the period from 1-4-1992 to 13-8-1996 and another assessment in respect of undisclosed income of the firm for the period 14-8-1996 to 12-12-1996.
6. The thrust of the argument of the learned counsel for the assessee, Shri M.K. Kesavan, is that the assessment under Section 158BC is only for the purpose of bringing to tax the undisclosed income of an assessee and so it stands on an altogether different footing from an assessment under Section 143(3) of Section 144 and so framing one assessment on different firms with different constitutions in the block period on the basis of Section 187 of the Income-tax Act is erroneous. He mentioned that under the explicit terms of Section 187, the sub-section applies only to an assessment under Section 143 and/or Section 144 and it has no application at all to an assessment under Section 158BC or an assessment under Section 158BC read with Section 158BD, as in the present case. He referred to the provisions of Section 158BB(2), which states that in computing the undisclosed income of the block period the provisions of Sections 68, 69, 69A, 69B and 69C shall, so far as may be, apply and on this basis he pleaded that wherever a particular Section of the Act has an application it is specifically mentioned in Chapter XIVB, which is a self-contained code and the Assessing Officer erroneously roped in the provisions of Section 187 for the purpose of framing the block assessment. Referring to the provisions of Section 158BH, which stipulates that save as otherwise provided in this Chapter i.e. Chapter XIVB, all other provisions of the Income-tax Act shall apply to assessments made under Chapter XIVB, he mentioned that the other provisions of the Act came into picture only after the assessment is made, i.e. for the purpose of safeguarding the interests of Revenue for collecting tax. He elaborated that if the other sections of the Act automatically apply to a block assessment framed under Chapter XIVB, there is no need at all to refer to Sections 68, 69, etc. in Section 158BB(2). The implication is that the Legislature cannot be accused of redundancy. He also mentioned, though not very seriously, that if at all Section 187 of the Income-tax Act has any application, it is only in the year of change in the constitution and does not have any application for earlier years. For the proposition that the block assessment is only for the purpose of bringing to tax the undisclosed income, he relied upon the decision of the Hon'ble Kerala High Court in the case of Malayil Bankers v. Asstt. CIT [1999] 236-ITR-869 : 103 Taxman 117 and the decision of the Gujarat High Court in the case of Khandubhai Vasanji Desaiv. Dy. CIT [1999] 236-ITR-73 : 103 Taxman 181.
7. The learned Departmental Representative, on the other hand, mentioned that there are so many provisions in the Income-tax Act outside Chapter XIVB like the provisions of Chapter XV relating to liability in special cases like that of legal representatives referred to in Section 159, which have an application even in the framing of a block assessment under Section 158BC and so there is no reason to assume that the provisions of Section 187 have no application in the framing of an assessment under Section 158BC or under Section 158BC read with Section 158BD. He also relied on the decision of the Hon'ble Kerala High Court in the case of Excel Productions v. CIT [1971] 80 ITR 356 wherein it had been held that where there is a change in the constitution of a firm during the previous year, separate assessments under Section 188 are ruled out and that assessment had to be made on the firm as constituted at the time of making the assessment. He also referred to the provisions of the various partnership deeds which stipulated that retirement or death of a partner does not lead to the dissolution of the firm. So, in view of these clauses it is pleaded that the identity of the firm continued and therefore a single assessment under Section 187 is quite justified. He has also relied upon the decision of the Apex Court in the case of Third ITO v. Arunagiri Chettiar [1996] 220 ITR 232 : 86 Taxman 330, wherein, in a case where a partner retired from the firm, it was held that his liability to pay the tax levied on the firm in respect of periods while he was a partner subsists and that arrears of such tax of the firm can be recovered from the erstwhile partner, though the assessment was framed on the firm as it existed after the retirement of the partner. In this case, the Apex Court held that even before the insertion of Section 188A of the Income-tax Act with effect from 1-4-1989 postulating joint and several liability of partners for the arrears of tax due from the firm, there subsisted such a liability even under the terms of the Indian Partnership Act, 1932 and when an assessment is made on the firm after the retirement of a partner, the retired partner is still responsible for the tax payable by the firm for the period during which he was a partner. The learned Departmental Representative accordingly supported the framing of the block assessment on the assessee-firm as it was constituted at the time of making the assessment, though none of the partners of the firm on that date, i.e. neither Shri Ramakrishnan nor his wife Smt. Thankam, were partners of the firm before 23-5-1996 when they were for the first time inducted as partners.
8. Having regard to rival submissions, we are of the view that the Revenue deserves to succeed on the issue of framing a single assessment, though, for other reasons, we deem it fit to remand the case to the file of the Assessing Officer. The provisions of Section 187 of the Income-tax Act read as under :
187. (1) Where at the time of making an assessment under Section 143 of Section 144 it is found that a change has occurred in the constitution of a firm, the assessment shall be made on the firm as constituted at the time of making the assessment.
(2) For the purposes of this section, there is a change in the constitution of the firm-
(a) if one of more of the partners cease to be partners or one of more new partners are admitted, in such circumstances that one or more of the persons who were partners of the firm before the change continue as partner or partners after the change; or
(b) where all the partners continue with a change in their respective shares or in the shares of some of them :
Provided that nothing contained in clause (a) shall apply to a case where the firm is dissolved on the death of any of its partners.
There was a proviso to Section 187, which was omitted by Finance Act, 1992 w.e.f. 1-4-1993 which read as under :
Provided that-
(i) the income of the previous year shall, for the purposes of inclusion in the total incomes of the partners, be apportioned between the partners who, in such previous year, were entitled to receive the same; and
(ii) when the tax assessed upon a partner cannot be recovered from him, it shall be recovered from the firm as constituted at the time of making the assessment.
Clause (b) of Section 158BC reads as under :
(b) the Assessing Officer shall proceed to determine the undisclosed income of the block period in the manner laid down in Section 158BB and the provisions of Section 142, Sub-sections (2) and (3) of Section 143 and Section 144 shall, so far as may be, apply;
Now, the question is what is meant by an assessment under Section 143(3) and whether it includes an assessment under Section 158BC. If it includes an assessment under Section 158BC, it automatically includes an assessment framed under Section 158BC read with Section 158BD, as the later provision stipulates that the provisions of Chapter XIVB apply to any assessment framed under Section 158BD. A related question is what is meant by a "regular assessment", because this expression figures in Section 158BA(2) and the Explanation thereunder. Section 158BA(2) and the Explanation read as under :
(2) The total undisclosed income relating to the block period shall be charged to tax, at the rate specified in Section 113, as income of the block period irrespective of the previous year or years to which such income relates and irrespective of the fact whether regular assessment for any one or more of the relevant assessment years is pending or not.
Explanation-for the removal of doubts, it is hereby declared that-
(a) the assessment made under this Chapter shall be in addition to the regular assessment in respect of each previous year included in the block period;
(b) the total undisclosed income relating to the block period shall not include the income assessed in any regular assessment as income of such block period;
(c) the income assessed in this Chapter shall not be included in the regular assessment of any previous year included in the block period.
At this stage it may be necessary to consider an assessment made under Section 147 also, because an assessment under Section 147 has not been referred in Section 187 of the I.T. Act nor in Section 158BA(2), but figures in clause (a) of Section 158BB(1) relating to the computation of undisclosed income of the block period. Section 158BB(1) and its clause (a) read as under :
158BB(1). The undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed, in accordance with the provisions of Chapter IV, on the basis of evidence found as a result of search of requisition of books of account or documents and such other materials or information as are available with the Assessing Officer, as reduced by the aggregate of the total income, or as the Base may be, as increased by the aggregate of the losses of such previous years, determined,-
(a) where assessments under Section 143 or Section 144 or Section 147 have been concluded, on the basis of such assessments;
The reason why it is necessary to rope in Section 147/148 is to see whether an assessment under Section 143/144 referred to in Section 187 includes a reassessment under Section 147/148, because an assessment under Section 148 may also stand on the same footing as an assessment under Section 158BC for the limited purpose of ascertaining the scope of the expression "assessment under Section 143/144". If an assessment under Section 143 does not include an assessment under Section 148, it is arguable that, analogously, it does not include an assessment under Section 158BC. If, on the other hand, there is internal evidence in the Act to the effect that an assessment under Section 143 includes an assessment under Section 148, again, analogously, it may have to be inferred that an assessment under Section 143 includes an assessment under Section 158BC. This is because even under the provisions of Section 148, there is a reference to the other provisions of the Act which includes Section 143. The provisions of Section 148 reads as under :
148(1). Before making the assessment, reassessment or recomputation under Section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under Section 139.[Emphasis supplied] It may be observed that other provisions of the Act so far as may be, are made applicable to the proceedings under Section 148 and thus it can possibly be argued that an assessment under Section 148 is in one sense an assessment under Section 143(3).
We may reiterate that under clause (b) of Section 158BC, which we have extracted herein above, the provisions of Section 143(3) are made applicable to an assessment under Section 158BC and so in respect of the applicability of the provisions of Section 143(3), both an assessment under Section 148 and an assessment under Section 158BC stand on the same footing. While there is, thus, some evidence that an assessment made under Section 143(3) includes an assessment under Section 148 or an assessment under Section 158BC, there is also evidence to the contrary by way of definition of "regular assessment" given in Section 2(40) of the I.T. Act and the said definition reads as under :
(40) regular assessment" means the assessment made under Sub-section (3) of Section 143 or Section 144;
It may be observed that the definition of "regular assessment" does not include an assessment under Section 147/148. In this context, it is also worthwhile to refer to Explanation 2 to Section 214 introduced with effect from 1-4-1985, which reads as under :
Explanation 2.-Where, in relation to an assessment year, an assessment is made for the first time under Section 147, the assessment so made shall be regarded as a regular assessment for the purposes of this section.
Sub-section (6) of Section 215 inserted with effect from 1-4-1985 also makes a reference to "regular assessment" and the said sub-section reads as under :
(6) Where, in relation to an assessment year, an assessment is made for the first time under Section 147, the assessment so made shall be regarded as a regular assessment for the purposes of this section and Sections 216, 217 and 273.
In view of the definition of "regular assessment" contained in Section 2(40) of the Income-tax Act and the contents of Explanation 2 to Section 214 and Sub-section (6) of Section 215, it appears that an assessment under Section 147 is different from an assessment under Section 143/144 and is not comprised within the scope of an assessment under Section 143. In the case of Modi Industries Ltd. v. CIT [1995] 216-ITR-759 : 82 Taxman 377 the Apex Court held that 'regular assessment' in the context of Section 214 meant only the first assessment under Section 143/144. The relevant portion of the head note of this decision reads as under :
An assessment" has been given an inclusive meaning in Sub-section (8) of Section 2. It includes reassessment. "Regular assessment" has been defined in Section 2(40) to mean the assessment made under Section 143 or 144. In the context of Sections 140A, 141 and 141A "regular assessment" could only mean the original assessment made under Section 143 or 144. Having regard to the scheme of the Act and use of the phrase "regular assessment" in various sections of the Act, in Section 214 "regular assessment" has been used in no other sense then the first order of assessment passed under Section 143 or 144. If any consequential order has to be passed by the Income-tax Officer to give effect to an order passed by the higher authority, the consequential order cannot be treated as "regular assessment", nor can the date of the consequential order be treated as the date of the regular assessment See pp.790E-H, 791c, b, 800H, 801 A, B. So, it appears that for certain purposes Legislature intended an assessment under Section 143 to be different from an assessment under Section 147. This, prima facie, appears to support the stand taken by the assessee. But, for the purposes of the appeals before us, we have to consider the issue whether an assessment under Section 143(3) includes an assessment under Section 158BC in the context of the scheme of computation of undisclosed income laid down in Chapter XIVB of the Income-tax Act.
8(a). Even if we are forced to hold that the expression "143(3) assessment" has to be given different meanings in different contexts of the Income-tax Act, one need not shy away from such a conclusion, because it is permissible to ascribe different meanings to the same expression in different contexts of the same Act, though such a conclusion has to be arrived at very cautiously and for sufficient reason. In this context, we may refer to the following observation of Lord MacDermott in Madras Electric Supply Corporation Ltd. v. Boardland (Inspector of Taxes) [1955] 27 ITR 612 House of Lords at page 621 :
The presumption that the same word is used in the same sense throughout the same enactment acknowledges the virtue of an orderly and consistent use of language, but it must yield to the requirements of the context and it is perhaps at its weakest when the word in question is of the kind that readily draws its precise import, its range of meaning, from its immediate setting of the nature of the subject with regard to which it is employed.
This case was considered by the Hon'ble Andhra Pradesh High Court in the case of CIT v. Dredging Corporation of India [1988] 174-ITR-682 : 39 Taxman 301 wherein, considering the definition of the expression "person" in the Income-tax Act, it is observed as under :
Therefore, for the purpose of interpreting Rule 11(2), the ordinary meaning attached to that expression should be given. Dealing in that context, the House of Lords observed that a person could include the Government. We do not think this analogy bears well in the context of the present case. In the first place, the Income-tax Act contains a definition of the expression "person" and there is an obligation to apply the meaning of that expression wherever it occurs in the Act. It is true that if the context requires it to be otherwise understood, it is always open to the courts to come to a different conclusion.
We are referring to the above cases only for the limited purpose of holding that the same expression may have to be given different meanings even in the same enactment in different contexts.
9. After the above broad survey of certain provisions of the Income-tax Act relating to "regular assessment", 143(3) assessment, 148 assessment, 158BC assessment, etc., we turn to the scheme of the computation of undisclosed income as laid down under Section 158BB(1). We have already extracted the relevant portion of Section 158BB(1). Under this section, the aggregate of the total income of the previous years falling within the block period computed in accordance with the provisions of Chapter IV on the basis of evidence found as a result of search action and such other information available with the Assessing Officer should first be ascertained. This would include the undisclosed income ascertained from the seized material and also the income as per book results, if books are maintained. This may be termed as quantum 'A'. From this quantum 'A' the aggregate of that total income determined in an assessment under Section 143/144 or 147 has to be reduced. This exercise has to be done for each previous year included in the block period. Let us hypothesize an assessment under Section 143 when Section 187 had been invoked. In such a case, there is only one assessment for the entire previous year during which the change in the constitution of the firm took place. If the contention of the ld. Counsel for the assessee that Section 187 has no application in a block assessment is accepted, it creates a computational problem while applying the provisions of Section 158BB(1). How can such total income determined in the assessment under Section 143(3) for the entire previous year be reduced from the aggregate incomes of two separate previous years for ascertaining the undisclosed income of the block period. The income assessed in one previous year under Section 143(3) gets split into two previous years because, according to the ld. Counsel for the assessee, the provisions of Section 187 have application only in assessment framed under Section 143(3) and they have no application in an assessment framed under Section 158BC or in an assessment framed under Section 158BD read with Section 158BC. This is because, according to him, Section 187 refers only to Section 143 and not to Section 158BC. If this argument is accepted, as already mentioned, the provisions of Section 158BB(1) become unworkable. A similar situation arises in the context of Section 148 also. It may be mentioned that Section 187 does not refer to Section 148 either as it does not refer to Section 158BC. In a case where the assessment is initially completed under Section 143(3) after invoking the provisions of Section 187, if the argument of the learned counsel is accepted, it becomes impossible to frame the reassessment under Section 148, because, according to him, Section 187 cannot be invoked in such a reassessment even though it had been invoked in the initial assessment under Section 143(3). It is not difficult to visualise that such a logic would evidently, only one assessment can be made for the entire previous year during which the change in the constitution took place even under Section 148, because the previous year already got determined in such a case in the assessment under Section 143(3). In other words, the Assessing Officer cannot make one assessment under Section 143(3) for one previous year and two assessments under Section 148 for the same previous year if he were to invoke Section 148 in a case where be had completed the assessment under Section 143(3) read with Section 187. So, evidently reference to Section 143(3) in Section 187 includes an assessment under Section 147/148. The same logic should apply while ascertaining the undisclosed income of a previous year included in the block period under Section 158BB(1). The provisions of Section 158BB(1) become impossible to be applied if it is held that an assessment under Section 143(3) referred to in Section 187 excludes an assessment under Section 158BC. Similar is the position for an assessment made under Section 158BD read with Section 158BC. Thus, we are led to the conclusion that the interpretation sought to be given to the scope of an assessment under Section 143(3) referred to in Section 187 by the learned counsel for the assessee defeats the purpose of both Section 148 and Section 158BC, as it renders them impossible to be implemented or unworkable. Such an interpretation has necessarily to be avoided even if we are forced to give different meanings to the same expression in different contexts of the Act, in the light of the observations of the Hon'ble Andhra Pradesh High Court in the case of Dredging Corporation of India, which we have referred to herein above.
10. For the above reasons, we hold that the provisions of Section 187 can be invoked even in an assessment made under Section 158BC. It has not been disputed before us that in the case of the assessee-firm, at every stage, i.e. on 23-5-1996 when two partners are inducted additionally, on 26-5-1996 when 12 partners retired and on 14-8-1996 when three partners retired, there has been a change in the constitution of the firm within the meaning of Section 187. Further, all the relevant partnership deeds contained clauses to the effect that the retirement or even death of a partner did not lead to the dissolution of the firm. In the circumstances, we are of the view that the contention of the ld.Departmental Representative that the single assessment made for the entire block period on the firm as it was constituted at the time of assessment is valid is supported by the decision of the jurisdictional High Court in the case of Excel Productions (supra). We also find support for the action of the Assessing Officer, though indirectly, in the decision of the Apex Court in the case of Arunagiri Chettiar (supra). We may also add that under the Income-tax Act a firm is a separate taxable entity, as held by the Apex Court in the case of Y. Narayana Chetly v. ITO [1959] 35 ITR 388 and by the Hon'ble Bombay High Court in the case of Mahadeo Gangaprasad v. CIT [1966] 61 ITR 384. There are a catena of decisions on this proposition, which can be referred to at page 413 of Sampat lyenkar's Law of Income-tax, 8th Edition, Vol. I. In the present case, each of the deeds in operation during the block period contained a clause that the death or retirement of a partner does not lead to the dissolution of the firm. So it appears that the identity of the firm has continued throughout the block period and so a single assessment on the firm for the entire block period is eminently warranted even without recourse to the provisions of Section 187. At any rate, in view of the provisions of Section 187, a single assessment, as made by the Assessing Officer, seems to be quite valid in law.
10(a). Section 187 makes the present partners answerable for the actions of the firm when they were not partners. This may look unfair towards the present partners. That is a difficultly inherent in the section and, to our mind, cannot be avoided, whether the assessment is made under Section 143(3) of Section 148 of Section 158BC or Section 158BD read with Section 158BC. The position remains the same under all these sections or situations.
10(b). Further, we find that there is no basis for making two assessments, one for the period from 1-4-1992 to 13-8-1996 and another for the period 14-8-1996 to 12-12-1996, as urged for in the last part of the grounds taken by the assessee, which we have extracted herein above. The only significance of the date 14-8-1996 is that the three old partners, i.e. Smt. Gracy, Shri George and Smt. Rosil Raphael retired, leaving only the pair or husband and wife, i.e. Shri Rarnakrishnan and Smt. Thankam, as the surviving partners. Actually, Shri Ramakrishnan and his wife joined as partners on 23-5-1996. As the contention of the assessee is that the provisions of Section 187 are not attracted in the case of an assessment under Section 158BC, at the most, the assessee can plead for separate assessments depending upon the constitution of the firm. In other words, it can plead that whenever there is a change in the constitution of the firm, a separate firm had come into existence. This is not what is urged for in the last para of the grounds taken by the assessee. It wants one assessment for the period 1-4-1992 to 13-8-1996 notwithstanding the intermediate change in the constitution during this period, i.e. the change effected by the deed dated 23-5-1996 and another assessment for the period 14-8-1996 to 12-12-1996. There is no logical basis for this request and this request is not even in consonance with the plea taken before us.
10(c). So, we find no merit in the pleas taken before us. However, we have to set aside the assessments and remand the matter to the file of the Assessing Officer because of the request contained in the appeals filed by the other partners to the effect that they were not given an opportunity of being heard in the course of the framing of the assessment on the assessee-firm even though they were made liable for meeting the demand of Rs. 63,97,425 levied on the assessee-firm under the provisions of Section 188A. We find merit in this contention of the other partners, as the admitted position before us has been that only Shri Ramakrishnan and Smt. Gracy were hard and none of the other partners were associated with the assessment proceedings. So, while holding that a single assessment on the assessee-firm for the entire block period is validly made, we remand the matter to the file of Assessing Officer to give an opportunity of being heard to the other partners on the merits of the additions made on the basis of the seized materials and frame the assessments de novoas per law in the light of their submissions. Subject to the above, for statistical purposes, the appeal is allowed.
11. IT (S&S) A. No. 2 (Coch)/98 - This appeal is filed by Shri K.L. George, partner, against the assessment made on the firm, M/s Mamatha Motels. The appeal is delayed by 139 days. The assessee filed a letter dated 16-2-1999 seeking condonation of the delay and the letter is accompanied by an affidavit dated 16-2-1999 by Shri George in which it is mentioned that all the erstwhile partners of M/s Marnatha Motels have filed appeals against the block assessment for the period 1-4-1986 to 12-12-1996 and subsequently the partners were advised that a separate appeal should have been filed and accordingly the present appeal is filed. Considering the circumstances of the case, we condone the delay in filing of the appeal.
12. The gist of the grounds taken is that the maxim" Audi Alter am Partem" has not been followed by the Assessing Officer, as the retired partners were not given an opportunity of being heard and that the Asstt. Commissioner of income-tax has gone wrong in relying on the books of account, documents and other materials seized from the residence of the erstwhile managing partner, Smt. Gracy. A vague ground is also taken to the effect that the Asstt. Commissioner of Income-tax had not complied with the procedure for the competition of the block assessment stipulated in Chapter XIVB of the Income-tax Act, but it has not been substantiated in the course of the hearing before us. The learned counsel for the assessee has not explained as to how exactly the Asstt. CIT failed to comply with the said procedure. However, we are of the view that as it is a block assessment and it also relates to the period when the present partners Shri Ramakrishnan and Smt. Thankam were not partners, the retired partners should also be given an opportunity of being heard and their submissions, if any, should be taken into consideration before the framing of the assessment. Accordingly, while holding that a single assessment for the entire block period is validly made, we set aside the assessment with a direction that the retired partners may also be given an opportunity of being heard. We may also clarify that no objection is taken in this appeal for the single assessment for the entire block period. Subject to the above, for statistical purposes the appeal is allowed.
13. IT (S&S) A. Nos. 49 to 61 (Coch)/98) - All these appeals are filed by the retired partners of M/s Mamatha Motels and the appeals have been filed in their individual names, though the objection is against the block assessment framed in the case of M/s Mamatha Motels for the block period 1-4-1986 to 12-12-1996 vide the order of the Assessing Officer dated 26-8-1998. We have already mentioned that the appellant should have been described as "Mamatha Motels" and we accordingly treat them as appeals by M/s Mamatha Motels through the respective partners. In all these appeals the grounds are common and the gist of the objections is the same as that taken in IT(S&S) A.No. 2(Coch)/98, which we have discussed herein above. There is also a ground that the concerned retired partners who filed the relevant appeals should have been served with a notice under Section 158BC read with Section 158BD in his/her capacity as an erstwhile partner of the firm M/s Mamatha Motels. We do not find any merit in this contention because the assessment is framed on the firm, M/s Mamatha Motels and it is not disputed that the notice under Section 158BC read with Section 158BD had been served on the said firm as it was constituted at the time of the service of the notice. So, we reject this specific ground that the notice under Section 158BC read with Section 158BD should have been served on each of the concerned retired partners. But, as mentioned by us herein above in the context of IT(S&S) A. No. 2 (Coch)/98, we set aside the assessment and remand the matter to the file of the Assessing Officer with the same directions as are given in that appeal.
14. Subject to the above, for statistical purposes these appeals are treated as allowed.
15. IT (S&S) A. No. 64 (Coch)/98 - This appeal is filed by Smt. E.L Gracy describing herself as the appellant, but the objection is against the block assessment made on the firm M/s Mamatha Motels and the determination of its undisclosed income at Rs. 1,06,62,370 vide the order of the Assessing Officer dated 26-8-1998. We have already mentioned that in such a situation the appellant should have been described only as the firm M/s Mamatha Motels and we accordingly treat this as an appeal filed by the said firm.
16. One of the important grounds taken reads as under :
The officer should have known that the search was conducted on 10-12-1996 and hence the impugned assessment order dated 26-8-1998 is barred by limitation. On that ground alone the assessment order should be set aside.
In the course of the hearing before us no argument has been advanced as to how the assessment order dated 26-8-1998 framed on the firm M/s Mamatha Motels for the block period 1-4-1986 to 12-12-1996 is barred by limitation. It must be noticed that the assessment on the firm vide order in question dated 26-8-1998 is an order passed not simply under the provisions of Section 158BC, but is an order passed under Section 158BC read with Section 158BD of the I.T. Act. The search was conducted only in the premises of Shri Ramakrishnan and Smt. Gracy, but the seized material related, in the opinion of the Assessing Officer, to M/s Mamatha Motels in which they were partners at least for part of the block period. So, the Assessing Officer invoked the provisions of Section 158BD and issued a notice under Section 158BC to M/s Mamatha Motels and the notice, as mentioned by the Assessing Officer as page 1 of his order, was issues on 1-8-1997. The period of limitation for completion of the block assessment in the case of a person referred to in Section 158BD is, in terms of Section 158BE(2)(a), one year from the end of the month in which the notice under Chapter XIV-B was served. Therefore, it appears that the time limit for completion of the assessment in the case of the assessee-firm ended only on 31st August, 1998, i.e. one year from the end of the month in which the notice under Section 158BC read with Section 158BD was issued, assuming it was served on the same day. The assessment order had been passed on 26-8-1998 and so it appears to be well within the limitation period laid down in Section 158BE(2)(a). So we find no merit in this ground which is rejected. At any rate, as already mentioned, no argument has been advanced on this issue. Accordingly the ground is rejected.
17. Various other grounds are taken against the additions made for the assessment years included in the block period. We need not go into those grounds at this stage because we are setting aside the assessment and remanding the matter to the file of the Assessing Officer, as indicated by us hereinabove in the context of other appeals discussed by us hereinabove. A ground is also taken that the appellant had retired from the firm from 14-8-1996 and she was unaware of the activities of the firm after her retirement. There are also four more grounds, which read as under :
10. The view of the officer that there cannot be different block assessments for the same period is incorrect in law and against the provisions contained in the IT Act, 1961.
1. The officer erred in completing the assessment on the firm without giving an opportunity to the appellant to explain her position. The assessment order and the notice of demand issued to the appellant without giving her an opportunity is against the principles of natural justice. It is also against the provisions of Section 158BD of the I.T. Act, 1961.
2. The officer also erred in holding that the appellant is jointly and severally liable especially in view of the fact and his finding that there can be only one block assessment for the assessee-firm and that there was no dissolution or discontinuance of the firm.
3. Therefore no liability could be fastened on the appellant as per order dated 26-8-1998 when the appellant was admittedly not a partner.
18. We find no merit in the above grounds. We have already held that a single assessment for the entire block period is valid in law. We do not see the import of ground No. 3 above. We do not see how simply because one assessment is made for the entire block period a partner can be exempted from joint and several liability for the demand raised on the firm under the provisions of Section 188A of the IT. Act, or under the provisions of the Partnership Act, as held by the Apex Court in the case of Arunagiri Chettiar (supra). We do not see any merit in ground No. 4 above also because when a single assessment is made, the liability of the partners is joint and several and simply because she was not a partner after 14-8-1996, her liability for meeting the demand cannot be exonerated. We reject the above grounds. However, as already mentioned by us hereinabove, we set aside the assessment framed on M/s Mamatha Motels vide the order of the Assessing Officer dated 26-8-1998 with the same directions as are given by us in IT(S&S) A. No. 2 (Coch)/98 hereinabove. Subject to the above, for statistical purposes the appeal is allowed.
19. IT (S&S) A.No. 9(Coch.)/98 - This appeal is filed by Smt. E.L. Gracy against the order passed on her under Section 158BC of the Income-tax Act dated 30-12-1997 by the Assessing Officer determining her undisclosed income at Rs. 10,68,870. Various grounds are taken. The main objection is against the finding of the Assessing Officer that a sum of Rs. 6,50,000 received by the appellant along with the retired partners of the firm M/s Mamatha Motels consequent to there retirement from the firm/sale of certain land and building is her undisclosed income. As we are setting aside the assessment made on M/s Mamatha Motels for the block period 1 -4-1986 to 12-12-1996 as mentioned hereinabove, we do not find it necessary to deal with this ground at this stage. We set aside the assessment made on Smt. Gracy in her individual capacity also, so that the Assessing Officer can take a fresh view of the matter in the light of the fresh assessment to be made on the firm, consequent to our directions hereinabove. The Assessing Officer may do the assessment de novo as per law. Subject to the above, for statistical purposes the appeal is allowed.
20. IT (S&S) A. No. 65 (Coch.)/98 - This appeal is also directed against the block assessment made on M/s Mamatha Motels vide the order of the Assessing Officer dated 26-8-1998. The appellant is described as Shri Ramesh Kumar and as in other cases mentioned hereinabove, we treat the appellant as Mamatha Motels. The assessee has mentioned that he is only a name lender and that the actual beneficial partner was his uncle Shri A. Janaradhanan in the objections taken before us it is mentioned that Smt. Gracy was controlling the activities of the firm M/s Mamatha Motels and that the appellant had not received any undisclosed income from her and that he had no idea about the alleged unaccounted income. It is also mentioned that the Assessing Officer did not give any opportunity to him to examine the documents seized from Smt. Gracy.
21. We have set aside, in the context of the other appeals mentioned hereinabove, the assessment framed on the firm M/s Mamatha Motels and remanded the matter to the file of the Assessing Officer for the completion of the assessment de novoas per law after giving an opportunity of being heard to all the retired partners along with the surviving partners. In this view of the matter, we do not find it necessary to deal with the specific grounds taken in this appeal. We may, however, mention that there is one ground wherein it is mentioned that the Assessing Officer erred in sending the notice dated 26-8-1998 to the appellant for clearing the assessed tax on the alleged unaccounted income of the firm. We are of the view that the assessee cannot be exonerated from joint and several liability cast upon the partners, retired and surviving, under the provisions of Section 188A of the Income-tax Act and also by virtue of the decision of the Apex Court in the case of Arunagiri Chettiar (supra). However, the present appeal is against the block assessment in the case of M/s Mamatha Motels and not against any order passed lander Section 188A. So, a ground relating to Section 188A, which is a recovery matter, cannot be taken in this appeal. In principle, we find no merit in this ground. As we arc setting aside the assessment in the case of the firm, nothing further need be mentioned at this stage. Subject to the above, for statistical purposes the appeal is treated as allowed.
22. IT (S&S) A. No. 15 (Coch.)/98 - This appeal is directed against the order dated 30-12-1997 under the provisions of Section 158BC presumably read with Section 158BD. Before us it is admitted that Shri Janardhanan, Manager of a Scheduled Bank, is the beneficial partner in M/s Mamatha Motels and that his nephew Shri Ramesh Kumar shown as a partner in the said firm is only a name lender. Various objections are taken to the additions made in the block assessment order framed on Shri Janardhanan in his individual capacity. The main objection is against treating the amount of Rs. 6,50,000 received on the occasion of the retirement of certain partners from M/s Mamatha Motels/the execution of a sale deed relating to land and building, as his undisclosed income.
23. We have considered a similar ground in the case of Smt. Gracy in IT (S&S) A. No. 9(Coch.)/98. We found it fit to set aside the assessment in that case. For similar reasons, we set aside this assessment also with a direction that the assessment may be framed afresh after giving an opportunity of being heard to the assessee. Further, the Assessing Officer should make up his mind as to who should be treated as a partner of M/s Mamatha Motels with its consequential liabilities under the provisions of Section 188A of the IT. Act, whether Shri Ramesh Kumar or Shri Janaradhanan. It appears, he is treating both as partners for select purposes, which is not self-consistent. We accordingly set aside the assessment. Subject to the above, for statistical purposes the appeal is allowed.