Wealth Tax---

----Reassessment---Assessee partner in firm consisting of himself and his mother---Original assessment as partner ---Order cancelling registration of firm on the ground that assessee's mother was a benamidar of the assessee-- Consequent issue of notice of reassessment under S:17---Order of cancellation set aside---Reassessment proceedings not valid---Wealth Tax Act, 1957, S.17-- Constitution of India, Art.226.

The assessee alongwith his mother constituted a firm which was registered under the Income Tax Act, 1961. The partners of the firm separately filed returns regularly under the Wealth Tax Act, 1957, including their share in the assets of the said firm. The Wealth Tax Officer accepted the returns and passed assessment orders accordingly till the year 1977-78. The Income-tax Officer initiated proceedings under section 186 of the Income-tax Act,1961, for cancellation of the registration granted to the firm for the assessment years, 1972-73 to 1977-78 and cancelled the registration holding that the assessee's mother, R, was merely a benamidar of the assessee, that the amount invested by her in the said firm did not belong to her and that she did not enter into partnership with her son. He also directed that the entire income of the firm was to be assessed in the hands of the assessee. Thereafter, a notice was issued under section 17 of the Wealth Tax Act,'1957. On a writ petition to quash the notice:

Held that it was admitted that the basis of the impugned notice was the order cancelling the registration of the firm. That order had been set aside in appeal and the appellate order had been confirmed' by the Court in CIT v. Gulab Das .(1986) 159 I.TR 24 (Raj.) Thus, the foundation for the notice did not exist any longer and the notice was liable to be quashed.

CIT v. Gulab Das (1986)159 ITR 24 (Raj.) ref.

R. Mehta for Petitioner.

DD.S. Shishodia for Respondent.

JUDGMENT

This writ petition has been fled for quashing the notice, dated March 28, 1981 (Annexure `11') issued under section 17(1) of the Wealth Tax Act, 1957, in respect of .the assessment year 1972-73, for restraining the non petitioner from taking further proceedings in pursuance thereof and for holding that the non-petitioner has no jurisdiction to proceed against the petitioner in pursuance of the impugned notice. The facts of the case may be summarised thus.

The petitioner alongwith his mother, Smt. Rukma Bad, constituted a partnership firm. Messrs Gulab Das Jagannath, in terms of the partnership deed, dated November 14, 1966. It was duly registered under the Indian Partnership Act, 1932. The Income-tax Officer granted registration to the said firm under section 185 of the Income-tax Act (hereinafter referred to as "the Act"). The firm was regularly registered as a registered firm till the year 1977-78. The partners of the firm. Messrs Gulab Das Jagannath, i.e., Shyam Sunder Dhoot (the petitioner) and Smt. Rukma Bai, separately filed returns regularly under the Wealth Tax Act, 1957, including their share in the assets of the said firm. The Wealth Tax Officer accepted the returns and passed assessment orders accordingly till the year 1977-78. The Income-tax Officer initiated proceedings under section 186 of the Act for cancellation of the registration granted to the said firm. Messrs Gulab Das Jagannath, for the assessment years 1972-73 to 1977-78 and cancelled the registration holding that the petitioner's mother, Smt. Rukma Bad, was merely a benamidar of the petitioner, that the amount invested by her in the said firm did not belong to her and that she did not enter into partnership with her son. He also directed that the entire income of the firm was to be assessed in the hands of the petitioner. Thereafter, the impugned notice was issued.

The non-petitioner admits almost all these facts in his reply.

It has been contended by learned counsel for the petitioner that the basis of the impugned notice (Annexure-11) was the order cancelling the registration of the firm, Messrs Gulab Das Jagannath, that this order was subsequently set aside by the Income-tax Appellate Tribunal by its order, dated March 16, 1983, and the application made by the Department under section 256(2) of the Act was dismissed by this Court by its judgment, dated May 22,1984, reported as CIT v. Gulab Das (1986)159 ITR 24), and that after the order cancelling the registration has been set aside, there remains no foundation for the notice (Annexure 11) and it deserves to be quashed.

Learned standing counsel for the Revenue could not controvert the above contentions of learned counsel for the petitioner. He has to admit that the order cancelling the registration of Messrs Gulab Das Jagannath was subsequently set aside by the Tribunal and the order of the Tribunal was confirmed by this Court by its judgment, dated May 22,1984.

There is great substance in the writ petition., The non-petitioner has averred in paragraph No. 25 of his reply as follows:

"It has already been pointed out above that the Income-tax Officer after holding an enquiry had arrived at a finding that Smt. Rukma Bai is a benamidar of the petitioner and further found that the firm cannot be regarded as a genuine firm and consequently cancelled its registration in exercise of his powers under section 186(1). of the Income-tax Act, 1961. As the registration of the firm has been cancelled and Smt. Rukma Bai has been held to be a benamidar of the petitioner which is a new fact before the non petitioner, the wealth of Smt. Rukma Bai should have been included in the hand of the petitioner and should have been assessed in the hands of the petitioner. In this view of the matter, the notice issued by the non petitioner is wholly justified and is in conformity with section 17 of the Wealth Tax Act, 1957."

It is thus the admitted case of the non-petitioner that the basis of the impugned notice, Annexure-11, is the order cancelling the registration of the firm, Messrs Gulab Das Jagannath, that it has been set aside in appeal and that the Appellate order has been confirmed by this Court by its judgment, dated May 22, 1984, reported in CIT v. Gulab Das (1986) 159 ITR 24). Thus, the foundation for the impugned notice no more exists. As such, the notice, Annexure-11, has to be quashed.

Consequently, the writ petition is allowed with costs. The notice, Annexure-11, and the proceedings taken in pursuance thereof are quashed.

M.BA./2267/TPetition allowed.