1. This appeal by the assessee is for the block period 1st April, 1986 to 12th Dec., 1996. When the matter was taken up for hearing, the learned Departmental Representative made a preliminary objection for the admission of the very appeal. He submitted that the appellants herein are not the partners, who filed the return and, therefore, they cannot be treated as assessees and as such they have no locus standi in filing this appeal. Therefore, the Tribunal decided to hear the parties on this preliminary objection raised by the learned senior Departmental Representative. Therefore, we proceed to decide the preliminary objection taken by the learned senior Departmental Representative.
2. The facts leading to the dispute briefly are as under : The firm, M/s Mamatha Motels, is presently constituted by two partners, namely, Shri K.V. Ramakrishnan and his wife Smt. Thankam. This firm was originally constituted by an instrument of partnership deed dt. 23rd March, 1991, with Smt. E.L. Gracy and 14 others as partners. By an instrument of partnership deed dt. 23rd May, 1996, Shri K.V.Ramakrishnan and Smt. Thankam joined as partners with effect from that date. By a deed of retirement dt. 26th May, 1996, 12 out of 15 original partners retired from the partnership and the original three partners along with Shri K.V. Ramakrishnan and Smt. Thankam continued as partners of the firm. Again, by an another deed dt. 14th Aug., 1996, the remaining three original partners also retired from the firm, retaining Shri Ramakrishnan and his wife, Smt. Thankam. Thus, the business of the partnership firm continued by Shri K.V. Ramakrishnan and his wife, Smt. Thankam, as partners. Thus, the present partners of the firm are Shri K.V. Ramakrishnan and Smt. Thankam.
3. Though the firm came into existence on 23rd March, 1991, the return for the first time was filed on 22nd Feb., 1996, for the asst. yr.
1995-96. No regular return has been filed thereafter.
4. There was a search and seizure operation under Section 132 of the IT Act, 1961, on 12th Dec., 1996, at the residence of Shri Ramakrishnan, the present managing partner and in the residence of Smt. E.L. Gracy, the former managing partner in the firm. Incriminating documents were seized. Block period assessment was completed for the period from 1st April, 1986 to 12th Dec., 1996, under Section 158BC(c) r/w Section 158BD on 26th Aug., 1998, fixing the undisclosed income for the block period at Rs. 22,09,789. The income for the asst. yrs. 1993-94 to 1996-97 relates to all the persons who were partners at the relevant periods, that means, 12 out of earlier 15 partners, who retired from the partnership firm. For the asst. yr. 1997-98, it relates to the present partners only, i.e., Shri K.V. Ramakrishnan and Smt. Thankam.
According to the Revenue, the quantum of income fixed for the asst.
yrs. 1993-94 to 1996-97, the undisclosed income has been determined on the basis of books of account and other documents seized from the residence of Smt. E.L. Gracy, who was the former managing partner of the firm. For the asst. yr. 1997-98, the income has been fixed on the basis of a trial balance obtained from the computer maintained in the office of the Kallada group of concerns. As regards the asst. yr.
1994-95, a P&L a/c was seized from the residence of Smt. E.L. Gracy and the income was adopted therefrom, and that too, on the basis of her statement under Section 132(4) of the Act. Immediately thereafter, notices were issued to each partner on 27th Aug., 1998, as per Section 189A of the IT Act.
5. An appeal was filed before Tribunal objecting that there have been a number of changes that took place in the constitution of the firm, M/s Mamatha Motel and so, the AO erred in passing one assessment order for the entire block assessment period from 1st April, 1986 to 12th Dec., 1996. In addition to this, it was also contended that since the liability of the firm towards the income-tax was fastened to the erstwhile partners by sending order and demand notice separately, they have individually filed appeal before the Tribunal. It was also contended that the AO was not right in demanding the liability from the erstwhile partners without hearing them or giving them an opportunity to explain the facts of the case. It was the case of the assessees (erstwhile partners) that at no point of time in the course of block assessment proceedings, no communications were sent to the erstwhile partners excluding Smt. E.L. Gracy. The Tribunal set aside the assessment. However, the Tribunal held that there was no reason for making two separate assessments, but a single assessment was sufficient. The Tribunal further held that the AO should also give an opportunity of being heard to the erstwhile partners and their submissions, if any, should be taken into consideration before framing the assessment order, vide order dt. 8th Dec., 2000.
6. As stated above, it is the preliminary objection of the learned senior Departmental Representative that only a person, who filed the original return, can be treated as an assessee and not the erstwhile partners. In this case, the return was filed by the present partner, namely Shri K.V. Ramakrishnan, managing partner. The assessment was originally completed in the case of Shri Ramakrishnan, as managing partner. Therefore, the learned senior Departmental Representative contended that an appeal can be filed before the Tribunal under Section 253 only by an assessee who is aggrieved by the order.
7. On the other hand, Shri Kittu, learned advocate appearing for the assessee, submitted that the present appellants are the assessees aggrieved by the assessment order. The appellants are affected adversely by the assessment order. They were partners, though not presently. The partnership firm, in which the present appellants were partners, was existing within the block period of 10 years and as such they are affected adversely by the present assessment.
8. Inviting our attention to Section 25 of the Partnership Act, 1932, the learned counsel for the assessee submitted that the partners are liable jointly with all the other partners and also severally for the acts of the firm done while they were partners. In the instant case, the partnership came into existence on 23rd March, 1991, with Smt. E.L.
Gracy and other 14 partners. On 23rd May, 1996, two new partners were admitted, namely, Shri K.V. Ramakrishnan and Smt. Thankam Ramakrishnan.
Out of the first 15 original partners; 12 partners retired on 26th May, 1996. The remaining three partners of the original partnership firm were also retired on 14th Aug., 1996, leaving Shri K.V. Ramakrishnan and his wife, Smt. Thankam Ramakrishnan in the partnership firm. The counsel for the assessee further submitted that Section 2(7) of the IT Act on this point is very clear. It defines the word 'assessee', viz. : 2(7) "assessee" means a person by whom any tax or any other sum of money is payable under this Act, and includes-- (a) every person in respect of whom any proceeding under this Act has been taken for the assessment of his income or the income of any other person in respect of which he is assessable, or of the loss sustained by him or by such other person, or of the amount of refund due to him or to such other person; (b) every person who is deemed to be an assessee under any provision of this Act; and (c) every person who is deemed to be an assessee in default under any provision of this Act." In other words any person who becomes liable to pay tax by virtue of assessment order, is an assessee. As assessee can always file an appeal if he is adversely affected or if he so desires.
9. By virtue of Section 158BH, the learned counsel for the assessee submitted that all other provisions of this Act are made applicable for a block assessment. This has to be read with Section 188A which was inserted by Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1st April, 1989. By virtue of this section, every person who was a partner of a firm, during the previous year and the legal representative of any such person who is deceased, shall be jointly and severally liable along with the firm for the amount of tax, penalty or other sum payable by the firm for such assessment years. Therefore, the learned counsel for the assessee submitted that the preliminary objection taken by the learned senior Departmental Representative is not sustainable in law.
10. We heard the rival submissions, gone through the materials available on record and the decisions cited. The first issue to be decided is whether the Tribunal can entertain this preliminary objection taken by the senior Departmental Representative. This is a question of law. A question of law can be raised even at the time of hearing and it is bound to be considered by the Tribunal or any Court for that matter. This point has been decided by the Hon'ble apex Court in the case of National Thermal Power Co. Ltd. v. CIT (1998) 229 ITR 383 (SC). In this case, the Hon'ble Supreme Court held that 'there is no reason to restrict the power of the Tribunal under Section 254 only to decide the grounds which arise from the order of the CIT(A). Both, the assessee as well as the Department, have a right to file an appeal/cross-objection before the Tribunal. The Tribunal should not be prevented from considering questions of law arising in assessment proceedings, although not raised earlier. The view that the Tribunal is confined only to issues arising out of the appeal before the CIT(A) is too narrow a view to take off the powers of the Tribunal. Undoubtedly, the Tribunal has the discretion to allow or not to allow a new ground to be raised. But, where the Tribunal is only required to consider the question of law arising from facts which are on record in the assessment proceedings, there is no reason why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee.' 11. In the instant case, we have to reappreciate the facts. At the first instance, the Tribunal remanded the matter back with a direction to hear the affected parties before passing fresh assessment order.
They had been heard and the order was passed thereafter. Though they have not filed the return consequent to the search, they were partners now retired. The commencement, of the business by the partners of the erstwhile firm falls within this block period of 10 years and as such they are definitely affected parties and it cannot be denied that an affected party can approach by way of appeal on technicalities.
"Every partner is liable, jointly with all the other partners and also severally, for all acts of the firm done while he is a partner." This means that even if he is not a partner in the firm presently, but for the acts of the firm done while he was a partner, the present appellants are jointly and severally liable. They are liable for omissions and commissions of the firm. So, no doubt, they are affected parties. Merely because they have not filed the returns, their right to appeal as affected parties cannot be curtailed.
"253(1) : Any assessee aggrieved by any of the following orders may appeal to the Tribunal against such order." The Department's stand is that only an assessee aggrieved by an order of the Revenue authorities can approach the Tribunal and not any person aggrieved. According to the Revenue, an assessee is a person who can file the return and who filed the return within the eye of law. As far as the firm is concerned, the partner who is authorised by the existing partners can file the return. Thus, the preliminary objection appears genuine. The inclusive meaning of the assessee -- under Section 2(7) -- if we analyse will show this is incorrect. We have already extracted the provisions of Section 2(7) at p. 5 of this order. A reading Of the above definition makes it clear that an 'assessee' means a person by whom any tax or any other sum of money is payable under this Act -- as a consequence of any proceedings -- done under this Act. Therefore, the meaning, the Department wants to import into Section 253 is that an assessee is a 'person' who filed the return and 'not a person aggrieved' by the order, does not stand to reason.
14. It is to be seen that as a consequence of the search under Chapter XIV-B of the IT Act, 1961, a notice of demand under Section 156 was served on the appellants. Section 156 reads as under : "When any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under this Act, the AO shall serve upon the assessee a notice of demand in the prescribed form specifying the sum so payable." It is to be seen that a notice of demand cannot be served on any other person other than the assessee or a legal representative, etc. who is responsible for the assessees or their legal representatives. Here, in the case of these appellants, notice under Section 156 has been served because they are assessees within the extended meaning to Section 2(7) of the IT Act, 1961.
15. It is the duty of the Court or for that matter any Tribunal or of that any quasi judicial authority to interpret the statute so as to suppress the mischief and advance the remedy. In the famous Heydon's case (3 Co. Rep. 7a), it was held that "it is said to be the duty of the Judge to make such construction of a statute as shall suppress the mischief and advance the remedy. To this end, a certain extension of the latter is not unknown, even in criminal statutes. (Maxwell on the Interpretation of Statutes, 12th Edition, p. 96).
16. It is well-settled principle of construction that most agreeable to justice and reason should be adopted. A person who is aggrieved because he is adversely affected by a decision of a Tribunal or a Court, if he had no chance to appeal, it is depriving of the most invaluable right, i.e., right to appeal. The denial of such a right is against the natural law and justice. No man should be condemned unheard. On technicalities, if he has not filed the return of income or he is not a person entitled to file return, his right of appeal cannot be denied.
Right to be heard is not to be denied on technical ground even if he is a stranger. In the instant case, he is an aggrieved party by the order of the Revenue authorities. He has been affected adversely. In the case of adversely affected parties, they should not be condemned unheard.
17. Justice M. Hidayathullah (as he was then) speaking for the Court in the case of Smt. Uijam Bai v. State of UP (1963) 1 SCR 778, held that "the taxing Departments are instrumentalities of the State. They are not a part of the legislature; nor they a part of the judiciary. Their functions are the assessment and collection of taxes and in the process of assessing taxes, they have to follow a pattern of action, which is considered judicial". Most valuable right of an affected party is his right to appeal.State of Kerala v. K.T. Shaduli Grocery Dealer AIR 1988 SC 1627, the Hon'ble apex Court held that "A taxing officer is under obligation to comply with the principles of natural justice in reaching his conclusions even though he is not fettered by technical rules of evidence and pleadings, and that he is entitled to act on material which may not be accepted as evidence in a Court of law".
Therefore, it is a preliminary duty of any authority passing a quasi-judicial order to pass order only after hearing the parties.
19. In the instant case the assessees, the appellants, are adversely affected. The decision of the Tribunal will effect them either adversely or favourably. To deny a chance to represent their case before the Tribunal will be against judicial process of law. The Tribunal will be failing in its duties if it shut out its door by denying a right of appeal and hearing.
20. It is the case of the assessees that the appellants are aggrieved on account of the service of notice of demand under Section 156 requiring them to pay a demand of Rs. 63,97,422. Nothing prevents them from filing an appeal. They are affected parties. The Department's stand that the original return was filed on behalf of the firm, not by the present appellants and as such they have no right to appeal, if accepted, it will be a grave injustice to the parties affected.
21. In the case of Gokuldas v. Kikabhai Abdulali and Ors. (1958) 33 ITR 94 (Bom), Justice Tendolkar, speaking for the Hon'ble Bombay High Court, held that "as the order of assessment was passed by the ITO without any notice to the alleged partners and behind their back, and B had no opportunity of appearing before him, his order was liable to be set aside at the instance of B and as B was not aware of the order of the ITO as well as the order of the AAC, confirming the decision of the ITO, B had a right to appeal from the order of the AAC to the Tribunal on the question whether he was or was not a partner." Their Lordships further held that "the Tribunal was competent to examine and decide the question whether B was a partner in the unregistered firm". This was a case where the assessment was completed in a proceedings in the case of URF. One A who made the return had produced before the ITO a deed of partnership in which B was shown as one of the partners. Further, the request of A that the unregistered firm may be considered to be a proprietary concern and that A himself be taken as the assessee in the status of an individual was rejected both by the AO and the first appellate authority. Thereafter, when B's property was attached for the payment of the tax levied on the firm, B filed an appeal before the Tribunal and after considering all the evidence before them, the Tribunal came to the decision that B was not a partner. A filed an application for reference and on this application the Tribunal made a reference to the High Court and the question referred was (i) whether B was competent to appeal to the Tribunal against the order of the first appellate authority dismissing the appeal of A; and (ii) whether the Tribunal was competent to decide the question whether B was a partner in the unregistered firm. The Hon'ble High Court held that B was competent to file the appeal and the Tribunal was competent to decide the issue.
22. The learned Departmental Representative's, submission that the decision relied upon by the assessee is distinguishable on the ground that B came into picture only when his property was attached and, in the instant case, the appellants' properties have not been attached, etc., we are afraid, will not and cannot help the Revenue. The question is whether an affected party can file the appeal even at a prior stage; we hold that it can be done.
23. Again, in the case of Kikabhai Abdulali v. ITAT and Ors. (1957) 32 ITR 762 (Bom), Mr. Justice Chagla, speaking for the Court, held that "the right to appeal to the Tribunal from one order passed by the AAC or the right to apply for a reference of a question of law arising out of an order of the Tribunal is not confined technically to the party who is a party to the appeal but is a much wider right which may be exercised by any person who becomes liable to pay tax by any order against which the appeal is preferred".
24. In the instant case, the position of the assessee is much stronger.
When the matter was before the Tribunal at the first inning, it was remanded back to the AO with a direction to hear the affected parties, i.e., the present appellants. They were heard and they are affected by the order. Now, the stand of the Revenue is that since the assessees who filed the returns are not the present appellants before the Tribunal, they had no locus standi to come in appeal. Merely because the appellants were not the parties who filed the returns, their right cannot be rejected. It is to be seen that huge amount of tax liability of about Rs. 63,97,422 is fastened against them. If the right of appeal to them is denied, simply on the ground that they were not the partners when the return was filed by the firm, will make them liable to pay tax for the firm in which they are not partners. Especially this kind of difficulty may arise in the block assessment of 10 years or 6 years as it may be. Within the span of time of 10 years or 6 years, the partners may change but the firm may continue. Only the partner of the firm at the time of the search is "entitled to file the return for the firm.
But, when the assessment is made for the 10 years or 6 years, the liability is of all the partners jointly and severally to satisfy the tax demand. In this case, this view has been taken by the Revenue. They had been served notice of demand under Section 156 of the IT Act.
25. Therefore, respectfully following the above decisions and for the reasons stated hereinabove, we hold that the appellants before the Tribunal are competent to file the appeals. We overrule the preliminary objection taken by the Revenue and the appeal is entertained and admitted. The registry is directed to post the appeal on 8th Jan., 2004, along with the other appeals, if any, filed by the present partners of the firm.