Law:

Section:

Section 187 of the Income-tax Act, 1961 - Firm - Change in constitution of - Firm consisted of four partners - Three of them took retirement - Petitioner, remaining partner, continued firm with a new partner - Tax recovery officer asked petitioner to pay arrears of tax of defunct firm - No notice of demand or of assessment as required under sections 143 and 156 or that of imposing penalty under section 274 had been served on petitioner - Whether firm was not dissolved but reconstituted and, therefore, assessment should have been made under section 187 on firm as constituted at time of making assessment - Held, yes - Whether service of notices under sections 143, 156, 274 to either of partners of reconstituted firm were necessary and, therefore, in absence of said notice, assessment made and penalty orders passed were not valid and were liable to be quashed - Held, yes FACTS The petitioner along with three other persons constituted as partnership firm. This firm was dissolved on 31-12-1960 and the petitioner continued to be partner alongwith a new partner. Thereafter, the statement of assets and liabilities of this firm was drawn up according to which the petitioner did not take over the liabilities of the income-tax of the dissolved firm as according to the petitioner this remained the responsibility of the other three partners. The Tax Recovery Officer issued notice of demand asking the petitioner to pay the amount of as arrears of tax of defunct firm which included the penalty. The petitioner pleaded that the responsibility to pay the amount did not rest with the petitioner in as much as he was not a partner of the defunct firm. He also pleaded that no demand or notice of assessment as required under sections 143 and 156 or that of imposing a penalty under section 274 had been given to him. The TRO, however, recorded that no notice to the petitioner was necessary as notice to one of the parties of the firm would be deemed a notice on the petitioner also and on this ground the recovery of the tax was ordered. On writ, it was averred on behalf of department, inter alia, that the writ petition was not maintainable as the petitioner had not exhausted the…

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