1. MUHAMMAD YAQUB ALI, J.--The question which falls for decision in these two appeals is whether certificate proceedings can be taken out against a person who denies his membership of the assessee-firm without serving on him a notice under section 29 of the Income-tax Act and the corresponding section 12 of the Sales Tax Act. The High Court has in a reference under section 66(1) of the Income tax Act answered the question In the negative from which the Commissioner of Income-tax has with the leave of the Court brought these appeals raising the questions :-
(i) Whether certificate proceedings can be started against a person who denies his membership of the assessee-firm without issuing a personal notice on him under section 29 of the Income-tax Act or section 12 of the Sales Tax Act ; and
(ii) whether after the assessm ent has been completed the Department can enter upon an inquiry and hold that a person who denies his liability to pay tax is a member of the assessee---firm.
2. The relevent facts are that for the account year 1949-50 the Income-tax Officer, Sylhet, completed assessm ent of the firm "Syed Abdul Kaher & Co." on the 28th May 1951. In the absence of a return the Income-tax Officer computed under section 23 (4) the taxable income at Rs. 6,730. On 1-6-1951 notice was issued to the assessee-firm for payment of Rs. 267 the demand raised on the taxable income to which no response was made. A second notice was, thereupon, issued on the 3rd of July 1952, to the assessee-firm imposing a penalty of Rs. 27 for failure to pay the amount. As neither notice was complied with the Income-tax Officer on the 27th March 1953, initiated proceedings under section 46(2) and filed a certificate of recovery with the Certificate Officer, Sylhet, for realization. On the present record it is not known what steps were taken by the Certificate Officer to effect recovery except that these proceedings remain infructuous whereupon the Income-tax Officer on the 28th August 1961, wrote to Aswabali respondent that :- --- . . . . . It appears from this office record that you were partner of the firm Messrs S. A. Kader & Co.
3. Of Bhanugach, Sylhet. A demand of Rs. 267 and penalty of Rs. 27 is out--standing against the said firm. As you were the partner, you are liable to pay the income-tax demand and penalty under section 44 of the Income-tax Act."
4. The respondent denied his membership of the assessee-firm and made a representation to the Inspecting Assistant Commis--sioner, Range II, Chittagong, which was dismissed on the 6th of June 1962. He then moved the Commissioner of Income-tax in a revision petition complaining that the decision of the Inspecting Assistant Commissioner was made ex parte without giving him an opportunity to substantiate his claim that he was only an employee of the assessee-firm and not a partner in it. The order passed on this petition is not before us, but the ground on which the decision is based is incorporated in the letter addressed by the Personal Secretary to the Commissioner of Income-tax to the respondent (Exh. `J' p. 37 of the Paper Book). It is stated therein that the books of account produced before the Income-tax Officer by Mr. Syed Abdul Kaher established that the business in question was run by a firm of two partners viz. Mr. Syed Abdul Kaher and Mr. Aswab Ali.
5. The contention that the latter was an employee of the said firm was not accepted.
6. A similar assessm ent was carried out under the Sales Tax Act on 30-3-1953 raising a demand of Rs.
7. 1938-12.0 as tax followed by an amount of Rs. 100 imposed as penalty for default in payment. The same course of events followed this assessment as set out above.
8. The appellant eventually moved the High Court in writ jurisdiction contending inter alia that as notices under section 29 of the Income-tax Act and section 12 of the Sales Tax Act were not issued to him the proceedings for recovery initiated under section 46(2) of the Income-tax Act were without lawful authority. The finding by the Department recorded ex parte that the respondent was, a partner in the assessee-firm was also disputed on merits.
9. The learned Judges in the High Court considered it outside the purview of their 'jurisdiction to displace the finding of fact that the respondent was a partner in the assessee-firm, but set aside the certificate proceedings both under the Income-tax Act and the Sales Tax Act on the ground that statutory notices men--tioned above were not given to the respondent before initiating those proceedings.
10. "44. Liability in case of a discontinued" firm or associ--ation.-Where any business, profession or vocation carried on by a firm or association of persons has been discon--tinued, or where a firm or an association of persons is dissolved all the provisions of this Act shall, so far as may be, apply as if no such discontinuance or dissolution had taken place and; every person who was at the time of such discon--tinuance or dissolution a partner of such firm or a member of such association shall be jointly and severally liable for the amount of tax payable by the firm or association of persons or the partners of the firm or members of the association of persons, as the case may be."
11. As there is no finding that the assessee-firm was dissolved or discontinued its business the question of burdening its partners jointly and severally for tax did not arise. Even if section 44 were to apply it contains no warrant for taking action against a person who denies his membership of the assessee-firm. The learned counsel next relied on the notice issued to the assessee---firm under section 29 of the Income-tax Act and section 12 of, the Sales Tax Act. It was maintained that a notice served on a firm fulfilled the requirements of law before making resort to certificate proceedings. In other words no notice to the partners of the assessee-firm was required. This may be true in a case where the persons made liable for tax do not deny membership of the assessee- firm. In the present case, however, the respondent had all along denied that he was a partner of the assessee-firm. In the orders of assessments there is no mention of his being a member of the firm. Nor was any inquiry made at that point in this behalf. As seen till 28th of August 1961, no liability was foisted on the respondent for payment of tax. The proceedings in which the Inspecting Assistant Commissioner found the respondent a partner in the assessee-firm were held ex parte. It is not even known what was the nature of those proceedings. The respondent maintained that the Income-tax Officer had accepted the plea that he was an employee of the assessee-firm and that order was set aside by the Inspecting Assistant Commissioner without issuing a notice to him. A copy of that order was, in spite of repeated applications made by the respondent, not supplied to him vide Annexure `F', p. 30 of the Paper Book. Nor was the order placed before the learned Judges in the High Court. We are, therefore, inclined to accept the assertion made by the respondent based as it is on the notice issued to him by Syed Abdul Kaher that the Income-tax Officer had held him to be an employee of the assessee-firm.
12. It is an elementary principle of law that no person can be subjected to an obligation without affording him an opportunity to show cause. Similarly, an order favouring a person passed by a competent authority cannot be varied to his disadvantage without .Hearing him. In consonance with this principle section 29 provides that when any tax, penalty, or interest is due in consequence of any order passed under the Act, the Income-- tax Officer shall serve upon the assessee or other person liable to pay such tax, penalty or interest a notice of demand in the prescribed form specifying the sum so payable. Failure to pay the amount can result in further penalty being imposed under section 46 (1). An order under this subsection is appealable within 30 days.
13. Valuable rights, therefore, accrue from the service of notice on the `assessee' or `any other person' under section 29. It is true that the `assessee' or `any other person cannot challenge in these proceedings the correctness etc., of the assessment for which he has to move in separate proceedings under section 30, but certainly the person to whom notice is issued can show that he is not the `assessee' or `any other person' liable to pay tax, penalty or interest levied by the Income- tax Officer.
14. The rule that notice served on the assessee-firm fulfils the requirement of section 29 vis-a-vis its partners has, as seen above, no application to the case in which the person from whom tax, penalty or interest is sought to be recovered denies his member-- ship of the firm. The High Court has, in this view, rightly come to the conclusion that the certificate proceedings started against the respondent in the absence of a notice duly served on him under section 29 of the Income-tax Act and section 12 of the Sales Tax Act were without lawful authority.