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1960 (9) TMI 6 - SC - Income TaxWhether the excess profits tax assessed could be validly recovered from the appellant by resort to the machinery for collection provided by section 46 of the Income-tax Act? Held that - The entire basis on which the assessment proceedings completed after notice to Thyagrajan Chettiar as the managing partner of Muthappa & Co. have been held by us to be binding on the appellant would preclude any argument of the type advanced to challenge the binding character of the notices served. The appellant was clearly an assessee in default within section 46(1) of the Income-tax Act and the amount of tax and penalty due from him would be an arrear within section 46(2). The proceedings for the recovery of the excess profits tax could properly be taken and that the order of the High Court dismissing the appellant s petition for the issue of a writ of prohibition was correct. Appeal dismissed.
Issues Involved:
1. Legality of the assessment to excess profits tax. 2. Validity of the recovery proceedings for the excess profits tax assessed. Issue-Wise Detailed Analysis: 1. Legality of the Assessment to Excess Profits Tax: Facts and Background: The appellant, a partner in Muthappa & Co., contested the legality of the recovery of excess profits tax assessed on the firm's managing agency business for the periods of the calendar year 1942 and the broken period from January 1, 1943, to March 4, 1943. The appellant filed Writ Petition No. 498 of 1952, which was dismissed by the High Court of Madras, leading to Civil Appeal No. 107 of 1956 and Petition No. 130 of 1958 under Article 32 of the Constitution. Arguments and Court's Findings: - Notice to Assessee: The appellant argued that the assessment was invalid as notices were served only on Thyagrajan Chettiar, the managing partner, after the alleged dissolution of the firm on March 4, 1943. The court found two answers to this: 1. Preclusion from Pleading Dissolution: The appellant consistently maintained that the firm was not dissolved in 1943, as evidenced by his letter to the Income-tax Officer in 1945 and the civil suit he filed contesting the dissolution. The High Court in 1953 fixed the dissolution date as March 10, 1949, but this was still under appeal. 2. Proper Construction of the Excess Profits Tax Act: Even if the firm was dissolved before 1951, the assessment was valid as it was the business, not the firm, that was the unit of assessment. The court referred to the Madras High Court decision in Pandu Rao v. Collector of Madras, which held that the assessment could be made on the business even if the firm was dissolved, as the partners remained jointly and severally liable. - Income Computation: The appellant disputed the inclusion of Rs. 89,137 in the income, which was withheld by Saroja Mills Ltd. due to a cross-claim. The court upheld the inclusion, noting that the entire amount was due to the firm and was claimed as business expenditure by the mills, thus accruing as income to the firm. Conclusion: The court held that the assessment to excess profits tax was valid, binding on the business and its owners, including the appellant. Writ Petition No. 130 of 1958 was dismissed. 2. Validity of the Recovery Proceedings for the Excess Profits Tax Assessed: Arguments and Court's Findings: - Coercive Process under Section 46: The appellant argued that he was not an "assessee" but a "person liable to pay the tax" under Section 29 of the Income-tax Act, and thus, the coercive process under Section 46(2) could not be invoked without a specific notice of demand addressed to him. - Court's Interpretation: The court held that the appellant was an "assessee" under Section 21 of the Excess Profits Tax Act, which includes "a person to whose business this Act applies." The notice served on the managing partner, Thyagrajan Chettiar, was deemed valid and binding on the appellant under Section 63 of the Income-tax Act. Conclusion: The court concluded that the recovery proceedings under Section 46 were valid, and the appellant was an "assessee in default" liable for the tax arrears. Civil Appeal No. 107 of 1956 was dismissed with costs, and the petition was dismissed with no order as to costs. Final Judgment: - Appeal dismissed. - Petition dismissed.
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