TMI Blog1960 (9) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... A AYYANGAR JUDGMENT The judgment of the court was delivered by RAJAGOPALA AYYANGAR, J.---Muthappa Chettiar, the appellant in Civil Appeal No. 107 of 1956, was sought to be proceeded against for the recovery from him of excess profits tax assessed in respect of the business of Muthappa Co. of which he was a partner. He disputed the legality of the recovery proceedings and filed Writ Petition No. 498 of 1952 before the High Court of Madras for the issue of a writ of prohibition for directing the Income-tax Officer, E. P. T. Circle, Madras, not to take coercive steps against him for the recovery of the tax assessed. This petition was dismissed and Civil Appeal No. 107 of 1956 has been filed on special leave obtained from this court. During the hearing by the High Court of Writ Petition No. 498 of 1952, Muthappa Chettiar (referred to hereinafter as the appellant) sought also to impugn the legality of the order of assessment to excess profits tax. The learned judges held, however, that such a contention was not germane to the writ of prohibition for which he had prayed, adding also that there were no merits in the grounds urged. To avoid any technical objection, the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agrajan Chettiar could not represent the firm which had ceased to exist nor the appellant. On these premises it was submitted that the assessment of the business to excess profits tax after notices only to Thyagrajan Chettiar could not bind the firm nor at any rate bind the appellant. In our opinion, there are two answers to this submission, either of which would suffice to reject the appellant's plea : (1) that on the facts of the present case the appellant is precluded from pleading that the firm had been dissolved at the date of the assessment in 1951 and from raising any objection to the representative character of Thyagrajan Chettiar ; (2) that on a proper construction of the provisions of the Excess Profits Tax Act, 1940, even if the firm of Muthappa Co. should be held to have been dissolved before 1951 when the order of assessment was passed, the assessment of the managing agency business to excess profits tax was properly and legally effected by notice to Thyagrajan Chettiar. The facts to which we have made reference are these : Prior to the assessment year 1943-44, Thyagrajan Chettiar, as the managing partner of Muthappa Co., was submitting returns for income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the appellant that the firm had not been dissolved in 1943. At the date of the proceedings for the assessment to excess profits tax in 1951, with which Petition No. 130 of 1958 is concerned, the position, therefore, was as follows : The assertion by the appellant that the partnership was undissolved and continued its existence, contained in his letter to the Income-tax Officer in February, 1945, still held good and was backed up by the proceedings he took in the civil courts to maintain that stand. No doubt, his claim had not been upheld by the Subordinate Judge, but by the appeal that he filed, he rendered the matter res sub-judice and till the decision of the High Court in 1953, the appellant could not obviously suggest any particular date as the date of the dissolution. The submission of learned counsel which proceeds on the assumption that there was a dissolution of the firm on March 4, 1943, or on March 10, 1949---which was the date fixed by the High Court by its judgment of 1953---has to be rejected as wholly inconsistent with the contentions urged by the appellant in the civil suit and the appeal therefrom. In the circumstances, the Income-tax Officer could not be blame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of three partners carried on business under the name of P. Nagoji Rao Son, with one of them, Gannu Rao, as managing partner. The chargeable accounting periods concerned were the years from April 1, 1944, to March 31, 1946. There were quarrels among the partners which led to the filing of a suit on February 26, 1947, for dissolution and accounts by two of the partners against the managing partner. The suit was decreed on November 14, 1947, declaring the firm dissolved as and from the institution of the suit---February 26, 1947. The assessment of the business to excess profits tax was completed by notices issued subsequent to that date to Gannu Rao as managing partner and the order of assessment was passed on December 31, 1949, and a notice of demand under section 29 of the Income-tax Act was served on him. No demand notices were served on the other two partners, but proceedings for the recovery of the tax were taken against them on the strength of the notices served on Gannu Rao. These two partners moved the High Court under article 226 of the Constitution for the issue of writs of certiorari to quash the orders of assessment to excess profits tax and the proceedings for recov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment could be made on the partnership in the partnership name and the persons, who carried on the business during the chargeable accounting period will be liable to pay the tax as provided by sub-section (2) of section 14, read with section 44, Income-tax Act, as modified by the Central Board of Revenue. As section 63, Income-tax Act, is also made applicable to proceedings under the Excess Profits Tax Act, if, during the chargeable accounting period the firm carried on business as an undissolved firm and even if it became subsequently dissolved, by virtue of the provisions of section 44, the assessment could be made as if it were an undissolved firm. Under the provisions of section 63, Income-tax Act, notice under section 13 may be issued to and served on a partner of a firm. Section 63 (2) says that : ' any such notice or requisition may, in the case of a firm or a Hindu undivided family, be addressed to any member of the firm or to the manager, or any adult male member of the family and, in the case of any other association of persons, be addressed to the principal officer thereof ' So far as the assessment in the present case is concerned, even assuming that by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the firm became entitled on its managing agency agreement with the Saroja Mills Ltd. and with which amount the latter debited itself in its accounts. The company however, did not disburse this remuneration in cash, but this would make no difference to the tax liability of the firm, since the firm's accounts were made on the mercantile basis. The mills raised a dispute that the managing agents had not fulfilled certain of the obligations undertaken by them in regard to the extension of the mills by increasing the spindleage, by reason of which default they claimed to have suffered a loss of income and for that reason carried the amount of their cross claim for damages to a suspense account, instead of crediting the entire amount of managing agency remuneration to the firm. The sum of which immediate payment was thus withheld was Rs. 89,137. At the time of the income-tax assessment for the corresponding period, Thyagrajan Chettiar---who as the managing partner of the firm participated in these proceedings---had urged the contention that as the mills had withheld remuneration to the extent of Rs. 89 thousand odd and had not credited that amount to the managing agents, the sum could no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liable to pay the tax " within section 29 of the Income-tax Act, which runs : " When any tax, penalty or interest is due in consequence of any order passed under or in pursuance of this 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. " It was further urged that as in the present case there had been no notice of demand under section 29 of the Income-tax Act specifically addressed to and served on the appellant, he could not become an " assessee in default ", neither would the tax payable by him become " an arrear " as to permit the invocation of the coercive process under section 46(2) for recovery. (2) That the procedure for recovery enacted in sections 45 to 47 including section 46(2) were confined in their application to " assessees " and " assessees in default " and did not apply to the class of " other persons liable to pay the tax " as against whom the filing of a suit for the recovery of the tax and the execution of decrees in such suits was the only machinery through which the tax liability of this class could be enforced. For t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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