# [1961] 1 S.C.R. 788

- **Citation:** [1961] 1 S.C.R. 788
- **Court:** Supreme Court of India
- **Decided:** 1961
- **Bench:** S. K. DAs, M. Hm.u ATULLAli, K. C. DAs GuPTA, J.C. Shah, N. H.Uagopala Ayyangar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/1961-1-s-c-r-788-2228
- **Pages:** 14

## Headnote

.
Excess l'rofits 1'ax-Assesstnent by service of nnt~·ces on managrng partner--Validity-lf bindi11g on ti" other partner-Tax. if can
be recovered by issue of cutijicaJe-E.<crss Profits Tax Act, I940
(XV of I940), ss. 8, IJ, 21-Indian Income-:ax Act, 1922 (XI of
I922), SS. 29, 44, 46(2).
The firm consisting of the appellant and another, carrying
on managing agency business, was on March 31, 1951, assessed
to excess profits tax for the year 1942 and the broken period from
January, 1943 to ~larch 4, 1943· The prescribed notices were
served not on the appellant but ori the other partnc= who, under
the terms oi the partnership deed, was the managing partner.
On March 4, 1943, the managing partner gave notice of dissolution of the firm and thereupon the appellant sued him for dissolution from such date as might be specified by the court. The
trial Court upheld the dissolution as and from the date notified
by the managing partner but on appeal the High Court by its
judgment rendered in 1953 fixed March 10, 1949· as the date of
the dissolution. An appeal taken to the Supreme Court from
this deci~ion of the High Court was still pending. The appellant
challengetl the validity of the order of assessment and the consequent proceedings for recovery of the tax assessed, under
Art. 226 of the Constitution on the grounds, (a) that there was
a dissolution of the firm on March 4, 1943, and that notices
served thereafter on the managing partner would not hind
him, (b) that there was no demand of the tax due from him
under s. 29 of the Indian Income-tax Act and that, consequently,
the tax could not be recovered from him under s. 46(2) of the
Act, but the High Court dismissed his application.
Held, that the appellant could not be allowed to plead a
prior dissolution and .the assessment was binding on him.
Even ·assuming that the partnership stood dissolved on the
date of the assc5sment, his position would not be different.
Under the Excess Profits Tax Act, 1940, the unit of assessment
was not the firm but the business, and an order of assessment
passed after notice to the managing partner would be valid and
binding on the appellant under s. 44 of the Indian Income-tax
Act, 1922, as modified by the Central Board of Revenue under
s. 21 of the Excess Profits Tax Act, 1940.
A.G. Pandu Rao v. Collector of Madras, (1954) 26 I.T.R. 99 and
Bose v. Manindra Lal Goswami, (1957) 33 I.T.R. 435, approved.
1 S.C.R. SUPREME COURT REPORTS
789
.
No separate notice of demand under s. 29 of the Indian
1960
Income-tax Act, specifically addressed to the appellant, was
necessary in order to recover the tax by the mode prescribed by E. M. Muthappa
s. 46(2) of the Act. Under the proviso to s. 21 of the Excess
Chett.iar
Profits Tax Act, 1940, the appellant was an assessee within the
·v.
meaning of s. 29 of the Indian Income-tax Act, 1922, and the
The Income-tax
notice of demand served on the managing partner was notice to
Offim, Special
the appellant by virtue of s. 63 of the latter Act made applica- Cfrcle, Coimbatore
able bys. 21 of the former.
CIVIL APPELLATE
JURISDICTION:
Civil Appeal
Xo. 107 of 1956.
Appeal by special leave from the judgment and
order dated January 21, 1954, of the Madras High
Court in W. P. No. 498of1952.
With
Petition No. 130 of 1958.
Petition under Art. 32 of the Constitution of India
for the enforcement of Fundamental Rights.
M. R. M. Abdul Karim and K; R. Choudhri, for the
appellant (in C. A. No. 107/56) and Petitioner (In
Petn. 130/58).
K. N. Rajagopala Sastri and D. Gupta, for the res-.
pondents (in both the appeal a.nd petition).
1960. September 21.
The Judgment of the Court
was delivered by
AYYANGAR J.-Muthappa Chettiar, the appellant
Ayyangar ].
in Civil Appeal 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 498 of 1952 before the High Co

## Text

788
SUPREME COURT REPORTS
KM. MUTHAPPA CHETTIAR
v.
[1961]
THE I~;Clr'.fE-TAX. 0F.FICE!{, SPECIAL
CJRCLE, COIMBA'.lORE
(S. K. DAs, .M. Hm.u ATULLAli, K. C. DAs GuPTA,
J.C. SHAH and N. H.UAGOPALA AYYANGAR, JJ.)
.
Excess l'rofits 1'ax-Assesstnent by service of nnt~·ces on managrng partner--Validity-lf bindi11g on ti" other partner-Tax. if can
be recovered by issue of cutijicaJe-E.<crss Profits Tax Act, I940
(XV of I940), ss. 8, IJ, 21-Indian Income-:ax Act, 1922 (XI of
I922), SS. 29, 44, 46(2).
The firm consisting of the appellant and another, carrying
on managing agency business, was on March 31, 1951, assessed
to excess profits tax for the year 1942 and the broken period from
January, 1943 to ~larch 4, 1943· The prescribed notices were
served not on the appellant but ori the other partnc= who, under
the terms oi the partnership deed, was the managing partner.
On March 4, 1943, the managing partner gave notice of dissolution of the firm and thereupon the appellant sued him for dissolution from such date as might be specified by the court. The
trial Court upheld the dissolution as and from the date notified
by the managing partner but on appeal the High Court by its
judgment rendered in 1953 fixed March 10, 1949· as the date of
the dissolution. An appeal taken to the Supreme Court from
this deci~ion of the High Court was still pending. The appellant
challengetl the validity of the order of assessment and the consequent proceedings for recovery of the tax assessed, under
Art. 226 of the Constitution on the grounds, (a) that there was
a dissolution of the firm on March 4, 1943, and that notices
served thereafter on the managing partner would not hind
him, (b) that there was no demand of the tax due from him
under s. 29 of the Indian Income-tax Act and that, consequently,
the tax could not be recovered from him under s. 46(2) of the
Act, but the High Court dismissed his application.
Held, that the appellant could not be allowed to plead a
prior dissolution and .the assessment was binding on him.
Even ·assuming that the partnership stood dissolved on the
date of the assc5sment, his position would not be different.
Under the Excess Profits Tax Act, 1940, the unit of assessment
was not the firm but the business, and an order of assessment
passed after notice to the managing partner would be valid and
binding on the appellant under s. 44 of the Indian Income-tax
Act, 1922, as modified by the Central Board of Revenue under
s. 21 of the Excess Profits Tax Act, 1940.
A.G. Pandu Rao v. Collector of Madras, (1954) 26 I.T.R. 99 and
Bose v. Manindra Lal Goswami, (1957) 33 I.T.R. 435, approved.
1 S.C.R. SUPREME COURT REPORTS
789
.
No separate notice of demand under s. 29 of the Indian
1960
Income-tax Act, specifically addressed to the appellant, was
necessary in order to recover the tax by the mode prescribed by E. M. Muthappa
s. 46(2) of the Act. Under the proviso to s. 21 of the Excess
Chett.iar
Profits Tax Act, 1940, the appellant was an assessee within the
·v.
meaning of s. 29 of the Indian Income-tax Act, 1922, and the
The Income-tax
notice of demand served on the managing partner was notice to
Offim, Special
the appellant by virtue of s. 63 of the latter Act made applica- Cfrcle, Coimbatore
able bys. 21 of the former.
CIVIL APPELLATE
JURISDICTION:
Civil Appeal
Xo. 107 of 1956.
Appeal by special leave from the judgment and
order dated January 21, 1954, of the Madras High
Court in W. P. No. 498of1952.
With
Petition No. 130 of 1958.
Petition under Art. 32 of the Constitution of India
for the enforcement of Fundamental Rights.
M. R. M. Abdul Karim and K; R. Choudhri, for the
appellant (in C. A. No. 107/56) and Petitioner (In
Petn. 130/58).
K. N. Rajagopala Sastri and D. Gupta, for the res-.
pondents (in both the appeal a.nd petition).
1960. September 21.
The Judgment of the Court
was delivered by
AYYANGAR J.-Muthappa Chettiar, the appellant
Ayyangar ].
in Civil Appeal 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 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
107 ofl95jl has been filed on specialleave obtained from
this Court.
During the hearing by the High Court, of
Writ Petition 498of1952, Muthappa. Chettiar (referred to hereafter as the appellant) sought alRo to impugn the legality of the order of assessment fu Excess
IOI
790
SUPREME COURT REPORTS
[1961]
•¢<>
Profits Te.x.
The learned Judges held however the.t.
E. M. M~•happa sue~ .a. content.ion was not germane to the writ of pro·
c11e1110,
h1b1t1011 for w hwh he had prayed, adding e.lsu the.t there
v.
were no merits in the "grounds urged.
To a. void a.ny
Tile 1.,...,., .... technical objection, the appellant has filed ;n this
Offim, Spuial Court Petition 130 of 1958 under Art. 3:! of the Cunc;,<1,, Coimbato"stitution in which the prayer is for the grant of a
A1;;;:;., J.
writ of certiorari or other appropriate writ to qua.sh
the order of assessment to Excess Profits Tax, a.nd the
Appeal e.nd the Petition being thus inter-related have
been heard together.
We she.II first take up for consideration the matters
urged in the Writ Petition, e.s logically having precedence over the challenge to the legality of the proceedings for the recovery of the tax. The facts necessary
to appreciate the points urged arc briefly these: The
a.ppelle.nt e.nd Thye.gre.je.n Chettiar (implee.ded as the
second respondent in Civil Appeal 107 of 1956) were
partners in a. firm no.med Muthappa & Co. started in
November, 1940, e.nd the firm was the managing agent
of a textile Mill ca.lied Saroja Mills Ltd., in the Coimbatore district.
The assessment which is under
challenge is for the Excess Profits Tax liability of this
managing agency business and the relevant che.rgee.hle
accounting periods a.re the calendar year 1942 and
the broken period January 1, IIJ43, to March 4, 1943.
The Jie.bility of the, firm to Income-Tax for . the same
periods was assessed by the Income-Tax Officer by his
orders dated March 15, 1948, by applying the provisions of s. 23(5)(b) of the Income-tax Act, 1922, and
the appellant pa.id, when demanded, his share of the
tax and there is now no dispute a.bout the propriety
of that assessment. The income of the managing
agency business was computed for Excess Profits Tax
at the same figure as for assessment to Income Ta.x,
and the assessment for the two chargeable accounting
periods was completed by the Ex.cess Profits '!a.x
Officer by his order dated March 31, 1951, and 1t 1s
the validity of this order of assessment that is challenged in Petition 130 of 1958.
The first matter urged in support of the petition
may be set out thus: An assessment to be valid must
1 S.C.R. SUPREME COURT REPORTS
791
be after notice to the assessee. In the present case,
'960
the assessment was admittedly completed by serving E. M. Muthappa
the prescribed notices on Thyagrajan Chettiar alone, .
Chettiar
who according to the terms of the partnership between
v.
the pa.rties was the managing partner. But it was Th• Incom•-tax
urged that there had been a dissolution of the firm as .Officer, 5.P'""1
·
f
h
CtYcle, Coimbatofb ,
and from March 4, 1943, that therea ter t e partner_
ship ceased to exist, and with it the mutual agency
Ayyangar J.
between the partners, with the result that Thyagraja.n
Chettiar could not represent the firm which had cea.s.
ed to exist nor the a.ppella.nt. On these premises it
was submitted that the a.ssessment of the business to
Excess Profits Tax a.fter notices only to Thyagra.jan
Chettiar could not bind the firm nor at any rate bind
the appellant.
. ·
In our opinion there are two a.nswers to this submission,· either of which would suffice to reject the
appellant's plea: (l) That on the facts of the present
case the appellant is precluded from plea.ding tha.t the
firm had been dissolved at the date of the assessment
in 1951 and from raising a.ny objection to the representative character of Thyagrajan Chettiar .• (2) Tha.t
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, Thyagrajari Chettiar, as the managing partner of Muthappa
& Co. was submitting returns for Income•tax and was
conducting the assessment proceedings on behalf of
the firm. Thyagrajan Chettiar published in the newspaper "Hindu" a· notice announcing the dissolution
of the firm as and from March 4, 1943, and followed
it up by informing the Income Tax Officer of this circumstance. Thereafter the Income Tax Officer wrote
to the" appellant enquiring whether the firm of Muth-
•
a.ppa & Co. had been dissolved and if so from what
date. By letter dated February 1, 1945, the appellant
792
8l:PRE:ITE COl'RT REPORT8
[ 1961 l
i96n
replied" I wish to inform you tlrnt '.\Tessrs. l\Iuthappa
" u -;; /
& Co. has been formed as per tho deed of partnership
· ·(;,;,,;:';•PP• dated November 4, 1940, and the rights of the. partnrrs
v.
are also retrictcd therein. But l\Ir. Thyagrajan Chettiar
TM!"'"'""'"' my partner has acted deliberati-ly b<•yond the ~cope
_ Otlimcspuial of the partncrHhip deed in issuing a notice of diss<•lu-
,,, 1'· ,o,.nhato" tion of partnership on me on March 4, 1!143, and a suit.
- -
has been filed against him in the Coi1nhatore Suh-Court
Ayya>1gar ].
and is pending.
Pending disposal of tho said suit I
regret I am unable to accept tho allPged diosolution or
t-o give the date of dissoluti(ln of partnership ca.lted
for in your letter". Ta.king tll<' appellant at his word
fhe income-tax a.ssessruent was completed after notice
to Thyagra.jan Chottiar as ~he continuing managing
partner.
In line with the position taken up by him,
disputing that the firm had been diss(llved by the al'!s
or conduet of Thyagrajan Chettiar, th1· appellant filed
a suit in the Sub-Court at Coimbatore contesting the
Yalidity of Thyngrajan Chettiar'H notice of dis~ol11tion
dated Mal'ch 4, 1943, praying for a declnratiou that
the purported dissolution of the firm by Thyagrajan
Chettiar was i11v1ilid and inoperat.ive, hinrnelf seeking
a decree for dissolution from a date to be specified by
the Court and for rendition of acrounts on foot of a
subsi8ting partnership till the date
HIJ tixed.
Thr
l:'ubordinate Judge upheld the validity of tlu! dissolution by Thyagrajau Cheltiar in 1943. J<'rorn 'this judgment- rend,•red in 1948 the appellant preferred an
appeal to the High f;ourt.
This appc>al was heard in
1953 when the High Court allowed the appeal and
fixed the date of dissolution as on March IO, 1949. lt
is stated that a further appeal from this judgment. of
the High Court is pending in this Court, so that even
now the precis11 date on which the firm should b" ht<ld
to be dissolvrd is a matter of uncerta.int.y.
l<'rom the above it would be seen that it bas always
been the case of the appellant that tho firm had not
been dissolved in 1943.
At the date of the proceedings for the assessment to ExccHs Profits Tax in,1951,
with which Petition 130 of 1958 is concerned, the
position therefore was as follows: The assertion by
the appellant that the partnership was undissolved
•
l S.C.R. SUPREME COURT REPORTS
793
and continued its existence, contained in his letter to
1 9
60
the Income Tax Officer in February, 1945, still held E
M. Muthappa
good J!.lld was backed up by the proceedings he took in ·
Chettiar
the Civil Courts to maintain that stand. No doubt,
v.
his claim had not been upheld by the Subordinate The Income-tax
Judge, but by the appeal that he filed, he rendered the _Officer, speciai
b . d'
d '11 th d , .
f th H' h Circle, Coimhatort
matter res su ·JU we an t1
e ec1s10n o
e
1g
__
Court in 1953, the. appellant could not obviously sug·
Ayyangar J.
gest any particular date It'> 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 J-figh 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 blamed for treat.
ing the f:i,-m as in existence and similarly the Excess
Profits Tax Otricer also. It was common ground that
at the date the Excess Profits Tax Officer started proceedings for assessment, the appellant had filed an
appeal against the judgment of the Subordinat.e Judge
in U. S. 50 of 1946 and the same was pending in the
High Court and that it was only in 1953 that the
appeal was disposed of.
The contention now urged
before us was, that as the High Court had held that
the firm should be treated as having been dissolved as
and from March 10, 1949, the issue of any notice to
Thyagra.jan Chettiar as the managing partner of the
firm was invalid and the assessment proceedings com.
pleted on that basi8 would also be illegal. If the conwntion of the appellant were to prevail it would mean
that the validity or otherwise of the assessment order
would be retrospectively determined by the result of
the appellant's appeal which was pending before the
High Court, so that if the High Court had held that
the firm should be treated as dissolved only on the
date of its judgment in 1953, the assessment would be
valid but that if the High Court had fixed the date" of
dissolution on some date earlier than Maroh 31, 1951,
the assessment would be deemed invalid. This argu·
ment has only to be stated to be rejeoted. When this
794
SUPRE:\IE COURT REPORTS
[1961]
1960
asper• of the matter wa.R put to learned Counsel for
E. M. -;.;;.,hoppo theta.hp'!.b;:a.t nt,f hh~ fairly c~nce?od htha.t .h~ couhld nhot
Chelli••
on
e ia.c s o t 1s case marntam t e pos1t10n t at t e
·v.
order of assessment to Excess Profits Tax was vitiated
The Income-I•• because of the alleged disruption of the firm of
.off"''• Special Muthappa & Co. before the date of that order.
c"'''· C<nmbato"
The other answer to the submission is the.t even a.sAyy••&•• ;. surning that the firm of Mutha.ppa. & Co. had been in
fact dis8olved on some date anterior to the a.Rsessment
of the managing agenoy business to Excess Profits
Tax, that would not .affect the validity of an assessment order passed af..er notice to the person in
management of the business during the chargeable
accounting periods, since it we.s not the firm but "the
business" that was the unit of assessment. In this
oonneotion learned Counsel for the appE1lle.nt drew our
attention to a. decision of the Madras High Court in
A.G. Pandu Rao v. Collector of MadrM ('),and stated
that it was a.ge.inRt him and directly covered the point
a.nd if correct would lee. ve no scope for any further
argument.
In that case a. firm consisting of three
p1i.rtners carried on business under the name of
P. Nagoji Rao & S.on, with one of them Ga.nnu Rao as
managing-partner. The chargeable accounting periods
concerned were the yea.rs from April l, 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
age.inst the managing-partner. The suit was decreed
on November 14, 1947, declaring the firm dissolved as
and from the jnstitution of the suit-February 26,
1947. The assessment of the business to Exoess Profits Tax was oompleted by notices issued subsequent
to that date to Ga.nnu Rao as managing-partner and
the order of assessment was passed on December 31,
1949, and a notice of demand under s. 29 of the lnoomo 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 ta.ken age.inst
them on the strength of the notioes served on Gannu
Rao. These two partners moved the High Court
(1) (1954) :z6 l.T.R. 99-
I S.C.R. SUPREME COURT REPORTS
795
under Art. 226 of the Constitution for the issue of
196v
writs of Certiorari to quash the orde~s of assessment E. M. Muthappa
to Excess Profits Tax and the proceedrngs for recovery
Chettiar
. of the tax due thereunder. The order of assessment
v.
was impugned on the ground that by virtue of the The Income-ta•
decree in the suit, there had been a dissolution of the
Officer; Special
firm and that Gannu Rao having ceased to have Circle, Coimbator~
authority to represent the firm· or the other partners,
Ayyangar J.
the assessment could have been legally completed
only by· notices under s. 13 of the Excess Profits Tax
Act being served individually on the other partners,
and that the tax could be recovered only after notices
to each of them under s. 29 of the Income Tax Act.
The learni.;d Judges repelled these objections by reference to the provisions of ss. 8 and 13 Of the Excess
Profits Tax Act under which it is the "business" producing the income which is the unit of assessment for
Excess Profits Tax as contrasted. with the provisions of the Indian Income t&x Act under which the
unit of a~sessment is either the individual, Hindu
undivided family, firm, company or association of
persons, carrying on the income-earning activity (vide
s. 3 of the Income Tax Act-which has not been made
applicable to the Excess Profits Tax Act under s. 21
of the latter Act). Under the provisions of the Excess
Profits Tax Act, where a. partnership carrying on a.
business becomes disrupted and the Excess Profits
earned by the business· before its dissolution have to
be assessed the assessment has to be made under s. 44
of the Income tax Act as modified by the Central
Boa.rd of Revenue under the power vested in that behalf by s. 21 of the Act and as so modified s. 44 runs:
" Where any business carried on by a firm or
associatiOn of persons has been discontinued, every
person who was at the time of such discontinua.Il,lle a
partner of such firm or a member of such association
shall, in respect of the profits of the firm or association, be jointly and severally liable to asseBBment
under section 14 .of the Excess Profits Tax Act, 1940,
and for the a.mount of tax payable, and all the provisions of the said Act shall, so far as may be, apply to
any such assessment."
i96
SlJPHEl\IE COURT REPORTS
[Hl61]
1 960
The effect of this and other cognate provision~ was
r-:. M. Muthappa th_us e~plaincd by the learned Judges of the Madras
Chettinr
H 1gh Court :
~.
"The result of s. 44 as amended bv the Ceutral
The lticome-tax Board of Hevm1ue is to attract the proced';iru applicable
Officer. spm•l to an undieeol ved firm to a dissolved firm, and, therc-
<;:i"lt· Coiwbato~e fore, if two or three persona ·carry on business as a
Ayyarigar 1
firm, the assessment could be made on the partnership
in the partnership name and the persona, who carried
on the business during the. chargeable accounting
period will be liable to pay the tax ae provided by
sub-s. (2) of s. 14, read with s. 44, Income-tax Act, as
modified by the Central Board of Revenue.
As s. 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
prov isione of s. 44, the a.seeesment could be made ae if
it were an undissolved firm.
Under the provisions of
s. 63, Income-tax Act, notice under e. 13 may be issued to and served on a partner of a firm. Section 63(2)
ea.ye that
" Any such notice or req uieition may, in the case of
a firm or a Hindu undivideded family, be addressed
to any member of the firm or t-0 the manager or any
adult male member of the family and in the ca.ee of
any other aBBociation of persons be addressed to the
principal officer thereof."
So far as the assessment in the present case is
concerned, even assuming that by the date notice
under s. 13 was isaued, the firm became diBBolved, the
machinery provided under the Act for the service
of notice under e. 63 can be availed of by serving
notice on the partner. Notice, therefore, to a partner
ie trea.ted as notice to all."
Ae observed by Chakravartti, C. J., in Base v.
Manindra Lal Goswami('):
"It will thus be ~oon that in the case of excess
profits tax, there ie no difference in the method of
assessment prescribed for the &SSesemeot of the profits of a running business and tha.t prescribed for
(1) (1957) 33 l.T.R. 435, 447 •
l S.C.R. SUPREME COURT REPORTS
797
tho assessment of the past profits of a business
x96o
carried on by a firm, since dissolved.
In. the case of E. M. Muthappa
a running business too, the assessment IS to be made
Chettiar
on the persons, carrying on the business, jointly. In
v.
the case of the business of a firm which has been disThe Income-tax
solved it is to be made on the partners jointly and
Officer, special
'
d .
.
4
f
h
A t •
d Cirde Coimbatore
severally; an srnce sect10n 4
o t e
c
1s ma e
'
applicable to the assessment of pre-dissolution profits
Ayyangar 1.
of the busineAs of a dissolved firm, such assessment
can obviously be made in the partnership name. It
was obviously in view of these provisions that the
learned Judge in the Madras case stated that even
assuming that the firm had 'been dissolved by the
date of the issue of the notice under section 13, still,
the machinery provided for by sections 13 and 14 of
the Act could be ·availed of and the partners would
continue to be jointly and eeverally liable to assessment under section 14 of the Act and for the amount
of tax payable after determination."
In our opinion, the passages extracted correctly
express the legal position resulting from the relevant
provisions of the Excess Profits Tax Act, 1940.
We,
therefore, hold that the notice served on Thyagrajan
Chettiar was valid and was binding on the appellant
and that there is no basis for challenging the legality
of the assessment to Excess Profits Tax.
.
Before leaving the question of the validity of this
order of assessment dated March 31, 1951, a minor
point was made to which it is necessary to advert.
The business income of the managing agency of
Muthappa & Co. was computed at Rs. 1,02,219 for the
1st chargeable accounting period, viz., the calender
year 1942, and at Rs. 6,387 for the broken period
January I, 1943, to March 4, 1943.
These figures
which were the same as those in the assessment for
income-tax were based on the remuneration to which
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 taxliability of the firm, sines .'the firm's accounts were
IOa
798
SUPREME COlJRT REPORTS
[ 1961]
1960
made on the mercantile ha.sis.
The Mills raised a dis-
-
pute that the managing agents ha.d not fulfilll•d cerE. M. Muthapoa
•
f h
bl"
.
I
k
b
h
.
Chwia.
' ta.m o t e o . 1ga.t1ons un<. erta. ~n y t em m
~ega.rd
v.
to the extens10n of the mills by mcreasing the spindlen. l>1come-tax age, by reason of which default they claimed to ha.ve
Office" Sperial suffered a loss of income a.nd for that reason carried
Circle, Coimbatore the a.mount of their cross claim for da.ma.ges to a. BUB·
A
-
1
pense account, instead of crediting the entire a.mount
yyantar
.
.
.
of ma.na.gmg agency remunera.lton to the firm.
The
sum of which immediate payment wa.s thus withheld
was Rs. 89,137.
At the time of the Income Ta.x
a.8sessment for the corresponding period, Thya.gra.ja.n
Chett.ia.r-who a.s the ma.na.ging-pa.rtner of the firm
participated in these proceedings, had urged the contention tha.t a.s the Mills had withheld remuneration
to the extent of Rs. 89 thousand odd and had not
credited tha.t a.mount tG the managing agents, the
sum could not be treated a.s the income of the firm
for the assessment year. This objection was overruled
on the ground that the Mills had never disputed that
the entire a.mount of Rs. one la.kh odd wa.s due by
them to the firm a.nd in fa.ct ha.d claimed to deduct
that entire sum a.a part of their business expenditure.
The sum of Rs. one la.kh odd wa.s due by them to the
firm a.nd in fa.ct ha.d claimed to deduct that entire
sum a.s pa.rt of.their business expenditure. The sum
of Rs. one la.kh odd wa.s therefore held to have accrued to the firm a.s its income a.nd that this remained
unaffected by the existence of the cross claim. The
conte.,tion which wa.s repelled by the Income Ta.x Officer wa.s addressed to us as a ground for disputing the
inclusion of the Rs. 89 thousand odd as the income of
the firm in its ExceBB Profits Ta.x a.BBessment.
We
see no substance in the point urged. Learned Counsel
referred us to the decision of this Court in Commissiimer of Income·tax, Madras v. K. R. M. T. T.
Thiagaraja Chetty &, Co. (') and to the observations a.t
p. 261.
We consider ~he.t the deci~ion ~a.r from sup·
porting the appellant 1i(i'ea.lly a.gamst him.
There a.re therefore no legal grounds for impugning
(1) [19~] S.C.R. a58.
1 S.C.R. SUPREME COURT REPORTS
799
the validity of the order of assessment to Excess Pro-
' 960
fits Tax dated March 15, 1951, and we consider that E. M. Muthappa
the same is binding on the business and on the own!JrS
Chettia•
of.that business including· the appellant. As a result,
v.
Writ Petition 130 of 1958 fails and has to be dismissThe In,ome-ta•
Officer, Special
ed.
.
Circle, Coimbator1
The point that next calls for considerat10n is the
_· _
subject matter of Civil Appeal 107 of 1956 and this is
Ayyangar J.
whether the Excess Profits Tax assessed could be
validly recovered from the appellant by resort to the
machinery for collection provided by s. 46 of the
Income Tax Act.
The argument of learned Counsel for the appellant
in regard to this point. was on the following lines:
Sections 45 to 47 of the Income Tax Act, 1922,
which provide for the recovery of Income-tax by
coercive process, no doubt apply for the recovery of
Excess Profits Tax by virtue of their inclusion in s. 21
of the Excess Profits Tax Act as provisions applicable
to the latter Act, and by reason of the -assessment on
the firm of Muthappa & Co. the appellant became
liable to pay the Excess Profits Tax assessed. It was
nevertheless urged that the coercive process for recovery of his tax liability under s. 46(2) of the Income
Tax Act could not be invoked against the appellant,
the submission being rested on two propositions :
(1) That the appellant was not an "assessee" but
only a "person liable to pay the tax " within s. 29 of
the Income Tax Act-which runs:
"When any (tax, penalty or interest) is due iri
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 dem&nd in the
prescribed form specifying the sum so pay!!>ble."
It was further urged that as in the present case
there had been no notice of demand under s. 29 of the
Income Tax Act Rpecifically 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 tq,permit the invocation of
the coercive process under Sf,~46(2) for recovery. (2)
800
SCPREME COURT REPORTS
[HJ6 I]
1 9° 0
Tha.t the procedure for recovery enacted in ss. 45 to
- -
47 including s. 46(2) were confined in their application
E. M ..
\tulhappa
"
d ,
· d '
J "
d ·'"d
Chcttiar
to" assessecs
an ' assessecs Ul eJa.u t
a.11
u1 not
"·
a.pply to the class of" other persons liable to pa"y the
n, Tncv•nH•• tax" as against whom the filing of a suit for the recoOffiw • .'ip"ial verv of the tax and tho execution of decrees in such
Cfrc/c, Coi;nbato.r suits was the only mac:hinery through which the tax
- -
liability of this elass could be enforced. .For the purAyyangar /.
poseH of this ca~<' we do not eonsidr-r it necessary to
deal with the larger second question a.s to whether
the expression "assessee" 1in<l "asscsse<• in default"
in 88. 45 & 46 of thn Income Tax Act, 1922, Hhould he
held to be confined to "asscssees" as distinguished
from "other persons liable to pay such tax " as these
expressions occur in s. 29 of the Act, or whether· the
ex μrcssion " assessee " when it occurs in ss. 45 t-0 4 7
should he understood as detii1ed in s. 2(2) as including
"every person by wliom income.tax ............... is paya.blo ",since we are clearly of the opinion that tho
appellant was Ml "a.8seRsee ".
i:iccotion i I of the
Excess Profits Tax Act carries a proviso which
rea.ds:
" Provided tha.t references in the said provisions
to the assess<·e shall be construed as references to a
person to whose business this Act applies".
In view of this provision tho a.μpellant as the partn11r of tho "business" to which "this Act applies"
would be "an a.ssessee "-and not merely an "other
person liable to pay the tax".
He would also Le an
"ao;sessee in default" and the amount due from him
would be an arrear since the notice of demand under
e. 29 of the I noomo Tax Act was served on the managing partner-Thyagraja.n Chettiar, and such service
would be tantamount to a. notice served ou thti appellant himself by reason of s. 63 of the Income Tax Act.
Indeed tho entire ha.sis on which the a.ssossment pro.
ccedings completed after notice to Thyagra.jan Ch<'ttiar a.a the maoa.ging-partner of ~luthappa & Co. lutve
bcon held by us to be binding on the aμpel'nnt would
preclude any argument of the type advanced to challenge the bindiug character of the notices served. The
appella.ot was clearly a.u " a.ssossee in default" within
I S.C.R. SUPREME COURT REPORTS
801
s. 46(1) of the Income.tax Act and th~ amount of tax
'960
and penalty due from him would be "an arrear" E. M. Muthappa
within s. 46(2).
Chettiar
We therefore hold that the proceedings for the
v.
recovery of the Excess Profits Tax could properly be The Income-tax
taken and that the order of the High Court dismissing .officer. s_pccial
the appellant's petition for the issue of a writ ofCmle, c_oimbatore
prohibition was correct.
Ayyanga• J.
The appeal fails and is dismissed with costs. The
petition is also dismissed but as these two have been
heard together there will be no order as to costs in the
petition.
Both the Appeal and the Petition dismissed.
THE STATE OF BOMBAY
v.
BANDHAN RAM BHANDANI AND OTHERS.
(JAFER IMAM, l'.\.. K. SARKAR and
K. c. DAS GUPTA, JJ.)
Company-General meeting not called wilfully-Whether it
can be a defence-Indian Companies Act, I9I3 (VII of r9r3). as
amended by Companies Act, I9J6 (22 of I9J6), ss. 5, 32(5), IJI and
I33(3).
The respondents, directors of a company, were prosecuted
under ss. 32(5) and 133(3) of the Companies Act, r913, for
breaches of ss. 32 and 131 of that Act for having knowingly and
wilfully authorised the failure to file the summary of share capital for the year 1953 and being knowingly and wilfully parties
to the failure to lay before the company in general meeting the
balance sheet and profit and loss account as at March 31, 1953·
The respondents contended that there was no default in complying with the requirements of the section as no general meeting had been held in the year concerned.
Held-A person charged with an offence cannot rely on his
default as an answer to the charge and so, if the respondents
were responsible for not calling the general meeting, they cannot be heard to say in defence to the charges brought against
them that the general meeting had not been called.
The company and its officers were bound to perform the
conditions precedent, if they could do that, in order that they
might perform their duty.
St/>lember 23.