# C. A. ABRAHAM, UPPOOTTIL, KOTTAYAM v. THE INCOME-TAX OFFICER, KOTTAYAM AND ANOTHER

- **Citation:** [1961] 2 S.C.R. 765
- **Court:** Supreme Court of India
- **Decided:** 1961
- **Case number:** Civil Appeal No. 517 of 1958
- **Bench:** J. L. Kapur, M. HIDAYATULLAH a.nd J. c. SHAH
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/c-a-abraham-uppoottil-kottayam-v-the-income-tax-officer-kottayam-and-another-2038
- **Pages:** 8

## Headnote

Income-tax-Suppression of income of partnership firmPenalty, if can be imposed after dissolution of partnership-Incometax Act, r9zz (II of r9zz), ss. z8(r)(c). 44.
The appellant who was carrying on business in food grains
in partnership with another person submitted the returns of the
income of the firm for the accounting years even after his part·
ner's death. It was found that certain income of the firm was
concealed and the Income-tax Officer not only assessed the firm
to tax for the suppressed income but also imposed penalties for
concealing the said income. Appeals to the higher income tax
authorities failed and the appellant then applied to the High
Court for a writ of certiorari quashing the orders of assessment
and imposition of penalty on the ground inter alia that the firm
was dissolved by his partner's death and no penalty could be
imposed after dissolution of the firm,
The High Court ·rejected
the petition. On appeal with the certificate of the High Court,
Held, that by virtue of s. 44 and other provisions of the
Income Tax Act a partner of a dissolved partnership firm may
not only be made liable to assessment for income tax for the
accounting years but despite dissolution of the firm he may be
made liable to pay penalty for concealing the income of the
firm under s. 28(1)(c) of the Act. The analpgy of dissolution
of a Hindu Joint Family does not apply to dissolution of a partnership.
Mareddi Krishna Reddy v. ln~ome-tax Officer, Tenali, [1957]
31 I.T.R. 678, approved.
•I
•
'
.
• ·
Commissioner of Income-tax v. Ra_yalaseema Oil Mills, [1959]
37 I.T.R. 208 and S. v. Veerappan Chettiar v. Commissioner of
Income-tax, Madras, [1957] 32 I.T.R. 4II, disapproved.
MahankaU Subbarao v. Commissioner of Income-tax, [1957] 31
I.T.R. 867, distinguished.
·
,
The Legislature intended that the provisions of Ch. IV of
the Act shall apply to a firm even after discontinuance of its
business. In interpreting a fiscal statute the Court cannot proceed. to make good deficiencies if there be any. In case of doubt
it should be interpreted in favour of the tax payer.
The expression "assessment" has different connotations and
has been use.d in its widest connot~tion in Ch. IV and s. 44 of
97
November 119.
766
SUPREME COURT REPORTS
[1961]
x960
the Act. · It is not restricted only to computation of tax but includes imposition of penalty on tax payers found in the process
C. A. Ab•aham, of assessment guilty of concealing income.
Uppoollil,
Commissioner of Income-tax, Bombay Presidency and Aden v.
Kollayam
Khemchand Ramdas, [1938] 6 I.T.R. 414, referred to.
T
v.
The Income-tax Act provided a complete machinery for
O'ffih• Income-lax obtaining relief against improper orders passed by the Income-
"" Kollayam tax Authorities and the appellant could not be permitted to
.s. Anolh.,
abandon that machinery, and invoke the jurisdiction of the
High Court under Art. 226 of the Constitution against the orders
SAah J.
of the taxing authorities.

## Text

2 S.C.R. SUPREME COURT REPORTS
765
C. A. ABRAHAM, UPPOOTTIL, KOTTAYAM
v.
THE INCOME-TAX OFFICER, KOTTAYAM
AND ANOTHER
(J. L. KAPUR, M. HIDAYATULLAH a.nd
J. c. SHAH, JJ.)
Income-tax-Suppression of income of partnership firmPenalty, if can be imposed after dissolution of partnership-Incometax Act, r9zz (II of r9zz), ss. z8(r)(c). 44.
The appellant who was carrying on business in food grains
in partnership with another person submitted the returns of the
income of the firm for the accounting years even after his part·
ner's death. It was found that certain income of the firm was
concealed and the Income-tax Officer not only assessed the firm
to tax for the suppressed income but also imposed penalties for
concealing the said income. Appeals to the higher income tax
authorities failed and the appellant then applied to the High
Court for a writ of certiorari quashing the orders of assessment
and imposition of penalty on the ground inter alia that the firm
was dissolved by his partner's death and no penalty could be
imposed after dissolution of the firm,
The High Court ·rejected
the petition. On appeal with the certificate of the High Court,
Held, that by virtue of s. 44 and other provisions of the
Income Tax Act a partner of a dissolved partnership firm may
not only be made liable to assessment for income tax for the
accounting years but despite dissolution of the firm he may be
made liable to pay penalty for concealing the income of the
firm under s. 28(1)(c) of the Act. The analpgy of dissolution
of a Hindu Joint Family does not apply to dissolution of a partnership.
Mareddi Krishna Reddy v. ln~ome-tax Officer, Tenali, [1957]
31 I.T.R. 678, approved.
•I
•
'
.
• ·
Commissioner of Income-tax v. Ra_yalaseema Oil Mills, [1959]
37 I.T.R. 208 and S. v. Veerappan Chettiar v. Commissioner of
Income-tax, Madras, [1957] 32 I.T.R. 4II, disapproved.
MahankaU Subbarao v. Commissioner of Income-tax, [1957] 31
I.T.R. 867, distinguished.
·
,
The Legislature intended that the provisions of Ch. IV of
the Act shall apply to a firm even after discontinuance of its
business. In interpreting a fiscal statute the Court cannot proceed. to make good deficiencies if there be any. In case of doubt
it should be interpreted in favour of the tax payer.
The expression "assessment" has different connotations and
has been use.d in its widest connot~tion in Ch. IV and s. 44 of
97
November 119.
766
SUPREME COURT REPORTS
[1961]
x960
the Act. · It is not restricted only to computation of tax but includes imposition of penalty on tax payers found in the process
C. A. Ab•aham, of assessment guilty of concealing income.
Uppoollil,
Commissioner of Income-tax, Bombay Presidency and Aden v.
Kollayam
Khemchand Ramdas, [1938] 6 I.T.R. 414, referred to.
T
v.
The Income-tax Act provided a complete machinery for
O'ffih• Income-lax obtaining relief against improper orders passed by the Income-
"" Kollayam tax Authorities and the appellant could not be permitted to
.s. Anolh.,
abandon that machinery, and invoke the jurisdiction of the
High Court under Art. 226 of the Constitution against the orders
SAah J.
of the taxing authorities.
CIVIL APPELLATE JURISDICTION:
Civil Appeal
No. 517 of 1958.
Appeal from the judgment and order dated October 31, 1957, of the Kera.la. High Court in 0. P. No.
215 of 1957.
G. B. Pai and Sardar Bahadur, for the appellant.
Hardyal Hardy and D. Gupta, for the respondents.
1960. November 29.
The Judgment of the Court
was delivered by
SHAH, J.-C. A. Abraham hereinafter referred to as
the appellant and one M. P. Thomas carried on business in food grains in partnership in the name and
style of M. P. Thomas & Company at Kotte.yam.
M. P. Thomas died on October 11, 1949. For the
account yea.rs 1123, 1124 and 1125 M.E. corresponding
to August 1947-Jrily 1948, August 1948-July 1949
and August 1949-July 1950, the appellant submitted as
a partner returns of the income of the firm as an unregistered firm.
In the course of the assessment proceedings, it was discovered that the firm had carried
on transactions in different commodities in fictitious
names and had failed to disclose substantial income
earned therein. By order dated November 29, 1954,
the Income Tax Officer assessed the suppressed income
of the firm in respect of the assessment year 1124
M.E. under the Tra.va.ncore Income Tax Act and in
respect of assessment years 1949-50 and 1950-51 under
the Indian Income Tax Act and on the same day
issued notices under s. 28 of the Indian Income Tax
Act in respect of the years 1949-50 and 1950-51 and
2 S.C.R. SUPREME COURT REPORTS
767
under s. 41 of the Travancore Income Tax Act for the
z96o
year 1124 M.E., requiring the firm to show cause why c A -;; h
penalty should not be imposed. These notices were · uppoo~~;/m,
served upon the appellant.
·
Kottaya,,;
The Income Tax Officer after considering the explav.
nfation of th~ appellant fimhposed pe
1
n1a
2
1
4
tyMuEponRthe
2
fir
00
m
0 01;;,~ •.
1
nJ.:o;:;;~~X,,,
o Rs. 5,000 m respect o t e year
. .,
s. ,
a;. Another
in respect of the year 1950-51 and Rs. 22,000 in
respect of the year 1951-52. Appeals against the
Shah J.
orders passed by the Income Tax Officer were dismissed by the Appellate Assistant Commissioner. The
appellant then applied to the High Court of Judicature
of Kerala praying for a writ of certiorari quashing the
orders of assessment and imposition of penalty. It
was claimed by the appellant inter alia that after the
dissolution of the firm by the death of M. P. Thomas
in October, 1949, no order imposing a penalty could be
passed against the firm. The High Court rejected the
application following the judgment of the Andhra
Pradesh High Court in Mareddi Krishna Reddy v.
Income Tax Officer, Tenali (1 ).
Against the order
dismissing the petition, this appeal is preferred with
certificate of the High Court.
In our view the petition filed by the appellant
should . not have been entertained. The Income Tax
Act provides a complete machinery for assessment of
tax and imposition of penalty and for obtaining relief
in respect of any improper orders passed by the
Income Tax authorities, and .the appellant could not
be permitted to abandon resort to that machinery and
to invoke the jurisdiction of the High Court under
Art. 226 of the Constitution when he had adequate
remedy open to him by an appeal to the Tribunal.
But the High Court did entertain the petition and has
also granted leaV'e to the appellant to appeal to this
court .. The petition having been entertained and
leave having been granted, we do not think that we
will be justified at this stage in dismissing the appeal
in limine. On the merits, the appellant is not entitled
to relief. The Income Tax Officer found that the
appellant had, with a view to evade payment of tax,
(I) {1957) 31 l.T.R. 678.
768
SUPREME COURT REPORTS
(1961]
•96o
deliberately concealed Dl!\terial particulars of his
income. Even though the firm was carrying on transacc. ~PP~!;,::,•m. tions in food grains in diverse names, no entries in
Ko11ayam
respect of those transactions in the books of account
v.
were posted and false credit entries of loans alleged to
Th• 1 .. ,ome-tax, have been borrowed from several persons were made.
Offi':'·AKohttayam The conditions prescribed bys. 28(l)(c) for imposing
C>'
not er
f
penalty were therefore ulfilled.
But says the appelShah J.
!ant, the assessee firm had ceased to exist on the death
of M. P. Thomas, and in the absence of a provision in
the Indian Income Tax Act whereby liability to pay
penalty may be imposed after dissolution against the
firm under s. 28(l)(c) of the Act, the order was illegal.
Section 44 of the Act at the material time stood as
follows:
"Where any business, ... carried on by a firm ......
has been discontinued ... every person who was at the
time of such discontinuance ... a partner of such firm,. ..
shall in respect of the income, profits and gain of the
firm be jointly and severally liable to assessment
under Chapter IV for the amount of tax payable and
all the provisions of Chapter IV shall, so far as may
be, apply to any such assessment."
That the business of the firm was discontinued
because of the dissolution of the partnership is not
disputed. It is urged however that a proceeding for
imposition of penalty and a proceeding for assessment
of income-tax are matters distinct, and s. 44 may be
resorted to for assessing tax due and payable by a
firm business whereof has been discontinued, but an
order imposing penalty under s. 28 of the Act cannot
by virtue of s. 44 be passed. Section 44 sets up
machinery for assessing the tax liability of firms which
have discontinued their business and provides for
three consequences, (1) that on the discontinuance of
the business of a firm, every person who was at the
time of its discontinuance a partner is liable in respect
of income, profits and gains of the firm to be assessed
jointly and severally, (2) each partner is liable to pay
the amount of tax payable by the firm, and (3) that
the provisions of Chapter, so far as may be, apply to
such assessment. The liability declared by s. 44 is
2 S.C.R. SUPREME COURT REPORTS
769
undoubtedly to assessment under Chapter IV, but the
196°
expression "assessment" used therein does not merely
t t.
f .
Th
·
"
C. A. Abraham,
mean compu a ion o mcome.
e express10n assessuppoottil,
ment" as has often been said is used in the Income
Kottayam
Tax Act with different connotations. In Commissioner
v.
of Income Tax, Bombay Presidency &i Aden v. KhemThe Income-tax,
chand Ramdas (1 ), the Judicial Committee of the Privy Officer,
Kottayam
Council observed:
& Another
"One of the peculiarities of most Income-tax Acts
Shah J.
is that the word "assessment" is used as meaning
sometimes the computation of income, sometimes the
determination of the amount of tax payable and sometimes the whole procedure laid down in the Act for
imposing liability upon the tax-payer. The Indian
Income-tax Act is no exception in this respect ......... ".
A review of the provisions of Chapter IV of the Act
sufficiently discloses that the word "assessment" has
been used in its widest connotation in that chapter.
The title of the chapter is "Deductions and Assessment". The section which deals with assessment
merely as computation of income is s. 23; but several
sections deal not with computation of income, but
determination of liability, machinery for imposing
liability and the procedure in that behalf. Section ISA
deals with advance payment of tax and imposition of
penalties for failure to carry out the provisions th.erein. Section 23A deals with power to assess individual
members of certain companies on the income deemed
to have been distributed as dividend, s. 23B deals with
assessment in case of departure from taxable territories, s. 24B deals with collection of tax out of the
estate of deceased persons; s. 25 deals with assessment
in case of discontinued business, s. 25A with assessment after partition of Hindu Undivided families
and ss. 29, 31, 33 and 35 deal with the issue of
demand notices and the filing of appeals and for
reviewing assessment and s. 34 deals with assessment
of incomes which have escaped assessment.
The
expression "assessment" used in these sections is not
used merely in the sense of computation of income
and there is in our judgment no ground for holding
(I) [1938] 6 I.T.R. 414,
'
770
SUPREME COURT REPORTS
Ll961]
x960
that when by s. 44, it is declared that the partners or
members of the association shall be jointly and sevec. A. Abraham,
II 1. bl
,
· uppoottil,
ra y ia e to assessment, it is only intended to declare
Kottayam
the liability to computation of income under s. 23 and
v.
not to the application of the procedure for declaraTh• lncom•-tax tion and imposition of tax liability and the machinery
OfficeY,
Kottayam for enforcement thereof. Nor has the expression "all
IS- Another
. .
'
the provisions of Chapter IV shall so far as may be
Shah J.
apply to such assessment" a restricted content: in
terms it says that all the provisions of Chapter IV
shall apply so far as may be to assessment of firms
which have discontinued their business. By s. 28, the
liability to pay additional tax which is designated
penalty is imposed in view of the dishonest contumacious conduct of the assessee. It is true that this
liability arises only if the Income-tax Officer is satisfied
about the existence of the conditions which give him
jurisdiction and the quantum thereof depends upon
the circumstances of the case. The penalty is not
uniform and its imposition depends upon the exercise of
discretion by the Taxing authorities; but it is imposed
as a part of the machinery for assessment of tax liability. The use of the expression "so far as may be" in
the last clause of s. 44 also does not restrict the application of the provisions of Chapter IV only to those
which provide for computation of income. By the
use of the expression "so far as may be" it is merely
intended to enact that the provisions in Ch. IV which
from their nature have no application to firms will
not apply thereto by virtue of s. 44.
In effect, the
Legislature has enacted by s. 44 that the assessment
proceedings may be commenced and continued against
a firm of which business is discontinued as if discontinuance has not taken place. It is enacted manifestly
with a view to ensure continuity in the application of
the machinery provided for assessment and imposition
of tax liability notwithstanding discontinuance of the
business of firms.
By a fiction, the firm is deemed to
continue after discontinuance for the purpose of assesment under Chapter IV.
The Legislature has expressly enacted that the provisions of Chapter IV shall apply to the assessment of
2 S.C.R. SUPREME COURT REPORTS
771
a business carried on by a firm even after discontinuz96o
ance of its business, and if the process of assessment c A Ab h
includes taking steps for imposing penalties, the plea · uppo:i~il"m·
that the Legislature has inadvertently left a lacuna in
Kott"Y".,;
the Act stands refuted. It is implicit in the contenv.
tion of the appellant that it is open to the partners of The Income-t":J
a firm guilty of conduct exposing them to penalty Officer, K011"Y"m
und_er s. 28 to evade penalty by the simple expedient
& Another
of discontinuing the firm.
This plea may be accepted
Sh"h J.
only if the court is compelled, in view of unambiguous
language, to hold that such was the intention of the
Legislature. Here the language used does not even
tend to such an interpretation. In interpreting a
fiscal statute, the court cannot proceed to make good
deficiencies if there be a.ny: the court must interpret
the statute as it stands and in case of doubt in a manner favourable to the tax~payer. But where as in the
present case, by the use of words capable of comprehensive import, provision is made fop imposing liability for penalty upon tax-payers guilty of fraud, gross
negligence or contumacious conduct, an assumption
that the words were used in a restricted sense so as to
defeat the a.vowed object of the Legislature qua a certain class will not be lightly ma.de.
Counsel for the appellant relying upon MahankaU
Bubbarao v. Commissioner of Income Tax (1), in which
it wa.s held that a.n order imposing penalty under
s. 28(1 )( c) of the Indian Income Tax Act upon a. Hindu
Joint Family after it ha.d disrupted, and the disruption wa.s accepted under s. 25A( 1) is invalid, because
there is a. la.cuna. in the Act, submitted tha.t a. similar
lacuna. exists in the Act in relation to dissolved firms.
But whether on the dissolution of a. Hindu Joint
Family the liability for penalty under s. 28 which ma.y
be incurred during the subsistence of the family cannot bejmposed does not fall for decision in this ca.se:
it ma.y be sufficient to observe that the provisions
of s. 25A and s. 44 a.re not in pa.ri ma.teria.. In
the absence of a.ny such phraseology in s. 25A as is
used in s. 44, no real analogy between the content of
tha.t section ands. 44 ma.y be assumed. Undoubtedly,
(1) [1957] 31 I.T.R. 867.
772
SUPREME COURT REPORTS
(1961]
1960
by s. 44, the joint and several liability which is declared is liability to assessment in respect of income, proc. !4. Abrahani, fi
,
f
fi
h h h
d
uppoollil,
ts or gams .o a rm w ic
as iscontinued its busiKottayam
ness, but if in the process of assessment of income, prov.
fits or gains, any other liability such as payment of
Th• In,ome-ta• penalty or liability to pay penal interest as is providOffi"'· Kottayam d
d
25
b
(2)
d
ISA
b
(
&- Anothe
e un er s.
, su _ -~·
or ~n er s.
su -ss. 4),
~
(6), (7), (8) and (9) is mcurred, it may also be imposed,
Shah J.
discontinuation of the business notwithstanding.
In our view, Chief Justice Subba Rao has correctly
stated in Mareddi Krishna Reddy's case (supra) that:
"Section 28 is one of the sections in Chapter IV.
It imposes a penalty for the concealment of income or
the improper distribution of profits. The defaults
made in furnishing a return of the total income, in
complying with a notice under sub-s. (4) of s. 22 or
sub-s. (2) of s. 23 and in concealing the particulars of
income or deliberately furnishing inadequate particulars of such income are penalised under that section. The defaults enumerated therein relate to the
process of assessment. Section 28, therefore, is a provision enacted for facilitating the proper assessment
of taxable income and can properly be said to apply_
to an assessment made under Chapter IV. We cannot
say that there is a lacuna in s. 44 such as that found
in s. 25A of the Act.
We are unable to agree with the view expressed by
the Andhra Pradesh High Court in the later Full
Bench decision in Commissioner of Income Tax v.
Rayalaseeroo Oil Mills (1), which purported to overrule
the judgment in Mareddi Krishna Raddy's case
(supra). We are also unable to agree with the view
expressed by the Madras High Court in S. V. Veerap·
pan Chettiar v. Commissioner -0/ Income Tax, Madras(').
In the view taken by us, the appeal fails and is dismissed with costs.
Appeal dismissed.
(1) [1959) 37 I.T.R. 208.
(2)[1957) 32 I.T.R. 411.