E. M. Muthappa Chettiar v. The Income-Tax Officer Special Circle, Coimbatore

Section: CONCLUSION KM. MUTHAPPA CHETTIAR v. 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 manag-rng 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 dissolu-tion of the firm and thereupon the appellant sued him for dis-solution 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 con-sequent 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 . 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 ]. 1960 789 1960 1960 792 With in Civil Appeal 107 of 1956 was sought to be proceed-ed 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 (refer-red to hereafter as the appellant) sought alRo to im-pugn the legality of the order of assessment fu Excess •¢<> 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 Cun-c;,<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 prece-dence over the challenge to the legality of the procee-dings 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 Coim-batore 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 provi-sions 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 challen-ged 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 '9[[60 ]]Chettiar v. 793 1960 be after notice to the assessee. In the present case, '9[[60 ]]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. . · CtYcle, Coimbatofb , In our opinion there are two a.nswers to this sub-mission,· 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 repre-sentative 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· dissolv-ed before 1951 when the order of assessment was passed, the assessment of the managing agency busi-ness 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, Thyag-rajari 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 news-paper "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 cir-cumstance. 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 795 1960 1 796 1960 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. Ayya>1gar - -]. has been filed against him in the Coi1nhatore Suh-Court 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! dissolu-tion by Thyagrajau Cheltiar in 1943. J<'rorn 'this judg-ment- 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 proceed-ings 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 1 796 1960 797