Case: E. M. Muthappa Chettiar Vs. The Income-Tax Officer, Specialcircle, Coimbatore

expenditure. The sum of Rs. One lakh odd was due by them to the firm and in fact had claimed to deduct that entire sum as part of their business expenditure. The sum of Rs. one lakh odd was therefore held to have accrued to the firm as its income and that this remained unaffected by the existence of the cross claim. The contention which was repelled by the Income-tax Officer was addressed to us as a ground for disputing the inclusion of the Rs. 89 thousand odd as the income of the firm in its Excess Profits Tax assessment. We see no substance in the point urged. Learned Counsel referred us to the decision of this Court in Commr. of Income-tax, Madras v. K. R. M. T. T. Thiagaraja Chetty and Co. 1954 SCR 258 : (AIR 1953 SC 527 ) and to the observations at p. 261 (of SCR) : (at p. 528 of AIR). We consider that the decision far from supporting the appellant is really against him. 11. There are therefore no legal grounds for impugning the validity of the order of assessment to Excess Profits Tax dated March 15, 1951, and we consider that the same is binding on the business and on the owner of that business including the appellant. As a result Writ Petition 130 of 1958 fails and has to be dismissed. 12. The point that next calls for consideration is the subject matter of Civil Appeal 107 of 1956 and this is 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. 13. The argument of learned Counsel for the appellant in regard to this point was on the following lines : 14. 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 and Co. the appellant became liable to pay the Excess Profits Tax assesseed. 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 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 S. 29 of the Income-tax Act specifically addressed to and served on the appellant, he could not become an "assessee indefault", neither would the tax payable by him become "an arrear" as to permit the invocation of the coercive process under S. 46(2) for recovery. (2) That the procedure for recovery enacted in Ss. 45 to 47 including S. 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 the purposes of this case we do not consider it necessary to deal with the larger second question as to whether the expression "assessee" and "assessee in default" in Ss. 45 and 46 of the Income-tax Act, 1922, should be held to be confined to "assessees" as distinguished from "other persons liable to pay such tax" as these expressions occur in S. 29 of the Act, or whether the expression "assessee" when it occurs in Ss. 45 to 47 should be understood as defined in S. 2(2) as including "every person by whom income-tax . . . is payable", since we are clearly of the opinion that the appellant was an "assessee". Section 21 of the Excess Profits Tax Act carries a proviso which reads :"Provided that references in the said provisions to the assessee shall be construed as reference to a person to whom business this Act applies." 15. In view of this provision the appellant as the partner of the "business" to which "this Act applies" would be "an assessee" - and not merely an "other person liable to pay the tax." He would also be an "assessee in default" and the amount due from him would be an arrear since the notice of demand under S. 29 of the Income-tax Act was served on the managing partner - Thyagrajan Chettiar and such service would be tantamount to a notice served on the appellant himself by reason of S. 63 of the Income-tax Act. Indeed the entire basis on which the assessment proceedings completed after notice to Thyagrajan Chettiar as the managing-partner of Muthappa and 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 S. 46(1) of the Income-tax Act and the amount of tax and penalty due from him would be "an arrear" within S. 46(2). 16. We therefore hold that the proceedings for the recovery of the Excess Profits Tax could properly be taken and that the order of the High Court dismissing the appellants petition for the issue of a writ of prohibition was correct.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]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 and 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 ChettiarThe assertion by the appellant that the partnership was undissolved an 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 blamed for treating the firm as in existence and similarly the Excess Profits Tax Officer 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 Subordinate Judge in O. 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 ofhe 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 Thyagrajan Chettiar as the managing partner of the firm was invalid and the assessment proceedings completed on that basis would also be illegal. If the contention 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 appellants 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 if dissolution on some date earlier than March 31, 1951, the assessment would be deemed invalid. This argument has only to be stated to be rejected. When this aspect of the matter was put to learned Counsel for the appellant, he fairly conceded that he could not on the facts of this case maintain to position that the order of assessment to Excess Profits Tax was vitiated because of the alleged disruption of the firm of Muthappa and Co. before the date of that order7. The other answer to the submission is that even assuming that the firm of Muthappa and Co. had been in fact dissolved on some date anterior to the assessment of the managing agency business to Excess Profits Tax, that would be affect the validity of an assessment order passed after notice to the person in management of the business during the chargeable accounting periods, since it was not the firm but "the business" that was the unit of assessment15. In view of this provision the appellant as the partner of the "business" to which "this Act applies" would be "an assessee" - and not merely an "other person liable to pay the tax." He would also be an "assessee in default" and the amount due from him would be an arrear since the notice of demand under S. 29 of the Income-tax Act was served on the managing partner - Thyagrajan Chettiar and such service would be tantamount to a notice served on the appellant himself by reason of S. 63 of the Income-tax Act. Indeed the entire basis on which the assessment proceedings completed after notice to Thyagrajan Chettiar as the managing-partner of Muthappa and 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 S. 46(1) of the Income-tax Act and the amount of tax and penalty due from him would be "an arrear" within S. 46(2)16. We therefore hold that the proceedings for the recovery of the Excess Profits Tax could properly be taken and that the order of the High Court dismissing the appellants petition for the issue of a writ of prohibition was correct.