E. M. MUTHAPPA CHETTIAR versus THE INCOME-TAX OFFICER SPECIAL CIRCLE, COIMBATORE

788

SUPREME COURT REPORTS

[1961]

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

789

. No separate notice of demand under s. 29 of the Indian 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 Profits Tax Act, 1940, the appellant was an assessee within the 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

Chett.iar ·v.

1960

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 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

IOI

790

SUPREME COURT REPORTS

[1961]

•¢<>

c11e1110, v.

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· h1b1t1011 for w hwh he had prayed, adding e.lsu the.t there 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 ;;;:;., J. writ of certiorari or other appropriate writ to qua.sh A 1 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 is under batore district. The assessment which 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

1 S.C.R. SUPREME COURT REPORTS

791

60

'9

·

In the present case,

be after notice to the assessee. 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 the pa.rties was the managing partner. But it was Th• Incom•-tax 1 urged that there had been a dissolution of the firm as 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.

5 .Officer, CtYcle, Coimbatofb , _

.P'""

. ·

h

v.

f

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

•

792

8l:PRE:ITE COl'RT REPORT8

[ 1961 l

v.

- - Ayya>1gar ].

replied" I wish to inform you tlrnt '.\Tessrs. l\Iuthappa i96n " u -;; / & Co. has been formed as per tho deed of partnership · ·(;,;,,;:';•PP• dated November 4, 1940, and the rights of the. partnrrs 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 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 In line with the position taken up by him, partner. 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 in 1948 the appellant preferred an ment- 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.

rend,•red

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

•

l S.C.R. SUPREME COURT REPORTS

793

1

60

9

v.

e

d

1g

b . d'

f th H' h Circle, Coimhatort

, . e ec1s10n o

__ Ayyangar J.

and continued its existence, contained in his letter to 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, 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 '11 th d matter res su ·JU we an t1 Court in 1953, the. appellant could not obviously sug· 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 pro- ceedings 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 con- wntion 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]

1 960

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 e ia.c s o t 1s case marntam t e pos1t10n t at t e on 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.

Chelli•• ·v.

Ayy••&•• ;.

c"'''· C<nmbato" The other answer to the submission is the.t even a.s- 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 assess to the person in ment order passed af..er notice 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 In that case a. firm consisting of three argument. the name of p1i.rtners carried on business under 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 Pro fits 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 ln oomo Tax Act was served on him. No demand notices were served on the other two partners, but proceed ings 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

196v

Chettiar v.

under Art. 226 of the Constitution for the issue of writs of Certiorari to quash the orde~s of assessment E. M. Muthappa to Excess Profits Tax and the proceedrngs for recovery . of the tax due thereunder. The order of assessment 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 refer- ence to the provisions of ss. 8 and 13 Of the Excess Profits Tax Act under which it is the "business" pro- ducing the income which is the unit of assessment for Excess Profits Tax as contrasted. with the provi- sions 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 be- half 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 associa tion, 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 provi sions 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 :

Ayyarigar 1

"The result of s. 44 as amended bv the Ceutral The lticome-tax Board of Hevm1ue is to attract the proced';iru applicable to an undieeol ved firm to a dissolved firm, and, therc Officer. spm•l <;:i"lt· Coiwbato~e fore, if two or three persona ·carry on business as a firm, the assessment could be made on the partnership in the partnership name and the persona, who carried the business during the. chargeable accounting on 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 issu ed 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 pro fits 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

'

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d

4

x96o

t e

In. the case of E. M. Muthappa

Chettiar v.

f h A t •

tho assessment of the past profits of a business carried on by a firm, since dissolved. a running business too, the assessment IS to be made on the persons, carrying on the business, jointly. In the case of the business of a firm which has been dis- The Income-tax solved it is to be made on the partners jointly and Officer, special . severally; an srnce sect10n 4 o 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 assess- ment under section 14 of the Act and for the amount of tax payable after determination."

c 1s ma e

d Cirde Coimbatore '

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. income of the managing agency of The business 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 tax liability of the firm, sines .'the firm's accounts were

IOa

798

SUPREME COlJRT REPORTS

[ 1961]

-

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•

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.

A

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k

h

b

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bl"

f h

yyantar

1960 -

E. M. Muthapoa Chwia. v.

made on the mercantile ha.sis. The Mills raised a dis- pute that the managing agents ha.d not fulfilll•d cer- I ta.m o t e o . 1ga.t1ons un<. erta. ~n y t em m ~ega.rd to the extens10n of the mills by mcreasing the spindle- n. 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· pense account, instead of crediting the entire a.mount 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 con tention 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 accru ed 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 Offi cer 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 Commis siimer 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- 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 of.that business including· the appellant. As a result, Writ Petition 130 of 1958 fails and has to be dismiss- The In,ome-ta• Officer, Special ed. Circle, Coimbator1 _· _

The point that next calls for considerat10n is the

Chettia•

v.

.

' 960

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 reco very 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 pursu ance 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 (2) the coercive process under Sf,~46(2) for recovery.

800

SCPREME COURT REPORTS

[HJ6 I]

"

d ,

· d ' J "

- - Ayyangar /.

' assessecs Ul eJa.u t

1 9° 0 - - E. M . . \tulhappa Chcttiar "·

Tha.t the procedure for recovery enacted in ss. 45 to 47 including s. 46(2) were confined in their application d ·'"d to" assessecs an 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 reco Offiw • .'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 pur- 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 pay- a.blo ",since we are clearly of the opinion that tho appellant was Ml "a.8seRsee ". i I of the Excess Profits Tax Act carries a proviso which rea.ds:

i:iccotion

" 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 part n11r 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 manag ing partner-Thyagraja.n Chettiar, and such service would be tantamount to a. notice served ou thti appel lant 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<'t tiar 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 chal lenge 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 and penalty due from him would be "an arrear" E. M. Muthappa within s. 46(2).

'9

60

We therefore hold that the proceedings for the

Chettiar 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.

St/>lember 23.

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 capi tal 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 com plying with the requirements of the section as no general meet ing 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 can not 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.