A.G Pandu Rao And Another v. Collector Of Madras And Another

Satyanarayana Rao, J.:— These two applications are by two partners of a firm known as P. Nagojee Rao & Son. The petitioners pray that this Court should issue a writ of certiorari calling for the papers and quashing the order of attachment made by the respondent 1, the Collector of Madras, at the instance of respondent 2, 1 and to prohibit him from recovering the demand amount of Rs. 88,799-6-0, which was the tax levied on the firm under the Excess Profits Tax Act for the chargeable accounting periods commencing from 1-4-1944 and ending with 31-3-1946. W.P No. 594 of 1953 was filed by Pandu Rao and W.P No. 638 of 1953 by Thyagaraja Rao. The other partner of the firm besides these two partners was Gannu Rao. The share of Gannu Rao was 3/5 and Thyagaraja Rao and Pandu Rao were each entitled to 1/5 share. The partnership, which was commenced on 1-4-1941, carried on its business without any dispute between the partners, as alleged in the affidavit filed in support of the applications, till about September 1946.

2. On 26-2-1947, a suit for dissolution of the partnership, C.S No. 89 of 1947, was instituted on, the original side of this Court in which a preliminary decree was passed on 14-11-1947 dissolving the firm as from 26-2-1947. A final decree followed and it was dated 23-11-1952. Throughout, Gannu Rao was the managing partner and after the institution of the suit, he was appointed Receiver and he was functioning as such. The firm was registered under Section 26-A of the Income-tax Act and the income-tax in respect of the business carried on by the firm was duly assessed and paid by the partners. There is no dispute as regards the income-tax payable; and throughout the returns were submitted by and the person who took part in the proceedings before the Income-tax Officer was Gannu Rao. So far as excess profits tax is concerned, there is no dispute that for the chargeable accounting years commencing from 1941 to 1944, it was duly levied on the firm and was paid by it. Here again, the return was submitted by Gannu Rao as managing partner. The dispute now relates to the excess, profits tax alone payable in respect of the chargeable accounting period, i.e, from 1-4-1944 to 31-3-1948. Proceedings under Section 13 of the Excess Profits Tax Act were commenced against the firm, and notice, it is not disputed, was served on Gannu Rao as managing partner of the firm. The assessment was finished on 31-12-1949 and the demand notice was also served on Gannu Rao both in his capacity as managing partner and also as Receiver, appointed in C.S No. 89 of 1947.

3. No demand notice was separately served on the other partners, viz., the petitioners before us and the only notice they had was the notice of demand issued by the Revenue Department for collection of the tax and the subsequent attachment of the property of the two partners by the Revenue Department. It is after this that these petitions were ??? by the two petitioners, impugning the validity of the assessment on the ground, that they never had any notice either under Section 13 of the Excess Profits Tax Act, or after the assessment was finalised as required by Section 29 of the Income-tax Act, which applies also to Excess Profits Tax Act. On this ground, it is claimed that the assessment order should be quashed, and in any event as no demand notice under S. 29 was served upon these partners individually, the attachment proceedings should not be allowed to continue.

4. The short question is, whether, in view of the facts above stated, the contentions urged on behalf of the petitioners are well-founded. The basis of the whole argument on behalf of the petitioners by their learned advocate is, that after the dissolution was effected by virtue of the preliminary decree dated 14-11-1947 with effect from 26-2-1947 the date on which the suit for dissolution was instituted, any proceedings taken by the department under the provisions of the Excess Profits Tax Act against Gannu Rao alone would not bind them and, therefore, the assessment as well as the proceedings consequent upon it do not in any manner bind them.

5. ??? the machinery provided under the Income-tax Act enabling a firm to get itself registered with a view to have the tax liability apportioned between the sharers under Section 23(5) of the Act, there is no provision in the Excess Profits Tax Act to register a firm and to apportion the tax liability between the partners of the firm as under Section 23(5) of the Act. The procedure under the Excess Profits Tax Act, by which assessment proceedings are initiated is laid’ down in Section 13 of the Act. Notice to furnish a return in the prescribed form and verified in the prescribed manner, with respect to the chargeable “accounting period, of the profits of the business during the period it is proposed to levy excess profits tax, should be issued to the person, whom the department believes to be engaged in the business to Which the Act applies.

6. Under S. 14, the assessment has to be made by the Excess Profits Tax Officer to the best of his judgment in respect of the profits liable to excess profits tax. Under sub-s. (2) of S. 14, excess profits tax payable in respect of any chargeable accounting period shall be payable by the person carrying on the business in that period. “Person” is defined in the Excess Profits Tax Act as including a Hindu undivided family, but, in the absence of any further definition under the Act, one has necessarily to fall back upon the definition of “person” in the General Clauses Act, which includes also an association of persons. Under sub-s. (3) of S. 14 it is provided that in the case of a partnership carrying on business in the chargeable accounting period, the assessment may be made in the partnership name.

7. Section 21 of the Excess Profits Tax Act, applies certain sections of the Income-tax Act to” proceedings under the Excess Profits Tax Act, but subject, however, to any modification that may be made by the rules under the rule-making power conferred under the Act. Amongst such sections, which are made applicable, Ss. 44 and 63 are important. Section 25-A of the Income-tax Act has not been made applicable to proceedings under the Excess Profits lax Act and as pointed out by this Court in — ‘Commissioner of excess Profits Tax, Madras v. Jivaraj Topun & Sons, Madras’, AIR 1951 Mad 952 (A), there was a lacuna in the Act and, therefore, if by the time the notice under S. 13 is issued, the joint family which carried on the business became divided, the assessment under the Act could not be made on the members of the undivided family. But no such difficulty arises in the case of a dissolved partnership as Section 44 of the Income-tax Act which is made applicable to Excess Profits Tax Act by Section 21 of the said Act, and which was modified by the Central Board of Revenue under its rule-making power, provides that

“in the case of a dissolved firm, the partners are jointly and severally liable to assessment under Section 14 of the Excess Profits Tax Act, for the amount of tax payable and all the provisions of the said Act shall, so far as may be applicable, apply to such assessment”.

8. It, therefore, follows that, assuming that by the date of the issue of the notice under S. 13, the firm became dissolved, still the machinery provided by Sections 13 and 14 of the Excess Profits Tax Act could be availed of and the partners even after dissolution continue to be jointly and severally liable to assessment under Section 14 of the Act for the amount of tax payable after determination. The result of S. 44 as amended by the Central Board of Revenue is to attract the procedure applicable to an undissolved firm to a dissolved firm, and, therefore, if two or three persons carry on business as a firm, the assessment could be made on the partnership in the partnership name and the persons, who carried on the business during the chargeable accounting period will be liable to pay the tax as provided by sub-Section (2) of Section 14, read with Section 44 of the Income-tax Act, as modified by the Central Board of Revenue.

9. As Section 63 of the 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 provisions of S. 44, the assessment could be made as if it were an undissolved firm. Under the provisions of Section 63 of the Income-tax Act, notice under S. 13 may be issued to and served on a partner of a firm. Section 63(2) says that

“any such notice or requisition in the case of a firm or a Hindu undivided family, be addressed to any member of the firm or to the manager or any adult male member of the family and in the case of any other association of persons be addressed to the principal officer thereof.’

10. So far as the assessment in the present cases concerned, even assuming that by the date notice under S. 13 was issued, the firm became dissolved, the machinery provided under the Act for the service of notice under S. 63 can be availed of by serving notice on the partner. Notice, therefore, to a partner is treated as notice to all.

11. There is, however, one important circumstance in this case, even apart from any other question, viz., that Gannu Rao was appointed Receiver in the partnership action and had, therefore, power and authority to act not only on his behalf but also on behalf of the all the members of the firm, i.e, the petitioners as well. The assessment, therefore, cannot be challenged by the petitioners on the ground that individual notices under Section 13 of the Act were not served upon them after the dissolution of the firm by that date from the records we are not able to say whether by the time the notice was issued, the firm was dissolved or not. Therefore, it is that we have dealt with the case on either basis.

12. As regards the complaint that notices for payment were not served individually under Section 29 of the Income-tax Act, we think that even there the service of notice on Gannu Rao is sufficient. Under Section 29 of the Income-tax Act, notice of demand may be served upon “the assessee or other person liable to pay such tax.”

13. The assessee in this case is the firm, and, therefore, if a notice is served in the manner laid down under Section 63 of the Act, the service of such notice tantamount to service of notice upon all the individual partners of the firm. Even apart from that, at any rate undoubtedly after the assessment was made in the year 1949, though the firm was dissolved, Gannu Rao was acting as Receiver. In fact he made returns both to the income-tax authorities and the excess profits tax authorities in the dual capacity as managing partner and Receiver. When, to the knowledge of all the partners, he submitted returns under the Income-tax Act, signing as managing partner and Receiver, and no objection was taken by the other partners on the ground that by reason of the quarrels between them Gannu Rao ceased to represent them and that he had no authority to sign on their behalf, it is too late now for the petitioners to deny that Gannu Rao had authority or power to represent them.

14. In fact, the assessments under the Income-tax Act made before and after dissolution were accepted without dispute by the present petitioners, though notice was served under the Income-tax Act for the assessment and also for payment under S. 29 only upon Gannu Rao. The same procedure was followed for the chargeable accounting period preceding the year now under dispute, by Gannu Rao submitting a return to the excess profits tax authorities, and it was not disputed. We, therefore, think that the notice served in such circumstances on Gannu Rao both under Section 13 of the Act and also under Section 29 of the Income-tax Act, were valid and therefore, the proceedings cannot be said to be without jurisdiction so as to empower this Court to interfere by quashing the proceedings by issuing a writ as prayed for. The requirements, in our opinion, of Section 63 of the Income-tax Act, were amply satisfied in the present case by the notice of demand served upon Gannu Rao. Since the liability of the several partners is joint and several under Section 44 of the Act, and since admittedly the tax demanded under S. 29 was not paid, each of them became a “defaulter”.

15. In the result, both petitions are dismissed with costs Rs. 125 in each.

D.R.R

16. Petitions dismissed.