COMMISSIONER OF INCOME-TAX, HYDERABAD vs. SRI RAJAREDDY MALLARAM

CIVIL APPEAL No. 290/1963Supreme Court[1964] 5 S.C.R. 50820 November 1963Bench: 3 JudgesAuthor: A.K. SARKAR, M. HIDAYATULLAH, J.C. SHAH9 pages
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What did the Supreme Court hold?

The Supreme Court held that the order of assessment made by the Income-tax Officer under Section 23(4) on September 30, 1953, was not bad in law, and the respondent was liable for the amount of tax payable under that order. The Court reasoned that Section 44 of the Income-tax Act continues the personality of the association for the purpose of assessment, even after dissolution. Therefore, the assessment is made on the association as a unit, and members are jointly and severally liable. The theory that assessment is binding only on members served with notice is invalid. A notice to an appropriate person under Section 63(2) is sufficient to enable the authority to assess the association. The Court also held that the contention that the assessment was invalid due to improper service of notice under Section 63(2) could not be raised as it was not raised before the Tribunal and did not arise from the Tribunal's order. The appeal was allowed, and the respondent was directed to pay costs.

What were the facts?

An association of three persons, 'Nizamabad Group Liquor Shops', carried on business in liquor contracts for the Fasli year 1358 (October 1, 1948, to September 30, 1949). The business was discontinued, and the group dissolved at the end of Fasli year 1358. No return was filed. The Income-tax Officer issued a notice under Section 34 of the Income-tax Act to Baba Gowd, a member, to file a return for the association, which he failed to do. The Income-tax Officer then assessed the association's taxable income under Section 23(4) at Rs. 51,000, with tax payable at Rs. 8,826-14-0. Attempts to recover tax from Baba Gowd were unsuccessful. Subsequently, a notice of demand was issued to the respondent, Sri Rajareddy Mallaram, another member. The respondent applied for cancellation of the assessment, which was rejected by the Income-tax Officer. The Appellate Assistant Commissioner cancelled the assessment and directed a fresh assessment. The Income-tax Appellate Tribunal held that a valid assessment had already been made and no fresh assessment was necessary, but also directed the Appellate Assistant Commissioner to consider if the respondent had sufficient cause for not filing a return. The Tribunal referred two questions to the High Court.

What were the issues?

1. Whether the order of assessment made by the Income-tax Officer under Section 23(4) on September 30, 1953, was bad in law? (Question of law) 2. Whether the respondent was liable for the amount of tax payable as determined in that order of assessment by reason of the terms of Section 44 of the Income-tax Act? (Question of mixed law and fact) Assessee's Contentions (Respondent in Supreme Court): The respondent contended that even if the assessment after dissolution was valid, it was binding only upon those persons who were served with the notice calling for a return. He argued that the expression "every person" in Section 44 implies that all members must be individually served with a notice of assessment, and those not served would not be bound. The respondent also contended that the original assessment under Section 23(4) was invalid because notice of assessment was not served upon the Group in the manner provided by Section 63(2), as Baba Gowd was not the principal officer who could be served on behalf of the Group. This latter contention was not raised before the Tribunal. Revenue's Contentions (Appellant in Supreme Court): The revenue contended that the assessment order was valid and that the respondent was liable for the tax payable. They argued that Section 44 ensures continuity of the association's personality for assessment purposes, and a notice to an appropriate person under Section 63(2) is sufficient. The revenue also argued that the contention regarding the invalidity of the notice under Section 63(2) was not raised before the Tribunal and therefore could not be raised in the Supreme Court.

Which sections of the Income-tax Act were involved?

Section 23(4),Section 44,Section 63(2),Section 34,Section 27,Section 22(1)

AI-generated summary — verify with the full judgment below

508 SUPREME COURT REPORTS . [1964) 1963 the partners and therefore on him. The partnership agreement did not speak of market value or fair Jivarajbhai value. It stated that the purchase price or the book Ujamshi Sheth value as the. case may be alone could be taken into and others account. This meant that the book value where . v · available and the purchase price in other cases only Chrntamanrao were to enter in the calculations. There was thus Balaji an'!.._othersno option to go to fair value or market price at all. Hidayatullah J. I do not think that we should supersede the 1963 November 20. arbitration agreement under s.

19.

No circumstance was made out for such a course. I would have direc- ted a remit to the arbitrator under s. 16 of the Arbit- ration Act 1940 but my brethren take a different view of the matter and I leave the matter there. The contention of the appellants on the question of juris- diction decided against them must fail and I agree that the appeal should be dismissed with costs. Appeal dismissed. COMMISSIONER OF INCOME-TAX, HYDERABAD v. SRI RAJAREDDY MALLARAM (A.K. SARKAR, M. HIDAYATULLAH AND J.C. SHAH JJ.) Indian Income Tax Act,

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