Y. NARAYANA CHETTY & ANOTHER vs. THE INCOME-TAX OFFICER, NELLORE AND OTHERS

CIVIL APPEAL No. 317/1957Supreme Court1958 INSC 8615 October 1958Bench: 3 JudgesAuthor: T.L. VENKATARAMA AIYYAR, P.B. GAJENDRAGADKAR, A.K. SARKAR15 pages
AI SummaryDismissed

What were the facts?

Three firms, registered under Section 26-A of the Indian Income-tax Act, 1922, were assessed for the assessment years 1943-44 and 1944-45 as separate entities. Subsequently, the Income-tax Officer issued notices under Section 34 of the Act to one of the partners, C, on behalf of the firms. Following an inquiry, the Income-tax Officer determined that the firms were fictitious, cancelled their registration under Rule 6B of the Income-tax Rules, and passed fresh assessment orders treating them as unregistered firms. The partner Y and C filed writ petitions in the High Court challenging these orders. The High Court dismissed the petitions, but granted certificates for appeal to the Supreme Court.

What did the Supreme Court hold?

The Supreme Court held that Rule 6B of the Income-tax Rules was not inconsistent with Section 23(4) of the Act and was not ultra vires. Rule 6B dealt with the cancellation of registration when a firm was found not to be genuine at the time of registration, whereas Section 23(4) dealt with cancellation due to failure to comply with legal requirements for a genuine firm. The Court found Rule 6B valid as it served the purpose of the Act. The absence of an appeal provision against an order under Rule 6B did not invalidate the rule. The Court also noted that the assessee had received notice and an opportunity to be heard, rendering the argument about lack of notice academic. Furthermore, the Court held that in the case of registered firms, the firms themselves were the assessees, and therefore, notices issued under Section 34 to the firms and served on a partner were valid and proper. It was not necessary to serve individual partners. The Court also declined to consider the contention that the revised assessments were illogical, stating it was a matter of merits that could be raised in appeals against the assessment orders, not in a writ petition under Article 226 which concerns jurisdiction.

What were the issues?

1. Whether Rule 6B of the Income-tax Rules, empowering the Income-tax Officer to cancel the registration of a firm found not to be genuine, is inconsistent with Section 23(4) of the Act and therefore ultra vires? The assessee contended that Rule 6B was ultra vires as it was inconsistent with Section 23(4) and that the cancellation of registration was without jurisdiction and void. The revenue argued that Rule 6B was valid and intended to carry out the purpose of the Act. 2. Whether the notices issued under Section 34 of the Act on the firm through its partner were valid and proper, considering that the individual partners were the assessees? The assessee argued that the proceedings under Section 34 were invalid because the required notice was not issued to the individual partners. The revenue contended that for registered firms, the firms themselves were the assessees, making notices served on the firms valid.

Which sections of the Income-tax Act were involved?

Section 23,Section 23(4),Section 26A,Section 34

AI-generated summary — verify with the full judgment below

(1) S,C.R. SUPREME COURT H.EPOl{iTS 189 In the result, this appeal is allowed, tho order of the Court below is set aside and the reference is answered in the affirm<\tive. 'fhe respondent will pay the costs of the appellant here and in the Court below.

The Con1111issim1er of luconw-Tax. /11har and Orissa '"

Appeal allowed.

Shri Uuniakrisll'na lJ<'O Y. NAP.AYANA CHETTY & ANOTHER v. THE INCOME-TAX Ol!'F'ICER, NI!~LLORE AND OTHERS (VENKATARAMA AIYAR, GAJENDRAGADKAlt and A. K. SARKAR, JJ.)

Income-tax-Rule empowering Income-tax Officer to cancel r.:gistration of firm found not he genuine-Validity of-Registered firm, if an assessee-Service of notice on firm through partner, if valid a11d proper-Writ P.ctition, ijlies 11gai11st illegal assessment- Indian Income-tax Act, z922 (XI of z922), ss. 23, 34-:-Income-tax Rules, r. 6B-Constitution of India, Art. 226. Two persons, B ai;id C, formed a partnership firm on April 20, i936, and the firm was dissolved on March 31, i948. B ancl .c aloug with R formed a second firm on July 3'>. HJ41, an<! it was dissolved on March 31, 1949· B and C along with five others formed a third firm on December l, 1941, and it was disso

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 23

All 559 judgments and leading authorities on Section 23 →

Recent GST High Court judgments

Search GST case law →