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P.K. Ahmed Vs. the State of Karnataka - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtKarnataka High Court
Decided On
Case NumberS.T.R.P. Nos. 13 to 15 of 1980
Judge
Reported inILR1985KAR1285; [1985]58STC213(Kar)
ActsKarnataka Sales Tax Act, 1957 - Sections 5, 15(2) and 25A
AppellantP.K. Ahmed
RespondentThe State of Karnataka
Appellant AdvocateK. Srinivasan and ;S.G. Shivaram, Advs.
Respondent AdvocateS. Rajendra Babu, Government Adv.
Excerpt:
.....accident should not be penalised and he cannot be denied his right to recover the compensation from the insurer. therefore, appellant/insurance company shall pay and recover the said amount either from respondent no.3 or from respondent no.2. - 16. the decision of the supreme court in raja reddy mallaram's case [1964]51itr285(sc) would, therefore, be clearly applicable to the facts of the present case. 19. in the result, these petitions fail and are dismissed......be considered as an agent of the other partner for the purpose of the income-tax act after the firm is dissolved. 8. mr. rajendra babu, learned government advocate for the respondent, invited our attention to the two earlier decisions of the supreme court - one in c. a. abraham v. income-tax officer, kottayam : [1961]41itr425(sc) and the other in commissioner of income-tax, andhra pradesh v. sri raja reddy mallaram : [1964]51itr285(sc) . in both the decisions the supreme court considered the scope of section 44 of the income-tax act, 1922 (before amendment by finance act 11 of 1958). the said section dealt with the liability of discontinued associations and dissolved firms for assessment. 9. section 44 of the income-tax act, 1922 at the material time stood as follows : 'where any.....
Judgment:

Jagannatha Shetty, J.

1. These revision petitions raise a common question as to the validity of refusal by the assessing authority to rectify the assessment order under section 25-A of the Karnataka Sales Tax Act, 1957.

2. P. K. Ahmed, the petitioner, was one of the two partners of the dissolved firm by name M/s. Malnad Saw Mills, Mangalore. The firm did business in timber, firewood and saw-dust during the period from 1st October, 1974 to 30th September, 1976. The firm had filed a return of turnover in form No. 4 prescribed under the Karnataka Sales Tax Act during the year 1974-75. The firm was dissolved with effect from 1st October, 1977.

3. The assessing officer issued proposition notice to individual partner fixing the date of hearing on 22nd October, 1977. That notice was served on the petitioner on 25th October, 1977 and the other partner A. Mohammed on 17th October, 1977. Obviously the petitioner could not be heard on 22nd October, 1977. The other partner did not present himself for hearing. So there was an ex parte assessment order on 31st October, 1977 estimating total and taxable turnover of Rs. 59,544 and Rs. 54,104.10 respectively with a levy of tax of Rs. 2,164.

4. On 4th December, 1973 the petitioner moved the assessing authority under section 25-A of the Sales Tax Act for rectification of the ex parte assessment orders on the ground that there were patent errors in the assessment orders inasmuch as no proposition notice was served on the petitioner before the assessment was made. The assessing authority refused to accede to the request of the petitioner stating that the dissolution of the partnership took place on 1st October, 1977 and since the assessment was for a period prior to the dissolution, the notices to produce the accounts and the proposition notice in form No. 31-A served on the other partner A. Mohammed would be sufficient and valid.

5. The petitioner's appeal against the said order was dismissed by the Assistant Commissioner of Commercial Taxes (Appeals), Mangalore. The petitioner's further appeal to the Karnataka Appellate Tribunal was also in vain. The Tribunal, however, has observed that by reason of section 15(2) of the Sales Tax Act, the dissolved firm was also liable to be assessed and the service of notice to one partner would be valid as against the other. It further observed that the grievance of the petitioner that he was not served with proposition notice prior to the date fixed for hearing does not constitute a patent error calling for rectification under section 25-A of the Act.

6. Before us Mr. Srinivasan, learned counsel for the petitioner, does not dispute the power of the taxing authority to assess the dissolved firm. He, however, urged that after dissolution of the firm there is no relationship of agency as between the partners and therefore, individual notices ought to have been served on every partner before assessment. In support of the contention the learned counsel relied upon the decision of the Supreme Court in Income-tax Officer (Collection), Circle-I, Bangalore v. Mrs. A. Sattler : [1973]92ITR576(SC) .

7. The decision of the Supreme Court in Mrs. Sattler's case : [1973]92ITR576(SC) fully supports the contention urged by Mr. Srinivasan. There a dissolved firm was assessed after due notice to one partner but there was no notice to other partner. The Supreme Court held that such an order of assessment was not binding on the partner who has not been served with the notice, the reason being that that partner cannot be considered as an agent of the other partner for the purpose of the Income-tax Act after the firm is dissolved.

8. Mr. Rajendra Babu, learned Government Advocate for the respondent, invited our attention to the two earlier decisions of the Supreme Court - one in C. A. Abraham v. Income-tax Officer, Kottayam : [1961]41ITR425(SC) and the other in Commissioner of Income-tax, Andhra Pradesh v. Sri Raja Reddy Mallaram : [1964]51ITR285(SC) . In both the decisions the Supreme Court considered the scope of section 44 of the Income-tax Act, 1922 (before amendment by Finance Act 11 of 1958). The said section dealt with the liability of discontinued associations and dissolved firms for assessment.

9. Section 44 of the Income-tax Act, 1922 at the material time stood as follows :

'Where any business .... carried on by a firm ..... has been discontinued ..... every person who was at the time of such discontinuance ..... a partner of such firm : ..... shall, in respect of the income, profits and gains of the firm be jointly and severally liable to assessment under Chapter IV for the amount of tax payable and all provisions of Chapter IV shall, so far as may be, apply to any such assessment.'

10. The Supreme Court in Abraham's case : [1961]41ITR425(SC) after considering the scope of the above section observed that that section has application to a firm which had discontinued its business. It was held :

'In effect, the Legislature has enacted by section 44 that the assessment proceedings may be commenced and continued against a firm of which business is discontinued as if discontinuance has not taken place. It is enacted manifestly with a view to ensure continuity in the application of the machinery provided for assessment and imposition of tax liability notwithstanding discontinuance of the business of firms. By a fiction, the firm is deemed to continue after discontinuance for the purpose of assessment under Chapter IV.'

11. The above statement of law has been reiterated by the Supreme Court in Sri Raja Reddy Mallaram's case : [1964]51ITR285(SC) with a further observation that a notice to the appropriate person would be sufficient to enable the authority to assess to tax the association or the firm and the plea that the individual members who were not served personally with the notice of assessment are not liable to pay the tax assessed cannot be sustained.

12. The provisions of section 44 of the Income-tax Act, 1922 as it then stood are almost similar to rule 43 of the Karnataka Sales Tax Rules, 1957 which provides :

'43. Liability for payment of tax and penalty in respect of a firm, etc., discontinued or dissolved. - (1) When any business carried on by a firm, a Hindu undivided family or an association has been discontinued or dissolved, every person who was at the time of such discontinuance of dissolution a partner of such firm or Hindu undivided family or association, shall be jointly and severally liable to assessment under section 5 or 6 and for payment of the tax assessed and/or penalty levied.

13. Sub-rule (2) of rule 43 which was inserted on 20th April, 1971 provides procedure for serving notice to partners of dissolved or discontinued firms. It states that the notice or orders issued under the Karnataka Sales Tax Act or the Rules framed thereunder may be served on any person who was a partner (not being a minor) or member of the association, as the case may be, immediately before such dissolution or discontinuance.

14. Section 15(2) of the Karnataka Sales Tax Act reads :

'When a firm liable to pay the tax or penalty is dissolved, the assessment of the tax and imposition of penalty shall be made as if no dissolution of the firm had taken place, and every person who was at the time of dissolution a partner of the firm and the legal representative of any such person who is deceased, shall be jointly and severally liable to pay the tax or penalty assessed or imposed.'

15. The only difference that we notice between section 44 of the Income-tax Act, 1922 and section 15(2) of the Karnataka Sales Tax Act is that the provisions relating to the assessment are not expressly made applicable under section 15(2). But, in our opinion, it makes little difference, since there is no other provision prescribed for assessment of dissolved firms. Under rule 43(2) of the Sales Tax Rules the service of notice to one of the partners of the dissolved firm is held to be sufficient.

16. The decision of the Supreme Court in Raja Reddy Mallaram's case : [1964]51ITR285(SC) would, therefore, be clearly applicable to the facts of the present case. This judgment, of course, is earlier to the decision in Sattler's case : [1973]92ITR576(SC) , but the decision in Raja Reddy Mallaram's case : [1964]51ITR285(SC) is of a larger Bench which we must follow in view of the decision of this Court in Govinda naik G. Kalaghatigi v. West Patent Press Co. Ltd. : AIR1980Kant92 (FB). There, by majority it was held that if two decisions of the Supreme Court on a question of law cannot be reconciled and one of them is by a larger Bench while the other is by a smaller Bench, the decision of the larger Bench, whether it is earlier or later in point of time, should be followed by the High Courts and other Courts. Since the decision in Sattler's case : [1973]92ITR576(SC) was by a Bench of two Judges and the decision in Raja Reddy Mallaram's case : [1964]51ITR285(SC) was by a Bench of three Judges, we have to follow the decision in the latter case.

17. There is also a decision of this Court in K. L. Parvathamma v. Income-tax Officer : [1974]93ITR138(KAR) stating that notices under the Income-tax Act in respect of the income of dissolved firm may be served on any person who was a partner, not being a minor. This decision proceeded on the terms of section 283(2) Income-tax Act, 1961 which is similar to rule 43(2) of the Karnataka Sales Tax Rules.

18. In view of this position in law, we do not think that we can find fault with the assessing authority for not rectifying the ex parte assessment orders.

19. In the result, these petitions fail and are dismissed.

20. In the circumstances, we make no order as to costs.


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