COMMISSIONER OF INCOME-TAX, HYDERABAD versus SRI RAJAREDDY MALLARAM

Citation: [1964] 5 S.C.R. 508 · Decided: 20-11-1963 · Supreme Court of India · Bench: A.K. SARKAR · Disposal: Appeal(s) allowed

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Judgment (excerpt)

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, 1922 (11 of 1922), ss. 23(4), 44, 63(2) 
-Dissolution of Business Association-Notice of assessment on 
one member-If order of assessment enforceable against members 
not served with notice-Dissolution, effect of-s. 44, 
Scope and 
effect of-"Every 'person", meaning ~{-"Tax payable". meaning 
of 
Practice-Question which did not arise out of Tribunal's order 
and was not referred-If could be raised. 
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5 S.C.R. 
SUPREME COURT REPORTS 
509 
An association of three persons carrying on business in liquor 
was dissolved. No return was filed on behalf of the association 
or the individual members. The Income-tax Officer issued a notice 
under s. 34 of the Income-tax Act calling upon Baba Gowd, one of 
the members of the association, to file a return of the income of the 
association but he did not so. The Income-tax Officer then assessed 
the taxable income of the association under s. 23(4) of the 
Act and determined the tax payable. Attempts to recover tax 
from Baba Gowd were not successful. The Income-tax Officer then 
issued a notice of demand to the respondent, another member of 
the dissolved association. The respondent applied under s. 27 
for cancellation of the assessment. The application was rejected 
by Income-tax Officer. The Appellate Assistant Commissioner 
ordered cancellation of the assessment and directed that fresh 
assessment be made after giving an opportunity to the respondent 
to file a return and to produce evidence in support thereof. The 
Income-tax Appellate Tribunal held that a valid order of assess-
ment had already been made and there was no occasion to issue a 
fresh notice to the respondent or to make a fresh assessment . 
At the instance of the respondent, the Tribunal referred to the 
High Court two questions whether the order of assessment made 
by the Income-tax Officer under s. 23(4) on September 30, 1953 
was bad in law or not and whether the respondent was or was 
not liable for the amount of tax payable as determined in that 
order of assessment by reason of the terms of s. 44 of the Incon1e~ 
tax Act. The High Court held that the order of assessment under 
s. 23 (4) was bad in law and the respondent was not liable. In 
appeal to this Court. 
Held: The order of assessment made by the Income-tax 
Officer under s. 23(4) on September 30, 1953 was not bad in law 
and the respondent was liable for the amount of tax payable under 
the order of assessment. 
Under Chapter IV of the Income-tax Act, an association of 
persons can be assessed as a unit of assessment or the individual 
members can be assessed separately in respect of their respective 
shares of income. The Act does not contain any machinery for 
assessing the income received by an association, in the hands of its 
members collectively. The unit of assessment in respect of the 
income earned by the association is either the association or each 
individual member in respect of his share in the income. This 
is so when the association is existing and the same is true after 
its dissolution. There can be no partial assessment of the income 
of an association, limited to the share of the member who is served 
with notice of assessment. The theory of assessment binding only 
those members who were served with the notice of assessment

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