1967 (4) TMI 166 - SC - VAT and Sales Tax

Principle of res judicata - Held that - Appeal dismissed. To make a person a privy he must have acquired an interest in the subject-matter of action by inheritance, succession or purchase subsequent to the action or he must hold the property subordinately, i.e., as a sub-lessee. In the present case, Gendalal does not claim his interest in the partnership through Lalji and it follows therefore that the principle of res judicata cannot be invoked in this case. Thus counsel for the appellants is unable to make good his argument on this aspect of the case.

Summary

Issues:
1. Validity of assessment orders due to partnership dissolution
2. Barred by limitation - assessment proceedings
3. Applicability of res judicata principle in a writ petition

Analysis:

Issue 1: Validity of assessment orders due to partnership dissolution
The appeal pertains to the challenge against assessment orders dated May 31, 1956, May 6, 1957, and August 9, 1957, issued to a partnership firm involved in manufacturing and selling utensils. The High Court quashed these assessment orders under Article 226 of the Constitution, citing two grounds raised by the respondent. Firstly, the respondent argued that the partnership had dissolved in 1952, rendering the firm non-existent and thus not liable for assessment. The High Court dismissed this ground but upheld the second ground, stating that the assessment proceedings were time-barred. However, the Supreme Court ruled that the assessment orders were void due to the dissolution of the partnership before the assessments were made, emphasizing that a dissolved firm ceases to be a legal entity, thereby making any post-dissolution assessment invalid.

Issue 2: Barred by limitation - assessment proceedings
The respondent contended that the assessment proceedings were initiated after the expiration of the limitation period. The High Court agreed, holding that the assessments were time-barred as they were conducted long after the prescribed period of limitation. The Supreme Court did not delve into this aspect as it found the assessment orders void due to the dissolution of the partnership, making the issue of limitation redundant in this context.

Issue 3: Applicability of res judicata principle in a writ petition
The appellants argued that a previous judgment dismissing a writ petition by another partner of the firm should operate as res judicata in the present case. They cited the principle that judgments bind only parties and privies. However, the Supreme Court rejected this argument, stating that the previous judgment against the other partner could not bind the current petitioner, Gendalal, as the partnership had dissolved, eliminating any agency relationship between partners. Therefore, the doctrine of res judicata was deemed inapplicable in this scenario.

In conclusion, the Supreme Court dismissed the appeal, upholding the High Court's decision to quash the assessment orders based on the partnership dissolution, without delving into the limitation aspect. The Court also rejected the application of the res judicata principle due to the dissolution of the partnership.