TMI Blog1970 (1) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... la Basavaiah and Kutumba Rao, partners, against the legal representative of the deceased partner and another for dissolution of the firm, Sri Jayalakshmi Rice Mill at Undi and for accounts. The main defendants were the legal representatives of the deceased partner, Salankayala Subbiah. The first defendant in the suit was his son, Salankayala Pulleswara Rao. A preliminary decree was passed on April 6, 1951, for accounts declaring the partnership dissolved as from. the date of suit, November 29, 1948. A receiver was appointed to realise the assets of the partnership, to discharge the liabilities of the partnership and to prepare a statement of profit and loss of each of the partners in respect of their shares. After the receiver filed his rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court. It was at that stage that the Income-tax Officer filed claims, E.A. No. 527 of 1963 for income-tax dues payable by Mungala Basavaiah and Kutumba Rao, Vijayawada, who were assessed to income-tax on a separate business carried on by them in groundnut oil, kernel, paddy and rice as an unregistered firm. E. A. No. 555/63 was filed by the same officer for income-tax dues in respect of a separate rice mill business carried on by the said Basavaiah and Kutumba Rao at Tellaprolu. I. A. No. 65/66 was another claim filed by the Income-tax Officer for income-tax dues payable by Messrs. Mungala Basavaiah and Kutumba Rao who carried on a separate business at Vijayawada. E. A. No. 390/62 was filed by the Deputy Commercial Tax Officer, Gannnavar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of income-tax dues. The Income-tax Officer realised a part of the dues on his application. The power of the court to order such payment came up for discussion before the Full Bench. The order of the court paying out monies for dues to the income-tax department was upheld. Repelling the arguments that there is nothing in the Civil Procedure Code which places the Crown as a preferential creditor, it was said : " This argument ignores the special position of the Crown, the special circumstances and the court's inherent powers, It cannot be denied that the Crown had the right of priority in payment of debts due to it. It is a right which has always existed and has been repeatedly recognised in India. If the Crown is entitled, as it is, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t out of profits, next out of capital, and, lastly, if necessary, by the partners individually in the proportions in which they were entitled to share profits. (b) The assets of the firm, including any sums contributed by the partners to make up deficiencies of capital, shall be applied in the following manner and order : (i) in paying the debts of the firm to third parties ; (ii) in paying to each partner rateably what is due to him from the firm for advances as distinguished from capital ; (iii) in paying to each partner rateably what is due to him on account of capital ; and (iv) the residue, if any, shall be divided among the partners in the proportions in which they were entitled to share profits. Section 49 : " Where there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Then referring to the property to which lien attaches, it is stated that after a partnership has been dissolved, the lien is confined to what was partnership property at the time of the dissolution, and does not extend to what may have been subsequently acquired by the persons who continue to carry on the business. In this respect, the lien in question differs from the lien of a mortgagee on a varying stock-in-trade assigned to him as a security for his loan. It is then made clear that the lien exists only on partnership assets, and further that the lien exists as against all persons claiming a share in the assets. It is then pointed out that a partner's lien on partnership property is lost by the conversion of such property into the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecoverable as arrears of land revenue and that a recovery certificate had been forwarded to the Collector of Allahabad. In the said circumstances, the official liquidator moved the High Court complaining against the said order. Rejecting the tenability of the claim, the Federal Court said at page 19 of the judgment : " We have no hesitation in coming to conclusion and holding that the Crown is bound by the provisions of the Indian Companies Act, 1913, and is bound, in regard to the provisions relating to the liquidation of companies, 'to a statutory scheme of administration wherein the prerogative right of the Crown to priority no longer exists'. (Lord Wrenbury in Food Controller v. Cork). The Crown is accordingly not entitled, in our jud ..... X X X X Extracts X X X X X X X X Extracts X X X X
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