TMI Blog1966 (1) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... Bajranglal Birla was its partner, though there had been some changes during these years in respect of its partners and in respect of the shares of the partners. It is not necessary for the purpose of this case to go into any further detail. The firm, at all material times, was a registered firm. In respect of these assessment years, assessments of the firm had been made for ascertaining the income of the firm and thereafter the respective shares of the partners in the profits of the firm had also been transferred to the individual assessments of the partners and have been taxed in their hands. Bajranglal's share of profits in the firm also had been taxed in all these assessment years in his hands. On 28th November, 1962, the Second Income-tax Officer, A-IV Ward, issued five notices in respect of the aforesaid assessment years claiming in an aggregate a sum of Rs. 2,09,788.43 paise, being the amount of tax recoverable from Bajranglal, one of the partners of the petitioner-firm in the relevant assessment years. It had been stated in the notices that the demand notices were issued under section 156 of the Income-tax Act, 1961 (43 of 1961), hereinafter referred to as the Act. Along ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et them know as to whether he would like to drop the proceedings or otherwise they would take appropriate proceedings to safeguard their interests. By his reply dated 2nd January, 1963, the Income-tax Officer stated that he could not agree to drop the proceedings as requested by the petitioners and that tax demanded from them must be paid within the time mentioned in the notices. In this reply the Income-tax Officer admitted that the figures of tax noted in the covering letter of November 28, 1962, represented the proportionate tax on the share-income of Shri Bajranglal Birla including the share income of Shri Hariprasad Birla, who was held to be a benami of Shri Bajranglal Birla. By its letter of January 7, 1963, the petitioner-firm complained about the failure on the part of the Income-tax Officer to supply it with the necessary information and intimated to him that in view of the non-cooperative attitude adopted by him the petitioner will have no alternative but to move this court by a writ petition and on the 14th day of January, 1963, the petitioner has filed this petition under article 226 of the Constitution of India, wherein he has prayed for the aforesaid reliefs, which in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bajranglal in respect of his share income for that year. In the second instance Mr. Mehta contended that the tax demanded includes the tax payable in respect of the share income of Hariprasad, which has been included in the total income of his father, Bajranglal. There is however no averment that the tax could not be recovered from Hariprasad. The Income-tax Officer therefore, was not competent to include the tax payable in respect of the share income of Hariprasad from the petitioner-firm. Thirdly, it is contended by Mr. Mehta that the proportionate tax, which has been claimed from the petitioner-firm, is on the basis of the rate of tax at which Bajranglal had been taxed on his total income. According to Mr. Mehta and it is not disputed that in the relevant accounting year Bajranglal had income from other sources and his share income was clubbed together with the other income. The result was that the total income of Bajranglal had been taxed at a higher rate. According to Mr. Mehta the Income-tax Officer was not competent to claim the proportionate tax payable by Bajranglal in respect of his share income at a rate higher than the rate applicable to that part of his income only. La ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Income-tax Officer in the individual assessments of Bajranglal would constitute an order within the meaning of section 156 enabling the respondent to issue the aforesaid demand notices or whether any further order was required to be made by the Income-tax Officer before issuing the demand notices. The contention of Mr. Joshi, as already stated, is that the respective assessment orders in the case of Bajranglal's individual assessments enabled the Income-tax Officer to issue the aforesaid notices of demand. The argument advanced is founded on the provisions of section 182 and the definition of the word " assessee " in section 2(7). Section 182 is a provision relating to the assessment of a registered firm. Sub-section (1) thereof provides : (1) Notwithstanding anything contained in sections 143 and 144 and subject to the provisions of sub-section (3), in the case of a registered firm, after assessing the total income of the firm, (i) the income-tax payable by the firm itself shall be determined ; and (ii) the share of each partner in the income of the firm shall be included in his total income and assessed to tax accordingly." Sub-section (3) provides : " When any o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, is not well-founded. It is indeed true that the assessment of a registered firm and its partners are connected with one another but none the less it is apparent from the provisions of section 182 itself that the orders made against the firm in its assessment and the orders made against the individual partners are distinct and separate orders though to a certain extent they might be interconnected inasmuch as the assessment of the firm results in the determination of the total income of the firm and its division as amongst its partners and unless this is first done, the total income of an individual partner in his own assessment cannot be arrived at. But there the matter ends. The determination of the quantum of tax is in the light of the figure of the total income of an individual partner arrived at in accordance with the provisions of the Act. It is also clear that under the scheme of the Act, the initial liability to pay the tax in respect of the share income is that of a partner and not of the firm. The orders of assessment, which have been made in the individual assessments of Bajranglal, thus enable the Income-tax Officer to recover the tax from Bajranglal. Those orders b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f its former partners for recovery of the tax assessed on the firm were started and a notice of demand was issued to the partner under section 29 of the Indian Income-tax Act. The validity of the notice of demand was challenged by the partner, inter alia, on the ground that the notice of demand issued on the partner under section 29 not having been based on any order was bad. This contention was overruled by the learned judges. At page 811 it has been observed : "Under section 44, the partners are made liable for the payment of the tax due from the firm which has discontinued its business. In such a case there need not be any separate assessment as against the partners. It is a vicarious liability that is cast on the partners. What is being collected is the tax due from the partners of the firm. The notice of demand is based on the order of assessment made against the firm. Before issuing a notice under section 29 there need not be necessarily an order of assessment on the person against whom the notice is issued." Now, these observations of the learned judges indicate that what was contended was that a separate order of assessment as such was required to be made to make a part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the firm at the time the assessment of the firm was made or that tax assessed on its partner could be recovered from him. It can hardly be disputed that a proper opportunity should be afforded to the firm to put forward its case and after hearing the firm the matter should be decided in a judicial manner. Mr. Joshi contended that the Income-tax Officer knows from the record of the case whether the firm had been reconstituted or not at the time the assessments were made. The Income-tax Officer also knows what was the amount of tax determined in the individual assessment of the partners what amount has been recovered and what amount has remained yet to be recovered. The answer is merely an arithmetical calculation. We are not inclined to accept this argument. Whether a firm has been reconstituted or not at the material time will have to be determined on the facts and in the light of the provisions of sub-section (2) of section 187 of the Act, It may be true that the Income-tax Officer may be able to say what amount of the assessed tax has remained unrecovered from a partner but, in our opinion, the second proviso requires something more than that. What is required to be es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hown that in the case of a registered firm a partner's share income is taken into account in his individual assessment and the tax is levied on his total income as determined in accordance with law. It may be that in certain cases the partner has other income. In that event, the other income clubbed together with his share-income may result in his being taxed at a higher rate, but it is at that higher rate that the tax is assessed on a partner. It may be, in a given case, that in respect of the other sources there is a loss. The loss would then get deducted from the share-income of the partner and the result in certain cases may be that the partner gets taxed at a much lower rate than he would have been taxed if only his share-income had been taxed. Whatever be the position, the Act provides that the tax assessed on a partner, when it cannot be recovered from the partner, is made recoverable from the firm. It may be that the tax is assessed on the partner at a higher rate on the share-income or it may be that the tax is levied at a rate lower than the rate applicable to it, but on the language of the section it is clear that whatever be the tax assessed on the total income of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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