9911796707
TMI Blog1994 (3) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... lating to disallowance of interest on certain amounts. Thereafter, by order dated March 31, 1992, the first respondent completed the assessment by upholding only a part of the claim made by the assessee on that score. Against the said order passed by the first respondent the assessee has filed an appeal on April 28, 1992, and the same is pending before the Commissioner of Income-tax (Appeals). For the assessment year 1988-89, the petitioner firm was assessed and it was determined that the firm was entitled to a refund of Rs. 1,21,733. Exhibit P-2 is the copy of the order in that behalf produced by the petitioner. The said order indicates that the refund due of Rs. 1,21,733 is adjusted against the demand due from the petitioner for the assessment year 1990-91 to the tune of Rs. 63,070 and the further sum of Rs. 58,663 towards the dues of Kanagasabai, the retired partner, towards his individual liability for the assessment year 1989-90. Thereafter the first respondent issued the order, exhibit P-3, to the petitioner revising the assessment for the year 1985-86 and holding that a balance tax of Rs. 1,03,270 is due from the firm. On receipt of these orders, exhibits P-2 and P-3, the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refund against the alleged dues of the retired partner, Kanagasabai, in respect of the assessment year 1989-90. The petitioner has therefore contended that the said Rs. 58,663 was available for being adjusted towards the tax due from it for the assessment year 1985-86 and if the said amount is adjusted and the payment of Rs. 45,000 on July 13, 1993, is reckoned, there will be no arrears of tax for the assessment year 1985-86 and no interest can run as demanded under exhibit P-7 against the assessee subsequent to July 13, 1993. Thus the petitioner in effect has questioned the authority of the first respondent to adjust the sum of Rs. 58,663 due to the firm as refund against the alleged dues from the retired partner, Kanagasabai, relating to the assessment year 1989-90. The stand adopted in the statement and the additional statement filed on behalf of the first respondent is that since Kanagasabai was partner in the assessee-firm during the relevant assessment year 1985-86 as also during the assessment year 1988-89, 50 per cent. of the refund amount due to the firm as indicated in exhibit P-2 must be reckoned as belonging to Kanagasabai and if so reckoned the said amount can be adju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le by a partner in respect of the share income apportioned to him and taxed in his hands could in the event of non-recovery from him be recovered from the firm itself. It has been made clear in Radha Krishan's case (ITO v. Radha Krishan [1967] 66 ITR 590 (SC)) and decisions subsequently rendered that the tax payable by the partner is his individual liability even where it relates to the share income from a registered firm and on failure by a partner to pay such tax, it cannot be recovered from the firm or the other partners and that neither the provisions of section 189 nor the general partnership law would help to fasten such liability. In Kalva Suryanarayana v. ITO [1969] 71 ITR 422 (SC), the Supreme Court held that the position will be no different where such assessment in respect of the firm's income is made after the dissolution of the firm. The Supreme Court pointed out in the two cases which have been referred to that the liability to pay income-tax is a statutory liability and that the liability of one person cannot be enforced against another in the absence of any specific statutory provision, and that a joint and several liability on all partners cannot be imposed on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot acting under section 182(4) of the Income-tax Act. In my view, if the first respondent was not acting under section 182(4) of the Act, he had no authority to recover from the firm or adjust the amounts from out of the amounts due to the firm by way of refund towards the liability of Kanagasabai, the retired partner. Even before invocation of section 182(4) it was necessary for the first respondent to have attempted to collect the amounts from Kanagasabai himself before he could proceed under section 182(4) of the Act. The condition precedent for proceeding against the reconstituted firm for recovery of the tax due from a partner who had retired is the failure of an attempt to recover the same from the partner has been laid down by the decision in Manoharlal Ahuja v. ITO [1984] 148 ITR 608 (All). To the same effect is the decision of the Madras High Court in CIT v. Sannanna Chetty and Sons [1991] 190 ITR 18, wherein it has been stated thus (at page. 22) : "Before the firm could be made liable, two conditions must coexist. The first is, the irrecoverability of tax from the partner on whom it is assessed ; and the second is, the tax sought to be realised ought not to be in excess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first respondent has no case that he is proceeding under section 187 of the Income-tax Act. I, therefore, do not think it necessary to pursue this aspect of the matter any further. In the circumstances, I find that the adjustment of Rs. 58,663 by the Income-tax Officer from the refund due to the firm towards the arrears of tax due from Kanagasabai is not authorised by the provisions of the Act. In that view I quash that part of exhibit P-2 which purports to adjust the sum of Rs. 58,663 due to the petitioner firm towards refund for the assessment year 1988-89 against the amounts due from Kanagasabai for the assessment year 1989-90. Once the adjustment of the refund is found to be not sustainable then certainly the request of the petitioner for adjustment of the sum of Rs. 58,663 towards the tax due from it for the assessment year 1985-86 cannot be denied. If it is given credit to, interest, if any, due from the petitioner firm under section 220(2) of the Income-tax Act will also have to be recomputed. In that view the order, exhibit P-7, will also have to be set aside. I, therefore, quash the order, exhibit P-7, and direct the first respondent to recompute the interest due from th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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