TMI Blog1978 (1) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... r Sons as per the provisions of s. 187(2)(a) of the Act. After the petitioner retired from the partnership, the business was carried on by two of the other partners along with two other persons who were taken in as partners. The latter partnership came to be dissolved with effect from April 12, 1972. For the assessment years 1962-63 and 1963-64, during Which period the petitioner was a partner in the firm, the assessments were completed only on March 25, 1967, and March 29, 1968, respectively, under s. 189(3) of the Act. The profits of the firm for these assessment years were allocated amongst the partners who constituted the firm before the retirement of the petitioner on April 19, 1963. On February 23, 1972, the first respondent sent a communication stating that in respect of the arrears due by the firm, M/s. Sannanna Chettiar Sons, for these assessment years, the petitioner would be jointly and severally liable to pay over the arrears as a partner at the time of the dissolution. On February 25, 1972, the petitioner sent a reply stating that on and from April 19, 1963, he ceased to be a partner and, thereafter, there was a change in the constitution. It was further stated t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very proceedings under the Act should be taken against the petitioner. On the contrary, if a liability could be fastened under the general law, as and when such liability is sought to be imposed against him, he would meet the same. Mr. J. Jayaraman, learned counsel appearing for the revenue, would submit that the petitioner by his letter dated March 15, 1972, accepted the joint and several liability of the partners. Pursuant to that letter, he has made certain payments towards the discharge of the liability of the firm for the arrears of the tax for the assessment years 1962-63 and 1963-64. During that relevant period, he was a partner of the firm and, hence, he could not escape liability. The petitioner is not correct in his submission that the liability of the firm relating to the period prior to the change in the constitution will have to be met by those members who were partners at the time of dissolution. Hence, the recovery proceedings are perfectly valid in law. In any event, it is submitted that the liability of the petitioner under s. 25 of the Partnership Act would not cease and the same should be preserved to the revenue, should the court come to the conclusion that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent passed the order stating that due to the change in the constitution of the firm, the firm has filed the application for registration on June 6, 1964, on the strength of the partnership deed dated June 6, 1963, and the registration applied for is granted. Therefore, the firm of Messrs. S. S. Sannanna Chettiar Sons is a reconstituted firm. It stood dissolved only on April 12, 1972. At the time of such dissolution, the petitioner was not a partner. Under these circumstances, the question is whether he would be liable ? In this context, s. 189(3) requires to be looked at. Section 189(3) and Explanation read thus : " Every person who was at the time of such discontinuance or dissolution a partner of the firm, and the legal representative of any such person who is deceased, shall be jointly and severally liable for the amount of tax, penalty or other sum payable, and all the provisions of this Act, so far as may be, shall apply to any such assessment or imposition of penalty or other sum. Explanation.--The amount of tax referred to in this sub-section shall also include that part of the share of each partner in the income of the firm before its discontinuance or dissolution wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annas. In assessing A under section 23(5)(a) for the year the income of A from the firm was added to the other income of the Hindu undivided family and assessments were made on the total income. The tax liability attributable to the share of A in the income of the firm for the years in question was not satisfied. A demand for such tax was, therefore, made on D, a partner of the firm. D challenged the procedure by moving the High Court under article 226 of the Constitution. The High Court allowed the petition and on further appeal to the Supreme Court by counsel for the revenue, the Supreme Court held that the tax liability attributable to A's share of income of the firm could not be recovered from D pursuant to the assessment already made on A. The following passage from the judgment [1967] 66 ITR 590, 593 (SC) is apposite : ' Undoubtedly, contractual obligations of a firm are enforceable jointly and severally against the partners. But the liability to pay income-tax is statutory ; it does not arise out of any contract, and its incidence must be determined by the statute. If the statute which imposes liability has not made it enforceable jointly and severally against the partner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dual partner. In other words, the ruling of the Full Bench is only with regard to the right of the revenue to proceed under the I.T. Act by invoking s. 25. It nowhere lays down that the right available to the revenue, under s. 25 of the Partnership Act, against a partner of the firm is in any way obliterated. In P. Balchand v. TRO [1974] 95 ITR 321 (Mys), it was held : " Where the Income-tax Officer issues a certificate under section 222 of the Income-tax Act, 1961, to the Tax Recovery Officer to recover the amount of tax specified and the certificate shows the assessee in default as a firm, which was unregistered, the Tax Recovery Officer cannot seek to recover the amount from a partner of the firm under the provisions of the Act of 1961. Though there cannot be any dispute about the liability of a partner to pay the tax assessed on the firm, the mere existence of a liability to pay tax is not sufficient to recover the tax. There should be a machinery provision to enforce that liability. It is only from the defaulter shown in the certificate that the Tax Recovery Officer can recover the tax. These two decisions support the petitioner to the limited extent that recovery proce ..... X X X X Extracts X X X X X X X X Extracts X X X X
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