The judgment of the court was delivered by
RAMASWAMI J.--This appeal is brought by certificate from
the judgment of the Allahabad High Court, dated April 28, 1964, in Special
Appeal No. 627 of 1961 by which the Division Bench dismissed the appellant's
appeal and confirmed the order of the single judge dismissing the appellant's
writ petition No. 194 of 1959.
The appellant alleged that he was a partner of a firm
named Regal Dehydrating Company, Meerut, in Which he held 12/53 share. It was
stated that on January 15, 1945, the appellant sold away his share in the
partnership to one Ram Chander, son of Nathmal Das. The partnership firm was
assessed to income-tax for the assessment year 1945-46, by the Income-tax
Officer, C-Ward, Meerut, by the assessment order dated December 9, 1952, on a
total income of Rs. 64,622. The case of the appellant was that he had ceased to
be a partner at the time of the assessment and was not liable to pay the
income-tax assessed upon the partnership firm. It was also stated that no notice
of the assessment proceedings was given to the appellant, nor was any notice of
demand issued under section 29 of the Income-tax Act, 1922 (hereinafter called
" the Act "). It appears that the Income-tax Officer fowarded a
certificate to the Collector under section 46(2) of the Act for recovery of the
tax due and the case of the appellant is that he learnt of the proceedings for
the first time in the third week of September, 1958, when the Naib Tehsildar
(Collection), Nagina, asked him to deposit the amount of income-tax. The
appellant thereafter moved the Allahabad High Court for the grant of a writ in
the nature of mandamus restraining the respondents from proceeding with the
recovery of income-tax from the appellant. It was stated in the
counter-affidavit of the respondents that the return of income filed on behalf
of the firm showed the appellant to be a partner at the relevant time and there
was no illegality in the order of assessment or in the recovery proceedings
taken against the appellant. The writ petition was dismissed by a single judge
on October 10, 1961, on the ground that the liability of every partner in
respect of the tax due from the firm was joint and several and hence it was open
to the Income-tax Officer to proceed against any one of the partners alone. The
appellant took, the matter in appeal under the Letters Patent but the appeal was
dismissed by the Division Bench on April 28, 1964. The Division Bench proceeded
on the assumption that the appellant did transfer his interest in the
partnership firm in favour of Ram Chander, though the respondents dispute the
genuineness of the alleged transfer. The Division Bench held that even if the
appellant had transferred his interest in the partnership firm there was no
change in the constitution of the firm and the transferee got only the rights in
the profits in lieu of the transferring partner who did not cease to be a
partner.
During the hearing of the present appeal, Mr. Karkhanis,
appearing on behalf of the appellant, mentioned at the outset that he will not
press the argument that the appellant was not a partner of the unregistered firm
during the relevant accounting year or that the appellant would not be liable
for paying the income-tax dues of the partnership. But the argument of learned
counsel was that a separate notice under section 29 of the Act was necessary and
unless such a notice was given, proceedings could not be initiated against the
appellant under section 46 for recovery of the income-tax. Mr. Karkhanis
conceded that the accounting year corresponding to the assessment year 1945-46
was the Diwali year ending in October, 1944, and therefore even on the
assumption that the appellant had sold his interest in the partnership on
January 15, 1945, as he alleged, the liability to income-tax for the relevant
accounting year cannot be disputed by the appellant.
The sole question presented for determination in the
present appeal therefore is--when a firm not registered under the Act is
assessed to income-tax and a notice of demand is issued against that firm,
whether a separate notice of demand is necessary against a partner of the firm
if the tax assessed against the firm is sought to be recovered from that
partner.
Section 2(2) of the Act, as it stood prior to the
amendment by the Income-tax (Amendment) Act, 1953, reads as follows :
" 'assessee' means a person by whom income-tax is
payable ".
After the amendment the section reads :
" 'assessee' means a person by whom income-tax or any
other sum of money is payable under this Act, and includes every person in
respect of whom any proceeding under this Act has been taken for the assessment
of income or of the loss sustained by him or of the amount of refund due to him.
"
Section 29 of the Act states :
" When any tax, penalty or interest is due in
consequence of any order passed under or in pursuance of this Act, the
Income-tax Officer shall serve upon the assessee or other person liable to pay
such tax, penalty or interest a notice of demand in the prescribed form
specifying the sum so payable. "
Section 46 of the Act reads as follows :
" 46. (1) When an assessee is in default in making a
payment of income-tax, the Income-tax Officer may in his discretion direct that,
in addition to the amount of the arrears, a sum not exceeding that amount shall
be recovered from the assessee by way of penalty...
(2) The Income-tax Officer may forward to the Collector a
certificate under his signature specifying the amount of arrears due from an
assessee, and the Collector, on receipt of such certificate, shall proceed to
recover from such assessee the amount specified therein as if it were an arrear
of land revenue :
Provided that without prejudice to any other powers of the
Collector in this behalf, he shall, for the purpose of recovering the said
amount, have the powers which under the Code of Civil Procedure, 1908 (V of
1908), Civil Court has for the purpose of the recovery of an amount due under a
decree..."
Section 25 of the Partnership Act, 1932 (IV of 1932),
states :
" Every partner is liable, jointly with all the other
partners and also severally, for all acts of the firm done while he is a
partner. "
It was contended by Mr. Karkhanis that a notice of demand
should have been issued against the appellant under section 29 of the Act before
any recovery proceeding was initiated against him. It was conceded that the
unregistered partnership firm was the assessee and the appellant was not the
assessee. But the argument was stressed that the appellant was " other
person liable to pay such tax " within the meaning of the language of
section 29 of the Act. In our opinion, there is no warrant or justification for
this argument. The phrase " other person liable to pay ", in section
29 should be construed as " other person liable to pay under the Income-tax
Act " and the liability cannot therefore be construed with reference to the
Partnership Act or any other statute. In the Income-tax Act itself the liability
is imposed on other persons to pay the tax apart from the assessee by several
sections. For example " the other person apart from the assessee " in
the language of section 29 of the Act would include : (1) a member of a divided
family being liable for the assessment of the joint Hindu family (section 25A),
(2) a firm being liable for the partners' tax [second proviso to section 26(1)],
(3) the executor, administrator, or other legal representative being liable in
respect of the tax payable by a deceased person (section 24B), (4) a company in
respect of the tax levied upon a shareholder (section 23A(3)] and (5) a person
failing to deduct tax at source under section 18 [section 18(7)]. It is true
that under the Partnership Act the liability of the partners of a firm is joint
and several and it is open to a creditor of the firm to recover the debt of the
firm from any one or more of the partners. But a partner of an unregistered firm
does not fall within the language of section 29 of the Act, for the liability of
the partner is not imposed on account of any provision of the Income-tax Act
itself. We are, therefore, of the opinion that a notice under section 29 of the
Act is not necessary to be served upon the partner of an unregistered firm
before proceedings are taken for recovery of the tax under section 46(2) of the
Act. We accordingly hold that Mr. Karkhanis is unable to make good his argument
on this aspect of the case
Mr. Karkhanis then put forward the argument that it was
not open to the Collector on receipt of a certificate under section 46(2) of the
Act to recover from the appellant the amount of tax due from the unregistered
partnership. It was pointed out that the certificate only mentioned the amount
of arrears of tax due from the assessee, i. e., the unregistered partnership and
the Collector was empowered under that section to recover the amount specified
in the certificate " from such assessee ". It was, however, conceded
by Mr. Karkhanis that under section 25 of the Partnership Act the partners are
liable jointly and severally for satisfying all liabilities of the partnership
firm and the appellant would have been liable for the income-tax dues of the
partnership if proper proceedings, for instance a suit, had been brought in a
civil court against him by the income-tax authorities, The point taken by Mr.
Karkhanis is that it was not open to the Collector in a proceeding under section
46(2) of the Act to recover from the appellant the income-tax dues from the
partnership. We are unable to accede to this argument. The proviso to section
46(2) of the Act states that the Collector shall, without prejudice to any other
powers in that behalf " for the purpose of recovering the said amount, have
the powers which under the Code of Civil Procedure, 1908 (V of 1908), a civil
court has for the purpose of the recovery of an amount due under a decree.
"
Reference should be made in this context to Order XXI,
rule 50, of the Civil Procedure Code which states :
" 50, (1) Where a decree has been passed against a
firm, execution may be granted--
(a) against any property of the partnership ;
(b) against any person who has appeared in his own name
under rule 6 or rule 7 of Order XXX or who has admitted on the pleadings that he
is, or who has been adjudged to be, a partner ;
(c) against any person who has been individually served as
a partner with a summons and has failed to appear :
Provided that nothing in this sub-rule shall be deemed to
limit or otherwise affect the provisions of section 247 of the Indian Contract
Act, 1872.
(2) Where the decree-holder claims to be entitled to cause
the decree to be executed against any person other than such a person as is
referred to in sub-rule (1), clauses (b) and (c), as being a partner in the
firm, he may ap
