Case: Sahu Rajeshwar Nath Vs. Income Tax Officer, C-Ward, Meerut, &amp; Another

2. 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 tofor the assessment yearby the Income Tax Officer,Meerut by the assessment order dated December 9, 1952 on a total income of Rs.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 theassessed 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 S. 29 of the Income Tax Act, 1922 (hereinafter called the Act). It appears that the Income Tax Officer forwarded 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 proceeding for the first time in the third week of September, 1958 when the Naib Tehsildar (Collection) Nagina asked him to deposit the amount ofThe 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 offrom the appellant. It was stated in theof 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 disputed 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.

Reasoning: In our opinion, there is no warrant or justification or 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 it self 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 (S. 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 (S. 24B); (4) a company in respect of the tax levied upon a shareholder [S.(3)] and (5) a person failing to deduct tax at source under Section 18 [S. 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 theare 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.In the present case we see no real son why the Collector should not execute the certificate for demand ofagainst the appellant who admits that he was a partner of the unregistered firm for the relevant accounting year.In the return filed by the unregistered firm on January 19, 1945 at page 33 of the Paper Book also the appellant is shown as one of the partners. It is maniest that the provisions of Order 21, Rule 50 (2) apply to the present case mutatis mutandis and since the appellant does not dispute that he was a partner of the unregistered firm for the relevant accounting year, the Collector could lawfully proceed to execute the certificate under Section 46 (2) of the Act against the appellant and recover thearrears from him. It follows therefore that the proceedings taken for recovery of the tax by the respondents against the appellant were legally valid and the appellant is not entitled to the grant of a writ under Article 226 of the Constitution.7. The view that we have expressed is borne out by the decisions of the Calcutta High Court in Union of India v. Satyanarayan Khan,ITR 42 (Cal) and in Ramgopal Khemka v. Union of India,ITR 659 (Cal). A contrary view has been taken by the Mysore High Court in T. Govindaswamy v. Income Tax Officer, Special Survey Circle, Bangalore,ITR 197 (Mys) and by the Allahabad High Court in Moti Lal Purshotam Das v. Income Tax Officer, Kanpur, (1960) 39 ITR 497   = (AIR 1961 All 133  ). But for the reasons already stated we hold that the latter two decisions do not correctly state the law on the point.