Case: Income-Tax Officer, Agra Vs. Radha Krishan

1. A business of manufacture and sale of tents was commenced in 1940 in the name and style of Messrs Jawahar Tent Factory, Agra, in partnership. There were four partners in the firm-Jawahar Lal, Shiam Lal, Radha Raman and Radha Krishan. Jawahar Lal represented his Hindu undivided family and his share in the profit and loss was 8 (eight annas) in a rupee. The share of other partners was 2-8 (two annas eight pies) each. The firm was registered under Section 26A of the Indian Income-tax Act, 1922, and tax was assessed on the income of the firm in accordance with Section 23 (5) (a) of the Act. The partnership was, according to the Income-tax Officer dissolved on October 23, 1946.2. This appeal relates to the tax liability of Jawahar Lal in respect of the income from the firm for the assessment years 1944-45, 1945-46, 1946-47 and 1947-48. The tax attributable to the share of Jawahar Lal which it is claimed could not be recovered from him, is sought to be recovered from his erstwhile partner Radha Krishan. The following table sets out the share of the income of Jawahar Lal and the tax liability not satisfied by him in respect of the four years ofof assessmentShare of income of Jawahar Lal from the firmTax liability notmanner in which the tax liability is determined requires some elucidation. The Hindu undivided family of Jawahar Lal had considerable other income. In accordance with the provisions of Section 25 (3) (a) of the Indian income-tax Act, the share of Jawahar Lal from the income of the partnership was added to the other income of the family, and the family was assessed to tax on the total income. For the purpose of computing "the tax liability not satisfied" as shown in the last column of the statement set out hereinbefore, the Income-tax Officer determined the average rate of tax on the total income of the Hindu undivided family and then applied that rate to the share of Jawahar Lal from the firm to determine the tax liability attributable to that share. Tax collected from Jawahar Lal was credited proportionately to the income under the two heads towards the tax liability so determined, and the tax liability of Jawahar Lal attributable to his share in the income was computed.3. The Income-tax Officer served Radha Krishan respondent in this appeal on October 3, l962 with demand notices for the tax remaining unpaid by Jawahar Lal. Radha Krishan thereupon moved the High Court of Judicature at Allahabad for a writ of certiorari quashing the notices of demand and for an order directing the Income-tax Officer to withdraw the notices. Manchanda, J., allowed the petition filed by Radha Krishan and the order passed by Manchanda, J., was confirmed in appeal by a Division Bench of the High Court. With special leave the Income-tax Officer, Agra has appealed to this Court.

Reasoning: 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 partners, no such implication can arise merely because contractual liabilities of a firm may be jointly and severally enforced against theentire scheme of taxing the income of a registered firm in the hands of individual partners is inconsistent with any assumption that for payment of tax assessed against a partner, other partners are liable. The tax assessed against a partner of a registered firm is assessed on his total income inclusive of the share in the firms income, and the rate applicable is determined by the quantum of the total income of the partner. Section 44 contemplates cases of joint and several assessment of income of the business of a firm which is discontinued. When such an assessment is made, each member of the firm may be liable to pay jointly and severally tax payable by the firm. But when under the scheme of the Act tax is assessed individually against each partner, and no tax is made payable by the firm, principle of joint and several liability under Section 44 has nois nothing in the observations relied upon which indicates that under Section 23 (5) (a) when the income of a registered firm is computed and the tax liability is imposed by the machinery provided thereunder the tax is imposed upon the firm or is recoverable jointly and severally from the partners of theboth cases the procedure for assessment is under Section 23 (3) and (4) supplemented by Section 23 (5). The principle of that judgment also has no application to the presentthat obviously means that joint and several liability arises when the income of a firm which has discontinued its business is assessed under Section 44. It does not mean that where the assessment is made under Section 23 (5) (a) of a registered firm and the income of each individual partner is assessed, the partners becomes jointly and severally liable to pay the aggregate amount of tax attributable to their various shares, in their individualThe cases relied upon by counsel for the Income Tax Officer do not support the claim made by the Income-tax Officer.