Adjustment of partnership refund denied without all partners' consent; statutory interest under sales tax law upheld.

The Madras HC held that refund and security deposit amounts standing in the name of partnership concerns could not be adjusted towards arrears of tax without the consent of all partners having an interest in those sums. Although partners are jointly and severally liable for tax liabilities under the relevant rules, that liability did not authorise unilateral adjustment of amounts held in the firm's name. The court also noted that the release deed gave no protection over the refund and that the risk of competing claims by other partners was real. Interest charged under section 24(3) of the Tamil Nadu General Sales Tax Act was found to be in accordance with the statute, so the challenge failed.

---

---

Issues: Whether the refusal to adjust the security deposit and refund amount towards arrears of tax and the demand of interest under section 24(3) of the Tamil Nadu General Sales Tax Act, 1959 were illegal.

Analysis: The request for adjustment was declined because the refund and security deposit stood in the name of partnership concerns and the consent of all partners was not obtained. Rule 40 of the Tamil Nadu General Sales Tax Rules, 1959 makes partners jointly and severally responsible for tax liabilities, but that provision did not compel the authority to adjust amounts standing in the firm's name without consent of all persons having an interest in those amounts. The court also noted that the refund related to an earlier assessment year, that the release deed contained no protection regarding the refund, and that the apprehension of future claims by other partners was not unfounded. The demand of interest under section 24(3) was also held to be in accordance with the statute.

Conclusion: The rejection of the adjustment request and the levy of interest were upheld, and the challenge failed.

---