1964 (4) TMI 112 - HC - Income Tax

Partnership liability upheld for tax debt despite transfer of interest. Individual partners jointly liable.

SAHU RAJESHWAR NATH Versus INCOME-TAX OFFICER C-WARD, MEERUT AND ANOTHER.

The court dismissed the appeal, holding the appellant liable for the tax assessed on the firm. The court found that the appellant remained a partner ... - Issues:1. Whether the appellant ceased to be a partner of the firm after transferring his interest to another individual.2. Whether a separate notice of demand is required to be served on an individual partner for the recovery of tax liability assessed against a firm.3. Whether the appellant, who was not shown as a partner in the partnership deed during assessment proceedings, can be held liable for the tax liability assessed on the firm.Analysis:Issue 1:The appellant claimed he sold his share in a partnership firm but was later asked to pay income tax assessed on the firm. The respondents argued that the appellant continued to be a partner despite the sale. The court referred to the Partnership Act, stating that a partner transferring interest does not cease to be a partner unless specified in the partnership deed. The court held that the appellant remained a partner even after transferring his interest, based on the Act's provisions. Therefore, the appellant was liable for the tax assessed on the firm.Issue 2:The appellant argued that a separate notice of demand should have been served on him as an individual partner for tax recovery. The court disagreed, stating that once the assessment order is made and a notice of demand issued to the firm, individual partners are jointly and severally liable to meet the tax liability. The court cited legal sources to support that partners can be sued jointly for the firm's tax debt without considering their respective shares.Issue 3:The appellant contended that since he was not listed as a partner in the partnership deed during assessment proceedings, he should not be held liable for the tax assessed on the firm. The court rejected this argument, stating that the appellant's status as a partner was not a condition for the tax liability. The court held that the appellant was indeed liable for the tax assessed on the firm, regardless of his partner status in the deed during assessment.In conclusion, the court dismissed the appeal, holding the appellant liable for the tax assessed on the firm and allowing the respondents to proceed with the recovery of the tax liability. The court also awarded costs to the respondents.