Partnership transfer and tax recovery principles: transfer of share does not end membership, and demand on firm suffices against partners.

A partner who transfers his share in a firm does not cease to be a partner merely by that transfer, unless the partnership deed provides otherwise, because section 29 of the Partnership Act gives the transferee only a right to receive profits during the firm's continuance. In income-tax recovery, tax assessed on a firm is treated as a partnership debt and partners liable at the relevant time are jointly and severally responsible. A demand served on the firm is sufficient to proceed against a partner, and no separate notice of demand to each individual partner is required.

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Issues: (i) Whether a partner who transfers his interest in the firm ceases to be a partner in the absence of a contrary partnership term; (ii) whether recovery of income-tax assessed on a firm requires a separate notice of demand to be served on an individual partner before proceeding against him.

Issue (i): Whether a partner who transfers his interest in the firm ceases to be a partner in the absence of a contrary partnership term.

Analysis: Under section 29 of the Partnership Act, a transferee of a partner's interest does not, during the continuance of the firm, acquire the rights of a partner, but is only entitled to receive the transferor's share of profits. The transfer does not by itself substitute the transferee in place of the transferor or bring the transferor's membership of the firm to an end. Unless the partnership deed provides otherwise, the transfering partner continues to remain a partner notwithstanding the transfer of his interest.

Conclusion: The transfer of the partner's interest did not terminate his status as a partner; he remained a partner of the firm.

Issue (ii): Whether recovery of income-tax assessed on a firm requires a separate notice of demand to be served on an individual partner before proceeding against him.

Analysis: After assessment is completed, the notice of demand under section 29 of the Indian Income-tax Act, 1922 is issued for recovery of the tax due in consequence of the assessment order. A firm is treated as a distinct entity only for assessment purposes. For recovery, the tax assessed in the firm name is a partnership debt, and the partners who were liable at the relevant time are jointly and severally liable. Therefore, a demand served on the firm is sufficient to proceed against a partner for recovery of the firm's tax liability, and a separate notice to each partner is not necessary. The belated contention that the appellant was not shown as a partner in the relevant partnership deed was not entertained.

Conclusion: No separate notice of demand to the individual partner was required before recovery could be pursued against him.

Final Conclusion: The partner remained liable for the firm's assessed tax, and the revenue authorities could recover the demand from him.

Ratio Decidendi: A transfer of a partner's share in the firm does not, by itself and absent a contrary agreement, terminate his partnership; and for recovery of tax assessed on a firm, partners are jointly and severally liable, so a demand on the firm suffices to proceed against a partner.

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