1954 (3) TMI 79 - HC - Income Tax

Partners' Joint Tax Liability Upheld After Firm Dissolution: Receiver's Authority Confirmed

A.G. Pandu Rao Versus The Collector of Madras

The court upheld the validity of the attachment order and dismissed the petitions challenging the excess profits tax assessment proceedings. It clarified ... - Issues:1. Validity of the order of attachment made by the Collector of Madras under the Excess Profits Tax Act.2. Dispute regarding excess profits tax payable for the accounting period from 1944 to 1946.3. Legal implications of the dissolution of the partnership firm on tax liabilities and assessment procedures.4. Applicability of notice requirements under Section 13 and Section 29 of the Income-tax Act to individual partners post-dissolution.5. Authority of a partner acting as a Receiver in representing the firm and other partners in tax matters.The judgment addresses the applications filed by two partners of a firm seeking to quash an order of attachment for excess profits tax levied on the firm. The partners argue that the assessment and subsequent proceedings do not bind them post the dissolution of the firm. The court examines the provisions of the Excess Profits Tax Act and the Income-tax Act, emphasizing the joint and several liability of partners for tax obligations. It highlights the absence of a registration mechanism for firms under the Excess Profits Tax Act, unlike the Income-tax Act. The court clarifies that even after dissolution, partners remain jointly and severally liable for tax assessments under Section 14 of the Act.Regarding the service of notices under Section 13 and Section 29 of the Income-tax Act, the court determines that notices served on the managing partner, who also acted as a Receiver, were sufficient. The court emphasizes that the Receiver had the authority to act on behalf of all partners, including the petitioners, and thus, the assessment cannot be challenged based on individual notice requirements. The court notes that the managing partner/Receiver submitted returns and made payments on behalf of the firm, and the partners accepted assessments without dispute. Therefore, the court concludes that the notices served on the managing partner were valid, satisfying the requirements under Section 63 of the Income-tax Act. As the liability of partners is joint and several, failure to pay the tax demanded under Section 29 renders each partner a defaulter.In conclusion, the judgment upholds the validity of the attachment order and dismisses the petitions challenging the assessment proceedings. It establishes that the actions taken by the managing partner/Receiver were authorized and binding on all partners, emphasizing the joint and several liability of partners for tax obligations even after the dissolution of the firm.