1979 (3) TMI 58 - SC - Income Tax

Supreme Court: Tax on individual partners, not firm. Partner liability emphasized. Civil Court lacks jurisdiction.

The Supreme Court upheld the decision that profession tax should be levied on individual partners rather than the firm as a whole. The Court emphasized ... Whether persons collectively doing business in partnership, in the municipality, fulfil the second condition ? Held that:- There are no words in cl. (b) or elsewhere in the statute which, expressly or by necessary implication, exclude or exempt persons carrying on a trade collectively in the municipality from being taxed as individuals. To attract liability to a tax under this clause, it is sufficient that the person concerned is carrying on a trade in the municipality, irrespective of whether such trade is being carried on by him individually or in partnership with others. Thus, both the conditions necessary for levying a tax under cl. (b) of sub-s. (1) of s. 61 of the Municipal Act existed in this case. The appellants are ' persons ' and they are carrying on a trade in Chheharta Municipality. the entire effort to import the definition of ' person ' given in the General Clauses Act, into s. 61(1)(b) of the Municipal Act, is directed to find a foundation for the argument, that the construction adopted by the High Court could lead to double taxation and even unconstitutional results. But in the instant case, nothing of this kind has happened. The firm has not been assessed. No question of double taxation or exceeding the constitutional ceiling of ₹ 250 fixed by art. 276(2) of the Constitution arises on the facts of the present case. The present case is one, where the Municipal Committee acted ' under the Act '. It follows, therefore, that the Civil Court's jurisdiction to entertain and decide the suit was barred, even if the dispute raised therein related to the principle of assessment to be followed. Appeal dismissed. Issues Involved:1. Validity of profession tax assessment on individual partners versus the firm.2. Jurisdiction of the Civil Court to entertain the suit challenging the tax assessment.Issue-Wise Detailed Analysis:1. Validity of profession tax assessment on individual partners versus the firm:The appellants, partners of Bharat Industries, Chheharta, contested the Municipal Committee's assessment of a profession tax of Rs. 200 per annum on each partner, arguing that the tax should be levied on the firm as a single entity rather than on individual partners. They based their argument on the definition of 'person' in s. 2(40) of the Punjab General Clauses Act, which includes a 'firm.' They contended that the Municipal Committee exceeded its statutory powers under s. 61(1)(b) of the Punjab Municipal Act, 1911, by taxing individual partners.The trial court dismissed the suit, but the Additional District Judge reversed this decision, agreeing with the appellants. The High Court's single judge affirmed this, interpreting 'person' in s. 61(1)(b) to include a 'partnership,' thus implying that the tax should be on the partnership, not the individual partners.However, the Appellate Bench of the High Court held that the tax must be levied on individual owners of the factory or firm, not on the firm itself. They concluded that under s. 61(1)(b), it is the individual who is to be assessed and liable to pay the tax, thus the Municipal Committee's assessment on each partner was legally sound.The Supreme Court upheld the Appellate Bench's view, stating that the tax under s. 61(1)(b) is a tax on 'persons' practicing any profession or carrying on any trade in the municipality. The Court emphasized that a partnership is not a legal entity separate from its partners. Each partner is individually carrying on the trade, making them liable to be taxed as individuals. The Court found no basis in the statute to exempt partners from individual taxation when carrying on a trade collectively.2. Jurisdiction of the Civil Court to entertain the suit challenging the tax assessment:The appellants argued that the Civil Court had jurisdiction to hear their suit as the Municipal Committee acted beyond its jurisdiction. However, the Supreme Court referred to ss. 84 and 86 of the Punjab Municipal Act, which provide a specific remedy and forum for grievances related to tax assessments. Section 84 allows an appeal against the assessment to the Deputy Commissioner or another authorized officer, and s. 86 prohibits questioning the liability or assessment of tax in any manner other than provided in the Act.The Supreme Court cited its previous decision in Firm Seth Radha Kishan v. Administrator, Municipal Committee, Ludhiana, which held that when a revenue statute provides a specific remedy in a particular forum, all other forums are excluded. The Court concluded that the Municipal Committee acted within its powers under the Act, and therefore, the Civil Court's jurisdiction was barred.Conclusion:The Supreme Court dismissed the appeal, affirming that the profession tax was correctly levied on the individual partners, and the Civil Court had no jurisdiction to entertain the suit challenging the tax assessment. The appeal was dismissed with costs.