Valid service on a partnership firm can trigger personal recovery against a partner for unpaid firm tax dues.
Service of assessment and demand notices addressed to a firm and served on a person treated as its authorised agent or partner was held valid service on the firm where the firm acted on those notices in assessment and appeal proceedings. Once valid demand was served and the tax remained unpaid, the partner could be proceeded against personally for recovery on the basis of joint and several liability for firm debts, including by coercive recovery measures such as arrest. The challenge to attachment of Hindu undivided family property was left undecided.
Issues: (i) Whether service of assessment notices and notices of demand on Baij Nath amounted to valid service on the firm; (ii) Whether a partner of the firm could be proceeded against, including by arrest, for recovery of the firm's tax dues.
Issue (i): Whether service of assessment notices and notices of demand on Baij Nath amounted to valid service on the firm.
Analysis: The notices under section 34 were addressed to the firm and were served on Baij Nath, who was treated on the record as connected with the firm. The firm acted upon those notices by filing returns, and the assessment orders and notices of demand were also received and used in the appeals filed on behalf of the firm. On these facts, service on Baij Nath was treated as service on an authorised agent of the firm, and alternatively as service accepted on behalf of the firm through a partner.
Conclusion: Service on Baij Nath was valid service on the firm.
Issue (ii): Whether a partner of the firm could be proceeded against, including by arrest, for recovery of the firm's tax dues.
Analysis: Once the notice of demand was validly served on the firm and the tax remained unpaid, the partner became liable for the firm's tax default. The Court applied the principle of joint and several liability of partners for the debts of the firm and held that the liability was personal for recovery purposes, so all coercive recovery processes were available against the partner. The challenge to the attachment of the Hindu undivided family property was not decided and was left open.
Conclusion: The petitioner could be proceeded against in recovery, including by arrest.
Final Conclusion: The recovery proceedings against the petitioner were sustained, and the writ petition was dismissed.
Ratio Decidendi: Valid service of demand on a partnership firm binds the partners for recovery, and a partner may be proceeded against personally on the basis of joint and several liability for unpaid firm tax dues.
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