TaxTMI 
TaxTMI 
1964 (12) TMI 72
X X X X Extracts X X X X
X X X X Extracts X X X X
....a (1st Gulmoha Contract) in the assessment for the year 1951-52 which has since been dissolved, Whereas the partners in the said firm, which has been assessed as registered firm, Sri M. Veeraiah and Sri H. Siddappa, have been found to be liable to tax of Rs. 10,654.62 nP. and Rs. 5,640.62 nP. respectively, Whereas the said tax is still in arrears and has not been paid, I call upon Sri Kalva Suryanarayana, who has been a partner at the time of dissolution of the firm, to pay the tax in arrears as he is jointly and severally liable. The tax should be paid forthwith, failing which penal action will be taken for the recovery of the same. Sd. K.S. Murty Income-tax Officer, A-3, A-Ward, Hyderabad." The petitioner had entered into a partnership with three others by names D. Sayappa, H. Siddappa and M. Veeraiah, to carry out a "Gulmoha" contract, for the year 1949-50. The firm was known as Messrs. Kalva Suryanarayana. After the completion of that contract, the partnership came to an end. In respect of that undertaking after the dissolution of the partnership, for the assessment year 1951-52, on an application by the erstwhile partners of the dissolved....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... time of such discontinuance or dissolution a partner of such firm or a member of such association shall, in respect of the income, profits and gains of the firm or association, be jointly and severally liable to assessment under Chapter IV and for the amount of tax payable and all the provisions of Chapter IV shall, so far as may be, apply to any such assessment." It is plain from the terms of this section that it comes into play only after the discontinuance of a business carried on by a firm and the section postulates an assessment after the discontinuance and for fastening of liability for the amount of tax found due on such assessment. In terms, express and explicit, the section saddles the erstwhile partners of a dissolved firm with joint and several liability to assessment as well as for the amount of tax payable. It is well established that section 44 of the Act applies as much to registered firms as to unregistered firms and it declares the liability of all discontinued firms and not merely of unregistered firms: see Commissioner of Income-tax v. S.V. Angidi Chettiar [1962] 44 ITR 739 (SC). In C.A. Abraham v. Income-tax Officer, Kottayam [1961] 41 ITR 425 (SC), the S....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ess........The use of the expression 'so far as may be' in the last clause of section 44 also does not restrict the application of the provisions of Chapter IV only to those which provide for computation of income.......In effect, the legislature has enacted by section 44 that the assessment proceedings may be commenced and continued against a firm of which business is discontinued as if discontinuance has not taken place. It is enacted manifestly with a view to ensure continuity in the application of the machinery provided for assessment and imposition of tax liability notwithstanding discontinuance of the business of firms. By a fiction, the firm is deemed to continue after discontinuance for the purpose of assessment under Chapter IV." In the instant case, inasmuch as the assessment as well as the imposition of the tax liability took place after the discontinuance of the business of the firm, it must be held on the authority of the above decision of the Supreme Court, that the petitioner is liable for the balance of the tax payable by two of his former partners. It was, however, contended by the learned advocate for the petitioner that under sub-section (5) of sect....
X X X X Extracts X X X X
X X X X Extracts X X X X
....assess the income derived prior to the dissolution, it does not come into play in respect of assessments made before the discontinuance or dissolution of the association or partnership. In cases where the share of each of the partners was brought to tax prior to its discontinuance or dissolution, the liability of each of the partners is to be traced to that assessment. We do not think that section 44 seeks to enlarge the liability of individual partners already determined under section 23(5). The language of the section does not warrant the interpretation that notwithstanding that the prior assessment had computed the tax payable by each of the partners under section 23(5), it has fastened a joint and several liability of each of the partners." Similarly, in the Madras case (supra), the question that the court had to consider was formulated thus in the course of the judgment : "The question that arises for consideration is whether on the discontinuance and dissolution of a registered firm, the partners of which have been assessed to tax under section 23 of the Indian Income-tax Act, the tax liability of one of the partners in regard to his share of the income of the fir....