TaxTMI 
TaxTMI 
1974 (10) TMI 4
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.... No. 4, became partners in this firm. The petitioners allege that soon after its constitution, the firm took several contracts with the railway department for construction of buildings. When the firm was reconstituted in September, 1970, the work under these contracts was going on. The reconstituted firm took over the assets and liabilities of the previous firm, including the existing contracts. For the assessment year 1971-72 (accounting period ending on January 31, 1971) the firm filed a return on February 22, 1972, showing a total income of Rs. 78,648. The firm was assessed for this year on an income of Rs. 1,09,602 on March 22, 1972. It was also granted registration by a separate order of the same date. The assessment order shows that petitioners Nos. 1 and 2 were recognised as the partners of the firm, while petitioners Nos. 3 and 4 were recognised as having been admitted to its benefits. The petitioners' case is that in April, 1971, differences arose amongst the partners. The four petitioners formed one group, while the remaining partners, headed by Sri L. K. Ahuja, formed another group. The partnership firm is alleged to have been dissolved on April 30, 1971. Sri L. K.....
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....-------------------------------------------------------- 1970-71 1971-72 Adv. Tax Adv. Tax ---------------------------------------------------------------------------------------------- 1. M/s. L.K. Ahuja & Co. (Firm) 12,551 7,500 ..... 2. Shri L.K Ahuja (Lal Chand) 17% 521 4,317 42,757 20% 3,297 3. Shri S.K. Ahuja (Shreechand) 6% 693 1,329 40,000 5% 768 4. Shri ....
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....nbsp; 1,469 ... ... ... 14. Shrimati Sundaribai ... ... ... 10% 1,536 15. Shri Behari Lal ... ... ... 10% 1,536 16. Shri Mewal Das ... ... ... 10% 1,536 17. Master Ravi Kumar ... &n....
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.... 2) and requiring the mills to pay the said sum to him from any amount due and payable by it to Kanhaiya Lal Ahuja. A copy of this notice was also sent to Kanhaiya Lal Ahuja. Thereupon Kanhaiya Lal Ahuja made enquiries from the I.T. Department and came to know that a sum of Rs. 1,75,000 has been attached and recovered by the ITO from the railway department. At that time the ITO was also pressing the other petitioners to pay small items of tax demand due from them. Manohar Lal Ahuja, petitioner No. 1, addressed a letter to the ITO, Kanpur, that the income-tax liabilities of the firm could not be more than Rs. 33,000, while he had recovered a sum of Rs. 1,75,000 due to the firm. It was requested that the tax demand due from the four petitioners be adjusted against the balance amount lying with him. The ITO, on April 24, 1973, replied that the amount realised had already been adjusted in the accounts of the partners of the firm as constituted on April 30, 1971. He also intimated that no further correspondence in this connection shall be entertained. The petitioner then made a representation to the Commissioner of Income-tax, who, on August 28, 1973, rejected it by saying that no in....
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....hold money for or on account of the assessee, to pay to the Income-tax Officer either forthwith upon the money becoming due or being held or at or within the time specified in the notice (not being before the money becomes due or is held) so much of the money as is sufficient to pay the amount due by the assessee in respect of arrears or the whole of the money when it is equal to or less than that amount ........" Section 222 of the Act provides for recovery through a certificate issued by the ITO to the TRO. Section 226 provides other modes of recovery which can be resorted to " notwithstanding the issue of a certificate to the TRO under section 222 ". This obviously means that the modes of recovery mentioned in section 226 can be adopted concurrently with proceedings under s. 222. In other words, the jurisdiction to take action under s. 226 arises on the issuance of a certificate under s. 222, and not before. In the present case it has not even been whispered by the ITO that any certificate had been issued under s. 222 on or before April 22, 1972, when be issued the notice under s. 226(3). The notice was clearly without jurisdiction and void. Sub-section (3) authorises the ....
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.... | (1-2-70 to 31-8-70) (1-9-70 to 31-1-71) Names of partners |------------------------------------------------------------- | Ratio Share Ratio Income Share Total | Sources -------------------------------------------------------------------------------- 1. Sri Lal Chand 20% 10,811 17% 3,400 6,041 &nbs....
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....; 15% 3,000 5,332 8,332 12. Sri chandra Kumar 10% 2,000 3,555 5,555 -------------------------- 20,000 35,547 1,00,602 ....
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.... behalf of the petitioners that moneys belonging to a partnership firm could not, in law, be utilised for paying personal tax liabilities of the partner. From the adjustments effected by the ITO it is evident that a sum of Rs. 12,551 was adjusted towards the tax liability of the firm, while Rs. 7,500 were adjusted towards advance tax due from the firm. Apart from this, a sum of about Rs. 20,000, which had been adjusted in relation to the dues of the firm, the balance out of Rs. 1,91,362 was adjusted against the tax or advance tax payable personally by the individual partners. In Narayanappa v. Bhaskara Krishnappa, AIR 1966 SC 1300, the Supreme Court, after considering the various provisions of the Indian Partnership Act, observed (p. 1303): " No doubt, since a firm has no legal existence, the partnership property will vest in all the partners and in that sense every partner has an interest in the property of the partnership. During the subsistence of the partnership, however, no partner can deal with any portion of the property as his own. Nor can be assign his interest in a specific item of the partnership property to anyone. His right is to obtain such profits, if any, as f....
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....hat the tax assessed upon the partners cannot be recovered from them. So even if we proceed on the assumption that there was change in the constitution of the firm, the action of applying s. 226 was invalid. Section 189 of the I.T. Act provides for dissolution of a firm. Subsection (3) thereof provides that every person who was at the time of its dissolution a partner of the firm shall be jointly and severally liable for the amount of tax payable by the firm, but there is no provision like the second proviso to s. 187(1) that the tax liability of individual partners can, in the case of a dissolved firm, be recovered from the assets of the firm. Our attention was not invited to any provision of the I.T. Act which provides that the personal liability of a partner with regard to advance tax could be recovered from the assets or funds of the firm. The action of the ITO in resorting to s. 226 to realise the demands due from the individual partners by adjusting the money which admittedly belonged to the firm was invalid. On behalf of the respondent, the ITO, it was submitted that the ITO did not really act on his own initiative. The firm made written applications to him to attac....