1993 (4) TMI 30 - HC - Income Tax

Summary

Issues:
1. Liability of partners for tax dues of a firm under section 188A of the Income-tax Act, 1961.
2. Applicability of section 188A to recovery of dues for previous years.
3. Alleged violation of principles of natural justice in completing the assessment.

Analysis:
1. The judgment deals with the liability of partners for tax dues of a firm under section 188A of the Income-tax Act, 1961. The petitioners, partners of a firm, challenged notices issued to them for recovery of tax dues of the firm. The petitioners argued that since the assessment and demand were on the firm, the partners could not be personally proceeded against for recovery. The court considered the provisions of section 188A and past judgments, including ITO v. C. V. George, to determine the partners' liability. The court held that partners are jointly and severally liable for the tax dues of the firm, as per section 25 of the Indian Partnership Act and section 189 of the Income-tax Act. Section 188A extends this liability to existing firms and allows recovery from partners even if the firm is not dissolved. The court concluded that the partners could be proceeded against for the firm's dues under section 188A.

2. The judgment also addresses the applicability of section 188A to the recovery of dues for previous years. The petitioners argued that section 188A, introduced in 1989, could not be applied to recover dues for the years 1981-82 and 1982-83. The court clarified that section 188A is a machinery provision facilitating recovery and does not create new liability on partners. The liability of partners for firm dues exists independently of section 188A, as per the Indian Partnership Act. The court emphasized that the intention of the Legislature is to make the charge effective and the assessment machinery workable. Therefore, section 188A can be invoked for the recovery of unpaid amounts from firms, authorizing proceedings against partners even if the firm continues to exist.

3. Regarding the alleged violation of principles of natural justice in completing the assessment, the court found it unsubstantiated. The assessment was completed on the firm as reconstituted under section 187, following the prescribed procedure. Since the petitioners were partners during the relevant years, there was no basis for claiming a violation of natural justice. The assessments themselves were not challenged in the petition. Consequently, the court dismissed the petition, ruling it to be without merit.