1967 (4) TMI 15 - SC - Income Tax

Partnership was dissolved - tax liability - It does not mean that where the assessment is made under s. 23(5)(a) of a registered firm and the income of each individual partner is assessed the partners become jointly and severally liable to pay the aggregate amount of tax attributable to their various shares in their individual assessments - revenue s appeal dismissed

Summary

Issues:
1. Tax liability of a partner in a dissolved firm.
2. Recovery of tax liability from erstwhile partners.
3. Interpretation of Section 23(5) of the Income-tax Act.
4. Joint and several liability of partners for tax payment.

Detailed Analysis:

1. The judgment dealt with the tax liability of a partner, Jawahar Lal, in a dissolved firm for the assessment years 1944-45 to 1947-48. The firm, registered under section 26A of the Indian Income-tax Act, was dissolved in 1946. The tax attributable to Jawahar Lal's share, which he could not pay, was sought to be recovered from his former partner, Radha Krishan.

2. The Income-tax Officer served Radha Krishan with demand notices for the unpaid tax by Jawahar Lal. Radha Krishan moved the High Court seeking to quash the notices. The High Court allowed the petition, but the decision was appealed by the Income-tax Officer to the Supreme Court.

3. The interpretation of Section 23(5) of the Income-tax Act was crucial in this case. The section deals with the assessment of a firm's income and the tax liability of individual partners. It distinguishes between registered and unregistered firms and outlines the procedure for determining tax liability based on the partners' shares in the firm's income.

4. The issue of joint and several liability of partners for tax payment was extensively discussed. The court examined Section 44 of the Income-tax Act, which imposes joint and several liability on partners of a discontinued firm. However, the court clarified that this provision does not automatically apply to tax payment by partners of a registered firm assessed individually under Section 23(5)(a).

In conclusion, the Supreme Court dismissed the appeal, ruling that the tax liability of a partner in a registered firm is individual and cannot be enforced jointly and severally against other partners. The judgment clarified the distinction between the assessment of a firm's income and the tax liability of individual partners, emphasizing that partners are not jointly liable for the tax attributable to each partner's share in the firm's income.