1968 (8) TMI 3 - SC - Income Tax

When under the scheme of the Act tax is assessed individually against each partner, and no tax is made payable by the partnership, the principle of joint and several liability under s. 44 cannot be invoked - CIT has jurisdiction to issue the impugned notice u/s 45 - Assessee appeal allowed

Summary

Issues:
- Liability of individual partner for tax due from ex-partners of dissolved partnership
- Interpretation of sections 23(5) and 44 of the Income-tax Act
- Joint and several liability of partners for tax payment post-dissolution

Analysis:
The case involved an appeal regarding the liability of an individual partner for tax due from ex-partners of a dissolved partnership. The appellant was part of a partnership that had ended, and the tax assessment was revised by the Commissioner of Income-tax due to alleged income suppression. The issue centered around the interpretation of sections 23(5) and 44 of the Income-tax Act. Section 23(5) pertains to the assessment of income for a registered firm, while section 44 deals with liability in case of a discontinued firm or association.

The argument presented was that the appellant, as an individual assessee under section 23(5), should not be held liable for the tax due from ex-partners. The court agreed with this argument, emphasizing that a partnership is a unit of assessment, and tax is collected from partners individually in the case of a registered partnership. The court referred to a previous case to support the view that tax liability is individual and does not entail joint and several liability among partners.

Regarding section 44, which deals with liability post-dissolution, the court clarified that it aims to prevent tax evasion by dissolved partnerships. However, the court noted that this section does not impose joint and several liability for tax payment on partners of a registered partnership individually assessed under section 23(5). The court highlighted the distinction between joint and several assessment of a partnership's income and individual assessment of partners' income for tax purposes.

Conclusively, the court held that the respondent had no jurisdiction to issue the notice for tax payment against the appellant, and the proceedings were quashed through a writ of certiorari under article 226 of the Constitution. The judgment of the High Court was set aside, and the appeal was allowed with costs in favor of the appellant.