1972 (10) TMI 23 - HC - Income Tax

This is a writ petition under article 226 of the Constitution of India arising out of the proceedings for recovery of tax taken against the partnership firm - effect of the letter of the Tax Recovery Officer apportioning the tax payable by the firm among the partners

Summary

Issues:
1. Liability apportionment between partners of a dissolved partnership firm for income tax dues.
2. Legal authority of Income-tax Officer to limit liability of a partner in a partnership firm.
3. Distinction between liability of partners in registered and unregistered partnership firms.
4. Effect of apportionment made by Income-tax Officer on partner's liability.
5. Application of estoppel in the case based on the Income-tax Officer's letter.

Analysis:
The judgment in this case revolves around the issue of liability apportionment between partners of a dissolved partnership firm for income tax dues. The petitioner, who had a 60% share in the firm, contended that his liability should be limited to his share and not extended to the 40% share of the other partner. The key argument was based on an order of apportionment made by the Income-tax Officer, which the petitioner claimed as final and conclusive. However, the court noted that no provision in the Indian Income-tax Act empowered the Income-tax Officer to divide the firm's liability between partners, especially in the absence of firm registration.

The court highlighted the distinction between the liability of partners in registered and unregistered partnership firms. In the absence of firm registration, partners are jointly and severally liable for the firm's debts, making their liabilities co-extensive. The judgment emphasized that the Income-tax Officer lacked the authority to apportion and limit a partner's liability, rendering the apportionment letter legally ineffective. The court rejected the petitioner's argument that the letter served as an estoppel against the department, as this point was not raised in the writ petition.

Furthermore, the court clarified that the Income-tax Officer's letter merely apportioned the tax demand for convenience without restricting the petitioner's future liability. The judgment distinguished a previous Supreme Court case involving a registered firm, highlighting its inapplicability to the present case. Ultimately, the court dismissed the petition, emphasizing the petitioner's obligation to pay the entire amount due from the partnership, with the right to seek reimbursement from the partner.

In conclusion, the court ruled that the petition lacked merit and ordered its dismissal with costs. The judgment underscored that the Income-tax Officer's letter had no legal effect on the petitioner's liability, reaffirming the joint and several liability of partners in an unregistered partnership firm for the firm's debts.