1972 (9) TMI 42 - HC - Income Tax

Contention of the learned counsel for the petitioner is that section 182(4) of the Act does not contemplate that tax due from one partner er may be recovered from another partner of a registered firm - Section 182(4) and 189(3) of Income-tax Act, 1961 indicate that when taxes due by a partner of a registered firm which has been dissolved is not recoverable from him - tax including interest and penalty, can be recovered from any other partner of the firm - but the tax sought to be realised must not exceed 30 per cent. of the defaulting partner s share in the profits of the firm Petition dismissed

Summary

Issues:
1. Interpretation of Section 182(4) of the Income-tax Act regarding the recovery of tax from one partner by another partner in a registered firm.
2. Applicability of Section 189(3) in cases of dissolved firms and the joint and several liability of partners for tax assessment.
3. Comparison of provisions under the old Income-tax Act, 1922, and the new Income-tax Act, 1961, regarding the liability of partners in a dissolved firm.

Analysis:
The judgment by the High Court of Allahabad addressed a petition under Article 226 of the Constitution concerning the recovery of tax from a partner in a dissolved firm. The petitioner was part of a registered firm engaged in running country liquor shops. The issue arose when one partner failed to pay the assessed tax, leading to a demand for payment from the petitioner under Section 182(4) of the Income-tax Act. The contention was that this section did not allow for the recovery of one partner's tax from another partner in a registered firm.

Section 182 of the Income-tax Act deals with the assessment of registered firms. The court explained that while normally tax due from a partner cannot be recovered from the firm, Section 182(4) makes an exception by holding the firm liable for the tax due from a partner, limited to 30% of the defaulting partner's share in the profits. Even if the firm did not retain any amount from the defaulting partner's share, the liability under Section 182(4) remains. Additionally, Section 189 provides for the assessment of a dissolved firm as if no dissolution had occurred, making every partner jointly and severally liable for the tax assessed on the firm.

The judgment referenced previous Supreme Court decisions to distinguish the liability of partners under the old Income-tax Act, 1922, and the new Income-tax Act, 1961. The court highlighted that the new Act, specifically Section 182(4), imposes a statutory liability on the firm to pay the tax of a defaulting partner, with the liability extending to each partner in case of dissolution. The court also clarified that the term "tax" in Section 182(4) encompasses interest and penalty, as established in previous Supreme Court rulings.

Ultimately, the court dismissed the petition, upholding the applicability of Section 182(4) for recovering tax from a partner in a registered firm and emphasizing the joint and several liability of partners in cases of dissolution. The judgment provided a detailed analysis of the legal provisions and their implications in the context of the case, setting a precedent for similar matters involving tax recovery in dissolved firms.