9911796707
TMI Blog1975 (1) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... ct was issued by the first respondent, Income-tax Officer, Asst. II, Calicut, on whose file the petitioners and the firm are assessees under the Income-tax Act. On the basis of the recovery certificate issued by the first respondent, the second respondent (Income-tax Officer, Collection (Addl.), Calicut), issued exhibit P-1, Notice No. 46-001-FQ-7570/CLT, dated August 29, 1972, to the petitioners. To exhibit P-1 notice the 3rd petitioner filed exhibit P-2 reply dated October 7, 1972. Thereafter, exhibit P-3 reminder was sent by the 2nd respondent to the petitioners adverting to exhibit P-2 reply also. In this writ petition the relief sought for by the petitioners is the issue of a writ of mandamus directing the respondents to forbear from recovering the tax dues made mention of in exhibit P-1. The contentions of the petitioners are many-fold. It is contended before me that-- (a) section 222 of the Act prescribes the procedure for recovery of tax from assessees, and according to this procedure, recovery proceedings can be had only against an assessee in default or deemed to be in default, and that too in any one of the four modes prescribed therein; the firm is a separate legal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by Sri P. A. Francis, counsel for the revenue, is that, though there is such a fiction, the applicability of that fiction ceases when the assessment is complete. In support of this argument counsel for the revenue relies on a decision of the Allahabad High Court in Sahu Rajeshwar Nath v. Income-tax Officer, wherein at pages 757 and 758 there is the following observation by Pathak J., who delivered the judgment on behalf of the Division Bench: It is true that under the income-tax law a firm is treated as an entity distinct from its partners, but that is so only for the purpose of assessment. The procedure relating to assessment concludes when an assessment order has been made and the tax liability consequent upon that assessment has been determined. When a notice of demand is issued requiring the payment of the tax liability, the stage of assessment has been left behind, and with it the distinction between the firm and its partners. Section 29, under which the notice of demand is issued, indicates in terms that the assessment proceeding has been concluded and that tax is due in consequence of the assessment order. It provides that when tax is due in consequence of an order passe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he taxation of partnerships so that the income, if any, of each partner should be the subject of an assessment for the tax which is separate and distinct from the assessment of each of the other partners. So to proceed would, however, give rise to the necessity for dissecting the partnership accounts and apportioning the overall expenses and gross receipts amongst the individual partners in order to determine the net income of each. In order to avoid the necessity for such an unrewarding task, the Income-tax Act, 1918, provided that where a trade was carried on by two or more persons jointly the tax was to be computed and stated jointly and in one sum and was to be treated as separate and distinct from any other tax chargeable to those persons or any of them and also provided for a joint assessment to be made in the partnership name." Section 152 of the Income and Corporation Taxes Act, 1970, reads as follows : "Where a trade or profession is carried on by two or more persons jointly, income tax in respect thereof shall be computed and stated jointly, and in one sum, and shall be separate and distinct from any other tax chargeable on those persons or any of them, and a joint as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Indian Contract Act, 1872. (2) Where the decree-holder claims to be entitled to cause the decree to be executed against any person other than such a person as is referred to in sub-rule (i), clauses (b) and (c), as being a partner in the firm, he may apply to the court which passed the decree for leave, and where the liability is not disputed, such court may grant such leave, or, where such liability is disputed, may order that the liability of such person be tried and determined..." The Supreme Court, therefore, held that inasmuch as the provision contained in sub-rule (2) of rule 50 of Order 21 is applicable to the proceedings taken by the Collector, it was open to him to recover the amount from the partners who were not entitled to separate notice in that behalf. There are certain observations in the same judgment which would indicate that the Supreme Court felt that the amount due from the firm could not have been recovered from the partners to whom there had been no notice, either under the Indian Income-tax Act or under the Partnership Act. Starting from the last paragraph at page 620 of the above decision, the observation is as follows: "The phrase 'other person liabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility to pay income-tax is statutory; it does not arise out of any contract, and its incidence must be determined by the statute. If the statute which imposes liability has not made it enforceable jointly and severally against the partners, no such implication can arise merely because contractual liabilities of a firm may be jointly and severally enforced against the partners." Sri K. P. Radhakrishna Menon, counsel for the petitioner, also points out that if no distinction is to be made with respect to the liability of the partners of a firm carrying on or continuing its business on the one hand and the one which has ceased to have business or has been dissolved on the other, the provision under section 189(3) of the Act would not have been made. Sub-section (3) of section 189 is as follows : "Every person who was at the time of such discontinuance or dissolution a partner of the firm, and the legal representative of any such person who is deceased, shall be jointly and severally liable for the amount of tax, penalty or other sum payable, and all the provisions of this Act, so far as may be, shall apply to any such assessment or imposition of penalty or other sum." Counsel fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 26A in accordance with the conditions laid down in that section and the rules framed thereunder. And as those rules require the application to be signed by the partner in person, the signature by an agent on his behalf is invalid." It is pointed out by the counsel for the revenue that that observation happened to be made in a context where the question was whether a general provision would prevail or a particular provision contained in a particular statute would prevail, and all that was held in that judgment is that the special provisions would prevail. Whatever be the context in which it was made, the observation by the Supreme Court that "the Indian Income-tax Act is a self-contained code exhaustive of the matters dealt with therein", is of great weight, and the significance thereof cannot be brushed aside. In this context it will be useful to refer to a Division Bench decision of the Bombay High Court in Commissioner of Income-tax v. Ellis C. Reid. The observation of Beaumont C.J. quoted by Kapur J. in the decision of the Supreme Court in Commissioner of Income-tax v. Amarchand N. Shroff is extracted below : "The correct position is that apart from section 24B no ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tner' shall also include any person who, being a minor, has been admitted to the benefits of partnership." It was also argued by the counsel that in construing the words used in the definition, due regard has to be given to the other provisions contained in the Act and that there is a vast difference between the "definition" and the "meaning" of a term and that fact has to be borne in mind when construing the significance of the term "meanings" occurring in section 2(23) of the Act. It is argued that the definition clause does not necessarily apply to all possible contexts in the statute; statutory definitions have to be read subject to qualification ; parliamentary enactments have to be construed as a whole and their meaning attributed to words should, as a general rule, be inspired by the context and the nature and object of the subject-matter, for the words may be enlarged or restricted to harmonise with the provisions of the statute; the legislative intent must prevail over the legislative definition and the latter should not be allowed to control the former ; this is all the more so in cases where the definition clause opens with the words "subject to the context to the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a firm, while the assessee in default in terms of section 2(7)(c) of the Act is the firm assessed to tax separately. For this view that I have taken I find support in the recent decision of the Mysore High Court in P. Balchand v. Tax Recovery Officer, wherein in paragraph 14, Jagannatha Shetty J. has stated as follows : "Under the Act, the mere existence of liability to pay tax is not sufficient to recover the tax. Liability may be there when an assessment order is made. But there should be machinery provision to enforce that liability. That apart, the contention that the word 'defaulter' in rule 32 means and includes a partner, would run counter to the entire scheme of the Act. " In the result, the writ petition is allowed and the second respondent is directed not to proceed to recover the tax dues made mention of in exhibit P-1 from the petitioners on the strength of the tax recovery certificate issued by the first respondent to the second respondent. I make it clear that on the question of liability of the partners with regard to the debts of the firm I have not considered or pronounced anything ill this judgment. The writ petition is disposed of as above. There will be ..... 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