E. P. Eapen v. The Ito Trivandrum — 1976 DIGILAW 246 (KER)

JUDGMENT K. Bhaskaran, J. 1. The writ petitioner was one of the partners of the firm ' Trivandrum Tobacco Corporation ' which was dissolved on 26th October 1953, and was one of the partners of the firm 'Trivandrum Tobacco Combines ' which discontinued its business in the year 1960. The 1st respondent is the Income Tax Officer, B-Ward, Trivandrum; the 2nd respondent the Tax Recovery Officer, Quilon; and the 3rd respondent the Sales Tax Officer, First Circle, Mattancherry. This petition under Art.226 of the Constitution of India is for quashing Ext. P-1 notice of the 1st respondent dated 12th July 1976, Ext. P-2 order dated 13th July 1976 of the 3rd respondent and the prohibitory order No. T.R. 358/69 dated 8th July 1976 issued by the 2nd respondent, referred to therein, and Ext. P-4 prohibitory order of the 2nd respondent dated 29th July 1976. There is also a prayer for the issue of a writ of mandamus to compel the 3rd respondent to effect the refund in obedience of Ext. P-1A order of the Government of Kerala dated 19th June 1976. 2. By Ext. P-1A [G.O. Rt. 494/76/TD, Taxes (C) Department, dated 19th June 1976] the Government of Kerala ordered the refund to the petitioner of a sum of Rs. 26,292.50 collected as sales tax from him for the period from 6th September 1955 to 31st December 1965 by M/s Imperial Tobacco Company, Coimbatore and paid over to the State Government; the Board of Revenue was directed to take necessary action for the refund of the amount. Thereafter the 1st respondent issued Ext. P-1 notice under S.226(3) of the Income tax Act, 1961 (Act 43 of 1961) dated 12th July 1976 prohibiting the 3rd respondent from making payments due to the petitioner for the reason that a sum of Rs. 35,951 was due from the petitioner, for M/s Trivandrum Tobacco Combines, Trivandrum, on account of income tax, penalty etc., and that amounts due to the petitioner from him had to be applied to satisfy the claims towards the arrears of tax. In and by Ext. P-2 order No. B-3030/75 dated 13th July 1976 the 3rd respondent informed the petitioner that in view of the 2nd respondent's prohibitory order No. T. R. 358/69 dated 8th July 1976 for Rs. In and by Ext. P-2 order No. B-3030/75 dated 13th July 1976 the 3rd respondent informed the petitioner that in view of the 2nd respondent's prohibitory order No. T. R. 358/69 dated 8th July 1976 for Rs. 1,79,254.85 restraining her from making any payment of the amount due to him, she was not in a position to refund the sum of Rs. 26,292.50; the reference to the amount obviously being to the amount of sales tax collected from the petitioner, ordered to be refunded to him under Ext. P-1A order dated 19th June 1976 by the Government of Kerala. 3. The writ petition is seen to have been filed in court, with only Exts. P-1 to P-3, on 15th July 1976. Thereafter the 2nd respondent issued Ext. P-4 notice No. T.R. 358/69 dated 29th July 1976 informing the 3rd respondent that the 1st respondent had informed him that a sum of Rs. 35,714 and interest thereon was due from the petitioner for M/s Trivandrum Tobacco Combines and Trivandrum Tobacco Corporation, Trivandrum, and prohibiting and restraining her (3rd respondent) until farther orders, from making any payment to the petitioner from out of the amounts due to him from her, and the petitioner from receiving any such payments from the 3rd respondent. A copy of the prohibitory order marked Ext. P-4 was produced by the petitioner along with his reply affidavit dated 5th August 1976; and the original petition was got amended as per the order on C.M.P. 14505/76 dated 6th August 1976 whereby the petitioner, among other things, sought the additional relief of quashing Ext. P-4 order of the 2nd respondent. Respondents 1 and 2 have filed separate counter affidavits rebutting the grounds taken by the petitioner in the writ petition, and contending, inter alia, that the two firms mentioned were assessed as unregistered firms in which the petitioner was a partner when the firm was dissolved or had discontinued its business, and therefore all the partners of the firm were jointly and severally liable for the amount of tax penalty and other sums payable. The first respondent in paragraph 10 of his counter affidavit has also explained the slight variation in the amount stated to have been due from the petitioner in the prohibitory order issued by him on the one hand, and the one issued by the 2nd respondent on the other, the reason for the difference being that, whereas he had included, in the amount due, interest up-to-date, the 2nd respondent had not done so. In paragraph 4 of the counter affidavit filed by the 2nd respondent, he has explained the error he had committed in stating in the prohibitory order No. T.R. 358/69 dated 8th July 1976 that a sum of Rs. 1,79,254.85 was due from the petitioner. Along with the counter affidavit he has produced Ext. R-1 prohibitory order TR. No. 358/69 dated 29th July 1976 (the same as Ext. P-4) and Ext R-2 covering letter dated 29th July 1976 under which Ext. R-1 (Ext. P-4) was sent by him to the 3rd respondent. In Ext. R-2 it was stated that the Correct amount due from the petitioner was Rs. 35,714, not Rs. 1,74,254.85, as stated in Ext. P-2. In paragraph 4 of the counter affidavit the 2nd respondent has expressed regret for the wrong figure, as to the amount outstanding from the petitioner, shown in Ext. P-2 on the basis of the prohibitory order dated 8th July 1976, without noting the fact that sizable portion of the arrears was already collected. Though in the original petition the correctness of the amount shown in Ext. P-2 as arrears due from the petitioner has been challenged, it has little relevance now, as the prohibitory order referred to therein has subsequently been virtually superseded by Ext. P-4 (Ext. R-1) order; and there is also a prayer for quashing Ext. P-4. It would therefore be sufficient now to go into the validity of Ext. P-4 (Ext. R-1) prohibitory order, which is under challenge as per the amended pleadings, without going into the correctness or validity of the prohibitory order No. T.R. 358/69, dated 8th July 1976 (issued by the 2nd respondent) referred to in the 3rd respondent's order Ext. P-2. 4. Sri S. Easwara Iyer, the counsel for the petitioner, submitted that it has not been shown that any amount was due to the Income Tax Department from the petitioner personally. On this basis he proceeded to argue that Exts. P-2. 4. Sri S. Easwara Iyer, the counsel for the petitioner, submitted that it has not been shown that any amount was due to the Income Tax Department from the petitioner personally. On this basis he proceeded to argue that Exts. P-1 and P-4 prohibitory order restraining the petitioner from receiving the amount due to him from the 3rd respondent, for the reason that amounts were due from the firms, of which the petitioner was, at the time of the dissolution or at the time of discontinuation of the business, as the case may be, was one of the partners, could not be sustained in law, and they have to be quashed holding them to be illegal and to have been issued without jurisdiction. Reliance was placed by the counsel on the following passage from paragraph 13 of the judgment delivered by Govindan Nair, C. J., for arid on behalf of the Full Bench in Income Tax Officer, Calicut and another v. C. V. George and others ( 1976 KLT 333 (F.B)). ".. .. The assessee in the case of a partnership which has been assessed as such is the firm. When tax is demanded from that firm and if it is not paid the assessee in default is the firm and not its individual partners according to the scheme of the Act. The partners will become liable under the Act only if there are separate assessments on the partners." 5. Sri P. K. Ravindranatha Menon, the counsel for the Revenue, submitted that the principles laid down in the decision of the Full Bench cited, could not be of any assistance to the petitioner. In the Full Bench case, he submitted, the question that arose for decision was whether the partners of a registered firm, which admittedly was carrying on its business during the relevant time, were liable to be proceeded against for recovery of arrears of tax assessed on the firm under the Income Tax Act, 1961, the contention of the partners who were the respondents in the Writ Appeal being that arrears of income tax due from the firm could not be recovered from them. The stand taken by the department was as stated below: "As per the provisions of the Partnership Act, the partners are jointly and severally liable to the dues of the firm. The stand taken by the department was as stated below: "As per the provisions of the Partnership Act, the partners are jointly and severally liable to the dues of the firm. This position, in law is not in any way affected by the Income Tax Act, 1961 and therefore your contention that the arrears on account of Income Tax dues of the firm can only be recorded from the firm is not acceptable." Though the assessment admittedly stood in the name of the firm, the recovery proceeding against the partners was sought to be justified placing reliance on S.25 of the Partnership Act which provided: "Every partner is liable, jointly with all the other partners and also severally, for all acts of the firm done while he is a partner." After having examined the relevant provisions of the Income Tax Acts, 1922 and 1961, the Full Bench observed as follows in paragraph 12 of the judgment, at page 336 of the report: "Under the provisions of the Act there can be assessments made either on a firm as such, or on the partners of the firm in given circumstances. When there has been only an assessment on the firm as in the case before us the firm alone is considered as an assessee for the purpose of the Act and it is to that firm that notice has to be issued under section 156 of the Act and if the notice has not been complied with it is that firm that can be treated as a defaulting assessee which can be proceeded against as envisaged by S.222 of the Act. This section commences by stating 'when an assessee is in default ........'. The question is whether the partners of a firm can be said to be assessees when the firm as such alone has been assessed. Counsel for the Revenue contended that by virtue of S.25 of the Indian Partnership Act the partners of a firm assessed as such must also be treated as assessees. We do not think that it is possible to accept the contention in the light of the provisions of the Act, which envisage, separate assessments being made on the firm as such and on the partners separately." It has further been stated in paragraph 13 of the said decision- ".... We do not think that it is possible to accept the contention in the light of the provisions of the Act, which envisage, separate assessments being made on the firm as such and on the partners separately." It has further been stated in paragraph 13 of the said decision- ".... Any liability for income tax imposed on a firm as such under the Act cannot be treated as the liability of the individual partners of the firm arising under the Act by importing the general principles of partnership law as the scheme of the Act visualises proceedings being taken against the firm or the partners only if a liability is imposed under the provisions of the Act against the firm or the partners thereof." From the passages from the Full Bench decision quoted it is clear that what has been laid down is that recovery proceedings could be only against the assessee in terms of the assessment order, without importing notion of joint and several liability contained in S.25 of the Partnership Act. The words "as the scheme of the Act visualises proceedings being taken against the firm or the partners only if a liability is imposed under the provisions of the Act against the firm or the partners thereof" employed in the passage from paragraph 13 of the judgment of the Full Bench are of great significance; the Full Bench has taken sufficient care to indicate that if the provisions of the Income Tax Act themselves impose liability on the partner, there would be no bar against he being proceeded against, though the assessment stood in the name of the firm alone. Otherwise the words "only if a liability is imposed under the provisions of the Act against the firm or the partners thereof" would be redundant. Sri Ravindranatha Menon pointed out that the discontinuance of business by the firm 'Trivandrum Tobacco Combines' was on and from 1st July 1960 and that from the said firm for the assessment years 1957-58 to 1960-61 a sum of Rs. 53,565 in the aggregate was due by way of income tax. The assessment for the respective years was made on 11th July 1960, 25th August 1960, and 30th September 1961, all before the coming into force of the Income Tax Act of 1961 (Act 43 of 1961). 53,565 in the aggregate was due by way of income tax. The assessment for the respective years was made on 11th July 1960, 25th August 1960, and 30th September 1961, all before the coming into force of the Income Tax Act of 1961 (Act 43 of 1961). It therefore goes without saying that the liability to income tax with respect to the firm is governed by the provisions of the Income Tax Act, 1922 (Act 11 of 1922). The relevant provisions of S.44 of the 1922 Act provide as follows - "44. Liability in case of firm or association discontinued or dissolved.- (1) Where any business, profession or vocation carried on by a firm or other association of persons has been discontinued or where a firm or other association of persons is dissolved, the Income Tax Officer shall make an assessment of the total income of the firm or other association of persons as such as if no such discontinuance or dissolution had taken place. (2) * * * * * (3) Every person who was at the time of such discontinuance or dissolution a partner of the firm or a member of the association, as the case may be, shall be jointly and severally liable for the amount of tax or penalty payable, and all the provisions of Chap.4 so far as may be, shall apply to any such assessment of imposition of penalty." 6. S.189 of Act 43 of 1961 contains provisions corresponding to S.44 of Act 11 of 1922. It may be noticed that the Full Bench decision of this Court quoted above was rendered in the appeal from the decision in O.P. No. 568 of 1973 (C. V. George and others v. Income Tax Officer, Calicut - 1975 KLT 253 ). One of the strong points urged by the petitioners in the writ petition (O.P. No. 568 of 1973) as is evident from paragraph 3(b) of the judgment in that case, at page 254 of the report, was that the principle of joint and several liability of the partners for the dues of a firm available under the Partnership Act could be applied only in the case of one envisaged under S.189 of the Act. By virtue of the provisions contained in sub-s.(1) and (3) of S.44 of Act 11 of 1922 the petitioner is jointly and severally liable to discharge the sum of Rs. By virtue of the provisions contained in sub-s.(1) and (3) of S.44 of Act 11 of 1922 the petitioner is jointly and severally liable to discharge the sum of Rs. 35,951 or Rs. 35,714 as mentioned in Exts. P-1 and P-4, the amount being the balance of income tax due from the firm for the assessment years 1957-58 to 1960-61, all the assessments having been made after 1st July 1960, on and from which date the firm discontinued its business, and before 1st April 1962 on which date Act 43 of 1961 came into force. In the light of these facts one fails to understand how the decision of the Full Bench in Income Tax Officer, Calicut and another v. C. V. George and others ( 1976 KLT 333 (F.B.) ) relied on by the counsel for the petitioner would be of any assistance to the petitioner. 7. Sri Easwara Iyer made a further submission that by virtue of the provisions contained in S.297(2)(j) of Act 43 of 1961 recovery proceedings for the dues of the firm, even if the assessments were made under the repealed enactment, could be taken only under the provisions of the new Act (Act 43 of 1961), and, if so, the decision of the Full Bench of this Court reported in Income Tax Officer, Calicut and another v. C. V. George and others ( 1976 KLT 333 (F.B.) ) would squarely apply and respondents 1 and 2 could not proceed against the petitioner for recovery from him the amounts due from the firm on the ground that he is or was one of the partners of the firm. As we have already noticed, the real test for the application of the dictum laid down in the Full Bench decision referred to above is whether there had been a joint and several liability in so far as the partner is concerned in relation to the firm's liabilities or whether there is separate assessments on the firm and on the partners. If there is separate assessments on the firm and on the partners and no joint liability by the operation of the provisions of S.44 of Act 11 of 1922 or S.189 of Act 43 of 1961 exists, the principles laid down in the Full Bench decision would be applicable. If there is separate assessments on the firm and on the partners and no joint liability by the operation of the provisions of S.44 of Act 11 of 1922 or S.189 of Act 43 of 1961 exists, the principles laid down in the Full Bench decision would be applicable. On a careful consideration of the provisions of the Acts and the rationale behind the decision of the Full Bench in the case reported in Income Tax Officer, Calicut and another v. C. V. George and others ( 1976 KLT 333 (F.B.)) we are of the view that the immunity from being proceeded against the partner for realisation of the amount assessed on the firm could no be considered to extend to cases where, under the provisions of the Income Tax Act, there is a joint and several liability cast on the partner for the amounts due by way of tax from the firm. This is the reasonable way in which the dictum laid down by the Full Bench in Income Tax Officer, Calicut and another v. C. V. George and others ( 1976 KLT 333 (F.B.)) could be understood, and applied to cases. 8. The fact that Exts. P-5 and P-5A, notice under section 156, and order under S.210 respectively of Act 43 of 1961, relating to payment of advance tax from M/s Trivandrum Tobacco combines for the financial year 1962-63 were received by the firm does not absolve the liability of the petitioner or advance his case in any way; for one thing, the advance tax demanded was for the financial year 1962-63, whereas, as we understand it, the prohibitory orders, Exts. P-1 and P-4, have been issued with respect to the firm's liabilities for the assessment years 1957-58 to 1960-61; for another thing, the assessment even in the case of a firm which has been dissolved or has discontinued its business, in terms of sub-s.(1) of section 189 of 43 of Act 1961 or sub-s.(1) of S.44 of Act 11 of 1922, has to be as if no dissolution, or discontinuation of the business of the firm, had taken place. In the light of these facts and circumstances reconsideration of the decision in Income Tax Officer, Kozhikode v. Swamy Satchidanand and others (1965 (58) ITR 128) as contended for by the petitioner, which contention gave rise to the reference to a Division Bench, does not appear to be necessary. 9. Assuming, without recording a finding, that there is any technical flaw in the procedure adopted or some mistakes in the provision of law quoted, if the court is satisfied that in accordance with the law for the time being in force the petitioner is jointly and severally liable to the tax demanded, the prohibitory orders issued by respondents 1 and 2 have only to be upheld, as the court would be slow in rendering assistance to the petitioner who invokes the extraordinary jurisdiction under Art.226 of the Constitution of India to delay or evade, on trivial grounds, the tax legitimately found due to the State from him. For the foregoing reasons we find that the petitioner is not entitled to any relief, and there are no grounds for issuing a writ of certiorari quashing Exts. P-1, P-2 and P-4 orders or for issuing a writ of mandamus directing the 3rd respondent to effect the refund in obedience to Ext. P-1A order of the Government of Kerala. The result is that the writ petition is dismissed, however, in the circumstances of the case without any order as to costs.