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1993 DIGILAW 215 (KER)

Tity Thomas v. Tax Recovery Officer

1993-04-07

G.VISWANATHA.IYER

body1993
Judgment :- The petitioners, eight in number, were partners of a firm M/s. Gemini Plantations, which owns coffee plantations in this State. This partnership, constituted over a decade and a half ago, has been undergoing reconstructions from time to time, with partners retiring and new partners being inducted. The specific details of these retirements and inductions are unnecessary for the purpose of this case, except to mention that the petitioners were partners of the firm during the financial years ending March 31,1981 and March 31,1982. 2. The firm had been granted registration under S.184 of the Income Tax Act, 1961 (the Act). assessments Exts.P4 and P5 were completed on March 13,1986 holding that the firm had no income assessable to tax under the Act. These orders were however reopened and fresh orders Exts.PS and P9 passed on August 14,1987 assessing the firm to tax on the capital gains arising consequent on the sale of certain trees in its plantations. There were consequent demands for Rs.2, 94,590/- by way of tax and other amounts for the assessment year 1981-82, and Rs.1, 54,313/- for the year 1982-83. The assessments were made on the firm and the demand notices Ext.P and P11 were also addressed to the firm. The amounts demanded remained unpaid, whereupon the Tax Recovery Officer issued Ext.P7 series of notices dated November 23,1992 to the petitioners, under S.188A of the Act, calling upon each of the petitioners to pay 1/18 of the arrears due, as their share thereof. This writ petition is filed challenging the notices Ext.P7 series with the' contention that the assessment and the demand being on the firm (which continued to be in existence), the partners could not be proceeded against personally for recovery of the amount due. S.188A which was introduced in the Act with effect from April 1, 1989 by the Direct Tax Laws (Amendment) Act 1987 has no retrospective operation and is insufficient to sustain the proceedings against the partners for recovery of the amounts due under Exts.P5 and P9. 3. Counsel for the petitioner placed reliance on the decision of a Full Bench of this Court in Income Tax Officer v. C.V. George, 1976 KLT 333 and Alikoya Haji v. Assistant Commissioner of Sales Tax, 1976 KLT 762 to contend that the tax demanded from the firm could not be recovered from the petitioners. 3. Counsel for the petitioner placed reliance on the decision of a Full Bench of this Court in Income Tax Officer v. C.V. George, 1976 KLT 333 and Alikoya Haji v. Assistant Commissioner of Sales Tax, 1976 KLT 762 to contend that the tax demanded from the firm could not be recovered from the petitioners. There is also a secondary submission that the order of re-assessment was one completed in violation of the principles of natural justice, without notice to the petitioners, and therefore not enforceable as against them. Reliance is placed on the decision in Govinda Prabhu v. Additional Sales Tax Officer, 1984 KLT (Short Notes) Case No.92. 4. Counsel for the Revenue, on the other hand submits that S.188A does not create any new liability but incorporates merely a machinery provision for enforcement of that liability though the processes envisaged by the Act. Being a machinery provision, it applies to all cases when amounts are in arrear from firms, even though the liability might have accrued prior to April 1, 1989. He also refutes the allegation of violation of the principles of natural justice in completing the assessment, point out that the assessment has been completed under S.187 of the Act, in accordance with the procedure prescribed thereby. 5. In George's case what this court stated was that when the assessee is a partnership, which has been assessed, and tax demanded from the firm, 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. Since the scheme of the Act visualises proceedings against the firm or the partners only if a liability is imposed on them under the provisions of the Act, any liability for the tax imposed on a firm as such under the Act cannot be treated as the liability of the partners by importing the general principles of partnership law and therefore those dues of the firm cannot be recovered from the partners. In the other case of AlikoyaHaji, the amount sought to be recovered was sales tax due from a defunct firm under the Kerala General Sales Tax Act, 1963. It was sought to be recovered from a partner by issuing a garnishee notice to his employer under S.25 of the Act. In the other case of AlikoyaHaji, the amount sought to be recovered was sales tax due from a defunct firm under the Kerala General Sales Tax Act, 1963. It was sought to be recovered from a partner by issuing a garnishee notice to his employer under S.25 of the Act. It was held that the assets of the partners could not be proceeded against in the mode of recovery provided by S.25 of the Act which enabled proceedings only against the firm and not against the partners. That decision turned on the language of S.25 of the Statute concerned, and is not directly applicable to the facts of this case. Only the decision in George has, if at all, any relevance. The scope of the ratio in George's case was delineated by a Bench of this Court in Eapen v. Income Tax Officer (1978) 112 ITR 829 in these words: - "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 passages at page 149 of the judgment of 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". It will be noted from the above passage, that the Division Bench laid stress on the question whether the Act itself cast a liability on the partners for the dues of the firm in which event they could be proceeded against for the dues of the firm. 6. The question which arises for consideration therefore is whether any liability is cast on the petitioners for the dues of the firm Gemini Plantations. 6. The question which arises for consideration therefore is whether any liability is cast on the petitioners for the dues of the firm Gemini Plantations. It cannot be doubted having regard to the provisions of S.25 of the Indian Partnership Act that the partners are jointly and severally liable for all acts of the firm while he was a partner. Therefore, the partners are jointly and severally liable for the tax dues of the firm. In fact S.189 of the Act casts a liability on -the partners, and makes the amount recoverable from them in case the firm is dissolved or if the business of the firm is discontinued. What S.188A appears to have done is to extend the principles of S.189 to a firm in existence as well? Section 188A reads: 188A. Joint and several liabilities of partners for tax payable by firm. - Every person who was, during the previous year, a partner of a firm, and the legal representative of any such person who is deceased, shall be jointly and severally liable along with the firm for the amount of tax, penalty or other sum payable by the firm for the assessment year to which such previous year is relevant, and all the provisions of this Act, so far as may be, shall apply to the assessment of such tax or imposition or levy of such penalty or other sum." What the section has purported to do is to make the partners jointly and severally liable, along with the firm, for the amount of tax, penalty or other sum payable by the firm. It is really a projection of the principle underlying S.189 to a firm in existence, and to attract the proceedings under the Act for recovery of the said amount from the partners also. The position as it stood under George's case, of proceedings under the Act being barred so long as the firm was in existence stood removed by this provision. If S.188A is applicable to the case, it cannot be doubted that the amount due from the firm could be recovered from the petitioners, even while the firm was in existence, without its being dissolved or its business being discontinued. 7. But then the question arises whether this section which came into force only on April 1, 1989 could be applied to the recovery of the dues for the years 1981-82 and 1982-83. 7. But then the question arises whether this section which came into force only on April 1, 1989 could be applied to the recovery of the dues for the years 1981-82 and 1982-83. What S.188A does is only to incorporate a machinery provision facilitating the recovery of dues of a firm. It does not cast any new liability on the partners. Such liability exists de hors S.188A, having regard to the provisions of S.25 of the Indian Partnership Act, which stands, recognized otherwise in S.189. The decision of the Full Bench, in my view, only goes to the extent of in lorJicting proceedings under the Act for recovery of the tax liabilities of the firm from the partners. The other remedies which the department may have by way of civil suit or otherwise are not precluded even under the said decision. That position has now been clarified by attracting the provisions of the Act for recovery of the liabilities of the firm from the partners during the subsistence of the firm. As stated by the Supreme Court in Gursahai Saigal v. Commissioner of Income Tax, (1963) 48 ITR page 1, the provisions of a taxing statute laying down the machinery for the calculation of the tax or the procedure for its collection have to be construed as to effectuate the intention of the legislature, which is to make the charge effective and to make the machinery of assessment workable. In my view, S.188A, which does not cast any new liability on the partners, is liable to be invoked for recovery of all amounts remaining unpaid by firms, and authorizes proceedings against the partners thereof even though the firms continue to subsist. The notices Ext.P? series are thus warranted by the provisions of S.188a and the proceeding? Initiated there under against the partners are valid in law. 8. The other point regarding alleged violation of the principles of natural justice does not merit serious consideration. The assessment is one completed on the firm as reconstituted under S.187. There is no case that the procedure prescribed in that section has not been followed. The petitioners were partners of the firm during the years 1981-82 and 1982-83. If so, there cannot be any room for any complaint that the assessment is bad for violation of the principles of natural justice. Even otherwise, the assessments are not under challenge before me. The petitioners were partners of the firm during the years 1981-82 and 1982-83. If so, there cannot be any room for any complaint that the assessment is bad for violation of the principles of natural justice. Even otherwise, the assessments are not under challenge before me. The original petition is therefore without merit. It is accordingly dismissed.