S.K. Desai, J.
1. In this miscellaneous petition the petitioners have raised two principal complaints. The petitioners Nos. 1 to 4 were the partners of petitioner No. 5, Agarwal and Co. The said petitioners are complaining in the first place of certain adjustments made in respect of the EPT refund allowed to the said firm and the grievance is that although the excess EPT was paid by the firm, the refunds have been adjusted amongst the 13 partners which is not warranted by the legal provisions pertaining to refund. The second complaint is that they have not been allowed interest on the excess payment between the periods from March 31, 1956, to June 9, 1960.
2. The opposing respondents to this petition are respondents Nos. 1 to 4.
3. In order to understand the grievances of the petitioners and the legal provisions to be applied and considered, a few facts may be stated.
4. The firm of Agarwal and Co. was constituted under a partnership deed dated May 15, 1944, and at the relevant period consisted of 13 partners including one limited company, namely, petitioner No. 4. It would appear that by 1954 serious disputes had arisen between the partners, which disputes were referred some time in October, 1954, to the arbitration of Shri Morarji Desai and Shri G. D. Birla, who gave their award on May 29, 1956. A copy of the said award is annexed at Ex. A to the petition and my attention was drawn to cls. 4, 8, 10, 15 and 16 of the said award.
5. We are concerned in this petition with the excess profits tax payable by the firm of Agarwal and Co. for the accounting periods November 2, 1943, to October 17, 1944, October 18, 1944,to November 5, 1945, and November 6, 1945, to March 31, 1946. The aggregate amount of excess profit taxes payable by the said firm in respect of the three chargeable accounting periods indicated above came to Rs. 32,23,607 and this amount appears to have been paid by the firm on March 31, 1956. It would appear that on March 8, 1960, in appeals preferred by the assessee-firm, all the three assessments were set aside by the AAC and thereafter on June 9, 1960, the concerned EPT Officer made provisional assessments determining the identical amount as had been determined earlier on December 9, 1955, as payable by the assessee-firm. It would appear that thereafter there were certain negotiations between the assessee-firm or some of the partners thereof and the CBDT. At this juncture we need not go to the history of the negotiations and the correspondence exchanged in connection therewith. It will be sufficient for our purposes to state that on October 25, 1972, it was determined that an aggregate amount of Rs. 15,28,532 was payable as E.P.T. by the said firm for the three chargeable accounting periods. The firm had already paid Rs. 32,23,607 and hence an amount of Rs. 16,95,075 became payable to it as a refund together with interest as provided by the E.P.T. Act. In this miscellaneous petition the pleas pertain to the manner in which the refund is made as also the date from which interest became payable on the said amount.
6. I propose to take up the latter point for determination as the matter appears to me to be relatively simple and not capable of elaborate discussion. The obligation of the Department to pay interest on the amount of refund is found contained in s. 14A(7) of the E.P.T. Act, 1940. Section 14A permits the EPT Officer, before proceeding to make an assessment, that is, the regular assessment under s. 14, to make in a summary manner a provisional assessment, which was done as earlier stated on June 9, 1960. Rs. 32,23,607 was the aggregate amount of the provisional assessment for the three chargeable accounting periods. When the regular assessment was made in due course, that is, on October 25, 1972, the figure of EPT stood reduced to Rs. 15,28,532. However, as a matter of fact, the assessee-firm had effected the payment of this amount much earlier, that is, on March 31, 1956, but that was under the original assessments made on December 9, 1955, which assessments were set aside on appeal. The short question to be considered is that whether under the provisions for payment of interest contained in s. 14A(7) the assessee is entitled to interest from the date of the actual payment, or interest would run against the Department only from the date of the provisional assessment. Section 14A(7) may now be reproduced :
'14A. Power to make provisional assessments. - (1) The Excess Profits Tax Officer, before proceeding to make an assessment (in this section referred to as the regular assessment) under section 14, may, at any time after the expiry of the period specified in the notice issued under sub-section (1) of section 13 as that within which the return therein referred is to be furnished, and whether the return has or has not been furnished, proceed to make in summary manner a provisional assessment of the amount by which the profits of the chargeable accounting period exceed the standard profits, and the amount of excess profits tax payable thereon..........
(7) If, when a regular assessment is made in due course under section 14, the amount of excess profits tax payable thereunder is found to be less than that determined as payable by the provisional assessment, any excess of tax paid as a result of the provisional assessment shall be refunded to the assessee together with interest at 5 per cent. per annum calculated from the date of payment of such excess tax to the date of the order of refund, both days inclusive.' (underlining supplied).
7. Mr. Dwarkadas appearing on behalf of the petitioners has very strenuously relied on the words 'calculated from the date of payment to the date of the order of refund, both days inclusive' occurring in s. 14A(7). Read separately and de hors from the earlier portion of the sub-section, the contention raised by the petitioners and the submissions made by Shri Dwarkadas appear to be almost unassailable. The sub-section, however, has to be read in its entirety and when so read it would appear to suggest clearly and unequivocally that the liability to pay interest can commence at the earliest from the date of the provisional assessment and not from any earlier date. The date of payment indicated in the penultimate line is to be read as date of payment of tax under the provisional assessment and such date cannot obviously and logically be prior to the date of making of the provisional assessment. In this case the assessee-firm had undoubtedly paid the excess amount prior to June 9, 1960, but that payment was up to June 9, 1960, not made under any provisional assessment but under a regular assessment, which was subsequently set aside in appeal. The liability for interest arises only under s. 14A(7), and, properly construed, that sub-section makes the Department liable to pay interest on the excess payment only from the date of payment under a provisional assessment. The provisional assessment was made in this case in respect of three chargeable accounting periods only on June 9, 1960. The officer has allowed interest from that date and the stand of the Department as far as the interest is concerned appears to be correct.
8. In this miscellaneous petition attention has been drawn as stated earlier to certain clauses of the award made by the two arbitrators and certain negotiations thereafter carried on between some of the partners of the firm and the CBDT. It was contended that there was a settlement which was in accordance with the award made by the joint arbitrators. It was urged that in accordance with the said settlement, refund of the excess EPT was to be paid to the five groups as indicated in para. 6 of the petition who had in fact made payment of the amount of Rs. 32,23,607, which was determined originally in the regular assessment as the EPT payable, which assessment has been subsequently set aside in appeal. Mr. Dwarkadas drew my attention to three letters which are annexed to the petition as Ex. B collectively. The first two of these three letters are letters written by the ITO, Companies Circle I(10), and in the third letter dated March 9, 1965, reply is given by one of the partners of the said firm to the said ITO. It is clear, however, from the subsequent correspondence, Ex. C collectively, that the agreement which was to be signed was in fact not signed by or on behalf of the partnership firm. This being the admitted position, it would be very difficult to uphold the petitioners' plea that there was a binding, effective or concluded, settlement under which the Department had agreed to make refund to the five groups indicated in para. 6 of the petition and to no other. The plea of the petitioners as to the impropriety of the adjustment made by the ITO based on the settlement must, therefore, be negatived.
9. Mr. Dwarkadas, however, seems to be on the firmer foundation when he impugned the adjustments made as disclosed in Ex. J collectively on the plea that such making of notional refunds in favour of individual partners and thereafter adjusting the same against tax liability due from them is contrary to the express provisions of the E.P.T. Act, 1940, read with the provisions of the I.T. Act. This argument may now be fully indicated and dealt with.
10. Under s. 21 of the E.P.T. Act, 1940, the provisions of various sections of the Indian I.T. Act, 1922, designated thereunder are made applicable with such modifications as may be prescribed as if the said provisions were provisions of the E.P.T. Act and referred to excess profits tax instead of to income-tax. One of the sections so made applicable is s. 49E of the I.T. Act which confers a power to set off the amount of refunds against the tax remaining payable. The proviso to s. 21 is also important and it states that references to the assessee under the said section of the I.T. Act shall be construed as references to a person to whose business the E.P.T. Act applies.
11. Thus by reason of s. 21 of the E.P.T. Act, 1940, I am now required to consider the application of s. 49E of the I.T. Act to the refunds which became payable by the Department after the amount assessed as EPT stood reduced for the three chargeable periods from Rs. 32,23,607 to Rs. 15,28,532.
12. For the purpose of applying this provision it becomes necessary in the first place to consider the charge of EPT and the entity which is chargeable as also bearing in mind the entity which was charged as a matter of fact. The charge of excess profits tax is provided in s. 4, and s. 5 indicates that the Act is to apply to every business of which any part of the profits made during the chargeable accounting period is chargeable to income-tax by virtue of the provisions of sub-cl. (i) or sub-cl. (ii) of cl. (b) of sub-a. (1) of s. 4 of the Indian I.T. Act, 1922, or of cl. (c) of that sub-section. There are certain exclusions, but we are not concerned with the same. We then come to s. 14 and find that under sub-s. (3) of s. 14 where two or more persons were carrying on the business jointly in the chargeable accounting period, the assessment shall be made upon them jointly and in the case of a partnership, it may be made in the partnership name. (underlining supplied).
13. This appears to bed a special enabling provision in the E.P.T. Act, 1940, giving discretion to the EPT Officer to make an assessment in respect of the partnership business either in the partnership name or upon the partners jointly.
14. In this case it is the admitted position that the partnership firm of Agarwal and Co., which was a registered entity for the purpose of the I.T. Act, was also the assessee under the E.P.T. Act. The EPT Officer had made initial assessments, provisional assessment as also ultimate regular assessment on the said entity, namely, the partnership firm of Agarwal and Co., and had not assessed the 13 partners of the said partnership firm jointly. He had certainly a right under sub-s. (3) of s. 14 to assess the partners jointly but he chose not to do so and had assessed the said partnership firm and treated the same as an assessee. Mr. Joshi very strenuously urged that in the strict theory of jurisprudence a partnership firm does not possess a legal personality. This is certainly the position in English common law as also in our law, but various statutory provisions contain and incorporate certain special provisions for firms to a limited extent modifying the strict jurisprudential theory. For example, if a firm is duly registered as prescribed by the Partnership Act, such a firm, although not possessing a legal personality, is accepted as a plaintiff under the Civil Procedure Code. A person having a claim against a firm can sue the firm in the firm name. Similarly, the I.T. Acts, both the earlier one of 1922 and the latter one of 1961, have recognized firms as entities for the purposes of liability to pay tax and for making the assessment. Both the Acts contain provisions for registration of firms for the purposes of income-tax and how the assessment is to be made in the firm name and thereafter the appropriate amounts carried forward to the individual assessment of the partners. Thus, the general submission that the partnership firm is not a juristic person and does not possess legal personality will not carry the matter any further, particularly when it is the firm which has been assessed by the EPT Officer under the E.P.T. Act for all the three chargeable accounting periods. In connection with this branch of the argument and in support of his contention that the refund of the EPT (and the interest on the amount of refund) should have been made only in the name of the said firm (petitioner No. 5), Mr. Dwarkadas relied on certain decisions which, though not directly on point, certainly lend support to his submissions indirectly. These may now be noted. The first of the decisions relied on by him was Khaitan Apte and Co. v. D. Rama Rao, ITO : 92ITR569(SC) . In the aforesaid decision the facts being considered by the Supreme Court, briefly stated, were as under :
15. M/s. Khaitan Apte and Co. were assessed to excess profits tax by the EPT Officer, Rajahmundry, in a sum of Rs. 3,36,554. In appeal, the order of the EPT Officer was reversed and the appellate authority held that the firm was not liable to pay any excess profits tax. This decision was confirmed in further appeal by the Income-tax Appellate Tribunal. During the pendency before the appellate authority, the EPT Officer had taken proceedings for recovery of the tax assessed, and one of the partners (Apte) had deposited on behalf of the firm the entire amount of tax assessed. As a matter of fact, both the partners expired and subsequently after the assessment was set aside and the petitioner-firm was held not liable to pay any excess profits tax, the son of the deceased partner who had paid the amount applied for the refund. The refund asked for was not given for a considerable time. Meanwhile, the ITO of Bombay who had claim against the other partner, Karundia, in a sum of about Rs. 19 lakhs as arrears of tax issued a notice under s. 46(5A) of the Indian I.T. Act, 1922, to the EPT Officer, Rajahmundry, requiring him to remit to him half the sum of the amount liable to be refunded on the ground that the same is the asset of the deceased, Karundia. This was done by the EPT Officer but was held not to be proper or legal by the Supreme Court. These observations were made in the context of deciding whether the ITO, Bombay, was or was not a necessary party to the writ petition subsequently preferred in the Punjab High Court, but are quite pertinent on the point. It is the clear view expressed by Hegde J., who spoke for the Division Bench, that the refund was a part of the assets of the dissolved firm. Hence, it was not possible to fix any portion of the amount to be refunded as the assets of one of the deceased partners and the payment according to the Supreme Court made by the ITO, Rajahmundry, to the ITO, Bombay, was only considered as an interdepartmental arrangement and not equivalent to a legal discharge. Indeed, they have expressly held that the ITO, Rajahmundry, was liable to refund the entire excess amount and his payment to the ITO, Bombay, must be regarded as an unauthorised payment, and that fact will not afford him a valid defence. Mr. Dwarkadas submitted that if the principles enunciated in the observations to be found on page 575 of the above decision were to be applied to the facts of the present case being considered by me, the adjustment made by the EPT Officer in respect of tax amounts individually due from some of the partners, if not all, must be regarded as improper, invalid and cannot be defended.
16. The next decision on which reliance was placed is also a decision of the Supreme Court in ITO v. Radha Kishan : 66ITR590(SC) . In that decision the Supreme Court rejected the contention raised on behalf of the Department that income-tax liability was enforceable jointly and severally against the partners. This departmental claim was based on the provisions contained in s. 44 of I.T. Act as also under the statutory provisions pertaining to contractual obligations of a partnership firm. The court held that these contentions were unsound and could not apply where the assessment was made of a registered firm under s. 23(5)(a) and the income of each individual partner thereafter assessed. According to the Supreme Court, when this is done one partner is not liable for the liability of another partner in respect of income-tax liability of another partner.
17. It may be mentioned that Mr. Dwarkadas also drew my attention to a decision of the Bombay High Court in CIT v. Juliet M Fateh : 116ITR368(Bom) . However, no elaborate discussion of this judgment would appear to be warranted in view of what I regard as the clear position under the section and which view is in accord with the observations made in Khaitan Apte and Co.'s case : 92ITR569(SC) , by the Supreme Court. In the present case the assessable entity for the three chargeable accounting periods was the petitioner No. 5-firm, viz., Agarwal and Co. If there has been excess payment of EPT by the said entity, then refund would have to be made to that entity and any adjustment under s. 49E would appear to be proper only if any tax had remained payable by the person to whom the refund is due. The word 'person' occurring in s. 49E must be read as indicating the assessee-firm only and not the individual partners thereof. If s. 49E of the Indian I.T. Act, 1922, is read together with ss. 14 and 14A of the EPT Act, 1940, it will have to be held that in the instant case the excess amount of EPT had been paid by the Agarwal and Co. and refund was found due to Agarwal and Co., and in lieu of the payment of the refund the amount of refund could be set off against the tax from time to time payable by Agarwal and Co. I must then hold that the adjustment either from the principal amount of refund or from the amount of interest payable on the excess amount of the separate liability for tax of the individual partners cannot be regarded or accepted as proper or valid and if invalid and illegal the petitioners must succeed in their principal contention.
18. However, I do not think that this is a fit case for granting to the petitioners the full refund which they have claimed in prayers (a)(i) and (b)(i). I will briefly indicate why the refund should be restricted to the adjustment made in respect of the first five partners as indicated in Ex. J collectively. These five partners are, (1) Kedarnath Hitanand, (2) Matadin Hariram, (3)Onkarmal Ghansham, (4) Radhakishan Sagarmal, and (5) Thakarlal Mukhram. In the strict theory of the law the adjustments made in respect of each of the 13 partners would be improper. However, the latter 8 of these 13 partners (shown at serial at serial Nos. 6 to 13 in ex. J collectively) are the parties who are entitled to the refund of the excess amount but who had received a benefit from the said order inasmuch as their individual tax liability has been set off against the refund. Thus, they have already received partially a benefit of the order of refund and the only contention which can be upheld is against the adjustment made in the case of the said five partners. Thus the relief to be granted in terms of prayers (a)(i) and (b)(i) must be restricted to the adjustments made both towards the EPT refund and the interest payable thereon for these five persons. Kedarnath Hitanand to Thakarlal Mukhram only. Mr. Dwarkadas has handed over now a statement which I mark as 'A' which shows that the improper adjustments in respect of these five persons of the EPT refund aggregates to Rs. 6,24,973 and similarly of the interest thereon to Rs. 3,73,261, making the combined sum of Rs. 9,98,234. The relief to the petitioners must be restricted to the said amounts only. However, it has to be made clear, though perhaps unnecessary, that since the adjustments made in respect of these five persons are being quashed, they will remain individually liable in respect of the amounts adjusted. In other words,since these five adjustments (both of the main amount and of interest) are being quashed and refund will follow for the said amounts in favour of the firm, the individual liability of these five persons improperly adjusted and cancelled shall stand revived and the Department will be entitled to enforce the same against each of them to the extent indicated in Ex. 'J' collectively. Now it may be mentioned in passing that the balance amount after the adjustments was in fact refunded to Agarwal and Co. and later on for the purposes of the I.T. Act the entire amount of refund was taken to be the income of Agarwal and Co. This was since the entire amount of provisional assessment had been allowed as deduction under the I.T. Act. This to a certain extent supports the contention that the individual adjustment of the amount was not proper and the entire amount together with the interest calculated from June 9, 1960, ought to have been refunded to the 5th petitioner-firm only.
19. In the result, the claim of the petitioners as regards the payment of interest from the earlier date or any date prior to June 9, 1960, is negatived. The claim that the adjustments for these five persons was contrary to the statement is also in my view liable to be negatived. However, the claim in respect of adjustments made for these five partners is not warranted by the statutory protest. Hence, the rule is made absolute in terms of prayers (a)(i) and (b)(i) of the petition, but limited to the amounts mentioned in statement 'A', which has been taken on record, which is the aggregate of the amounts adjusted in respect of the five partners at serial Nos. 1 to 5 in Ex. 'J' collectively. In prayer (b)(i) of the petition a mandatory order has been sought regarding the refund, and I direct that the refund of the amounts as indicated in the statement handed over and marked 'A' will be made to the firm, namely, the petitioner No. 5.
20. As there has been partial failure and partial success, the parties are directed to bear their own costs of this miscellaneous petition.