BASI REDDY J. - This application under article 226 of the Constitution has been filed by one Kalva Suryanarayana for the issue of a writ in the nature of mandamus directing the respondent (the Income-tax Officer, A-3, A-Ward, Hyderabad) to forbear from acting in pursuance of a notice issued under section 45 of the Income-tax Act, 1922 (hereinafter called 'the Act'), on the ground that the petitioner is not liable to pay the tax demanded from him by that notice. The impugned notice runs as follows :
'GIR No. 123-K Office of the Income-tax Officer,
Dated : 22-6-1961.
Notice under section 45 of the Income-tax Act.
Income-tax arrears - Collection of - M/s. Kalva Suryanarayana (1st Gulmoha Contract) 1951-52.
Whereas Sri Kalva Suryanarayana has been a partner in the firm of M/s. Kalva Suryanarayana (1st Gulmoha Contract) in the assessment for the year 1951-52 which has since been dissolved.
Whereas the partners in the said firm, which has been assessed as registered firm, Sri M. Veeraiah and Sri H. Siddappa, have been found to be liable to tax of Rs. 10,654.62 nP. and Rs. 5,640.62 nP. respectively,
Whereas the said tax is still in arrears and has not been paid,
I call upon Sri Kalva Suryanarayana, who has been a partner at the time of dissolution of the firm, to pay the tax in arrears as he in jointly and severally liable. The tax should be paid forthwith, failing which penal action will be taken for the recovery of the same.
Sd. K. S. Murty
Income-tax Officer, A-3,
The petitioner had entered into a partnership with three others by names D. Sayappa, H. Siddappa and M. Veeraiah, to carry out a 'Gulmoha' contract, for the year 1949-50. The firm was known as Messrs. Kalva Suryanarayana. After the completion of that contract, the partnership came to an end. In respect of that undertaking after the dissolution of the partnership, for the assessment year 1951-52, on an application by the erstwhile partners of the dissolved firm, the respondent granted the registration of the firm on February 28, 1953, and on that basis proceeded to assess the total income of the firm, which he determined as Rs. 1,64,546 (O. S.) and the total income was apportioned among the four partners in proportion to their respective shares.
Subsequently, however, the Commissioner of Income-tax, in exercise of his revisional power under section 33B of the Act, passed an order on February 26, 1955, holding that the firm had suppressed income to the extent of I. G. Rs. 1,72,149 by inflating the expenses under railway freight and by not accounting for the sale of old gunnies, and accordingly directed that the assessment already made on the firm should be enhanced by a sum of Rs. 1,72,149. In pursuance of that order, the respondent, by an order dated March 11, 1955, revised the assessment and determined the total income of the firm at I. G. Rs. 3,13,189 and it was apportioned among the several partners in proportion to their shares, and demands were raised against the individual partners of the dissolved firm. It would appear that the petitioner and D. Sayappa paid their shares of the tax, but M. Veeraiah and H. Siddappa failed to pay their shares, which were Rs. 10,654.62 nP. and Rs. 5,640.24 nP. due from the dissolved firm.
Now the question for our consideration in this writ petition is, whether the petitioner is liable to pay the arrears of tax. Admittedly, the assessment and the revised assessment in the present case were made after the dissolution of the firm and admittedly the tax levied and sought to be recovered was in respect of the income of the dissolved firm. That being so, the present case falls squarely within the ambit of section 44 of the Act. That section, as it stood at the material time, was in the following terms :
'44. Liability in the case of discontinued firm or association. - Where any business, profession voation carried on by a firm or association of persons has been discontinued, or where an association of persons is dissolved, every person who was at the time of such discontinuance or dissolution a partner of such firm or a member of such association shall, in respect of the income, profits and gains of the firm or association, be jointly and severally liable to assessment under Chapter IV and for the amount of tax payable and all the provisions of Chapter IV shall, so far as may be, apply to any such assessment.'
It is plain from the terms of this section that it comes into play only after the discontinuance of a business carried on by a firm and the section postulates an assessment after the discontinuance and for fastening of liability for the amount of tax found due on such assessment. In terms, express and explicit, the section saddles the erstwhile partners of a dissolved firm with joint and several liability to assessment as well as for the amount of tax payable. It is well established that section 44 of the Act applies as much to registered firms as to unregistered firms and it declares the liability of all discontinued firms and not merely of unregistered firms : see Commissioner of Income-tax v. S. V. Angidi Chettiar.
In C. A. Abraham v. Income-tax Officer, Kottayam, the Supreme Court explained the scope and effect of section 44 thus (at page 429) :
'Section 44 sets up machinery for assessing the tax liability of firms which have discontinued their business and provides for three consequences, (1) that on the discontinuance of the business of a firm, every person who was at the time of its discontinuance a partner is liable in respect of income, profits and gains of the firm to be assessed jointly and severally, (2) each partner is liable to pay the amount of tax payable by the firm, and (3) that the provisions of Chapter IV, so far as may be, apply to such assessment. The liability declared by section 44 is undoubtedly to assessment under Chapter IV, but the expression assessment used therein does not merely mean computation of income. The expression assessment, as has often been said, is used in the Income-tax Act with different connotations. In Commissioner of Income-tax v. Khemchand Ramdas, the judicial Committee of the Privy Council observed :
One of the peculiarities of most Income-tax Acts is that the word 'assessment' is used as meaning sometimes the computation of income, sometimes the determination of the amount of tax payable and sometimes the whole procedure laid down in the Act for imposing liability upon the taxpayer. The Indian Income-tax Act is no exception in this respect,...
A review of the provisions of Chapter IV of the Act sufficiently discloses that the word assessment has been used in its widest connotations in that chapter... The expression 'assessment' used in these sections is not used merely in the sense of computation of income and there is in our judgment no ground for holding that when by section 44, it is declared that the partners or members of the association shall be jointly and severally liable to assessment, it is only intended to declare the liability to computation of income under section 23 and not to the application of the procedure for declaration and imposition of tax liability and the machinery for enforcement thereof. Nor has the expression, all the provisions of Chapter IV shall so far as may be apply to such assessment a restricted content : in terms it says that all the provisions of Chapter IV shall apply so far as may be to assessment of firms which have discontinued their business..... The use of the expression so far as may be in the last clause of section 44 also does not restrict the application of the provision of Chapter IV only to those which provide for computation of income...... In effect, the legislature has enacted by section 44 that the assessment proceedings may be commenced and continued against a firm of which business is discontinued as if discontinuance has not taken place. It is enacted manifestly with a view to ensure continuity in the application of the machinery provided for assessment and imposition of tax liability notwithstanding discontinuance of the business of firms. By a fiction, the firm is deemed to continue after discontinuance for the purpose of assessment under Chapter IV.'
In the instant case, inasmuch as the assessment as well as the imposition of the tax liability took place after the discontinuance of the business of the firm, it must be held on the authority of the above decision of the Supreme Court, that the petitioner is liable for the balance of the tax payable by two of his former partners.
It was, however, contended by the learned advocate for the petitioner that under sub-section (5) of section 23 of the Act, as it stood before its amendment in April, 1956, the income-tax payable by a registered firm was not determinable but the total income of each partner of the firm, including therein his share of its income, profits and gains of the previous year was made assessable and the sum payable by him on the basis of such assessment, had to be determined. It was argued that as the tax payable by the firm as such was not determined, one partner could not be made liable for the tax payable by the other partner or partners. In our opinion, this argument is untenable because it overlooks the effect of section 44 which, is laid down by the Supreme Court in Abrahams Case, sets up the machinery for assessing the tax liability of a firm which has discontinued its business and for the enforcement thereof on the basis of joint and several responsibility of the quondam partners.
The learned advocate for the petitioner sought to rely on two decisions as supporting his contentions - one, a decision of this court in Writ Appeal No. 27 of 1963, and the other, a decision of the Madras High Court in Subramaniam Chettiar v. Special Deputy Tahsildar. But the present case is readily distinguishable from those two cases. In both those cases, the assessments had been made before the dissolution of the firm and it was held that in such a situation, one partner could not be made liable for the arrears of tax due from the other partner.
In Writ Appeal No. 27 of 1963, Income-tax Officer, Nellore v. Sundararami Reddy, Chandra Reddy C.J. explained the legal position as follows (after quoting section 44) :
'The crucial words in this section to be considered by us are,...... shall, in respect of the income, profits and gains of the firm or association, be jointly and severally liable to assessment under Chapter IV and for the amount of tax payable and all the provisions of Chapter IV shall, so far as may be, apply to any such assessment. These words indicate that the erstwhile partners are jointly and severally liable to assessment in respect of the income and for the amount of tax payable. The expression and for the amount of tax payable, in our opinion, connotes the tax as determined in the assessment notwithstanding the dissolution. In our considered opinion, the primary aim of this section being to assess the income derived prior to the dissolution, it does not come into play in respect of assessments made before the discontinuance or dissolution of the association or partnership. In cases where the share of each of the partners was brought to tax prior its discontinuance or dissolution, the liability of each of the partners is to be traced to that assessment. We do not think that section 44 seeks to enlarge the liability of individual partners already determined under section 23(5). The language of the section does not warrant the interpretation that notwithstanding that the prior assessment had computed the tax payable by each of the partners under section 23(5), it has fastened a joint and several liability of each of the partners.'
Similarly, in the Madras case, the question that the court had to consider was formulated thus in the course of the judgment :
'The question that arises for consideration is whether on the discontinuance and dissolution of a registered firm, the partners of which have been assessed to tax under section 23 of the Indian Income-tax Act, the tax liability of one of the partners in regard to his share of the income of the firm can be shifted and fastened upon the other partner or partners invoking the aid of section 44 of the Act.'
After discussing the relevant provisions of the Act, as they then stood, the learned judges answered the question thus :
'Before 1956, section 23(5) provided that the sum payable by the firm shall not be determined. An assessment to tax of the firms income in the hands of the partners marks the termination of the liability of the firm as such...... There is nothing in that section (section 44) which creates a new liability on the partners of a registered firm, who have been already assessed to tax so as to make them vicariously liable for tax not levied upon them, and which cannot be levied upon them, having regard to the scheme of the Act.
Learned counsel for the department also urges that in effect and in substance the tax liability of each partner is really that of the firm and whatever may be the mode of distribution of that liability under the Act, no partner can avoid tax in respect of any portion of the firms income. We have no hesitation in rejecting this argument as it is quite obvious that once the income of the firm is computed and each partner is assessed to tax with regard to his share of that income, the liability of the firm to tax is at an end and the only liability is that of the partner, who has been assessed and who suffers the tax.'
It is manifest, therefore, that the ratio of those two decisions cannot be pressed into service in the present case, as the assessment itself was made after the discontinuance of the business of the firm.
It follows that there are no merits in this writ petition and it is accordingly dismissed with costs. Advocates fee Rs. 100.