1. The petitioner and his brother. Sri Mohtida Khan, were the two partners entitled between them to the business carried on under the title 'Muqtida Khan Iqtida Khan' at Lucknow. They were entitled each to a moiety share. Mohtida Khan, however, migrated to Pakistan with the result that he was declared an evacuee and all his property including his half share in the firm 'Muqtida Khan Iqtida Khan' was held as evacuee property. The share of Mohtida Khan, however vested in the Custodian. In due course it seems that proceedings were taken in respect of the property of the firm and other property of Mohtida Khan evacuee under the Evacuee Interest (Separation) Act, 1951. This ended in the sale by auction of the assets of the firm which were arrived at after deducting its liabilities and also the sale of its goodwill. The following order passed by the Competent Officer dated 19-3-53 may be quoted:
'It is therefore ordered that the assets of the firm be sold at an open auction and the sale proceeds, after deducting the liabilities, be distributed between the Custodian and the claimant half and half. The cost incurred for the sale shall be deducted from the sale proceeds. The 'goodwill' shall also be auctioned.'
The firm which used to be assessed as a registered firm to income tax under the Indian Income Tax Act was similarly assessed during the assessment year 1951-52 also. Being a registered firm the assessment was made separately on the partners. The dispute in the present petition concerns the amount of Income-tax payable by Mohtida Khan on his share of the profits in the business of the firm Muqtida Khan Iqtida Khan. The assessment was made on 19-9-1951 and the demand notice in respect thereof was served on the partners on 5-10-1951. The original file dealing with the assessment for the year 1951-52 was here at the time of the hearing of this petition and Sri Das, counsel for the respondent, pointed out to us from that record that the recovery proceedings for the amount due from the firm commenced on 10-3-1953.
2. Subsequent to the making of the assessment and in pursuance of the order of the Competent Officer, already quoted earlier, the assets of the firm, including its goodwill, were auctioned and purchased by the petitioner. It is urged that the purchase of the goodwill and the assets of the firm, which the petitioner made in pursuance of the order of the Competent Officer, were free from encumbrance for any tax which might have been payable by the different partners in respect of the business of the firm for the period previous to the sale.
3. Relying on the above circumstance the petitioner has claimed that the recovery proceedings cannot be held against him nor against the property of the firm, the amount payable by Mohtida Khan is realisable from the Custodian in whom his interest had vested. It is said that the Custodian is now in possession of the proceeds of sale of the firm, hence it is his responsibility to pay the arrears of tax due from Mohtida Khan.
4. Admittedly the assessment in question was made under Sub-section (5) of Section 23 of the Indian Income Tax Act, 1922. Mohtida Khan was, at the time of the assessment, residing in Pakistan. His case, therefore, fell under the third proviso to Sub-section (5) of Section 23, and in accordance with it the amount assessed, which will include Mohtida Khan's share also, be payable by the firm Muqtida Khan Iqtida Khan. There does not appear to be any controversy so far. What the petitioner, however, contends is that the assests of the firm having been sold and its goodwill too having been transferred, the business now carried on by him cannot be pursued in payment of the tax due from the former firm particularly as the assets etc. were sold free from any such encumbrance.
5. On behalf of the respondent our attention has been invited to Section 44 of the Indian Income-tax Act, 1922 which provides as under :
'Where any business, profession or vocation carried on by a firm . . . has been discontinued.... every person who was at the time of such discontinuance or dissolution a partner of the firm .. . shall be jointly and severally liable for the amount of tax or penalty payable, and all the provisions of Chapter IV, so far as may be, shall apply to any such assessment .....'
6. This section provides that in the event of discontinuance of the business of a firm, speaking in the context of a partnership firm, every partner, who was so at the time of the discontinuance, shall be liable for the amount of tax which may be payable in respect of the income, profits etc. of the firm, the liability of each partner being joint and several. Therefore the discontinuance of the firm has the result, in view of this section, of placing the obligation to pay the amount of tax jointly and severally on each partner. Admittedly the petitioner was one of the partners at the relevant date. If, therefore, ill can be held that the business of the firm was discontinued at any time subsequently he cannot escape from liability to pay the amount which might otherwise have been payable primarily by Mohtida Khan.
7. The enquiry, therefore, narrows down to the short question whether the business of the firm was discontinued. We have already referred to the order of the Competent Officer earlier and our reading of that order leaves us in no doubt that the business of the firm Muqtida Khan Iqtida Khan was discontinued as a consequence of the said order and the sale held in pursuance of it. If that was so, as clearly it was, the petitioner became liable under Section 44 of the Indian Income-tax Act for the amount of tax payable by Mohtida Khan.
It will be of no avail, to the petitioner to plead that the assets of the firm were sold or purchased by him free from the said encumbrance, or that the liability for the payment of tax due from Mohtida Khan, was of the Custodian. It may be that as between the petitioner and the Custodian the ultimate responsibility for its payment is on the latter. But so far as the income tax authorities are concerned they have a right under Section 44 of the Indian Income Tax Act to realise the amount from any of the partners, which will include the present petitioner also. In the above view of the matter we are of the opinion that the petitioner's objection on the above grounds cannot succeed.
8. It was also urged that the proceedings for the recovery of the tax were beyond the period of limitation prescribed therefor under Section 46(7) of the Indian Income Tax Act. In this connection relevant facts have already been stated earlier. They are that the assessment itself was completed on 19-9-1951 and the notice of demand was served on the assessee on the 5-10-51. The recovery proceedings were started on 10-3-53. Sub-section (7) of Section 46 of the Act lays down that no proceedings for the recovery of any sum payable under this Act shall be commenced after the expiration of one year from the last day of the financial year in which any demand is made under the Act. The demand was made in this case on 5-10-51 and the financial year in which the demand was made came to an end on 31-3-1952. The recovery proceedings started on 10-3-53 and were thus well within one year from that date. There is no force in this writ petition.
9. In the result the petition fails and is dismissed with costs. The stay order is vacated.