This writ petition by Messrs. Khaitan Apte & Co. (hereinafter referred to as the firm) and L. V. Apte has arisen in the following circumstances : V. S. Apte and Tansukhrai Karundia were the partners of the firm having equal shares in profits and loss and the firm acted as the managing agents of Andhra Paper Mills Co. Ltd. till March, 1947, whereafter the firm was dissolved. V. S. Apte died on 30th of October, 1952, and Tansukhrai Karundia died on 30th of November, 1954. The firm was found liable to excess profits tax by the Excess Profits Tax Officer, Rajahmundry, respondent No. 1, for the accounting periods ending March, 1943, 1944, 1945 and 1946, and the total liability in respect of all these years came to Rs. 4,36,554-10-0. Some time after the demise of V. S. Apte the Excess Profits Tax Officer took proceedings to recover the amount aforesaid. It is stated that this amount, was paid by L. V. Apte, petitioner No. 2, who alleges himself to be the only son of the late V. S. Apte. Notice had been issued to L. V. Apte to do so in his capacity as the legal heir of the late V. S. Apte. Petitioner No. 2, L. V. Apte, thereafter filed an appeal before the Appellate Assistant Commissioner of Income-tax, who accepted the same and set aside the order of assessment of the Excess Profits Tax Officer. This order was finally confirmed by the Income-tax Tribunal on an appeal by the first respondent and as a result of these orders, according to the petitioners, they became entitled to the refund of a sum of Rs. 4,36,554-10-0 (This figure is said to be Rs. 4,06,151.31 nP. by the first respondent). When the actual refund was asked for by L. V. Apte, petitioner No. 2, with regard to his one-half share, he was asked to produce the succession certificate and with regard to the other half it was stated that during the departmental correspondence it came to light that the late Shri Karundia had to pay income-tax arrears to the tune of Rs. 19,00,000 and, consequently, the Income-tax Officer (Central), Bombay, issued a notice under section 46 (5) (a) of the Income-tax Act, 1922, to the Income-tax Officer, Rajahmundry, respondent No. 1 (to whom records of the case had finally been transferred), to pay him the amount due to the late Mr. Karundia, and under instructions from the Commissioner of Income-tax, the refund was apportioned in two equal shares between the legal heirs of the two deceased partners, and the one-half share due to the late Mr. Karundia was transferred to the Income-tax Officer (Central), Bombay, in pursuance of his requisition under section 46(5)(a). L. V. Apte, petitioner No. 2, failing to find any redress from the Commissioner of Income-tax, finally approached the Central Board of Revenue. He was informed on the 21st of July, 1962, that the matter was receiving attention and finally on 12th of October, 1962, the Central Board of Revenue informed him, in continuation of the earlier letter dated 21st of July, 1962, that his request had been rejected by the Board. The subject-matter of this letter was indicated as follows :
'Complaints and representations-request for refund of Excess Profits Tax - Shri L. V. Apte of Messrs. Khaitan Apte & Co., Rajahmundry.'
A copy of this letter was attached with the writ and the correctness thereof has not been challenged. It was in these circumstances that this writ petition was filed praying that the Central Board of Revenue be directed to issue necessary directions to its subordinate officers dealing with the matter for the refund of the amount to the petitioners.
On behalf of the respondents a preliminary objection with regard to the jurisdiction of the court was taken. It was stated that under the Act the person who is to refund the amount is the Income-tax Officer, Rajahmundry, and that he does not reside within the jurisdiction of this court, that the Union of India or the Central Board of Revenue, who have been impleaded as respondents Nos. 2 and 3, are not necessary or proper parties and that respondent No. 4, being the son of the late Mr. Karundia, also resides in Bombay outside the jurisdiction of this court and in any case no directions are sought against him. In this respect, however, on behalf of the petitioner reference was made to section 3 of the Excess Profits Tax Act, 1940, sub-section (4) whereof provides :
'All officers and persons employed in the execution of this Act shall observe and follow the orders, instructions and directions of the Central Board of Revenue.'
It was, therefore, urged that the Board of Revenue, having been approached by the petitioner to issue necessary directions to its subordinate officers, considered the matter and finally refused to issue the direction and rejected the request of the petitioner and this rejection was conveyed to the petitioner : vide letter dated 17th of October, 1962, referred to above; that the petitioners sought directions of this court to be issued to the Central Board of Revenue to direct its subordinate officers to give the refund as prayed. Admittedly, the Central Board of Revenue is within the jurisdiction of the court and, as the law at present stands, no other court has jurisdiction to entertain such a writ.
Turning now to the merits of the case, admittedly the amount was paid by L. V. Apte, petitioner No. 2 after the demise of his father. Even if it be taken that the payment was made for and on behalf of the firm, his father, V. S. Apte, was no longer then in existence and the money that was paid did not belong to the deceased. Consequently, no part of the refund was due to the deceased and the same never became part of the estate of the deceased. The question of obtaining succession certificate, therefore, does not arise at all. Succession certificate can be obtained only in respect of a debt which is due to a deceased person and is sought to be recovered after the demise of that creditor. In this case, as already stated, payment having been made after the demise of V. S. Apte, the question of obtaining any succession certificate does not arise. It is, however, clear that after the demise of V. S. Apte, all his legal heirs will become entitled to the assets of the firm and will step into the shoes of the deceased for this purpose. If money is paid for and on behalf of the firm, as was the case here, the share of the refund, which would be due to the legal representative of V. S. Apte, shall be payable to all the heirs. L. V. Apte claims to be the sole heir. If that claim is in dispute, before any amount may be paid to him by way of refund, he shall to produce of the fact that he is the sold heir or in the alternative, he shall have to obtain a discharge from all the legal heirs of the deceased before the respondent can be called upon to make the payment.
With regard to the one-half share of Mr. Karundia, the position taken up by the respondents seems to be all incorrect. Admittedly, the payment was made for and on behalf of the firm and as the matter is in dispute, it is not necessary to decide whether the allegation of petitioner No. 2 that the entire amount was paid by him is correct or not. The entire refund amount is due to be paid to the firm on whose behalf the payment was made. The firm having been dissolved and the original partners being dead, this entire refund is payable to the legal representatives of the two erstwhile partners. It was vehemently urged that no one is entitled to appropriate any amount out of it, as the share of the late Mr. Karundia, towards the discharge of his personal debts. Although a partner is liable to an unlimited extent for the debts of the firm, yet the debts of the firm and its assets are treated different from the personal debts and assets of the individual partners. On the dissolution of the firm, under section 46 of the Indian Partnership Act, 'every partner or his representative is entitled, as against all the other partners or their representative, to have the property of the firm applied in payment of the debts and liabilities of the firm, and to have the surplus distributed among the partners or their representatives, according to their rights.' Section 48 provides a mode of settlement. Inter alia, the assets of the firm are to be applied, first, in payment of the debts of the firm to third parties and then in paying to each partner what is due to him from the firm for advances as distinguished from capital and then the amount is to be used for retable distribution on account of capital, etc. Section 49 is of importance in this respect and may advantageously be reproduced in extenso :
'49. Where there are joint debts due from the firm, and also separate debts due from any partner, the property of the firm shall be applied in the first instance in payment of the debts of the firm, and, if there is any surplus, then the share of each partner shall be applied in payment of his separate debts or paid to him. The separate property of any partner shall be applied, first, in the payment of his separate debts, and the surplus (if any) in the payment of the debts of the firm.'
It is thus obvious that till the accounts are settled and all the debts of the firm are paid off, no part of the assets of the firm can be taken by the separate creditors of the individual partners. Thus, the refund must in the first instance be paid to the firm and after the accounts are taken and debts of the firm have been paid off, if any money is found due to the late Mr. Karundia, that amount can be appropriated by the income-tax department towards the payment of the arrears of income-tax due from Mr. Karundia. The department, however, is not justified in apportioning the refund in its hands and appropriating half of it towards the income-tax liability of Mr. Karundia. This argument will also, in a way, apply to the other half share which is set apart by the department for payment to L. V. Apte. The correct legal position is that the entire amount must be paid to the firm, which means, to all the legal representative of the two late partners of the firm, and it will be after taking the accounts that any amount due to late Mr. Karundia can be taken hold of by the department.
It was urged on behalf of the respondents that respondent No. 1 had to comply with the order of the Income-tax Officer, Bombay, when he was served with a notice under section 46 (5) (a) and that the Income-tax Officer, Bombay, not being a party to this petition, no orders can be passed in respect of that one-half share. I feel that there is a fallacy in the argument. The Income-tax Officer, Rajahmundry, is not bound to comply with any order issued by the Income-tax Officer, Bombay, if that directs him to pay him the amount due to the firm, towards the account of Mr. Karundia individually. If respondent No. 1 passed such an order, that would be illegal and directions can be issued to him in this respect. I would, therefore, direct that the Central Board of Revenue will issue directions to its subordinate officers concerned for the refund of the amount to the firm, petitioner No. 1, in the light of the observations made above. This rule is made absolute. The petitioners will have their costs. Counsels fee Rs. 200.