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K.O. Mohamed Sulaiman and Co. Vs. State of Madras - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtChennai High Court
Decided On
Case NumberWrit Petition No. 989 of 1962
Judge
Reported in[1965]16STC571(Mad)
AppellantK.O. Mohamed Sulaiman and Co.
RespondentState of Madras
Appellant AdvocateV.K. Thiruvenkatachari, Adv. for ;T.T. Srinivasan, ;A.N. Rangaswamy and ;B.T. Seshadri, Advs.
Respondent AdvocateS. Mohan, Adv. for ;Additional Government Pleader, for respondents 1 and 2
DispositionPetition allowed
Cases ReferredBuchi Ramiah v. Rukkamma
Excerpt:
.....has come up for consideration in this court, as well as' in other high courts, and all the decisions have uniformly taken the view that the creditor has no right to seize or take possession of 'joint property' conveniently referred to as such. it was held, even assuming that the property was joint family property, the defaulter's share was unascertained and the father was entitled to object that the crown had no right to seize the crops, and that such a seizure clearly infringed the rights of the father, the managing member of the joint family......a writ of execution cannot issue against any partnership property except on a judgment against the firm, partnership property cannot be taken in execution for a separate judgment against one partner.19. i am therefore of the clear opinion that the state had no right to seize the movable properties of the petitioner-firm. it is needless to observe that the state may pursue any other right, it may be legally entitled to, in appropriate proceedings for the purpose of working out the rights of the assessee in the petitioner-firm. in the present writ petition the court is only concerned with the limited question of the right of the state to seize the movable properties of the petitioner.20. the writ petition is allowed and a writ of mandamus will issue as prayed for. no costs. the bank.....
Judgment:
ORDER

K.S. Ramamurti, J.

1. This writ petition raises the question, i.e., if a person happens to be a common partner in two firms, the State, while realising the arrears of sales tax due from one of the firms or from him as a partner thereof, is entitled to seize the movable properties of the other firm, of which also he is a partner, which firm, however, is not liable for the sales tax in question.

2. The brief facts are : the dealer, Azimunnissa and one Abdul Majid Sahib, were carrying on business under the name and style of H.M.S. Kurshid & Co., from the year 1954 and the firm was dissolved in 1958. A sum of Rs. 16,724-39 nP. is due from this firm by way of sales tax for the assessment years 1955-56 and 1956-57. The petitioner is carrying on business as a firm under the name and style of K.O. Mohamed Sulaiman & Co. This is a partnership concern which was started in 1951 and it is still carrying on business as a firm. Azimunnissa, referred to earlier, is also a partner of the petitioner-firm. For the realisation of the arrears of sales tax, Rs. 16,724-39 nP. aforesaid due and recoverable from Azimunnissa, as one of the partners of H.M.S. Kurshid & Co., the Department seized the Avery Weighing Machines and thousand hides and skins from the premises of the petitioner, K.O. Mohamed Sulaiman & Co. It is not disputed that the aforesaid movables are the assets of the firm, K.O. Mohamed Sulaiman & Co. It is alleged that the weighing machines belong to the petitioner-firm, while the hides and skins were held by it as bailee on behalf of the customers for export. For the purpose of the present enquiry that does not make any difference. On representations made by the petitioner, the attachment of the Avery Machines has not been effected and they have been returned to the petitioner.

3. This writ petition has been filed questioning the right of the State to seize and take possession of specific items of assets (in the instant case, movables) belonging to the petitioner-firm for realising the arrears of sales tax due from a dealer (in respect of his other business activities) on the ground that he happens to be a partner of the petitioner-firm. Mr. V.K. Thiruvenkatachari, learned Counsel for the petitioner, contended that for realising the arrears of sales tax due from a dealer from and out of his assets, the State can claim and assert only such rights as the dealer himself has over those assets and the State cannot claim any higher or superior right. He urged that so long as the partnership is a going concern and there has been no dissolution and settlement of accounts amongst the partners inter se, no partner can assert or predicate that he is the owner of any particular share in any particular asset, movable or immovable, and that it is only after a dissolution and settlement of accounts he may become the owner of any item of partnership property depending upon the terms of dissolution and settlement. Until dissolution a member of the partnership cannot claim a right to separate enjoyment and possession of any asset of the firm; nor can he exclude or prevent the firm or the partners of the firm from enjoying and being in possession of the property on behalf of the firm. According to learned Counsel the result, therefore, is that no person, whether State or any creditor, to whom moneys are due from an individual partner of a firm can, under the guise of recovering such moneys, take physical possession by seizure, thus excluding and preventing the partners of the firm from using and being in enjoyment and possession of the assets of the firm. Learned counsel contends that the State may have a right to obtain a garnishee order or file a suit for dissolution and for taking of accounts for the purpose of working out the rights of the dealer with a view to obtain satisfaction of the claim out of any assets that may be allotted or allottable to the dealer on such dissolution and settlement of accounts, and that till that stage is reached, the State cannot possibly take possession of the assets by seizure. I have no hesitation in accepting this contention of learned Counsel as it is a well-settled and evident position of law. It is a matter of suprise that the State should persist in this unfounded and untenable claim.

4. Looking at the provisions of the Act and the Rules, I find that there is absolutely nothing in them to warrant the procedure adopted by the State. Section 19, dealing with the liability of firms, runs as follows :

19. Liability of firms.--(1) Where any firm is liable to pay any tax or other amount under this Act, the firm and each of the partners of the firm shall be jointly and severally liable for such payment.

(2) Where a partner of a firm liable to pay any tax or any amount under this Act retires, he shall, notwithstanding any contract to the contrary, be liable to pay the tax or other amount remaining unpaid at the time of his retirement and any tax or other amount due up to the date of retirement, though unassessed.

5. Even though there was no provision corresponding to this in the Act of 1939, it has been held that the arrears of sales tax due would be a joint and several liability of the partners. Vide Ponnuswami Gramani v. Collector of Chingleput [1960] 11 S.T.C. 80. The relevant portion of Section 24 of the Act of 1959, which provides for the payment and recovery of the tax, runs thus :

24. Payment and recovery of tax.--(I) The tax assessed under this Act shall be paid in such manner and in such instalments, if any, and within such time, as may be specified in the notice of assessment, not being less than twenty-one days from the date of service of the notice. If default is made in paying according to the notice of assessment, the whole of the amount outstanding on the date of default shall become immediately due and shall be a charge on the properties of the person or persons liable to pay the tax under this Act.

(2) Any tax assessed on, or any other amount due under this Act from, a dealer or person and any fee due from him under this Act; may without prejudice to any other mode of collection be recovered

(a) as if it were an arrear of land revenue, or

(b) on application to any Magistrate, by such Magistrate as if it were a fine imposed by him : Provided that no proceeding for such recovery shall be taken or continue as long as he has, in regard to the payment of such tax, other amount or fee, as the case may be, complied with an order by any of the authorities to whom the dealer or person has appealed or applied for revision, under Section 31, 33, 35, 36, 37 or 38....

6. The learned Government Pleader contended that, because Section 24 provides that if there should be a default in the payment of sales tax the same shall be a charge on the properties of the person liable to pay such tax, the State would be entitled to enforce that charge by the seizure and sale of the properties (the movables) in question. I see no force in this contention. It must be noticed that the charge that is referred to in Section 24 is a charge on the properties of the person liable to pay the tax under this Act. As observed earlier, in the case of assets of a partnership it is impossible to have a conception that any property of the partnership is the individual property of any one of the partners.

7. This question of the right to realise the debt due from a person from and out of an asset or property which he owns jointly and is in possession of along with others has come up for consideration in this Court, as well as' in other High Courts, and all the decisions have uniformly taken the view that the creditor has no right to seize or take possession of 'joint property' conveniently referred to as such. Section 24(2) which provides that the tax assessed may be recovered as if it were an arrear of land revenue or on application to any Magistrate as if it were a fine imposed by him does not advance the contention of the State. As will be seen presently from the decisions to be referred to, there is no distinction in the application of the principle above-said, between a private creditor and the State seeking to recover its dues, whether tax liability or a fine imposed.

8. In Samuvier v. Ramasubbier I.L.R.(1931)Mad. 72, a Bench of this Court held that a deed of dissolution of the assets of the partnership which consisted of both movable and immovable properties should be only by a registered document. In dealing with the precise nature of the right of a partner over the assets of the firm, the Bench held that even though partners are joint owners of the partnership assets, no partner however has any right to any specific item of the partnership property as representing his.

9. In Annamalai v. Annamalai A.I.R. 1919 Mad. 146, a suit was filed by the plaintiffs (partners of a firm) for their share in the assets or debts of the firm realised by the other partners (defendants) while the firm was a going concern and a dissolution had not taken place. The Court held that no partner has a right to take any portion of the partnership property and claim that it is his exclusively, during the existence of partnership or after it has been dissolved. The legal position was explained thus at page 148 :

The plaintiff in this suit cannot legally assert any right to a specific portion of the deposit made by his partners with the Rangoon firm. His only right is to take steps for an account being taken of the liabilities and assets of the Mandalay firm and to claim his proportionate share of the balance so arrived at. A partner cannot be allowed to take one item of the firm's assets, divide it into equal shares according to the number of partnership shares, and ask to be given one share without first having an account taken of the partnership liabilities and deducting the sum total of them from the aggregate assets of the firm.

10. In Ramappa v. Thirumalappa I.L.R.(1939) Mad. 971 , a Bench of this Court, following Samuvier v. Ramasubbier I.L.R.(1931) Mad. 72, already referred to, held that a deed of dissolution of a partnership which provided that the immovable properties of the firm should not be divided amongst the partners of the firm but should be held by them as joint tenants with equal rights required registration, under Section 17 of the Indian Registration Act. Reference may be made to the following observations at page 976:

Up to the time of dissolution the partners must be regarded as joint owners of the properties within the meaning of Section 253, but they were not entitled to specific shares and the rights they possessed were subject to the liabilities, of the partnership on dissolution. Until an account had been taken and provision had been made for the discharge of the liabilities, no partner could claim to be entitled to have a definite share in a particular asset. In allotting on a dissolution what remains after making provision for the firm's debts, and the remaining assets include immovable properties, it does not follow that the partners will take the immovable properties in equal shares, even if they had equal rights in the partnership. What each partner receives will depend on the circumstances and the nature of the assets which remain for division.

11. In Peyare Lal v. Mt. Misri : AIR1940All453 , it was held by a Bench of the Allahabad High Court that the property of the firm belonged to the firm and none of the partners had any right to treat any property as his individual property and to transfer it as such.

12. Order 21, Rule 47, of the Civil Procedure Code provides the machinery for proceeding against the interest of the judgment-debtor in the movable property belonging to him and another as co-owners. Order 21, Rule 49, provides the machinery for execution of a decree obtained individually against a partner. It is unnecessary to refer to the decisions arising under the aforesaid provisions in which it has been held that the creditor has no right to seize any movable property either belonging to the judgment-debtor and others as co-owners or belonging to the firm.

13. I shall now refer to the decisions which have dealt with the question of the right of seizure of movables where they belong to several persons in joint ownership. In In re Marina Narasanna I.L.R.(1932) Mad. 1041, it was held that while recovering the fine imposed upon a person under Section 386 or Section 88 of the Code of Criminal Procedure, the Crown has no right to anything more in joint movable property than the delinquent himself had and it cannot deprive the co-owners, by seizing the property, of their right of possession in it, and that the correct procedure is to follow the provisions of Order 21, Rule 47, of the Civil Procedure Code. The learned Judge held that there can be no seizure of any interest in the property other than the separate individual property of the delinquent.

14. In Kolli Venkataraman v. The Collector of Kistna : AIR1936Mad560 , the Crown, for the purposes of recovering a fine due from a member of a joint family (a son) of which the father was the manager, attached and seized the standing crops on certain family properties. The father raised an objection on the ground that the property in question was his own separate property and that, in any event, even if the property should be regarded as joint family property, the Crown had no right to seize the standing crops. It was held, even assuming that the property was joint family property, the defaulter's share was unascertained and the father was entitled to object that the Crown had no right to seize the crops, and that such a seizure clearly infringed the rights of the father, the managing member of the joint family.

15. In Emperor v. Pramatha Bhooshan Ray I.L.R.(1983) Cal. 932, a Bench of the Calcutta High Court, following In re Marina Narasanna I.L.R.(1932) Mad. 1041, held that movable property in which the offender has only a fractional share is not liable to attachment by seizure and sale under Section 386 (I) (a) of the Criminal Procedure Code.

16. In Bansraj Das v. Secretary of Stale : AIR1939All373 , for the realisation of the fine due from the son, the Government got an order of attachment of certain buffaloes and bullocks belonging to the joint family. On an objection raised by the father, it was held that the property is owned by the coparcenary and not by the offender individually and that where property is owned by several persons in which the offender may have an interest which is unascertained, there can be no seizure of any of the properties of the family.

17. The same view has been taken in a recent Bench decision of the Andhra Pradesh High Court in Buchi Ramiah v. Rukkamma : AIR1961AP43 , in which it was held that for the realisation of the maintenance due under an order passed by the Magistrate under Section 488 of the Criminal Procedure Code the movable properties of the joint family of which the husband was one of the members cannot be attached and seized under Section 386 (I) (a) of the Criminal Procedure Code.

18. In Halsbury's Laws of England, Vol. 28, 3rd edition, page 544, para. 1055, the law is stated in these terms :

As a writ of execution cannot issue against any partnership property except on a judgment against the firm, partnership property cannot be taken in execution for a separate judgment against one partner.

19. I am therefore of the clear opinion that the State had no right to seize the movable properties of the petitioner-firm. It is needless to observe that the State may pursue any other right, it may be legally entitled to, in appropriate proceedings for the purpose of working out the rights of the assessee in the petitioner-firm. In the present writ petition the Court is only concerned with the limited question of the right of the State to seize the movable properties of the petitioner.

20. The writ petition is allowed and a writ of mandamus will issue as prayed for. No costs. The bank guarantee furnished shall be cancelled by the departmental authorities concerned and returned to the petitioners.


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