KALVA SURYANARAYAL'LA vs. INCOME-TAX OFFICER, A-3, WARD, HYDERABAD

CIVIL APPEAL No. 998/1966Supreme Court[1969] 1 S.C.R. 84023 August 1968Bench: 3 JudgesAuthor: J.C. SHAH, V. RAMASWAMI, A.N. GROVER KALVA5 pages
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What were the facts?

The appellant was a partner in a firm that carried on business in 1949-50 and was subsequently dissolved. For the assessment year 1951-52, the firm was assessed as a registered firm, and its income was apportioned among the partners. The Commissioner of Income-tax, under Section 33B, directed an enhancement of the firm's assessment. The Income-tax Officer made consequential changes to the partners' assessments. When two partners failed to pay their additional tax liabilities, the Income-tax Officer issued a notice to the appellant demanding payment of their arrears, invoking Section 44 of the Income-tax Act, 1922, which posits joint and several liability for dissolved firms. The appellant challenged this notice via a writ petition, which was dismissed by the High Court. This appeal is against that High Court judgment.

What did the Supreme Court hold?

The Tribunal held that there is nothing in Section 44 of the Act that supports the contention that for the payment of tax assessed against a partner of a registered partnership under Section 23(5)(a), another partner becomes liable jointly and severally. The dissolution of the firm does not alter this principle. The tax assessed against a partner of a registered partnership is on his total income, including his share of the firm's income, with the rate determined by his total income. Section 44, conversely, contemplates joint and several assessment of income for discontinued businesses. When tax is assessed individually against each partner under the scheme of the Act, and no tax is made payable by the partnership itself, the principle of joint and several liability under Section 44 cannot be invoked. While partnership law may enforce contractual obligations jointly and severally, income-tax liability is statutory. The Tribunal found that the Income-tax Officer had no jurisdiction to issue the impugned notice under Section 45, and the proceedings should be quashed. The judgment of the High Court was set aside.

What were the issues?

1. Whether, under Section 23(5)(a) of the Indian Income-tax Act, 1922, a partner of a registered firm becomes jointly and severally liable for the tax assessed against another partner. 2. Whether, in the case of a dissolved firm, Section 44 of the Indian Income-tax Act, 1922, imposes joint and several liability on partners for tax assessed individually against other partners under Section 23(5)(a). Assessee's Argument: The appellant contended that as an individual assessee under Section 23(5), he could not be held liable for the tax due from an ex-partner of the partnership, and that the Act did not impose joint and several liability in such a scenario. Revenue's Argument: The revenue argued that Section 44 of the Act imposed joint and several liability on all partners of a dissolved firm for the tax arrears, irrespective of individual assessments.

Which sections of the Income-tax Act were involved?

Section 23(5),Section 44,Section 33B,Section 45

AI-generated summary — verify with the full judgment below

• KALVA SURYANARAYAL'lA V. INCOME-TAX OFFICER, A-3, WARD, HYDERABAD August 23, 1968 A [J. C. SHAH, V. RAMASWAMI AND A. N. GROVER, JJ.J B Income-tax Act (11 of 1922), ss. 23(5) and 44--Firm registered- Dissolved-Liability of une partner to pay arrears of ta:c.

The appellant was a partner in a firm which carried on business in 1949-50 and was then dissolved.

For lhe assessment year 1951-52 the 1irn1 was a~sed as a registered firm and its income was apportioned between the partners and taxed in their hands.

Subsequently the Com- c mco;sioner of J ncome-tax acting under s 33B of the Indian Income-tax Act, 1922 directe<l that the a=ssment of the firm be enhanced. The lncome- tax Officer after ma.king the enhancement as directed made consequential changes in the assessments of the partners. 1·wo of the panncrs, other than the appellant did not pay the additional tax and the Income-tax omcer issued a notice to the appellant to pay the tax payable by them on tho footing that under the provisions of s. 44 of the Income-tax Acr, 1922 there w~1s joint and several liability of each and every partner of D the dis.solv1...-d firm in respect of the arrears of tax.

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