INCOME-TAX OFFICER, AGRA vs. RADHA KRISHAN

CIVIL APPEAL No. 1413/1966Supreme Court[1967] 3 S.C.R. 82127 April 1967Bench: 2 JudgesAuthor: J.C. SHAH, V. RAMASWAMI B7 pages
AI SummaryDismissed

What were the facts?

The Income-tax Officer (ITO) sought to recover tax due from a defaulting partner, Jawahar Lal, from another partner, Radha Krishan. This tax was attributable to Jawahar Lal's share in a registered firm, Jawahar Tent Factory, Agra, for assessment years 1944-45 to 1947-48. The firm was registered under Section 26A of the Indian Income-tax Act, 1922, and tax was assessed on each partner's share under Section 23(5)(a). Jawahar Lal's share of income was added to his Hindu undivided family's other income, and tax was assessed on the total income. The ITO served demand notices on Radha Krishan for the unpaid tax of Jawahar Lal. Radha Krishan challenged these notices, and the High Court allowed his petition, which was confirmed on appeal. The ITO appealed to the Supreme Court.

What did the Supreme Court hold?

The Supreme Court held that the liability to pay income-tax is statutory and its incidence must be determined by the statute. Section 23(5)(a) of the Act provides for the assessment of the total income of each partner individually, including their share of the firm's income. The Court found nothing in Section 44 of the Act that supports the contention that another partner becomes jointly and severally liable for the tax assessed against a partner under Section 23(5)(a). The scheme of taxing a registered firm's income in the hands of individual partners is inconsistent with the assumption that other partners are liable for the tax assessed against a specific partner. The tax assessed against a partner is on their total income, and the rate is determined by that quantum. Section 44 contemplates joint and several assessment only in cases of discontinued business of a firm, which is not the situation here. The cases relied upon by the Revenue were distinguished as not supporting the claim of joint and several liability under Section 23(5)(a) for individual partner assessments. The appeal was dismissed.

What were the issues?

1. Whether, under Section 23(5)(a) of the Indian Income-tax Act, 1922, tax assessed on the share of one partner in a registered firm can be recovered from another partner on a joint and several liability basis. Assessee's arguments: The assessee (Radha Krishan) contended that the tax liability is statutory and must be determined by the statute. Since Section 23(5)(a) mandates individual assessment of each partner's share, there is no statutory provision creating joint and several liability for tax assessed on another partner. Revenue's arguments: The Revenue (ITO) argued that even though each partner's share is taxed individually under Section 23(5)(a), the firm is assessed to tax, implying that the tax attributable to one partner's share can be recovered from another partner due to their joint and several responsibility. Reliance was placed on Section 44 of the Act.

Which sections of the Income-tax Act were involved?

Section 23(5)(a),Section 26A,Section 44

AI-generated summary — verify with the full judgment below

.A B c u F G H INCOME-TAX OFFICER, AGRA v. RADHA KRISHAN April 27, 1967 [J. C. SHAH AND V. RAMASWAMI, JJ.] Indian Income-tax Act, 1922, s. 23(5) (a), 26A and 44-Registered firm-Partners taxed individually on •their shares--One partner defaulting in pay111ent of tax on his share-Tax so due 1vhether can he recovered from other partners.

The respondent was one of the partners in a partnership firm regis- tered under s. 26A of the Indian Ineome-tax Act, 1922. The Jncome- tax Officer in making assessments for the assessment years 1944-45, 1945-46. and 1946-47 and 1947-48 determined the shares of each of the partners and taxed them accordin~ to the provisions of s. 25 (3) (o) of the Indian Income-tax Act .. 1922. One of the partners defaulted in the payment of tax and tl1e Income-tax Officer sought to recover the unpaid tax attri~ butable to tile share of the defaulting partner in the firm from the res- pondent.

The respondent's petitioo under Art. 226 challenging the :..tten1pteJ rccuvt:r• 1 was allowed by the single Judge whose order was confirmed by the Division Bench.

The Revenue by special came to this Court.

It was urged on behalf of the Revenue that ev

The order continues below.

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