SHAH, - (1.) THE following judgment of the court was delivered by :-
(2.) A business of manufacture and sale of tents was commenced in 1940 in the name and style of Messrs Jawahar Tent Factory, Agra, in partnership. There were four partners in the firm-Jawahar Lai, Shiam Lal, Radha Raman and Radha Krishan. Jawahar Lal represented his Hindu undivided family and his share in the profit & loss was -/8.00 (eight annas) in a rupee. The share of other partners was -/12/8 (two annas eight pies) each. The firm was registered under s. 26A of the Indian Income-tax Act, 1922, and tax was assessed on The income of the firm in accordance with s. 23 (5) (a) of the Act. The partnership was, according to the Income-tax Officer, dissolved on 23/10/1946. This appeal relates to the tax liability of Jawahar Lal in respect of the income from the firm for the assessment years 1944-45, 1945-46, 1946-47 and 1947-48. The tax attributable to the share of Jawahar Lal, which it is claimed could not be recovered from him, is sought to be recovered from his erstwhile partner Radha Krishan. The following table sets out the share of 'the income of Jawahar Lal and the tax liability not satisfied by him in respect of the four years of assessment : JUDGEMENT_46_AIR(SC)_1968Html1.htm The manner in which the tax liability is determined requires some elucidation. The Hindu undivided family of Jawahar Lal had considerable other income. In accordance with the provisions of S. 25(3) (a) of the Indian Income-tax Act, the share of Jawahar Lal from the income of the partnership was added to the other income of the family, and the family was assessed to tax on the total income. For the purpose of computing `the tax liability not satisfied` as shown in the last column of the statement set out herein-before, the Income-tax Officer determined the average rate of tax on the total income of the Hindu undivided family and then applied that rate to the share of Jawahar Lal from th~e fir~m to determine the tax liability attributable to that share. Tax collected from Jawahar Lal was credited proportionately to the income under the two heads towards the tax liability so determined, and the tax liability of Jawahar Lal attributable to his share in the income was computed. The Income-tax Officer served Radha Krishan respondent in this appeal--on 3/10/1962 with demand notices for the tax remaining unpaid by Jawahar Lal. Radha Krishan thereupon moved the High court of Judicature at Allahabad for a writ of certiorari quashing the notices of demand and for an order directing the Income-tax Officer to withdraw the notices. Manchanda, J., allowed the petition filed by Radha Krishan and the order passed by Manchanda, J., was confirmed in appeal by a division bench of the High court. With special leave, the Income-tax Officer, Agra has appealed to this court.
(3.) SECTION 23(5) of the Income-tax Act, as it stood at the material time, read as follows : `(5) Notwithstanding anything contained in the foregoing sub-sections, when the assessee is a firm and the total income of the firm has been assessed under Ss. (1), subsection (3), or Ss. (4) as the case may be.(a) in the case of a registered firm, the sum payable by the firm itself shall not be determined but the total income of each partner of the firm, including therein his share of its income, profits and gains of the previous year, shall be assessed and the sum payable by him on the basis of such assessment shall be determined Provided Provided further Provided also (b) in the case of an unregistered firm, the Income-tax Officer may instead of determining the sum payable by the firm itself proceed in the manner laid down in clause (a) applicable to a registered firm, if in his opinion, the aggregate amount of the tax including supertax, if any, payable by the partners under such procedure would be greater than the aggregate amount which would be payable by the firm and the partners individually if the firm were assessed as an unregistered firm. The machinery for assessment to tax the income of a firm in the relevant years of assessment may be noticed. A firm under the Income-tax Act is a unit of assessment; and the income of the firm is computed as that of the unit irrespective of whether the firm is registered or unregistered, after the income of the firm is computed if the firm is registered under S. 26A the share of each partner in the income of the firm is determined and is added to his other income and the total income so computed is brought to tax. If the firm is unregistered, the tax payable by the firm is, except when the Income-tax Officer otherwise directs in the interests of revenue, determined as in the case of any other entity, and demand for tax is made on the firm itself. The result is that if the firm is registered tax is collected from the partners individually and there is no levy of tax against the firm. If the firm is unregistered, the tax may, unless other wise directed, be levied against the firm. In either case, the machinery Set up by s. 23 (5) is for assessment of tax payable on the income of the firm. The income of the firm is computed, buttax is assessed on that income on the partners or the firm, according as the income is of a firm registered or unregistered. Counsel for the Income-tax Officer contended that even though by S. 23(5) (a) a provision was made for assessment to tax of the total income of each member of a registered firm by adding to his separate income the share of the profits of the firm, it is the firm which is assessed to tax, and if the tax attributable to the share in the income of the firm of a partner cannot be recovered from him, it may be recovered from his other partners. Counsel for the Income-tax Officer says that this is so because the liability of the partners of a firm in respect of all its obligations including the liability to pay tax is joint and several. Undoubtedly contractual obligations of a firm are enforceable jointly and severally against the partners. But the liability to pay Incometax is statutory: it does not arise out of any contract, and its incidence must be determined by the statute. If the statute which imposes liability has not made it enforceable jointly and severally against the partners, no such implication can arise merely because contractual liabilities of a firm may be jointly and severally enforced against 'the partners.;