B.P.JEEVAN REDDY - (1.) This writ petition is filed for the issuance of a writ, order or direction declaring the notices dt. 8th April, 1988, 24th March, 1988, and 3rd Feb., 1988, issued by the TRO, Meerut (second respondent), under rr. 31, 73 and 2 of the Second Schedule of the INCOME TAX ACT, 1961, respectively.
(2.) THE firm Raghunandan Prasad Manohar Lal, consisting of four partners, was an assessee under the Act. For the asst. year 1981 -82, a large amount of tax was determined to be payable by the firm. A notice under S. 156 of the Act was issued to the firm on 22nd Dec., 1987, calling upon it to remit a sum of Rs. 6,64,988. According to the petitioner, the firm was dissolved on 23rd Jan., 1981. proceedings were initiated against the properties of the firm as well as of the partners of the dissolved firm for recovery of tax in arrears. Two writ petitions were filed by two partners of the firm in their individual capacity. Writ Petn. No. 754 of 1986 was filed by the petitioner herein, Padam Prakash, and Writ Petn. No. 830 of 1986 was filed by another partner, Manohar Lal. These two writ petitions were heard and disposed of by a Division Bench of this Court comprising A. Banerji, Actg. C.J. (as he then was) and K. P. Singh, J. on 25th Aug., 1987. [since reported as Manohar Lal vs. CIT (1988) 61 CTR (All) 55 : (1988) 171 ITR 241 (All) : TC52R.877]. In the judgment, the amount due from the firm is stated as Rs. 2,65,005. It is stated that the amount of tax was reduced in appeal. It is not really necessary for us to go into the question of the precise amount of tax due since that is not the issue in this writ petition. We may, however, mention that on a further appeal by the Department, the Tribunal appears to have restored the demand raised by the ITO. Be that as it may, we are not really concerned with the quantum of the tax due, but only with the liability of the partners of the dissolved firm for the tax due from the firm. The Bench noticed the provisions contained in sub -s. (3) of S. 189 and then held as follows : "(a) Mere existence of a liability of the firm to pay tax is not sufficient to recover tax from the partners of the firm under the provisions of 1961 Act, as held by a learned single Judge of the Mysore High Court in P. Balchand vs. TRO (1974) 95 ITR 321 (Mys) : TC52R.958. Therefore, the tax liability of the firm cannot be realised from the petitioners (partners) unless they are held as "assessees -in -default" within the meaning of the Act. (b) The position under the 1961 Act with respect to liability of the partners of the dissolved firm for the dues of the firm is different from the 1922 Act. In Brij Ratan Lal Bhoop Kishore vs. Addl. CIT (1980) 14 CTR (All) 68 : (1983) 139 ITR 906 (All) : TC52R.948, a Division Bench of this Court has held that "the TRO has no power to recover tax from the partners by proceeding against their properties for the tax due from the firm. The said decision squarely applies here, hence unless the TRO has assessed the partners of the firm in accordance with ss. 182 and 183 of the Act and relevant notices had been served upon the partners, they cannot be termed as "assessees in default". "Therefore, the partners' property in their individual capacities cannot be proceeded against with in connection with the tax dues of the firm". Since, in this case, the defaulter is shown to be the firm, the action of the Department against the petitioners' individual properties is incompetent. (c) The petitioners in the two writ petitions were partners in the defaulting firm as Kartas of their respective HUFs. On the reasoning contained in Baladin Ram Kalwar vs. ITO [1966] 62 ITR 392 (All) : TC52R.536, the notices issued under rule of the Second Schedule to the Act against the petitioners are bad in law. (d) It is true that the partners are jointly and severally liable for the tax due from the firm, as provided by S. 189(3), but for realising the tax from the individual properties of the partners, "the Department should have taken action against the petitioners in the light of the provisions of ss. 182 and 183 of the Act, 1961. In the absence of any proceedings under these sections, it is difficult to characterise the petitioners as assesses in default within the meaning of the provisions of the new Act of 1961." Subsequent to the aforesaid judgment, the appeal filed by the IT Department against the orders of the AAC reducing the tax liability of the firm was allowed and the order of the ITO restored. Thereafter a fresh demand was raised by the Department against the partners. The petitioner says that when fresh recovery proceedings were initiated against him, he brought the aforesaid judgment of this Court dt. 25th Aug., 1987, to the notice of the TRO, but he persisted in proceeding with the recovery proceedings. It is in those circumstances that the petitioner has approached this Court again and also because proceedings under S. 226(3) were taken to attach certain moneys due to the petitioner. The contention of learned counsel for the petitioner is that, according to the judgment of this Court dt. 25th Aug., 1987 [see Manohar Lal's case (supra)], which operates as res judicata between the parties, tax due from the firm cannot be recovered from its partners (after dissolution) unless an assessment is made upon the partners under ss. 182 and 183 of the Act. Since no assessment has been made upon the partners under ss. 182 and 183 of the Act subsequent to the said judgment, the factual position is the same as was obtaining at the time of the filing of the said writ petitions and, hence, no recovery proceedings can lie against the individual properties of the petitioner. On the other hand, it is submitted by learned standing counsel for the Revenue the subsequent to the judgment of the High Court, the Tribunal allowed the Department's appeal, and that the judgment of this Court, which pertains to a portion of the tax arrears, cannot hold good as to the larger amount of tax found due against the firm and its partners as a result of the decision of the Tribunal. It is also submitted that, subsequent to the said judgment, the partners have been held to be "assessees in default" within the meaning of S. 189 (3) and hence the arrears of tax due from the dissolved firm can be recovered from its partners as per S. 189(3).
(3.) A perusal of the judgment of this Court in Writ Petns. Nos. 754 of 1986 and 830 of 1986, dt. 25th Aug., 1987 discloses that the Bench allowed the writ petitions mainly on two grounds. The first ground is that "mere existence of a liability on the firm to pay tax is not sufficient to recover the same from the partners of the dissolved firm, unless the partners are treated as "assessees in default." This was so held following the decision of a learned Single Judge of the Mysore High Court in Balchand vs. TRO (supra). The second ground is that unless the partners are assessed in accordance with the provisions of ss. 182 and 183, the tax due from the dissolved firm cannot be recovered from its partners. This was so held following a decision of this Court in Brij Ratan Lal's case (supra).;