Gulati, J. - (1.) THIS is a petition under Article 226 of the Constitution.
(2.) THE petitioner was a partner in a firm constituted under a deed of partnership dated April 3, 1967. THE partnership was formed to run country liquor shops at Varanasi under a licence from the Excise Department valid for one year from April 1, 1967, to 31st March, 1968. THEre were altogether four partners, one of the partners being Shyam Bihari. THE firm was registered under the provisions of the Income-tax Act, 1961, for the assessment year 1968-69. On the expiry of the excise licence the firm was dissolved because it did not succeed in obtaining a licence for the subsequent year. For the assessment year 1968-69, the firm was assessed under the Income-tax Act and it being a registered firm the total income of the firm was allocated to the partners and taxed in their hands. It appears that Shyam Bihari failed to pay the tax assessed on him. THE Income-tax Officer passed an order under Section 182(4) of the Act on September 20, 1971, demanding from the petitioner a sum of Rs. 5,178 being the arrears of tax due from Shyam Bihari. THE petitioner has challenged that order in this petition. The contention of the learned counsel for the petitioner is that Section 182(4) of the Act does not contemplate that tax due from one partner may be recovered from another partner of a registered firm. Section 182 deals with the assessment of registered firms. According to the scheme of this provision, the income of the firm is first determined and after subjecting it to firm tax, the income is apportioned between the partners according to their shares and is assessed in their hands along with their income from other sources. Sub-section (4) of Section 182 then provides : "182. (4) A registered firm may retain out of the share of each partner in the income of the firm a sum not exceeding thirty per cent. thereof until such time as the tax which may be levied on the partner in respect of that share is paid by him; and where the tax so levied cannot be recovered from the partner, whether wholly or in part, the firm shall be liable to pay the tax, to the extent of the amount retained or could have been so retained."
(3.) NORMALLY, tax due from a partner cannot be recovered from the firm. Every partner has to pay the tax assessed on him. Sub-section (4) of Section 182 makes a departure from that rule and makes the firm liable for the payment of tax due from a partner in respect of his share in the income of the firm. The liability of the firm is, however, limited to 30 per cent. of the defaulting partner's share in the profits of the firm. The firm is entitled to retain a sum not exceeding 30 per cent. of the share of each partner in order to meet this liability. In the instant case, the firm did not retain anything from the share of Shyam Bihari. That circumstance, however, does not absolve the firm from the liability cast upon it under section 182(4). The provision enabling the firm to retain a part of the income of the partners is meant for its benefit but if it does not avail of the benefit, its liability under this provision is not affected. This position is not altered even if the firm is dissolved or its business is discontinued. Section 189 of the Act provides : "189. Firm dissolved or business discontinued.--(1) Where any business or profession carried on by a firm has been discontinued or where a firm is dissolved, the Income-tax Officer shall make an assessment of the total income of the firm as if no such discontinuance or dissolution had taken place. ....." Sub-section (3) of Section 189 then provides : (3) Every person who was at the time of such discontinuance or dissolution a partner of the firm, and the legal representative of any such person who is deceased, shall be jointly and severally liable for the amount of tax, penalty or other sum payable, and all the provisions of this Act, so far as may be, shall apply to any such assessment or imposition of penalty or other sum. " ;