# • KALVA SURYANARAYAL'lA v. INCOME-TAX OFFICER, A-3, WARD, HYDERABAD

- **Citation:** [1969] 1 S.C.R. 840
- **Court:** Supreme Court of India
- **Decided:** 1968-08-23
- **Case number:** Writ Petition No. l294 of 1961
- **Bench:** J. C. Shah, V. Ramaswami, A. N. Grover
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/kalva-suryanarayal-la-v-income-tax-officer-a-3-ward-hyderabad-4529
- **Pages:** 5

## Headnote

B
Income-tax Act (11 of 1922), ss. 23(5) and 44--Firm registeredDissolved-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 Comc
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 lncometax 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
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the dis.solv1...-d firm in respect of the arrears of tax.
The appellant ti.led
a writ petition in the High Court to qu.ish the notice but it was dismissed.
In appeal, thi-. Court.
HELD : ·1 here is nothing in s. 44 of the Act which supports the
contention that for payment of lax asseso;;ed against a partner df registered partnership under s. 23(5) (a) another parlncr
becomes
liable
jointly n.nd severally with the first partner to pay tax.
"rhc dis.c;olurion
E
of the firm n1akes no difference to the application of this principle. [843
C-D)
It should he noticed that the tax assessed against a partner of a regi5tercd partnership is asst.-sscd on his total income inclusive of the. share in
thi..: income of lhc partnership and the rate applicable is dctern1ined hv the
quantum of the total income of the partner.
Section 44 on the coritrary
contemplates cases of joint and several a"ic;cs..~mcnt of income of the blllliiiF
ne5.s of a partnership which is discontinued.
When such assessment is
n1ade, each n1cmber of the partnership n1av be liahlc to pay joiruly and
severally tax payable hv the partnership.
But when under the scheme of
the Act tax is a<tsessed individually againsr each partner, and no tax is
made payable hy the partnership, the principle of joint and several liabi~
lity under s. 44 cannot he invoked.
Although under the Partnership
Law the contr~tctual obligations of a partnership arc enforceable jointly
and severally agains: the partners . .the liability to pay income-tax is ~tatuG
tory. and docs not arise out of any contract and it'i incidence will be
determined by the provision~ of the statute.
If the statute which imposai;
liabiJity has not made it enforceable jointly and severally again.'it the partners. no such in1plication can he drawn mercly because the contractual
Jiahilitics of a partnership mav be jointly and severally enforoed agaimt
the partners. [843 H-844 CJ
Income Tax Officer. Agra v. Radha Krislian, 66 l.T.R. 590. followed.
ff

## Text

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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 registeredDissolved-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 Comc
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 lncometax 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.
The appellant ti.led
a writ petition in the High Court to qu.ish the notice but it was dismissed.
In appeal, thi-. Court.
HELD : ·1 here is nothing in s. 44 of the Act which supports the
contention that for payment of lax asseso;;ed against a partner df registered partnership under s. 23(5) (a) another parlncr
becomes
liable
jointly n.nd severally with the first partner to pay tax.
"rhc dis.c;olurion
E
of the firm n1akes no difference to the application of this principle. [843
C-D)
It should he noticed that the tax assessed against a partner of a regi5tercd partnership is asst.-sscd on his total income inclusive of the. share in
thi..: income of lhc partnership and the rate applicable is dctern1ined hv the
quantum of the total income of the partner.
Section 44 on the coritrary
contemplates cases of joint and several a"ic;cs..~mcnt of income of the blllliiiF
ne5.s of a partnership which is discontinued.
When such assessment is
n1ade, each n1cmber of the partnership n1av be liahlc to pay joiruly and
severally tax payable hv the partnership.
But when under the scheme of
the Act tax is a<tsessed individually againsr each partner, and no tax is
made payable hy the partnership, the principle of joint and several liabi~
lity under s. 44 cannot he invoked.
Although under the Partnership
Law the contr~tctual obligations of a partnership arc enforceable jointly
and severally agains: the partners . .the liability to pay income-tax is ~tatuG
tory. and docs not arise out of any contract and it'i incidence will be
determined by the provision~ of the statute.
If the statute which imposai;
liabiJity has not made it enforceable jointly and severally again.'it the partners. no such in1plication can he drawn mercly because the contractual
Jiahilitics of a partnership mav be jointly and severally enforoed agaimt
the partners. [843 H-844 CJ
Income Tax Officer. Agra v. Radha Krislian, 66 l.T.R. 590. followed.
ff
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 998 ~f
1966.
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. K, SURYANARAYANA v. I.T.O, (Ramaswami, I.)
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Appeal by special leave from the judgment and order dated
December 21 1964 of the Andhra Pradesh High Court in Writ
Petition No. l294 of 1961.
·
P. Ram Reddy and R. Thiagarajan, for the appellant.
C. K. Daphtary,
Attorney-General,
T. A. Ramachandran,
R. N. Sachthey and B. D. Sharma, for the respondent.
The Judgment of the Court was delivered by
Ramaswami, J. This appeal is brought, by special leave, from
the judgment of the High Court of Andhra Pradesh dated December 21, 1964 in Writ Petition No. 1294 of 1961.
The appellant had entered into a partnership with three other;
named D. Sayappa, H. Siddappa and M. Veeraiah to can:y out a
"Gulmoha" contract for the year 1949-50. The firm was known
as Messrs. Kalva Suryanarayana.
After comp)etion of the ::ontract the partnership came to an end.
For the assessment year
1951-52, the partners of the dissolved firm made an application
for registration of the partnership to the respondent who granted
the registration on February 28, 1953, and on that basis proceeded to assess the total income of the partnership which he
determined as Rs. 1,64,546/- (O.S.), and the total income was
apportioned among the four partners in proportion of their respective shares.
Subsequently, the Commissioner of Income Tax
in exercise of his revisiona! power under s. 33B of the Income Tax
Act passed an order on February 26, 1955 holding that the partnership had suppressed income to the extent of Rs.
1,72,149
(l.G.) by inflating the expenses under railway freight and by not
accounting for the sale of old gunnies.
The Commissioner of
Income Tax accordingly directed that the assessment already
made should be enhanced by a sum of Rs. 1,72,149. In pursuance of this order the respondent revised the assessment on March
11, 1955 and determined the total income of the partnership at
Rs. 3,13,189 (LG.) and apportioned it among the several partners in proportion to their shares and demand notices were issued
accordingly against individual partners of the dissolved firm.
It
appears that the appellant and D. Sayappa paid their shares of the
tax, but M. V eeraiah and H. Siddappa failed to pay their shares
which were Rs. 10,654.62 and Rs. 5,640.62 respectively.
After
about six years the respondent issued a notice to the appellant
under s. 45 of the Income Tax Act, 1922, hereinafter called the
'Act', calling upon him to pay up the arrears on the footing that
~nd~~ the provisions of s. 44 of the Act there was joint and several
hab1lity of each and every partner of the dissolved firm in res-
~t of the arrears of tax.
The appellant thereafter moved the
High Court for grant of a writ to quash the notice. · The Writ
]JCltition was dismissed by the High Court by its judgment dated ·
December 21, 1964.
·
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842
SCPREME COURT REPORTS
( 1969] I S.C.R.
The provisions of s. 23 ( 5) and s. 44 of the Act as they stood
at the material time are reproduced below ;
"23. ( 5) Notwithstanding anything contained in
the foregoing sub-sections when the :L,sessee is a finn
and total income of the firm has been assessed under
sub-section (!), sub-section ( 3) or sub-section ( 4) as
the case may be;
(a) in the case of a registered finn, the sum payable by the finn 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 determinecl ........ ,,
"44. LIABILITY IN CASE OF A DISCONTINUED FIRM OR ASSOCIATION:
Where any busi.
ness profession or YOeation carried on by a
firm
or
a.ssoeiation of persons has been discontinued, or where
an association of persons is dissolved every person who
was at the time of such discontinuance or dissolution a
partner of such firm or a member of such association
shall in respect of the income, profits and ~ains of the
finn or association,
be jointly and severally liable to
assessment under Chapter IV and for the amount of tax
payable and all the provisions of Chapter IV shall, so
far as may be applied to any such assessment."
In support of this appeal, the argument was addressed ttiat
the appellant who wa.' an individual assessee under s. 23(5) could
not be held liable for payment of the tax due from the ex-partner
of the partnership and there was no joint and several liability
imposed under the provisions of the Act in such a case.
[n ~ur
opinion, the argument put forward on behalf of the appellant is
well-founded and must be accepted as correct. Under the schem~
of the Act a partnership is a unit of assessment and the income
of the partnership is computed as that of the unit irrespective of
whether the partnership is registered or unregistered.
After the
income of the partnership is computed in a case where the partnership is registered under s. 26A the share of each partner in the
income of the partnership is determined and is added to his other
income and the total income so computed is brought to tax. If
the partnership is unregistered, the tax payable hy the partnership
is, except when the Income-tax Officer otherwise directs
in 0e
interests of revenue detennmcd as in the case of any other entity.
and the demand for tax is made on the partnership itself.
The
result is that. if the partnership is registered, tax is colleet:d fr9m
the partners individually and there is no levy of tax agamst the
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K. SURYANARAYANA v. I.T.O. (Ramaswami, J.)
843
•
partnership. If the partnership is unregistered, the tax may,
unless otherwise directed, be levied against the partnership.
In
either case, the machinery set up by s. 23 ( 5) is for assessment of
tax payable on the income of the partnership.
The income of the
partnership is computed, but tax is assessed on that income on
the partners or the partnership, according as the income is of a
partnership registered or unregistered.
In Income Tax Officer,
Agra v. Radha Krishan ( 1 ) it was argued that in the case of
assessment made under s. 23 ( 5) (a) of the Act the tax liability
was joint and several and the Income Tax Officer could recover
from other partners the share of the tax attributable to one partner which cannot be recovered from him.
The argument was
rejected by this Court and it was pointed out that under the
scheme of the Act tax is assessed individually against each partner. and no tax is made payable by the partnership and therefore
the principle of joint and several liability has no application. It
was also held in that case that there is nothing in s. 44 of the Act
which supports the contention that for payment of tax assessed
against a partner of a registered partnership under s. 23 ( 5) (a)
another partner becomes liable jointly and severally with the first
partner to pay tax.
In our opinion, the principle of this decision
governs the present case also.
It is true that in the present case
we are dealing with the assessment of a partnership after its dissolution and s. 44 of the Act is directly applicable but this circumstance makes no difference to the application of the principle
laid down in Income Tax Officer, Agra v. Radha Krishan('). The
object of enacting s. 44 is to prevent evasion of tax by discontinuance of the business of a firm or dissolution of an association
of persons.
On discontinuance of the business of a firm or dissolution of the association of persons, it is declared that every
person who was, at the time of such discontinuance or dissolution, a partner of such firm or a member of such association shall,
in respect of the income, profits and gains of the partnership or
association be jointly and severally liable to assessment and for
the amount of tax payable.
There is, however, nothing in the
section which supports the argument of the respondent that for
payment of tax assessed against the partners of a registered partnership individually under s. 23 ( 5) (a) of the Act another partner
becomes liable jointly and severally with that first partner to pay
tax.
The entire scheme of taxing the income of . a registered
partnership in the hands of individual partners is inconsistent with
any argument that for payment of tax assessed against a partner.
other partners are liable.
It should be noticed that the tax assessed against a partner of a registered partnership is assessed on his
total income inclusive of the share in the income of the partnership and the rate applicable is determined by the quantum of the
total income of the partner.
Section 44 on the contrary
('I) 66 I.T.R. 590.
•
844
SUPREME COURT REPORTS
[1969) I S.C.R
wntemplates cases of joint and several assessment of income of the
business of a partnership which is tliscontinucd. When such assessment is matle, each member of the partnership may
be liable
to pay jointly and severally tax payable by the partnership.
But
when under the scheme of the Act tax is assessed individually
against each partner, and no tax is made jlayable by the partnership, the principle of joint and several liability under s. 44 cannot
be invoked. It is true that under tl1e Partnership law the contractual obligations of a partnership are enforceable jointly and
severally against the partners.
But the liability to pay incometax is statutory and does not arise out of any contract and its
incidence will be determined by the provisions of the statute.
If
the statute which imposes liability has not made it enforceable
jointly and severally against the partners, no such implication can
be drawn merely because the contractual liabilities of a partnership may be jointly and severally enforced against the partne~.
For these reasons we hold that the respondent had no jurisdiction to issue the impugned notice dated June 22, 1961 under
s. 45 of the Act and the proccedin~s taken against the appellant
in pursuance of that notice should be quashed by grant of a writ
in the nature of certiorari under Art. 226 of the Constitution.
We accordingly set aside the judgment of the High Court of
Andhra Pradesh dated December 21, 1964 and allow this appeal
with costs here and in the High Court.
Y.P.
Appeal al/ow~d.
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