THE III INCOME TAX OFFICER, CIRCLE - I, SALEM AND ANR. versus ARUNAGIRI CHETTIAR

Citation: [1996] SUPP. 2 S.C.R. 461 · Decided: 07-05-1996 · Supreme Court of India · Bench: B.P. JEEVAN REDDY · Disposal: Appeal(s) allowed

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Judgment (excerpt)

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THE III INCOME TAX OFFICER, CIRCLE - I, SALEM AND ANR. A 
v. 
ARUNAGIRI CHETTIAR 
MAY 7, 1996 
[B.P. JEEVAN REDDY AND SUHAS C. SEN, JJ.] 
B 
Income Tax Act, 1961 : Sections 2(43), 156 and 182 to 189. 
Assessment years 1962-63 and 1963-64-Partnership fimr'-Assessee 
erstwhile partner thereof-Firm reconstituted and subsequently dis-
C 
solved-Liability of assessee to pay t~eld: Eve11 though assessee retired 
from partnership fim1 he was still liable to pay tax arrears due from partner-
ship jinn pertaini11g to the period duri11g which he was ti partner-Abse11ce in 
the 1961 Act of provision similar to S.46(2) of 1922 Act made no dif-
ference-S.188-A explicitly provided what was implicit hitherto--Part11ership' 
Act, 1932, S.25-lncome Tax Act, 1922, S.46(2}-Code of Civil Procedure, · D 
1908, Or. 21 R 50. 
The respondent-assessee was a partner in a firm from which he 
retired. On bis retirement, the firm was continued by taking in two new. 
partners. The said firm was subsequently dissolved. The assessments for E 
the accounting years relevant to the Assessnient years 1962-63 and 1963-64 
were completed. The Income Tax Officer sent a communication to the 
respondent•assessee that in respect of the arrears of tax due from the firm 
for the aforesaid assessment years, he too was jointly and severally liable 
afong .with the other partners Inasmuch as he was a partner of the firm 
during the relevant accounting years. The respondent denied his liability F 
on the ground that he ceased to be a partner long ago; that there was a 
change in. the constitution of the firm after his retirement and that such 
re-constituted partnership along was responsible for paying the said ar-
rears. The Income Tax Officer did not agree with the respondent's conten· 
!ions. Recovery proceedings were Initiated and the respondent's properties G 
. attadred, . mm euP,n lie appr!Jltched' Ille H"ig& Cf111'rt IOy way ot two writ 
pi!titions, · 
1'he High Conl't altowed tire pttifkllr!< iJll''lile iiromut tbat the arrears 
of tax due from the fll'lll could rrot be recovered from· an erstwhile partner 
because the Income Tax Act, 1961 did not contain a provision correspond· H 
461 
462 
SUPREME COURT REPORTS [1996] SUPP. 2 S.C.R. 
A 
ing to the proviso to Section 46(2) of the Indian Income Tax Act, 1922. 
Aggrieved by the High Court's judgment the Revenue preferred the present 
appeal. 
Allowing the appeal, this Court 
B 
HELD : 1. Section 25 of the Partnership Act, 1932 does not ma)\e a 
distinction between a continuing partner and an erstwhile partner. Its 
principle is clear and specific viz., that every partner is liable for all the 
acts of the firm done while he is a partner jointly along "ith other partners 
and also severally. If a continuing partner is liable to pay the tax due from 
C the firm relating to the period when he was a partner of the firm, it cannot 
be held that the said liability ceases merely because a partner has ceased 
to be a partner subsequent to the said period. The absence of a provision 
corresponding to the proviso to Section 46(2) of the 1922 Act in the Income 
Tax Act, 1961 (the instant case deals with the provisions obtaining prior 
to 1.4.1989, i.e., prior to the introduction of Section 188-A) made no 
D difference to the position, since the liability of the partners to pay the dues 
of the firm does not arise by virtue of Order XX! Rule SO of the Code of 
Civil Procedure 1908, which is attracted by virtue of the said proviso, but 
on account of the basic premise mentioned hereinabove. Order XX! Rule 
SO merely reiterates the said basic premise; it does not create a new 
E liability. [ 468-D-F) 
F 
Income Tax Officer, Assessment - II, Calicut & Anr. v. C. V. George & 
Ors., (1976) lOS I.T.R. 144, overruled. 
Sahu Rajeshwar Nath v. Income Tax Officer, Meentt & Anr., (1964) S4 
I.T.R. 7SS, approved. 
Sahu Rajeshwar Nath v. Income Tax Officer, C- Ward, Meernt & Anr. 
(1969) 72 l.T.R. 617, explained. 
G 
Addanki Narayanappa v. Bhaskara Krishnappa, (1996] 3 S.C.R. 400 
and Malabar Fisheries Company v. Commissioner of Income Tax, Kera/a, 
(1979) 120 I.T.R. 49, relied on. 
Income Tax Officer v. Radha Krishan, 66 I.T.R. 590, held inapplicable. 
H 
Stevens v. Britten, [19S4] 3 All. E.R. 385, cited. 
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.THE III l.T.O. v. ARUNAG!Rl CHETTIAR [B.P. JEEVAN REDDY, J.] 463 
Lindley on Pa1t11ership, (12th Edn.) and Simon's Income Tax, (2nd A 
edition), Vol. I, P. 337, para 510, referred to. 
2. It may be mentioned that by virt

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