CHULAI RAM Vs. INCOME TAX OFFICER

JUDGEMENT

(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.

(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 :