BISHWANATH LOHIA Vs. COLLECTOR ALIGARH

JUDGEMENT

(1.) THE petitioner is a partner of the firm M/s. Jeet Mal Ram Gopal which carries on business as commission agents and dealers in ghee. The firm was assessed by the Sales Tax Officer on 28th November, 1967, to sales tax under the U.P. Sales Tax Act and notice of demand requiring the payment of Rs. 33,256.62 as sales tax was issued. The amount is sought to be recovered from the petitioner and a warrant of arrest has been issued.

(2.) BY this petition the petitioner prays for mandamus directing the respondents not to execute the warrant of arrest against the petitioner.

(3.) THERE can be no dispute that the U.P. Sales Tax Act envisage the assessment of a firm as an entity distinct from its partners. That was held by this court in Jagat Behari Tandon v. Sales Tax Officer ([1957] 8 S.T.C. 459) and the decision has received the approval of the Supreme Court in subsequent cases. The question which arises is whether a notice of demand addressed to the firm can operate as a notice calling upon the partners to pay the tax. In our opinion, when we speak of a partnership being an entity distinct from its partners in a taxation statute, that is for the purpose of assessment only : Sahu Rajeshwar Nath v. Income-tax Officer ([1964] 54 I.T.R. 755). Once an assessment order has been made, the distinction between a firm as a unit and its individual partners disappears and the veil surrounding it and separating it from its individual partners vanishes and thereafter whenever reference is made to the firm, reference is intended to the partners comprising it. In that respect, the position reverts to what it is under the general law. Consequently, a notice of demand must be considered as a demand upon the several partners of the firm to pay up the tax. Viewed from this standpoint, it is clear that on the failure of the partners to comply with the notice of demand and pay up the tax they must be treated as being in default, and thereupon each one of them is liable to be proceeded against for recovery of the tax. As was pointed out in Sahu Rajeshwar Nath ([1964] 54 I.T.R. 755), upon the issue of the notice of demand a debt owed by the firm comes into existence. That is a debt for which the partners are liable in the same manner as any other debt of the firm. Under the law relating to partnership, each partner is jointly and severally liable for the debts of the firm and a creditor is entitled to ultimately proceed against the personal assets of each partner for recovering the debt. It is said that while that may be so it is not open to the sales tax authorities to recover the tax from an individual partner by taking coercive proceeding for recovery of the tax from him. Such a plea was taken and was repelled in Sahu Rajeshwar Nath v. Income-tax Officer [Civil Appeal No. 1768 of 1967 decided on 4-9-1968; since reported at [1969] 72 I.T.R. 617] decided by the Supreme Court on appeal from the decision referred to above. The Supreme Court held that if regard be had to the provisions of section 46(2) of the Indian Income-tax Act, 1922, it will be found that the Income-tax Officer is entitled to invoke in aid of the recovery proceedings all the pertinent provisions of the Code of Civil Procedure, and in this respect the Supreme Court specifically referred to Order 21, rule 50, of the Code which provides that a decree passed against a firm may be executed not only against any property of the firm but also against a person who has been adjudged to be a partner.