KHETARPAL AMARNATH Vs. MADHUKAR PICTURES

JUDGEMENT

(1.) IS the appellant's claim that the insolvency notice which has been served on him should be set aside on the ground that he has a counterclaim which exceeds the decretal amount ordered to be paid by him justified under Rule 52b (5) (b) of the Rules framed by this Court under the Presidency Towns Insolvency Act, 1909? That is the short question which arises in the present appeal. This question arises in this way. It appears that the appellant, the respondent and another were partners of Madhubar Pictures, which was a firm dealing in the business of film production. On 31-5-1950, the appellant retired from this partnership and a formal deed of dissolution was drawn up. Under this deed of dissolution the appellant promised to pay the continuing partners Rs. 30,000/- and agreed that the assets of the partnership should likewise remain with them. In consideration for this promise, the continuing partners undertook the liability to pay all debts due by the partnership Including the amount of income-tax payable by the firm on or up to 31-5-1950. As often happens, neither party to this agreement appeared to be anxious to fulfil his part of the contract. The appellant failed to pay the whole of the amount of Rs. 30,000/- and a suit had to be brought against him to re cover the amount due. A decree was passed against the appellant on 10-4-1951 for Rs. 30,000/ -. Under this decree the appellant made several payments from 4-8-1951 to 15-7-1952. Rs. 7,613-4-0, however, still remained to be paid by the appellant. To recover this decretal balance the respondent obtained leave of the Court for taking out execution proceedings on 16-7-1954, and on 15-9-1954 insolvency notice was taken out by tne respondent against the appellant. The said notice was served on the appellant on 22-8-1954. Alter this notice was served on the appellant, he took out a notice of motion on 22-10-1954. By this notice of motion the appellant urged that the insolvency notice served on him should be set aside because he had a counterclaim to make against the respondent and the amount of the counterclaim exceeded the balance due to the respondent under the decree passed in his favour. Mr. Justice Coyajee, who heard this notice of motion, has taken the view that the plea made by the appellant is premature and that it was impossible to say at the time When the notice of motion was taken out that the appellant was entitled to make any counterclaim against the respondent at all. That is why Coyajee J. dismissed the notice of motion, the appellant has challenged this decision of Coyajee J.

(2.) WHILST the proceedings between the appellant and the respondent were going on in respect of the suit filed by the respondent against the appellant, some other developments took place, to which it is necessary to refer before dealing with the merits of the contentions raised before us by Mr. Jhaveri on behalf of the appellant. On 30-11-1953 an assessment order was passed by the Income-tax Department determining the liability of the firm of Madhukar Pictures for payment of income-tax. Notices were issued in respect of this assessment, parties were heard and ultimately the appellant was called upon to pay Rs. 11,848-7-0 as his income-tax for the year 1950-51. The notice which was issued against the appellant calling upon him to pay the said amount also imposed upon him the penalty of Rs. 600/ -. After this notice was served on the appellant, he appears to have moved the Income-tax Department and obtained an order for the payment of the said amount by instalments. Accordingly he has in fact paid one instalment of Rs. 1,000/- by cheque on 26-2-1955. It also appears that a garnishee notice was served on the appellant on 20-10-1954 and in pursuance of this notice the appellant has paid Rs. 2,000/- to the Income-tax Department. Whilst the notice of motion taken out by the appellant was pending in the Court below, he filed a suit in the City Civil Court on 7-4-1955 seeking his remedies under the contract of indemnity included in the deed of dissolution. It is on these facts that the question of the right of the appellant to demand the cancellation of the insolvency notice falls to be considered.

(3.) TWO facts are not in dispute. A decree has been passed against the appellant and a balance of Rs. 7,613-4. 0 out of the decretal debt still remains to be paid. This is not disputed by the appellant. On the other hand, the respondent does not dispute the fact that an order has been passed against the appellant by the Income-tax Department calling upon him to pay as his income-tax Rs. 11,848-7-0. Indeed, the notice issued by the Income-tax Department against the appellant has been produced in the present proceedings. Under the relevant provisions of Section 23, Income-tax Act, it is clear that in the case of a registered firm income-tax is levied against the individual partners of the firm after determining their income in respect of the period in question. A registered firm as such is not directed to pay any income-tax in respect of the profits made by the firm. But the profits are determined in the first instance, they are apportioned to the respective partners having regard to their shares in the partnership, and the respective partners are then called upon to pay the respective amounts of income-tax in the light of the said apportionment of profit. If the amount thus assessed is not paid by the assessee, it is liable to be recovered as arrears of land revenue. In other words, it is not disputed that the balance due to be paid by the appellant in respect of the amount of income-tax levied against him for the year 1950-51 can be recovered by the Department as arrears of land revenue.