JUDGMENT
Satish Chandka, C.J.
1. These three writ petitions are inter-related. They have been filed by a firm, M/s. Brij Ratan Lal Bhoop Kishore, as one of its partners. The prayer is that the recovery certificate and the attachment order of the properties of the partner be quashed.
2. The firm, M/s. Brij Ratan Lal Bhoop Kishore, consisted of four partners. It was treated as a registered firm for the assessment year 1964-65 and subsequent years till 1967-68. The firm was dissolved on February 1, 1968. With effect from February 2, 1968, two of the partners, namely. Brij Ratan Lal and Bhoop Kishore, started a new partnership firm.
3. For the assessment year 1968-69, the firm was assessed as a registered firm on a total income of Rs. 2,86,545. An appeal and then a second appeal yielded some relief. Meanwhile the Addl. CIT issued a notice under Section 263(1) of the Act dated July 3, 1970, addressed to the firm requiring it to show cause why the order directing registration be not cancelled. After hearing the petitioner, the Addl. CIT by an order dated Septembers, 1970, cancelled the registration of the firm for the assessment year 1968-69, and directed the ITO to reassess the tax payable by the firm treating it to be an unregistered firm. The firm filed an appeal to the Appellate Tribunal which was dismissed on April 6, 1972. It appears that in September, 1973, the TRO attached some house properties belonging to the partners. This was in pursuance of the recovery certificate dated March 16, 1972, forwarded by the ITO for realisation of Rs. 1,67,140 due from the firm.
4. At this stage, the present writ petitions were filed to challenge the validity of the recovery certificate as well as the order of attachment.
5. The principal question which requires our consideration is whether property belonging to a partner personally, can be attached and sold in proceedings for the recovery of tax in pursuance of a certificate naming the unregistered firm as the assessee. The certificate mentioned the firm, Brij Ratan Lal Bhoop Kishore, as the assessee in default.
6. The scheme of the I.T. Act is that the ITO passes an assessment order against the assessee and, when tax is payable by virtue of that order, the ITO has to serve upon the assessee a notice of demand in the prescribed form, specifying the sum payable (Section 156). The sum specified in the notice is to be paid within thirty days of the service of the notice (Section 220(1)). If the amount is not paid within the time specified or extended, as the case may be, the assessee shall be deemed to be in default (Section 220(1)). Section 222(1) provides that when an assessee is in default or is deemed to be in default in making payment of the tax, the ITO may forward to the TRO a certificate under his signature specifying the amount of arrears due from the assessee, and on receipt of such certificate, the TRO shall proceed to recover from such an assessee the amount specified therein by one or more of the modes mentioned below, in accordance with rules laid down in Schedule II.
(a) by attachment and sale of the assessee’s movable property ;
(b) by attachment and sale of the assessee’s immovable property ;
(c) by ar est of the assessee and his detention in prison ;
(d) by appointment of the receiver for the management of the assessee’s movable and immovable properties.
The TRO can execute the certificate in accordance with the rules laid down in Schedule II. His powers of recovery are confined to those rules.
7. Rule 1 of Schedule II defines ” certificate ” as a certificate received by the TRO from the ITO for the recovery of arrears under the said Schedule. It also defines ” defaulter ” as the assessee mentioned in the certificate. It is thus evident that the recovery proceedings can be held in respect of the assessee mentioned in the certificate. The assessee mentioned in the certificate is the assessee in default.
8. In the case of a registered firm, it has been held that partners are assessable units separately from the registered firm (See CIT v. Chaganlal Durga Prashad [1968] 70 1TR 314 (Raj). Registered firm being an assessable unit by itself, arrears of tax due from the registered firm which alone is mentioned in the certificate as the assessee in default, cannot be recovered from the partners of such registered firm (See ITO v. C. V. George [1976] 105 ITR 144 (Ker) [FB].
9. What is the position of an unregistered firm qua its partners in the scheme of the I.T. Act, 1961 ?
10. Section 183 of the 1961 Act provides :
” 183. Assessment of unregistered firms.–In the case of an unregistered firm, the Income-tax Officer-
(a) may determine the tax payable by the firm itself on the basis of the total income of the firm ; or
(b) if, in his opinion, the aggregate amount of the tax payable by the firm if it were assessed as a registered firm and the tax payable by the partners individually if the firm were so assessed would be greater than the aggregate amount of the tax payable by the firm under Clause (a) and the tax which would be payable by the partners individually, may proceed to make the assessment under Sub-section (1) of Section 182 as if the firm were a registered firm; and, where the procedure specified in this clause is applied to any unregistered firm, the provisions of Sub-sections (2), (3) and (4) of Section 182 shall apply thereto as they apply in relation to a registered firm,”
Under Clause (a), the unregistered firm itself can be assessed to tax. But under Clause (b), at the option of the ITO, the partners of such unregistered firm can also be assessed in the same manner and in accordance with the procedure prescribed for the registered firm. In the case of a registered firm, Section 182 of the Act provides that after assessing the total income of the firm, the income-tax payable by the firm shall be determined ; and the share of each partner in the income of the firm shall be included in his total income and assessed to tax accordingly. This shows that a partner of an unregistered firm is a separate assessable entity and can be assessed independently in relation to his share of the income of the unregistered firm.
11. Section 77 of the Act is also in point. It deals with losses of unregistered firm or their partners. Sub-section (1) provides :
“(1) Where the assessee is an unregistered firm which has not been assessed as a registered firm under the provisions of Clause (b) of Section 183, any loss of the firm shall be set off or carried forward and set-off only against the income of the firm.”
Sub-section (2), however, provides :
” (2) Where the assessee is a partner of an unregistered firm which has not been assessed as a registered firm under the provisions of Clause (b) of Section 183 and his share in the income of the firm is a loss, then, whether the firm has already been assessed or not-
(a) such loss shall not be set-off under the provisions of Section 70, Section 71, Sub-section (1) of Section 73 or Section 74A ;
(b) nothing contained in Sub-section (1) of Section 72 or Sub-section (2) of Section 73 or Sub-section (1) of Section 74 or Sub-section (3) of Section 74A shall entitle the assessee to have such loss carried forward and set off against his own income.”
Section 77(1) calls an unregistered firm “an assessee” while Sub-section (2) mentions a partner of an unregistered firm as an assessee and provides for carry forward of the losses of such assessee partner.
12. The Supreme Court in CIT v. Murlidhar Jhawar and Puma Ginning & Pressing Factory [1966] 60 ITR 95, held that the partners 01 an unregistered firm might be assessed individually or collectively in the status of an unregistered firm, but the one income cannot be assessed twice, once in the hands of the partners and again in the hands of the unregistered firm. Thus, there can be no doubt that an unregistered firm is an assessee while its partners are distinct assessable entities.
13. So, if the assessee in default, mentioned in the recovery certificate, is the unregistered firm simpliciter (and the partners are not mentioned in the certificate), then, in such a case, the TRO has no jurisdiction to proceed to recover the arrears of tax from the partners of such unregistered firm personally. He cannot attach or sell their personal property and he cannot attempt realisation by arrest or detention of their person.
14. Section 2(7) of the Act defines the word “assessee” to include every person who is deemed to be an assessee under any provision of this Act as well as every person who is deemed to be an assessee in default under any provision of this Act; but we have not been able to find any such provisions and the learned counsel for the Revenue was unable to indicate any provision which deems a partner of an unregistered firm to be an assessee though the unregistered firm may itself have been assessed; or which deems a partner of an unregistered firm to be an assessee in default where the unregistered firm admittedly is the assessee in default.
15. Sri Ashok Gupta, learned counsel for the Revenue, in his well prepared address to the court, invited our attention to the Supreme Court decision in Saku Rajeshwar Nath v. ITO [1969] 72 ITR 617, in support of the proposition that arrears due from an unregistered firm can be recovered from the partners personally. In our opinion, that case is distinguishable. It arose under the Indian I.T. Act, 1922. The certificate of recovery was issued in the name of the unregistered firm. But the TRO proceeded to realise the arrears from the property of the partner. The Supreme Court affirming the decision of this court reported in Sahu Rajeshwar Nath v. ITO [1964] 54 ITR 755 held (at p. 621 of 72 ITR) :
” The proviso to Section 46(2) of the Act states that the Collector shall, without prejudice to any other powers in that behalf ‘ for the purpose of recovering the said amount, have the powers which under the Code of Civil Procedure, 1908 (V of 1908), a civil court has for the purpose of the recovery of an amount due under a decree ‘. Reference should be made in this context to Order XXI, Rule 50 of the Civil Procedure Code which states:
’50. (1) Where a decree has been passed against a firm, execution may be granted-
(a) against any property of the partnership ;
(b) against any person who has appeared in his own name under Rule 6 or Rule 7 of Order XXX or who has admitted on the pleadings that he is, or who has been adjudged to be, a partner ;
(c) against any person who has been individually served as a partner with a summons and has failed to appear ;
Provided that……'”
The Supreme Court went on to observe (at p. 622 of 72 ITR):
” In the present case we see no reason why the Collector should not execute the certificate for demand of income-tax against the appellant who admits that he was a partner of the unregistered firm for the relevant accounting year. In the return filed by the unregistred firm on January 19, 1945, at page 33 of the paper book also the appellant is shown as one of the partners. It is manifest that the provisions of Order XXI, Rule 50(2), apply to the present case mutatis mutandis and since the appellant does not dispute that he was a partner of the unregisterd firm for the relevant accounting year, the Collector could lawfully proceed to execute the certificate under Section 46(2) of the Act against the appellant and recover the income-tax arrears from him.”
Section 46(2) of the Indian I.T. Act, 1922, corresponds to Section 222 of the 1961 Act, but the proviso to Section 46(2) has been repealed. There is no such provision under Section 222. Under the 1961 Act, the TRO does not possess the powers of a civil court under the CPC for the purposes of recovering an amount due under a decree. So Order XXI, r. 50 of the CPC becomes inapplicable. There is no provision in Schedule II of the I.T. Act, 1961, comparable to Rule 50 of Order XXI of the CPC.
16. Learned counsel for the Revenue invited our attention to a decision of this court in Ram Das Jaisival v. ITO [1971] 79 ITR 570 (All). This was also a case under the 1922 Act and, for the reasons mentioned above, it is distinguishable. So is the case with E.P. Eapen v. ITO [1978] 112 ITR 829 (Ker). This too was a case under the old Act.
17. For the Revenue, it was stressed that under Sub-section (3) of Section 189, the liability of every partner on dissolution of the firm is joint and several. The petitioners do not deny that in law they are jointly and severally liable to pay the income-tax arrears due from the unregistered firm, but they contend that the coercive methods for recovery cannot validly be utilised by the TRO against them. The jurisdiction of the TRO is confined to the rules contained in Schedule II. He cannot go beyond them. His function is to recover the arrears of tax in the manner prescribed by the rules of Schedule II. As already seen, they do not, unlike Order XXI, Rule 50, authorise him to recover the arrears due from an unregistered firm as the assessee in default, from its partners. The view we have taken is supported by the decisions of the Andhra Pradesh High Court in Kethmal Parekh v. TRO [1973] 87 ITR 101 of the Mysore High Court in Balchand (P.) v. TRO [1974] 95 ITR 321 and of the Kerala High Court in George (C.V.) v. ITO [1976] 102 ITR 724.
18. It was then submitted for the Revenue that the petitioner-partner could have filed an objection before the TRO under Rule 11 of Schedule II. He thus had an alternative remedy. Under Rule 11, the TRO had jurisdiction to release the property under attachment and sale if he is satisfied that such property is not in the possession of the defaulter. But this rule does not entitle the TRO to investigate and decide whether a partner of an unregistered firm is an assessee in default and so a defaulter. We are not disposed to dismiss the writ petition on the ground of alternative remedy. In the premises, the partners are entitled to relief.
19. It was next urged that an order of registration of a firm merges with the assessment order which is appealable. Hence, the Commissioner had no power to interfere with the order granting registration. This point has been negatived in Badri Narain Kashi Prasad v. Addl.CIT [1981] 128 ITR 663 (All). We are, hence, unable to accept this plea raised on behalf of the petitioners.
20. Learned counsel for the petitioners also submitted that after dissolution of the unregistered firm, it was open to the ITO to assess the partners. That may be so, but the ITO did not do so. Moreover, no relief
has been claimed against the assessment orders passed against the unregistered firm itself. The reliefs are confined to the recovery proceedings.
21. In the result, the petitions succeed and are allowed in part. The petition by the firm is dismissed, while that of the individual partner is allowed. The attachment effected by the TRO on the properties of the partners of the firm is quashed and the TRO is restrained from recovering the arrears of tax due from the unregistered firm from/its partners personally, under and in pursuance of the recovery certificate dated March 16, 1972. In the circumstances, the parties will bear their own costs.
