JUDGMENT
Muktadar, J.
1. The petitioner is a firm consisting of -fifteen partners,
carrying on the business of rice milling operations. The firm, with a view to
obtain an income-tax clearance certificate for purposes of sale of the property
belonging to the firm, presented an application before the Income-tax Officer
for the grant of a clearance certificate. It is not in dispute that there are no
arrears of tax due by the firm; nor is it in dispute that of the fifteen
partners, fourteen partners are also not in arrears but one of the partners
in the firm is in arrears to the wealth-tax authorities. The Income-tax
Officer refused to grant the certificate on the ground that the arrears of this particular partner have to be paid in full or satisfactory provision has to be made for payment of existing liabilities before the clearance certificate could be granted. Hence, this writ petition.
2. The contention of Mr. Eswara Prasad is that when the firm is not due any tax to the authorities and only a partner is due wealth-tax to the authorities in his individual capacity, the Income-tax Officer is incorrect in refusing to grant a certificate to the firm for the sale of the property belonging to the firm. What Mr. Eswara Prasad contends is that the firm wants to sell its own property in which one partner, who is in arrears of tax, has got a certain fixed share while the rest of the property belongs to the firm. Could the Income-tax Officer, in such a case, refuse to give a clearance certificate on the ground that the arrears of tax due by one of the partners in the firm in his individual capacity have to be paid.
3. Mr. Krishna Rao, appearing on behalf of the standing counsel for the income-tax department, contends that having regard to the provisions of Section 230A of the Income-tax Act, it is the “person” to whom a clearance certificate is given and unless and until that person either pays or makes satisfactory provision for payment of all existing liabilities under the Income-tax Act, the Income-tax Officer is empowered to refuse to grant a certificate under Section 230A. The partner, who is in wealth-tax arrears, will also have to execute the sale deed along with the other partners, in which case the income-tax authorities are justified in refusing to grant a certificate under Section 230A, unless that particular person either pays the arrears or makes satisfactory provision for payment of all existing liabilities.
4. It is true that for liabilities against the firm, any individual partner in the firm could be proceeded against for the entire liability as the liability is not a limited liability. But could it be said that for the individual liability of a partner, the authorities or any creditor could proceed against the entire assets of the firm when the assets of the defaulting partner have been fixed according to the partnership deed.
5. Having regard to the respective contentions advanced by the learned advocates, I am of the opinion that this is a matter of importance and ought to be decided by a Bench. The office is directed to place the papers before my Lord the Chief Justice for the formation of a Bench.
JUDGMENT
5. The judgment of the Division Bench was delivered by B.J. DIVAN C.J.–The petitioner herein prays for a writ, direction or order directing the respondent herein to issue the income-tax clearance
certificate under Rule 44A of the Income-tax Rules and forward the income-tax clearance certificate to the registering officer concerned.
6. The petitioner before us is a partnership firm and the respondent herein is the Income-tax Officer, B-Ward, Rajahmundry, having jurisdiction over the Krishna district. The petitioner is a registered firm consisting of 15 partners and was carrying on business under the name and style of M/s. Sri Krishna Rice and Oil Mill. Disputes arose between the partners and a general power-of-attorney was executed in favour of one T. Radhakrishna Vittal Rao appointing him as the administrator and investing him with the power to sell some of the machinery and assets of Sri Krishna Rice and Oil Mill and execute a sale deed in favour of the vendee in the name and for and on behalf of Sri Krishna Rice and Oil Mill. The mill was sold by the said general power-of-attorney holder to the Sri Durga Rice and Oil Mill for a consideration of Rs. 2,00,000. The relevant sale deed was executed on November 12, 1972, and a stamp duty of Rs. 19,000 was paid. The document was presented for registration to the Sub-Registrar of Machilipatnam on March 16, 1973, and a further sum of Rs. 1,070 was paid towards registration charges. Under the terms of Section 230A, since the document was required to be registered under the provisions of Section 17 of the Indian Registration Act and since the property sold was valued at more than Rs. 50,000 it could not be registered unless the Income-tax Officer concerned certified that the petitioner had either paid or made satisfactory provision for payment of all existing liabilities under the Income-tax Act and allied Central fiscal enactments. On May 16, 1973, the petitioner-firm applied in the prescribed form for a certificate under Sub-section (1) of Section 230A to the respondent. It is the petitioner’s case that there was no existing liability against the petitioner-firm on the date of the application under any one of the aforesaid Acts and it was so stated in column 6 of the application. By his letter dated May 18, 1973, the respondent asked the petitioner to produce the tax clearance certificate in respect of all the partners of the firm and it is the petitioner’s contention that the tax clearance certificate that has to be furnished is only in respect of the firm as such and not in respect of all the individual partners of the firm. It is in these circumstances that this writ petition has been filed.
7. It is true that in the definition of the word “person” occurring in Sub-section (31) of Section 2 of the Act, a person includes a firm, and for the purpose of assessment, a registered firm is a person on whom assessment can be made, whose profits and gains can be ascertained and who is subjected to a special tax as a registered firm. It is, however, equally well-settled that, after the payment of that small amount of tax, the profits and gains of the partnership have to be distributed to each individual partner of the registered firm and these profits and gains are then assessed in the hands
of the partners of the firm. Even the business losses have to be distributed
among the partners of the firm and the carrying forward of the business
Josses has to be done in the individual assessments of the partners of the
firm. It is also equally well-settled law that, in India, a partnership firm
has no persona, in the general law of jurisprudence and it has no corporate
personality. Therefore, when some property is owned by a firm in the eye
of law, it is owned by all the partners of the firm. Therefore, when Section 230A(1) refers to the income-tax clearance certificate in respect of a
person whose right, title or interest is being transferred, it could only mean
the income-tax clearance certificate in respect of the partners of the firm
who jointly own the partnership property that has to be furnished. Since
the property jointly belongs to the partners, each individual partner must
have a clearance certificate in his favour before the partnership property
can be registered. Under these circumstances, the decision of the respondent
herein that the income-tax clearance certificate must be furnished in
respect of each of the partners and not merely in respect of the firm as a
whole was correct.
8. This writ petition, therefore, fails and is dismissed. The rule is discharged. 9. We may, however, observe that, in spite of our decision as above, it
will be open to the petitioner-firm to deposit or otherwise satisfy the. demand of the income-tax department as regards the tax liability of one of the
partners of the firm, who is in arrears of tax, and once that is done, it will
be open to the respondent to issue the necessary tax clearance certificates.
10. There will be no order as to costs.