P L D 1976 Karachi 1022 (PLP)

NOORUL ARFIN, J.-The petitioner has, in this petition, questioned the validity of the notices issued by the Income-tax Officer, Special Circle, Karachi (respondent No 2) under section 46 (5-A) of the Income-tax Act, 1922, to the Bank of Tokyo and the Bank of Bahawalpur Ltd. The facts briefly stated are these: On 29-6-1960, a co-operative society, called "The Inland Transport Cooperative Society Limited" was registered under the Sind Co operative Societies Act, 1925, by the Registrar of Co-operative Societies, with petitioner as one of the members of the Society. After registration, the petitioner was elected as President of the Society. Under Bye-Law 39 of the Bye-Laws of the Society registered with the Registrar of Co-operative Societies, the Management of the affairs of the Society vested in a Manag ing Committee consisting, in addition to the President and Vice-President of six members of the Society. On 26-12-1962, the Society was ordered to be wound up by the Registrar of Co-operative Societies and the petitioner was appointed as liquidator of the Society. The petitioner, as liquidator, after completing the various formalities relating to liquidation, submitted final report to the Registrar some time in 1964 together with the records of the Society. On 16th May 1966, the petitioner received a letter from the respondent No. 2 requiring him to file a return of income of the Society for the assessment year 1961-62. The petitioner, in reply, informed the respondent No. 2 that the Society had been wound up, and accordingly reference should be made to the Registrar of Co-operative Societies. Later, returns of income for the assessment years 1961-62 and 1952-63 were filed on behalf of the Society, which had been wound up, under instructions of the office of the registrar of Co-operative Societies, which returns the petitioner is said to have signed as "ex-liquidator." These returns were based on the report of the auditor appointed by the Registrar and showed a loss of Rs. 23,898-2-3 for the assessment year 1961-62 and a loss of Rs. 11,932.00 for the assessment year 1962-63. The income shown in these returns was not accepted by the respondent No. 2., who assessed the Society, which had been wound up, for an income of Rs. 49,787.00 for the assessment year 1961-62 and Rs. 1,49,099 00 for the assessment year 1962-63. In appeal to the Appellate Assistant Commissioner, some relief was allowed but the Appellate Assistant Commissioner treated the Society as an "association of persons." On 9th October, 1968, the petitioner received a registered letter from the respondent No. 2 containing copies of notices issued by him under sec tion 46 (5-A) of the Income-tax Act, 1922, to the Bank of Tokyo, Karachi and to the Bank of Bahawalpur Limited, Karachi requiring them to pay to the respondent No. 2 the sum of Rs. 69,978.00 on the ground that the said sum was due from the petitioner and the petitioner's business, namely, "Overseas (Nihtaurwala) Corporation, Karachi." It is the admitted position that the petitioner maintained bank accounts with these two banks, both in his personal name and in the name of the said concern.

2. Under section 46 (5-A). the Income-tax Officer may at any time, or from time to time, by notice in writing require any person from whom money is due, or may become due to the assessee, or any person who holds or may subsequently hold money for and on account of the assessee to pay to the income-tax Officer, either forthwith, or forthwith upon the money becoming due or coming into the possession of the person who holds or may hold it as aforesaid, or at or within the time specified in the notice so much of the money as is sufficient to pay the amount due by the tax-payer in respect of arrears of income-tax and penalty. It is by virtue of the provi sions contained in this subsection of section 46 that the respondent No. 2 sent the impugned notices to the Bank of Tokyo and the Bank of Bahawalpur Limited. In sending these notices, the respondent No. 2 acted under the provisions of section

44. This section reads as follows:- "

44. Where any business, profession or vocation carried on by a firm or association of persons has been discontinued, or where a firm or an association of persons is dissolved all the provisions of this Act shall, so far as may be apply as if no such discontinuance or dissolution had taken place and, every person who was at the time of such discontinu ance or dissolution a partner of such firm or a member of such associa tion shall be jointly and severally liable for the amount of tax payable by the firm or association of persons or the partners of the firm or members of the association of persons, as the case may be." As has been stated above, the Appellate Assistant Commissioner treated the aforesaid Society, which had been wound up, as an "association of persons", and this enabled the respondent No. 2 to proceed under section 44 and, in consequence, issue notices under section 46 (5-:,) of the Income-tax Act.

3. The question before us is whether the aforesaid society could be treated as an "association of persons". The expression "person" is defined in section 2 (9) of the Income-tax Act to include an individual, a Hindu undivided family, a firm, an association of persons or a body of individuals, whether incorporated or not, a company, Government of a Province, a local authority and every other artificial juridical person. The expression, "association of persons" itself has not been defined. But obviously, an "association of persons" is a combination of two or more persons and a single person cannot be treated as an association of persons.

4. The question is whether the aforesaid Society, upon its registration with the Registrar of Co-operative Societies, became a single legal person. To this question the answer lies in section 23 of the Sind Co-operative Socie ties Act, 1925, which says that the registration of a Society shall render it a body corporate by the name under which it is registered, with perpetual succession and a common seal, and with power to hold property, to enter into contracts, to institute and defend suits and other legal proceedings and to do all things necessary for the purposes of its constitution. Thus, as in the case of a Company incorporated under the Companies Act, 1913, a Co-operative Society registered with the Registrar of Co-operative Societies under the Sind Co-operative Societies Act, 1925, becomes a juristic person distinct from its members. As a limited Company is one and single person, likewise a co-operative society, if so registered, is one and single person. it is not possible to treat a limited company as an association of persons, because it has two or more persons as members, likewise a co-operative society registered under the Sind Cooperative Societies Act, 1925, cannot be treated as an association of persons because two or more persons are its members, section 23 of the Act makes the Society, upon its registration, a separate juristic legal entity altogether distinct from its members. This being the legal position, section 44 of the Income-tax Act, 1922 could not be invoked in the case of the aforesaid society, which already stood wound up as such society could not be treated as an association of persons. If the Society could not be treated as an association of persons, then the Income-tax Department could not proceed to recover the income-tax due from the society from any of its members, including the petitioners (except to the extent they were liable as contributories), and hence the notices issued by the respondent No. 2 to the Bank of Toyko and the Bank of Bahawalpur Limited, Karachi, under section 46(5-A) of the Income-tax Act, for payment of money lying in the petitioner's account with these banks towards the income-tax dues) payable by the aforesaid society are not valid notices. In this connection, reference may be made to the new section 43-B, inserted in 1973 in the Income tax Act, 1922, which provides that notwithstanding anything contained in the Companies Act, 1913, where any tax payable by private Company (including a private Company which is wound up or bas gone into liquidation) in respect of any income of any previous year cannot be recovered every person who is, or was, at any time during that previous year a director of the Company or a shareholder thereof owning not less than ten per cent of its paid-up capital shall be jointly and severally liable for the payment of such tax. No similar provision has been made in the Income-tax Act with regard to the co-operative societies registered under the Co-operative Societies Act, 1925.

5. Thus, our view is that the aforesaid Society could not be treated as an "association of persons" and therefore the income-tax due from it could not be recovered from the petitioner by virtue of the provisions of section 44 of the Income-tax Act. Accordingly, the notices issued by the respondent No. 2 to the petitioner, impugned in these proceedings, were issued without lawful authority and are, therefore, quashed hereby. S. Q. Petition accepted.