Provisions of Section 69 of Contract Act not applicable in suits for contribution.

The plaintiff appeals from the judgment and decree dated 30th November, 1955, on the file of the Subordinate Judge of Pudukottai, in Original Suit No. 7 of 1954 on his file.

The plaintiff and the defendant’s father, Srinivasalu Naidu, were doing business as partners until Srinivasalu Naidu’s death, on 19th September, 1942. After his death, the defendant was admitted to the partnership in his father’s stead. The main business of the firm consisted in the sale of petrol and allied products as agents of Messrs. Burmah Shell Company. The firm had its headquarters at Pudukottai and branch at Karaikudi and other places. Though, on Srinivasalu Naidu’s death, that partnership was, in law, dissolved, accounts were not settled and the assets and liabilities were taken over by the new firm of which the plaintiff and defendant were the partners. This partnership was registered under the Indian Partnership Act. It continued to do business until it was dissolved by agreement of parties on 17th January, 1945. At the time of the dissolution, proceedings for assessment of the profits of the firm to tax were pending. The assessment proceedings for the years 1943-44 and 1944-45 were concluded after the dissolution. The profits, found by the Income-tax authorities to have been earned by the firm, were carried into the separate accounts of each of the partners, one-half to the assessable income of the plaintiff and the other half to the assessable income of the defendant.

In assessing the profits of the firm of Vedachala Mudaliar and Rangaraju Naidu, the Income-tax authorities did not accept as correct the accounts submitted by the firm. The authorities held that, in addition to the sum disclosed in the accounts, the firm had received moneys by sale of diesel oil at prices in excess of the authorised price. During the accounting years 1942-43, 1943-44, control orders were in force relating to the sale of petrol and diesel oil, and sale of diesel oil at prices in excess of the prices fixed by the control orders was an offence under the law. The income-tax authorities held, after enquiry, that there had been such sales on the part of this firm and although the amount determined by the income-tax officer as realised by the firm by such sales was reduced in appeal, the finding of the income-tax officer that there had been such sales was maintained and profits were determined accordingly.

After the proceedings relating to assessment of the partners to tax were completed, the income-tax officer proceeded to take action under section 28 of the Act. Under that section, if the income-tax officer is satisfied that any person has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income the officer may direct that such person shall pay, by way of penalty, such sum, in addition to any tax payable by him, as the income-tax officer may decide to levy. Acting under that section, the income-tax officer passed orders in 1951 directing the firm to pay a penalty of Rs. 19,000 in respect of the year 1943-44 and Rs. 13,000 in respect of the year 1944-45. The proceedings under section 28 were commenced after the firm had been dissolved by agreement of parties. The income-tax officer was aware of the fact of the dissolution. In relation to the proceedings taken under section 28 of the Act, notice was served only on the plaintiff as partner of the firm to show cause why such penalty should not be levied. He appeared on behalf of the firm and showed cause. After the orders levying the penalty were passed, the plaintiff was called upon to pay the entire amount and, on threat of coercive steps, he paid Rs. 16,000. The income-tax officer sent the notice, Exhibit B-2 on 3rd July, 1951 to the defendant informing him that the firm had been ordered to pay Rs. 32,000 as penalty under section 28 (1) (c) of the Income-tax Act and that the plaintiff had paid his half share namely Rs. 16,000 and called on the defendant to pay the b