1990 (11) TMI 60 - HC - Income Tax

Summary

Issues:
1. Maintainability of the appeal filed by the assessee before the Appellate Assistant Commissioner against the order passed by the Income-tax Officer under section 182(4).
2. Whether the order passed by the Income-tax Officer under section 182(4) was maintainable in law.

Detailed Analysis:
Issue 1:
The case involved the interpretation of section 182(4) of the Income-tax Act, 1961, regarding the retention of a portion of a partner's income by a firm for tax liabilities. The firm, Messrs. Sannanna Chetty and Sons, contested the Income-tax Officer's directive to retain 30% of the partner's share income due to outstanding tax liabilities. The Appellate Assistant Commissioner found the appeals maintainable, stating that the essential condition for invoking section 182(4) had not been satisfied as the tax recoverability from the partner was not established. The Revenue contended that the appeals were not maintainable under section 246(c) of the Act. However, the Tribunal upheld the maintainability of the appeals, considering the firm as an assessee denying liability under section 246(c) due to the order under section 182(4). The High Court agreed with the Tribunal's decision, emphasizing that the firm could appeal against the tax demand under section 182(4) as an aggrieved assessee denying liability, as per the provisions of the Act.

Issue 2:
The second issue revolved around the validity of the Income-tax Officer's order under section 182(4) against the firm. The court highlighted the conditions for invoking section 182(4), including the irrecoverability of tax from the partner. The court observed that the Income-tax Officer did not establish the partner's tax as irrecoverable, a crucial requirement for holding the firm liable under section 182(4). The court emphasized that mere difficulties in tax recovery did not justify invoking section 182(4) and that the statutory transformation of liability to the firm only occurs upon the partner's tax irrecoverability. The Revenue's argument for further investigation by the Income-tax Officer on tax recoverability was dismissed as belated, as it was not raised earlier in the proceedings. Consequently, the court held that the Income-tax Officer's order under section 182(4) was not maintainable in law due to the absence of tax irrecoverability from the partner.

In conclusion, the High Court ruled in favor of the assessee, affirming the maintainability of the appeals filed before the Appellate Assistant Commissioner and declaring the Income-tax Officer's order under section 182(4) as not maintainable in law. The court awarded costs to the assessee and emphasized the importance of fulfilling the statutory conditions before holding a firm liable for a partner's tax liabilities under section 182(4) of the Income-tax Act, 1961.