1990 (8) TMI 134 - HC - Income Tax

Summary

Issues:
1. Validity of notice issued by Income-tax Officer under section 226(3) to prevent transfer of property due to tax default.
2. Dispute over whether tax dues from a partnership firm can be recovered from a partner individually.
3. Interpretation of relevant provisions of the Income-tax Act, 1961 regarding recovery of tax dues.
4. Society's refusal to transfer property based on notice from Income-tax Officer.

Analysis:
The judgment dealt with the validity of a notice issued under section 226(3) of the Income-tax Act, 1961, to prevent the transfer of property due to tax default. The petitioners had entered into an agreement to purchase office premises, but the society refused to transfer the property following a notice from the Income-tax Officer regarding tax dues from a partnership firm. The petitioners argued that the notice was invalid as it did not specify if a certificate had been issued under section 222 of the Act. They cited precedents from various High Courts to support their claim that tax dues from a partnership firm cannot be recovered from individual partners. However, the Department contended that partners are jointly and severally liable for the firm's debts, and the notice was valid to prevent tax evasion.

The judgment clarified that section 226(3) empowers the Income-tax Officer to issue a notice to prevent transfer of property belonging to the assessee in default, which in this case was the partnership firm. The court noted that the notice was in accordance with the law as it directed the society not to transfer shares belonging to the firm. The petitioners' grievance was that the shares actually belonged to a partner, not the firm, but the court held that it could not intervene in the society's decision. The court emphasized that the notice attached the firm's property only, if any, and not the partner's individual assets. It was deemed unnecessary to address the issue of attaching a partner's property for the firm's tax dues in this case, as the notice pertained to the firm's assets.

Ultimately, the court disposed of the petition without costs, stating that it could not quash the notice as it was in compliance with the law. The judgment highlighted the distinction between the firm's property and individual partner's assets in the context of tax recovery, emphasizing that the notice was valid in preventing the transfer of the firm's property to evade tax liabilities. The decision underscored the importance of following legal procedures and provisions in tax recovery matters involving partnerships and individual partners.