2013 (12) TMI 542 - HC - Income Tax

Recovery of tax dues and penalties from successor - Revenue claim that they are entitled to recover said dues under I.T. Act and W.T. Act, payable by S.C. Mangal from the petitioner as the successor who has taken over the assets and liabilities of S.C. Mangal. - it was accepted by the counsel for the Revenue that no order under Section 170(3) has been passed by the Assessing Officer. - Held that - the assessing officer will examine scope and ambit of Section 170(3) of the IT Act and decide whether penalty amount can be recovered from the successor under the said section, though the penalty order is subsequent to the date of succession. Recovery of penalty - Section 18(1)(c) of the WT Act - held that - Jurisprudentially, the person is actionable and responsible for himself, for what he does and not for what others do or for events or acts of others. Family per se or a spouse is not actionable or responsible for other family members and for the spouse. Doctrine of vicarious liability is not of general application and is applied in cases of statutory crimes. It is directed that the penalty amounts under Section 18(1)(c) of the WT Act relating to assessment years 1991-92 and 1992-93 cannot be recovered from the petitioner. With regard to the income tax demand including penalty for the assessment year 1995-96, relating to S.C. Mangal, it is open to the respondents to initiate recovery proceedings after deciding the dispute by passing an order under Section 170(3) of the Act. While passing an order under Section 170(3), the assessing officer will decide whether penalty amount under Section 271(1)(c) of the IT Act can be recovered from the petitioner, even when the liability was determined subsequent to the date of succession - Decided partly in favor of assessee.

Issues Involved:
1. Liability of the petitioner to pay dues of S.C. Mangal under the Income Tax Act, 1961 (IT Act) and Wealth Tax Act, 1957 (WT Act).
2. Requirement of an order under Section 170(3) of the IT Act for recovery.
3. Determination of whether the petitioner is a successor.
4. Recovery of penalties under the IT Act and WT Act from the petitioner.

Issue-wise Detailed Analysis:

1. Liability of the Petitioner to Pay Dues of S.C. Mangal:
The impugned notices and penalty orders directed the petitioner to pay liabilities and dues of S.C. Mangal under the IT Act and WT Act. The petitioner disputed this liability, arguing that they only acquired the rights as a stockbroker of the Delhi Stock Exchange Association Limited and not the personal liabilities of S.C. Mangal. The compromise decree dated 12th May 1994, which transferred the brokerage business and its assets and liabilities to Sanjay Jain, was central to this contention. The petitioner argued that the tax liabilities were personal and not related to the trade they acquired.

2. Requirement of an Order under Section 170(3) of the IT Act:
The petitioner contended that no recovery could be made without an order under Section 170(3) of the IT Act, which is a prerequisite and appealable order. The court held that recovery proceedings cannot be initiated without such an order. The Assessing Officer must first pass an order under Section 170(3) of the IT Act, and the petitioner would be entitled to appeal any adverse order.

3. Determination of Whether the Petitioner is a Successor:
The court noted that prima facie, the petitioner appeared to be a successor based on the compromise application and agreement but left this issue open for the Assessing Officer to decide when passing an order under Section 170(3). The court refrained from making a detailed comment on this contention.

4. Recovery of Penalties under the IT Act and WT Act:
The court observed that penalties under Section 271(1)(c) of the IT Act and Section 18(1)(c) of the WT Act were personal and could not be recovered from the petitioner. The WT Act does not have a provision equivalent to Section 170(3) of the IT Act for recovering dues from a successor. The court held that penalties imposed under these sections were not recoverable from the petitioner, as they were personal liabilities of S.C. Mangal and were created after the date of transfer. The court also noted that penalty proceedings are distinct from the statutory liability of tax, which arises under the charging section.

Conclusion:
The writ petition was partly allowed. The court directed that the penalty amounts under Section 18(1)(c) of the WT Act for assessment years 1991-92 and 1992-93 cannot be recovered from the petitioner. For the income tax demand, including penalty for the assessment year 1995-96, the respondents may initiate recovery proceedings after deciding the dispute by passing an order under Section 170(3) of the IT Act. The petitioner can appeal any adverse order. The writ petition was disposed of with no costs.

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