1979 (8) TMI 13 - HC - Income Tax

Issues Involved:
1. Validity of recovery certificate and attachment order.
2. Whether personal property of a partner can be attached for recovery of tax due from an unregistered firm.
3. Jurisdiction of the TRO in recovery proceedings.
4. Applicability of provisions under the Income Tax Act, 1961, and Civil Procedure Code, 1908.
5. Merger of the order of registration with the assessment order.
6. Alternative remedy under Rule 11 of Schedule II.

Detailed Analysis:

1. Validity of Recovery Certificate and Attachment Order:
The writ petitions challenge the recovery certificate and attachment order issued for the properties of a partner of the unregistered firm, M/s. Brij Ratan Lal Bhoop Kishore. The firm was assessed as a registered firm for the assessment year 1968-69, but its registration was later canceled, and it was treated as an unregistered firm. The recovery certificate dated March 16, 1972, was issued for the realization of Rs. 1,67,140 due from the firm.

2. Attachment of Personal Property of a Partner:
The principal question addressed was whether the property belonging to a partner personally can be attached and sold for the recovery of tax in pursuance of a certificate naming the unregistered firm as the assessee. The court concluded that in the case of an unregistered firm, the partners are distinct assessable entities and cannot be held liable for the firm's dues unless explicitly mentioned in the recovery certificate. The TRO cannot attach or sell the personal property of the partners if they are not named in the certificate.

3. Jurisdiction of the TRO:
The court noted that the TRO's powers of recovery are confined to the rules laid down in Schedule II of the Income Tax Act, 1961. The TRO can only execute the certificate against the assessee mentioned in it. The court emphasized that the TRO does not possess the powers of a civil court under the CPC for recovering amounts due under a decree, making Order XXI, Rule 50 of the CPC inapplicable.

4. Applicability of Provisions under Income Tax Act, 1961, and CPC:
The court distinguished the present case from earlier cases decided under the Indian Income Tax Act, 1922, where the proviso to Section 46(2) allowed recovery from partners. Under the 1961 Act, there is no equivalent provision, and the TRO cannot proceed against partners' personal properties without specific mention in the recovery certificate. The court cited various judgments supporting this view, including those from the Andhra Pradesh, Mysore, and Kerala High Courts.

5. Merger of Order of Registration with Assessment Order:
The petitioners argued that the order of registration merges with the assessment order, which is appealable, thus the Commissioner had no power to interfere with the registration order. The court rejected this argument, referencing the decision in Badri Narain Kashi Prasad v. Addl. CIT, which held that the Commissioner retains the power to cancel the registration.

6. Alternative Remedy under Rule 11 of Schedule II:
The Revenue argued that the petitioner could have filed an objection under Rule 11 of Schedule II. The court dismissed this argument, stating that Rule 11 does not empower the TRO to decide if a partner of an unregistered firm is an assessee in default. The court held that the partners are entitled to relief and quashed the attachment of their properties.

Conclusion:
The petitions were allowed in part. The petition by the firm was dismissed, while that of the individual partner was allowed. The court quashed the attachment effected by the TRO on the properties of the partners and restrained the TRO from recovering the arrears of tax due from the unregistered firm from its partners personally, under and in pursuance of the recovery certificate dated March 16, 1972. Each party was ordered to bear its own costs.

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