2022 (2) TMI 940 - HC - Income Tax

Provisional attachment of the subject land u/s 281B - Rights of transferee or a partner s interest - Attachment of partnership Firm's property - distinction between a case where a partner of a firm assigns his/her share in favour of a third person and a case where a partner constitutes a sub-partnership with his share in the main partnership - whether the revenue could have proceeded to attach the subject property in the form of land, which indisputably is of the ownership of the writ-applicant - Partnership Firm? - HELD THAT - The plain reading of Section-281B of the Act would make it clear that the same provides for the provisional attachment of the property belonging to the assessee for a period of six months from the date of such attachment unless extended, but excluding the period of stay of the assessment proceedings, if any. Under Subsection (1) of Section 281B of the Act thus, where during the pendency of any proceedings for assessment or reassessment, if the Assessing Officer is of the opinion that for the purposes of protecting the interest of Revenue, it is necessary so to do, he may with the previous approval of the higher authority pass an order in writing provisionally attaching the property belonging to the assessee. These are drastic powers permitting the Assessing Officer to attach any property of an assessee even before the completion of assessment or reassessment. These powers are thus in the nature of attachment before judgment. They have provisional applicability and in terms of sub-section (2) of section 281B of the Act, a limited life. Such powers must, therefore, be exercised in appropriate cases for proper reasons. Such powers cannot be exercised merely by repeating the phraseology used in the section and recording the opinion of the officer passing such order that he was satisfied for the purpose of protecting the interest of Revenue, it was necessary so to do. The assessee in the case on hand is Arnav Savaliya. The provisional attachment is of the property, which belongs to the writ-applicant Partnership Firm. The plain language of the provision of Section-281B is plain and simple. It provides for the attachment of the property of the assessee only and of no one-else. The golden rule of interpretation of the statutes is that the statute has to be construed according to its plain, literal and grammatical meaning, unless it leads to absurdity. The subject land i.e. Block No.142 not being the property of the assessee as such, was not open to provisional attachment. Even if we go by the case of the revenue that there is some interest of Savaliya involved in the land in question, the same will not make the subject land of the ownership of the assessee i.e. Arnav Savaliya. We once-again remind ourselves of the fine distinction drawn by the Supreme Court in the case of Sunil J. Kinariwala 2002 (12) TMI 5 - SUPREME COURT between a case where a partner of a firm assigns his/her share in favour of a third person and a case where a partner constitutes a sub-partnership with his/her share in the main partnership. The case on hand indisputably is not one of a sub-partnership though in view of Section-29(1) of the Partnership Act, Arnav Savaliya as an assignee may become entitled to receive the assigned share in the profits from the writ-applicant Firm, not as a sub-partner because no sub-partnership came into existence, but as an assignee to the share of profit of the assigner-partner viz. Nitaben Shaileshbhai Radadiya. In the overall view of the matter, we are convinced that the provisional attachment of the subject land under Section-281B of the Act at the instance of the revenue is not sustainable in law. WP allowed - The impugned order of provisional attachment dated 29.05.2021 to the extent it includes the subject land i.e.Block No.142, New Block No.166, T.P.-22, F.P.-53, admeasuring 11981 sq.mtrs. situated at Village Valak, Taluka Kamrej, District Surat, is hereby quashed and set aside.

Issues Involved:
1. Legality of the provisional attachment of property under Section 281B of the Income Tax Act.
2. Whether the property owned by a partnership firm can be attached for the tax liabilities of an individual partner.
3. Interpretation of Section 29 of the Partnership Act, 1932.
4. Validity of the provisional attachment order based on the alleged cash transaction and interest in profits.

Detailed Analysis:

Issue 1: Legality of the Provisional Attachment of Property under Section 281B of the Income Tax Act
The writ-applicant, a partnership firm, challenged the provisional attachment of its property under Section 281B of the Income Tax Act, arguing that the section allows for the attachment of property belonging only to the assessee. The court noted that Section 281B provides for the provisional attachment of the property belonging to the assessee for protecting the interest of the revenue during the pendency of assessment or reassessment proceedings. The court emphasized that these powers are drastic and should be exercised with caution and proper justification.

Issue 2: Whether the Property Owned by a Partnership Firm Can Be Attached for the Tax Liabilities of an Individual Partner
The court examined whether the property of the partnership firm could be attached for the tax liabilities of an individual partner, Arnav Savaliya. The court noted that the property in question, Block No.142, is owned by the partnership firm and not by Arnav Savaliya. The court highlighted that under Section 281B, only the property of the assessee can be attached, and in this case, the assessee is Arnav Savaliya, not the partnership firm.

Issue 3: Interpretation of Section 29 of the Partnership Act, 1932
The court analyzed Section 29 of the Partnership Act, which deals with the rights of a transferee of a partner's interest. It was argued that even if a partner assigns their share of profits to a third party, it does not entitle the transferee to any specific property of the firm. The court referred to the Supreme Court's decision in Addanki Narayanappa & Anr. vs Bhaskara Krishtappa And 13 Ors., which clarified that a partner cannot deal with any portion of the partnership property as their own. The court concluded that the assignment of a share in the profits does not make the partnership property the property of the assignee.

Issue 4: Validity of the Provisional Attachment Order Based on the Alleged Cash Transaction and Interest in Profits
The court examined the validity of the provisional attachment order, which was based on an alleged cash transaction where Arnav Savaliya paid ?1,50,00,000 in cash to one of the partners of the firm for a 2.5% share in the profits. The court noted that even if such a transaction occurred, it would only entitle Arnav Savaliya to a share in the profits and not to any specific property of the firm. The court reiterated that the property of the partnership firm cannot be attached for the tax liabilities of an individual partner.

Conclusion:
The court concluded that the provisional attachment of the property owned by the partnership firm under Section 281B of the Income Tax Act was not sustainable in law. The court quashed the provisional attachment order to the extent it included the subject land owned by the partnership firm. The rest of the provisional attachment order concerning the properties owned by Arnav Savaliya was not affected. The court directed that any entries in the revenue records based on the provisional attachment order should be corrected.

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