1963 (5) TMI 2 - SC - Income Tax

Whether any proceedings for recovery of tax, lay against the successor to the assessee receivers, in the absence of any assessment on the owners of the firm? Held that - Bibhuti Bhusan Sen as one of the receivers was an assessee on whom assessment was made with respect to the income of the firm for the years 1945-46, 1950-51, 1951-52 and 1952-53. These are the assessments in respect of which the appellant now wishes to take proceedings for recovery of tax. As Bibhuti Bhusan Sen was an assessee on whom the assessments had been made, no question of any substitution of a receiver subsequently appointed arises now and it is unnecessary to consider the effect of sub-section (2) of section 41 of the Indian Income-tax Act. We accordingly allow the appeals and grant permission to the appellant to proceed against Bibhuti Bhusan Sen as receiver of the assets of the firm, Messrs. Sen Brothers and Co.

Issues:
1. Application for leave to attach and sell properties of a firm for recovery of income tax arrears.
2. Appointment and substitution of receivers in the case.
3. Interpretation of sub-section (2) of section 41 of the Indian Income-tax Act regarding recovery of tax from receivers.
4. Discharge of the rule by the High Court on the ground of no provision for substituting receivers not assessed.

Analysis:

1. The case involved an application to grant leave to attach and sell properties of a firm to recover income tax arrears. The High Court rejected the application, leading to an appeal to the Supreme Court. The receivers of the firm had been assessed for income tax, and the Union of India sought permission to recover the dues from the assets of the firm in the hands of the receiver. The main issue was whether the appellant had the right to proceed against the successor receiver who was not assessed for the income of the firm.

2. The succession of receivers in the case was crucial. Initially, two Sens were receivers and were assessed for income tax. Subsequently, new receivers were appointed, leading to the question of substitution. The High Court discharged the rule on the basis that there was no provision for substituting a receiver not assessed for the income obtained on behalf of the firm. The judges emphasized that in the absence of an assessment on the firm, it was not appropriate to proceed against assets in the hands of a subsequent receiver who was not an assessee.

3. The interpretation of sub-section (2) of section 41 of the Indian Income-tax Act was a key point of contention. The appellant argued that recovery of tax could be made from the owners of the firm even if the assessment was on the former receivers. However, the court held that recovery could only be made from the proprietors direct if there had been a direct assessment on them, despite the existence of a receiver for their estate. The Union of India intended to challenge this interpretation before the Supreme Court.

4. The High Court's decision was ultimately overturned by the Supreme Court based on the appointment of a new receiver, Bibhuti Bhusan Sen, who had been assessed for income tax. As Bibhuti Bhusan Sen was an assessee for the relevant assessments, there was no need to consider the substitution of subsequent receivers. The appeals were allowed, granting permission to proceed against Bibhuti Bhusan Sen as the receiver of the firm's assets. No costs were awarded in the Supreme Court's decision.

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