2010 (10) TMI 3 - HC - Income Tax

Recovery of arrear recovery from bank account Assessee filed an Appeal under Section 246(A) before the CIT (Appeals) against the assessment order and requested the revenue that the demand of tax be kept in abeyance in terms of Section 220(6) of the said Act, till the Appeal is finally disposed of. - a demand notice under Section 226(C) issued to the Bank to forthwith pay a sum of Rs. 63,59,240/from the account of the assessee - being Saving Account No.623701063436. - banks without even informing the Petitioner or verifying in whose name the alleged demand notice dated 3-3-2010 was issued, debited the account of the Petitioner and remitted to the Income Tax department Held that - Assessee a constituent of the HUF would, therefore, have an undivided share in the amount lying in the bank account of the HUF. Department, would not be entitled to attach and appropriate entire amount which was in the account of the HUF for the liabilities of the assessee as an individual, it can only attach and appropriate the amount in credit in the bank account of the HUF only to the extent falling to the share of the said assessee - the tax liability was that of assessee in his individual capacity, the action of the department claiming the amount from the account of the HUF with bank to the extent it does not fall to the share of assessee in the HUF, is unsustainable, is required to be set aside.

Summary

Issues:
Debit of HUF account for individual's tax liability.

Analysis:
The petitioner, a Hindu Undivided Family (HUF), challenged the debit of Rs.63,59,240 from its account for the tax liability of Naresh Chheda, the Karta of the HUF. The HUF sought a direction for recrediting the amount. The assessment order passed against Naresh Chheda in his individual capacity led to a demand for further tax payment, resulting in a notice to the bank to debit the HUF account. The petitioner contended that the bank debited the amount without proper verification, causing the petitioner to seek an explanation and request a refund. The court examined whether the HUF account could be debited for an individual's tax liability.

The court acknowledged that Naresh Chheda, as the Karta, had an undivided share in the HUF's bank account. It was established that the tax liability belonged to Naresh Chheda individually and not the entire HUF. Therefore, the respondent was entitled to attach only the portion attributable to Naresh Chheda's share in the HUF account, not the entire amount. Both parties agreed to determine Naresh Chheda's share in the account for appropriate action.

Considering the individual nature of the tax liability, the court deemed the respondent's action of claiming the amount from the entire HUF account as unsustainable. The court directed the respondent to redeposit the amount excluding Naresh Chheda's share upon the petitioner's intimation, failing which interest would be applicable. The portion attributed to Naresh Chheda would remain with the respondent pending the appeal's outcome. The court made the rule absolute in favor of the petitioner, with each party bearing their costs.

This judgment clarifies the distinction between individual and HUF tax liabilities, ensuring that only the individual's share in the HUF account can be attached for personal tax obligations, safeguarding the HUF's assets from undue depletion for individual debts.