1970 (3) TMI 24 - HC - Income Tax

Proceedings for recovery of income-tax - whether a partner can be arrested for recovery of the taxes due by a firm

Issues:
1. Assessment of income-tax against the petitioner for assessment years 1951-52 to 1956-57.
2. Dispute regarding the assessment of income from motor vehicles owned by petitioner and his wife.
3. Validity of recovery proceedings against the petitioner.
4. Liability of the petitioner as a partner in the United Motor Transport Service Association.
5. Attachment of property for recovery of income-tax dues.
6. Pending appeal by the firm before the Income-tax Appellate Tribunal.

Analysis:
1. The petitioner was aggrieved by the proceedings for the recovery of income-tax based on assessment orders dated June 26, 1964, for the assessment years 1951-52 to 1956-57 against the United Motor Transport Service Association. The petitioner claimed that the income from two motor vehicles owned by him and his wife was initially assessed in the hands of his Hindu undivided family. Subsequently, the Income-tax Officer assessed the income as that of the United Motor Transport Service Association, an unregistered partnership firm, and directed recovery proceedings against the petitioner as a partner of the firm. The petitioner challenged the recovery proceedings, alleging lack of notice and awareness of the assessment against the association.

2. The court examined the service of notices and orders upon the firm and its agent, Baij Nath. Despite disputes regarding Baij Nath's status as an employee, the court held that service upon him was effective, as evidenced by the filing of returns and appeals by the firm. The court rejected the contention that there was no valid service of notices on the firm, affirming that service on Baij Nath was equivalent to service on the firm, making the petitioner liable for the tax dues.

3. The court addressed whether the petitioner could be considered in default for non-payment of tax, concluding that if notices of demand were served on the firm and remained unpaid, the partner could be held in default. Citing legal precedent, the court established that a partner's liability for the firm's debts is personal and joint, allowing for recovery actions against the partner, including arrest. Consequently, the court ruled that the petitioner was not immune from arrest in the income-tax recovery proceedings.

4. Regarding the attachment of property for recovery, the petitioner claimed that the attached property belonged to the Hindu undivided family, not personally to him. The court declined to express an opinion on this matter, leaving it open for the petitioner and the family to pursue appropriate legal actions as advised.

5. The petitioner sought a direction to halt the recovery proceedings during the pending appeal by the firm before the Income-tax Appellate Tribunal. While another partner had withdrawn a similar petition with an undertaking from the income-tax department, the court noted the absence of a similar assurance in this case. However, the court expected the income-tax department to consider the pending appeal before further pursuing recovery against the petitioner.

6. Ultimately, the petition was dismissed with costs, affirming the validity of the recovery proceedings and rejecting the petitioner's claims against them.

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