1971 (8) TMI 81 - HC - Income Tax

Recovering the balance of tax from the partner - Income-tax Officer wrote to the partner that if he paid his share of the firm s dues the balance would not be recovered from him - steps were initiated to realise tax from others but they were held in abeyance under executive instructions . In this state of affairs in our view the learned single judge was perfectly justified in holding that the decision of appellant No. 1 to realise the balance of tax from Khanjan Lal alone was tainted with capriciousness revenue s appeal dismissed

Summary

Issues:
1. Liability of partners in a dissolved firm for income tax payment.
2. Representation made by Income-tax Officer regarding tax payment.
3. Estoppel principle in tax recovery.
4. Distinction between cases where efforts to realize tax from partners have failed.

Analysis:
The case involved partners of a dissolved firm, where the tax liability was to be shared jointly and severally. The Income-tax Officer communicated to one partner, indicating that paying their share would suffice. The partner, relying on this representation, paid the tax. However, the Officer later demanded more from the same partner, leading to a writ petition seeking relief. The court granted the petition, emphasizing the estoppel principle, barring the Officer from recovering more from that partner.

The key issue revolved around the representation made by the Income-tax Officer to the partner, creating a reasonable expectation that paying the share would discharge the tax liability. Despite the partner's compliance, the Officer demanded additional payment, leading to the court's intervention. The court applied the estoppel principle, derived from legal precedents, to prevent unjust enrichment and unfair recovery practices by the tax authorities.

The judgment highlighted the distinction between cases where tax recovery efforts from other partners have failed versus cases where recovery attempts were halted by executive instructions. In this scenario, where efforts were paused, the court deemed the Officer's decision to recover solely from one partner as arbitrary. This distinction played a crucial role in upholding the writ petition and granting relief to the aggrieved partner.

Lastly, the court dismissed the appeal, emphasizing the lack of merit in challenging the writ petition's outcome. The court's decision to uphold the relief granted and the reasoning behind applying the estoppel principle showcased a fair and just approach to tax recovery matters. The dismissal of the appeal with costs further solidified the court's stance on preventing arbitrary tax recovery actions and upholding principles of fairness and equity in such cases.