1973 (9) TMI 7 - HC - Income Tax

This is a petition under article 226 of the Constitution in which the petitioner challenges the recovery proceedings under the Income-tax Act, 1961 - Whether tax arrears of an unregistered firm can be recovered from a partner

Summary

Issues:
Challenge to recovery proceedings under the Income-tax Act, 1961 based on a certificate issued against a firm. Interpretation of the definition of "assessee" under section 2(7) of the Act. Validity of recovery proceedings against a partner of a firm based on a certificate issued against the firm. Comparison of provisions under the Income-tax Act, 1961 with the Indian Income-tax Act, 1922. Application of rules for recovery of tax under the Act.

Analysis:
The petitioner, a former partner of a firm, challenged recovery proceedings under the Income-tax Act, 1961, initiated against him based on a certificate issued against the firm. The key issue was whether the Tax Recovery Officer could recover tax from the petitioner pursuant to the recovery certificate issued against the firm "Hindusthan Jewellery Mart." The definition of "assessee" under section 2(7) of the Act was crucial in determining the scope of liability. The section defines "assessee" to include a person liable to pay tax under the Act, deemed assessee, and assessee in default.

The court analyzed relevant sections of the Act, including section 220 which outlines the payment of tax specified in a notice of demand and consequences of default. Section 222 empowers the Income-tax Officer to forward a certificate to the Tax Recovery Officer for recovery of arrears from an assessee in default. The court also referred to section 189(3) which establishes joint and several liability for tax payments by partners of a dissolved firm.

A comparison was made with provisions of the Indian Income-tax Act, 1922, particularly section 46(2, and the interpretation provided by the Supreme Court in a related case. The court emphasized that the principles applied in the previous case could not be extended to recovery proceedings under the Act. The court scrutinized the applicability of rules for recovery, specifically rule 32 of the Second Schedule, which allows for the attachment of a partner's interest in a firm for recovery purposes.

The court rejected arguments that the partner could be considered a defaulter under the rules, emphasizing that the defaulter referred to the assessee mentioned in the certificate, which in this case was the partnership firm. The court highlighted the procedural requirements for tax recovery under the Act, emphasizing that a tax recovery certificate could only be issued against the defaulter, i.e., the assessee who fails to pay tax.

In conclusion, the court held that the recovery proceedings against the petitioner, based on the tax recovery certificate issued against the firm, were illegal and unauthorized. A writ of mandamus was issued to prevent the respondent from recovering tax from the petitioner based on the certificate. The petitioner was awarded costs, including advocate's fees.