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Tara Rani Vs. Commissioner of Income-tax and anr. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtPunjab and Haryana High Court
Decided On
Case NumberCivil Writ Petition No. 361 of 1979
Judge
Reported in(1980)18CTR(P& H)102; [1982]137ITR266(P& H)
ActsIncome Tax Act, 1961 - Sections 182, 281and 281(1); Gift Tax Act, 1958
AppellantTara Rani
RespondentCommissioner of Income-tax and anr.
Appellant Advocate Arun Jain and; Kamaljit, Advs.
Respondent Advocate D.N. Awasthy, Adv.
Cases ReferredChogmal Bhandari v. Deputy Commercial Tax Officer
Excerpt:
.....revenue) had failed to do. it is clear from the section that it was the duty of the firm to retain thirty per cent, of the income for the payment of the tax of the partners and in case it failed to do so, the firm was liable to pay the tax to that extent. 10. i am not convinced by this contention of the learned counsel as well......it is contended by the learned counsel for the petitioner that the ito while declaring the gift void took into consideration a letter dated april12, 1971, to which she was not a party. the letter was written by the ito, collection ward, chandigarh to the tro, patiala. he further submits that the petitioner cannot be held liable, on the basis of that letter, for the shares of the other partners. he has then argued that when the gift was made no tax was due from her and she could not foresee that the firm would be treated as an unregistered firm by the ito for the assessment year 1969-70, while it was being treated as a registered firm in the earlier assessment years. according to him, in the aforesaid situation, the gift was a valid one and could not be held void-by the ito.4. i.....
Judgment:

Rajendra Nath Mittal, J.

1. Briefly, the case of the petitioner is that that she owned a double storeyed house bearing No. 230 in Sector 21-A, Chandigarh. She gifted the same in favour of her grandchildren, Miss Babloo, daughter of Baldev Raj and Mr. Duke, son of Tilak Raj, on account of love and affection, vide gift deed dated April 17, 1971. She also duly paid the gift-tax amounting to Rs. 7,000 as assessed by the GTO on March 8, 1978.

2. The petitioner, it is alleged, received a notice under Section 281 of the I.T. Act, 1961 (hereinafter referred to as 'the Act') from the ITO, District 1(4), Chandigarh, respondent No. 2, to show cause as to why the gift of the property in question be not treated as void and why the rent of the property be not attached to realize the tax demand outstanding against her. She filed a reply to the notice. The said respondent, it is next alleged, without applying his mind to the facts passed an order on August 30, 1978, holding the gift deed to be void. She challenged the order in this court in a writ petition (C.W.P. No. 3784/78) which was accepted by the Division Bench on September 29, 1978, and it was ordered that the matter be decided afresh after taking into consideration the reply filed by the petitioner. The respondent again passed an order on December 15, 1978, holding that the;gift had been made by the petitioner to defraud the revenue and escape liability to pay the outstanding demand of income-tax against her, of the firm, M/s. Tilak Raj, Baldev Raj in which she was a partner and, therefore, the gift of property by her in favour of the grandchildren was void under Section 281(1) of the Act. She has challenged the aforesaid order through this writ petition, inter alia, on the ground that the gift was admitted by the GTO as a valid and legal transaction against which the revenue did not go up in appeal. The petitioner, it is alleged, also paid the tax (G.T.) on the basis of the order. In the circumstances, it is averred that the Revenue was not entitled to reopen the matter. It is further averred that no demand was outstanding against the petitioner, when the gift was made, and consequently it cannot be said that the gift was not a bona fide one. It was incumbent upon the respondents to prove that the gift was made with a purpose to defraud the Revenue which it (the respondents Revenue) had failed to do. It is next stated that the firm, in which the petitioner was a partner, was a registered one and it was on March 24, 1972, that the ITO treated it as an unregistered firm and taxed as such. It is further said that, in case the firm had not been treated as unregistered, the liability of the petitioner would not have been to the tune of Rs. 1,17,000.

3. It is contended by the learned counsel for the petitioner that the ITO while declaring the gift void took into consideration a letter dated April12, 1971, to which she was not a party. The letter was written by the ITO, Collection Ward, Chandigarh to the TRO, Patiala. He further submits that the petitioner cannot be held liable, on the basis of that letter, for the shares of the other partners. He has then argued that when the gift was made no tax was due from her and she could not foresee that the firm would be treated as an unregistered firm by the ITO for the assessment year 1969-70, while it was being treated as a registered firm in the earlier assessment years. According to him, in the aforesaid situation, the gift was a valid one and could not be held void-by the ITO.

4. I have given a thoughtful consideration to the- argument of the learned counsel but regret my inability to accept it. It is not disputed that huge amounts were due to the revenue from the petitioner and her sons, who were partners in the business, at the time when the gift was made by her. On the date of gift, the liability of the firm was to the tune of Rs. 11,106 and that of the petitioner and her two sons, namely, Baldev Raj and Tilak Raj, was more than Rs. 50,000. The ITO made efforts to recover the amounts but despite that he could not do so either from the firm, or the petitioner, or her sons. Even the demand notice was evaded by the petitioner and her sons and it had to be served on them by affixation. It is mentioned in the return that the amount of tax could be recovered from the petitioner as she alone owned property and consequently the- TRO was specifically requested to proceed against the house. It may also be mentioned that at the time of the gift the assessment proceedings relating to the year 1969-70 and subsequent years were pending against her and the firm. It can, therefore, safely be inferred that in addition to the earlier liability the petitioner would have been fixed with some more liability for that and subsequent assessment years. Thus, the petitioner's liability was likely to be increased.

5. It is now to be seen whether the petitioner can be held liable for the tax of the other partners. Section 182 of the Act deals with the assessment of registered firms. Sub-section (4) of Section 182 provides that a registered firm may retain out of the share of each partner in the income of the firm a sum not exceeding thirty per cent, thereof until such time as the tax which may be levied on the partner in respect of that share is paid by him ; and where the tax so levied cannot be recovered from the partner, whether wholly or in part, the firm shall be liable to pay the tax, to the extent of the amount retained or could have been so retained. It is clear from the section that it was the duty of the firm to retain thirty per cent, of the income for the payment of the tax of the partners and in case it failed to do so, the firm was liable to pay the tax to that extent. In the present case, it has not been said in the writ petition that any amount was retained by the firm and that was sufficient to discharge the liabilities of the partners. It cannot be disputed that each of the partners is liable to pay the tax to the extent to which the firm is liable to pay it.

6. Section 183 of the Act relates to the assessment of unregistered firms. It says that in the case of an unregistered firm, the ITO, (a) may determine the tax payable by the firm itself on the basis of the total income of the firm, or (b) if, in his opinion, the aggregate amount of the tax payable by the firm if it were assessed as a registered firm and the tax payable by the partners individually, if the firm were so assessed would be greater than the aggregate amount of the tax payable by the firm under the earlier clause and the tax which would be payable by the partners individually, may proceed to make the assessment under Sub-section (1) of Section 182 as if the firm were a registered firm. It further provides that if the procedure specified in Clause (b) is applied to any unregistered firm the provisions of Sub-section (4) of Section 182 shall also apply thereto as it applies in relation to a registered firm. In the case of an unregistered firm, it is evident that the liability of a partner remains to the extent of the tax assessed on the firm. Even after the dissolution of the firm, the liability of the partner does not cease. Reference in this regard may be made to Section 189 of the Act. It is said in Sub-section (3) of that section that every person who was at the time of dissolution of a firm, a partner, shall be jointly and severally liable for the amount of the tax. From the aforesaid provisions it is evident that the liability of the petitioner was joint with the other partners.- She was unable to show that her liability was being fixed at more than that which could be fixed in view of Section 182 or Section 183 of the Act.

7. It is also relevant to point out that the petitioner has admitted that by the gift, a provision has been made for the donees after her death and during her lifetime she was entitled to the income of the property. On August 22, 1978, the statement of Hans Raj, husband of the petitioner, was recorded by the ITO. He said that he and the donor were in occupation of the ground-floor and they were realizing the rent from the tenant on the first-floor. He also said that they were not maintaining accounts of the rent. From the above said statement it is evident that the petitioner was in enjoyment of the property in terms of the provisions of the gift deed. Thus, it appears, that the gift deed has been made in order to avoid the payment of the tax which was recoverable from her. After taking rato consideration all the aforesaid circumstances, I am of the opinion that the gift is not a bona fide transaction.

8. Section 281 makes certain transfers void. It says that where during the pendency of any proceedings under the Act or after the completion thereof, but before the service of notice under r. 2 of the Second Schedule, any assessee parts with the possession by way of sale, mortgage, gift, exchange, et cetera, of any of his assets in favour of any other person, such transfer shall be void as against any claim in respect of any tax or any other sum payable by the assessee as a result of the completion of the said proceedings or otherwise. After a notice under r. 2 of the Second Schedule has been served, the private alienations thereafter are void under r. 16 of the Schedule. It is evident from the circumstances of the present case that the gift is hit by Section 281 of the Act. The learned counsel for the petitioner made a reference to Chogmal Bhandari v. Deputy Commercial Tax Officer [1977] 40 STC 207 ; AIR 1976 SC 656, wherein it was held that so long as tax had not been assessed and quantified, it could not be said that any specific debt due to the Revenue had come into existence and there fore, the question of a non-existent debt being a first charge on a transferred property of the assessee did not arise. Suffice it to say that that case was under the Andhra Pradesh General Sales Tax Act and the facts thereof are distinguishable. The above observations, therefore, will not apply to the present case.

9. The learned counsel for the petitioner has next argued that the ITOhad accepted the gift-tax return and made an assessment of the gift-taxwhich was payable by the petitioner. He further submits that if gift-taxhad been paid on the basis of the assessment made by the ITO, he couldnot turn round and say that the case was under Section 281 of the Act and thehouse was liable to sale for a recovery of the tax, which the petitioner wasrequired to pay.

10. I am not convinced by this contention of the learned counsel as well. The gift-tax is levied under the G.T. Act, 1958. It is true that under that Act powers to make assessments have been given to an ITO. But he acts as a GTO under that Act. He is required to make an assessment under that Act, The counsel for the petitioner has not brought to my notice any provision either in the LT. Act or in the G.T. Act which provides that in case an ITO has made an assessment as a GTO under the G.T. Act, he is debarred from proceeding under Section 281 of the LT. Act to declare the transfer void It cannot be held that merely because the powers of making an assessment under the G.T. Act have been conferred upon the ITO, he is debarred from proceeding under Section 281 of the LT. Act. This argument, in my view, is absolutely devoid of force.

11. For the aforesaid reasons, the writ petition fails and the same is dismissed with costs. Counsel fee Rs. 200.


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