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M. Abdul Khalick and Co. Vs. Income-tax Officer (i-c) and anr. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberWrit Petition No. 929 of 1967
Judge
Reported in[1972]86ITR72(Mad)
ActsIndian Income Tax Act, 1922 - Sections 46(5A)
AppellantM. Abdul Khalick and Co.
Respondentincome-tax Officer (i-c) and anr.
Appellant AdvocateP.M. Jummakhan, Adv.
Respondent AdvocateV. Balasubrahmanyan and ;J. Jayaraman, Advs.
Excerpt:
- .....and were doing business under the name and style of messrs. abdul khalick sahib & company. m. sadulla basha died on july 22, 1952, leaving behind him, surviving his wife, hava bi, and two minor daughters, habibunnissa and sanober. on the date when sadulla basha died, a sum of rs. 29,328-11-2 stood to his credit as per the firm's books. but later, certain adjustments were made and such adjustments resulted in the reduction of the credit as above to a sum of rs. 20,239.78 as on july 31, 1952. the normal presumption, therefore, is that only a sum of rs. 20,239.78 should be deemed to be the credit in the name of late sadulla basha on the date of his death.2. the surviving partners of the firm entered into an arrangement with the heirs of sadulla basha and took them in as partners in the.....
Judgment:

Ramaprasada Rao, J.

1. One M. Sadulla Basha along with five others constituted a partnership and were doing business under the name and style of Messrs. Abdul Khalick Sahib & Company. M. Sadulla Basha died on July 22, 1952, leaving behind him, surviving his wife, Hava Bi, and two minor daughters, Habibunnissa and Sanober. On the date when Sadulla Basha died, a sum of Rs. 29,328-11-2 stood to his credit as per the firm's books. But later, certain adjustments were made and such adjustments resulted in the reduction of the credit as above to a sum of Rs. 20,239.78 as on July 31, 1952. The normal presumption, therefore, is that only a sum of Rs. 20,239.78 should be deemed to be the credit in the name of late Sadulla Basha on the date of his death.

2. The surviving partners of the firm entered into an arrangement with the heirs of Sadulla Basha and took them in as partners in the firm, the minors obviously being made partners therein to be entitled to the benefits thereof and thus the firm continued in the same trading name but with a change in the constitution of its partners. It appears that several of the partners in the firm, before reconstitution, retired from time to time, and even the daughter, Habibunnissa, after she became a major, stepped out of the firm. Before the daughters retired, the widow of Sadulla Basha also retired from the firm and thereafter the firm continued with the available partners who are willing to co-ordinate in the enterprise. I am only giving the above details just to show that the original firm continued and what happened was that when the heirs of Sadulla Basha were taken in as partners, the credit of Rs. 20,239.78 which was standing in the name of late Sadulla Basha was divided as between the heirs and was disclosed in the books of the reconstituted partnership firm as share capital of the incoming partners.

3. It is not in dispute that for the years 1950-51, 1951-52 and 1952-53Sadulla Basha, as partner of the firm, was in arrears of income-tax to thetune of Rs. 69,486-1-0. The revenue, coming to know that there was acash credit in the books of the firm in the name of late Sadulla Basha, theassessee who was in arrears, gave a notice under Section 46(5A) of theIndian Income-tax Act, 1922, calling upon the petitioner-firm which wascontinuing the business not to pay the said amount covered by the abovecredit to anyone and notified also the possible penalty in case of default incompliance of the said notice. But the trend of events disclose that thepetitioner ignored the said notice and allowed the heirs of Sadulla Bashato deal with the said credit in the manner already stated and, ultimately,allowed them to withdraw the amounts from the said credit in the courseof their association with the partnership firm and the result is that thepetitioner not only ignored the notice given by the Income-tax Officerunder Section 46(5A) of the Act but he has become answerable to all theconsequences which ordinarily flow from the non-observance or compliancewith the notice under Section 46(5A) of the Act. The Income-tax Officercorresponded with the firm and called upon the firm on several occasions topay the said amount towards the arrears of tax due by Sadulla Basha butall such demands and communications were of no avail. In fact, onMarch 9, 1967, the Income-tax Officer pointed out that the petitioner firmhad contravened the terms of the notice under Section 46(5A) since thefirm had permitted withdrawal from the amount by the widow anddaughters of late Sadulla Basha and called upon the petitioner to explain.On receipt of this notice, the petitioner has filed this writ petition seekingfor a writ of prohibition restraining the respondents from pursuing thenotice of demand any more as, according to the petitioner, all suchdemands and the threat of further proceedings are not warranted in law.

4. The contention of the learned counsel for the petitioner is that as the cash credit in the name of late Sadulla Basha was converted as the share capital of the legal heirs of late Sadulla Basha when the firm was reconstituted in 1952, then, by such an incident, the revenue cannot recover the arrears of income-tax payable by late Sadulla Basha from the petitioner-firm. The second contention is that as the withdrawals were made by the heirs of Sadulla as partners of the duly reconstituted firm in the year 1952, the demand raised and the threatened proceedings are to be interdicted.

5. The only question that arises in the instant case is whether the notice issued by the Income-tax Officer under Section 46(5A) of the Income-tax Act, 1922, was valid and if it is valid, whether the action of the petitioner-company in having allowed the withdrawals from the credit of Sadulla Basha by his heirs, for whatever period it may be, is valid and can be set against the proposed action. Section 46(5A) is in the nature of agarnishee proceeding and it is intended to protect the revenue and enables it to call upon the creditor of 'the assessee in default' from paying over the moneys in his hands to anyone without notice to the income-tax department or the revenue. This is one of the accredited methods by which both under the common law and under the taxing statute moneys payable by a debtor are secured and later recovered. In the instant case, on July 22, 1952, when Sadulla Basha died, there was a cash credit of Rs. 20,239.78 after due adjustments as stated in the counter-affidavit. I have referred to the fact that this should be taken to be the amount which stood as the amount to the credit of Sadulla Basha on the date of his death. This amount, undoubtedly, belonged to Sadulla Basha on the date of his death. His heirs, by an arrangement with third parties, may be the quondam partners of the firm in which their father was a partner or, by any other similar arrangement, cannot transform the badge of ownership in such an asset, in Sadulla Basha to any other firm or person by which the latter could proclaim that they are or would be deemed to be the owners of such funds. If this argument were to be accepted, then it would mean that an asset of a deceased can be converted by an overt or covert act on the part of the heirs and by such a voluntary act of theirs convert or metamorphose the real character of the fund from one to the other and keep it beyond the reach of the creditor. The attempt of the petitioner in the instant case is to say that the heirs of Sadulla Basha, by entering into a contract of partnership with the surviving partners of the firm after the death of Sadulla Basha and having divided the cash credit in the name of Sadulla Basha as between themselves and treated as their share capital, in the new firm, such fund was no longer the asset of the deceased, Sadulla, but it was their own money against which no proceedings either under common law or under the taxing provisions of the Income-tax Act can be undertaken by the appropriate authority. There is a fallacy in this argument. As I have already stated, this so-called conversion or transformation is by an act of parties and such a voluntary act cannot convert the money belonging to Sadulla, to be the money of someone else other than Sadulla. The claim of the petitioner is that after the division of the funds as between the heirs, it had ceased to be Sadulla's fund. This is not acceptable at all. It continued to be Sadulla's funds in the hands of his heirs. The firm which is the petitioner in this case should be deemed to be aware of such a situation and should be deemed to have had notice that such fund, though divided for a particular purpose by the heirs, was really the moneys of Sadulla which remained in the reconstituted firm and over which the firm had control. In this sense, the petitioner had the moneys of Sadulla and was aware that it was dealing with such moneys with the consent of the heirs of Sadulla and it was this peculiar situation which makes him agarnishee in the eye of law. If the garnishee who is undoubtedly asked by the Income-tax Officer under Section 46(5A) not to dissipate the said money but to pay it off to the revenue as the person in whose name the credit stood owed moneys by way of taxes then it was the bounden duty of the garnishee to have complied with such a request or made alternative arrangements to comply with it at any time called upon to do so. On the other hand, the petitioner-firm allowed the credit to be dealt with as stated already. As, according to me, there was no change in the character of the fund by the operation of such funds by the company or the heirs of Sadulla, the proceedings initiated by the respondent under the provisions of the Act are perfectly within his jurisdiction and are in order.

6. Since the writ of prohibition can issue when the person against whom it is directed is not functioning 'in accordance with law the rule nisi is discharged and the writ petition is dismissed with costs. However, it is expected that the revenue would take note of the factual situation recorded already that only a sum of Rs. 20,239.78 should be deemed to be the asset of Sadulla at all material times and take proceedings against the petitioner in accordance with law. Counsel's fee Rs. 250.


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