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Union of India (Uoi) Vs. Tata Mills Ltd. and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberAppeal No. 19 of 1971
Judge
Reported in[1977]110ITR135(Cal)
ActsIncome Tax Act, 1961 - Section 232
AppellantUnion of India (Uoi)
RespondentTata Mills Ltd. and ors.
Appellant AdvocateB.L. Pal, Adv.
Respondent AdvocatePal and ;P.K. Pal, Advs.
Cases ReferredManickam Chettiar v. Income
Excerpt:
- .....messrs. gulab chand dhanraj partnership firmassessment yeartax and interest date of service of demand notice and challan rs. 1962-63 45,741.42 17-3-671962-632,51,500.00(penalty)18-8-691963-64 33,604.00 18-3-681964-654,17,273.00 24-2-69 7,48,118.42 944.00* int. u/s. 220(2) for the abovetotal demand outstanding :rs. 7,49,062.42 5. the assessee had appealed against the order of assessment for the year 1962-63 and 1963-64. the appeal for the year 1962-63 had been dismissed by the appellate assistant commissioner. the appeal for the year 1963-64 was pending at the time of the said application. we are informed by mr. suhas sen, appearing on behalf of the defendant, that the said appeal had thereafter been dismissed for default. he has also produced before us the relevant memorandum of.....
Judgment:

B.C. Basak, J.

1. This appeal is directed against a judgment and order passed by the learned trial judge on the 30th November and 2nd December, 1970, respectively, in an application made by the Union of India in Suit No. 890 of 1967 (Tata Mitts Ltd. v. Gulab Chand Dhanraj) (hereinafter referred to as the said suit) for directions for, inter alia, stay for sale of the premises No. 1, Vivekananda Road, Calcutta (hereinafter referred to as the ' said premises '), and all proceedings taken by all the judgment-creditors to obtain payment by sale and attachment of the said premises and, alternatively, for an order directing the Sheriff of Calcutta to pay to the petitioner certain sums prior to making any payment to judgment-creditors.

2. The said suit was filed in this court on the 25th April, 1967, by Tata Mills Ltd. against the defendants for a decree for a sum of Rs. 72,142.56 with interest and for other reliefs. The defendant No. 1 was a partnership firm and the other defendants were the partners thereof. On the 21st September, 1967, a decree was passed in the said suit against the defendants Nos. 1, 2, 4 and 5 for Rs. 70,672.74 with interest. On 11th of March, 1968, a decree was passed in the said suit against the defendant No. 3 only for Rs. 69,172.74 with interest. In execution of the said decree an order was made, on the application of the plaintiff-decree-holder, directing the Sheriff of Calcutta to sell by public auction the undivided right, title and interest of the defendants-judgment-debtors Nos. 2, 3 and 4 in the said premises. The said premises thereafter was attached and put up for sale by public auction by the Sheriff of Calcutta. Prior to the sale of the said property an application was made by the Union of India praying for the reliefs mentioned hereinabove. No ad interim order was passed staying the sale of the said premises and the same was sold during the pendency of the application and the sale proceeds are now lying in the hands of the Sheriff of this court.

3. The notice of motion in respect of this application was taken out on behalf of the Union of India on the 10th of October, 1969, under the following circumstances as would appear from the said application and the subsequent affidavit. It was stated that the defendant No. 1 is a partnership firm. The other defendants were the partners thereof. It was alleged by the Union of India that the said firm was assessed as a registered firm under the Income-tax Act, 1961 (hereinafter referred to as the 'said Act'), for the assessment years 1962-63 and 1963-64 and the income-tax payable by the firm was determined to be Rs. 45,741.42 and Rs. 33,604, respectively.

4. For the assessment year 1964-65, the said firm was assessed as a non-registered firm and the assessment on the said firm had to be completed under Section 144 of the said Act inasmuch as nobody on behalf of the firm appeared for assessment proceeding. For concealment of income-tax penalty proceeding under Section 271(1)(c) were also initiated against the said firm and an order imposing penalty of Rs. 25,500 was imposed on the firm on the 18th of August, 1969. The total claim against the said firm as would appear from the Schedule to the said application was a sum of Rs. 7,49,062.42, the particulars of which are as follows :

Schedule of taxes due from Messrs. Gulab Chand Dhanraj Partnership firm

Assessment yearTax and interest Date of service of demand notice and challan

Rs. 1962-63 45,741.42 17-3-671962-632,51,500.00(penalty)18-8-691963-64 33,604.00 18-3-681964-654,17,273.00

24-2-69 7,48,118.42

944.00* Int. u/s. 220(2) for the aboveTotal demand outstanding :Rs. 7,49,062.42

5. The assessee had appealed against the order of assessment for the year 1962-63 and 1963-64. The appeal for the year 1962-63 had been dismissed by the Appellate Assistant Commissioner. The appeal for the year 1963-64 was pending at the time of the said application. We are informed by Mr. Suhas Sen, appearing on behalf of the defendant, that the said appeal had thereafter been dismissed for default. He has also produced before us the relevant memorandum of appeal. However, no order was passed by the income-tax, authorities staying the realisation of tax for any of these years in respect of any of the said demands. In view of the fact that the aforesaid tax and penalty were not paid in spite of the notice of demand, the Income-tax Officer issued certificates under Section 222 of the said Act. It was also stated that on 15th January, 1968, an application was made on behalf of the firm for registration of the firm for the assessment year 1967-68 under the Income-tax Act, 1961. Together with the said application for registration a copy of a new partnership deed dated 16th July, 1966, was filed. It appears that a dispute had arisen between Budhmull Sethia, the defendant No. 6, and the other partners of the said firm. The dispute had been sent for arbitration and an award was madepursuant to which Budhmull Sethia left the partnership firm and a new partnership firm came into existence on 15th April, 1966, which has been carrying on business under the name and style of Gulab Chand Dhanraj in co-partnership at No. 11, Noormull Lohia Lane in Calcutta, and the branch office at Ahmedabad. The partners of the new partnership firm are Champalal Sethia, Dhanraj Sethia, Tarachand Sethia and Manickchand Sethia. It is further stated that notices of demand to defaulters were served between 24th June, 1968, and 28th August, 1969. Each of these notices had to be served by affixation inasmuch as nobody could be found in the office of the firm at 12, Noormull Lohia Lane, Calcutta, in spite of several attempts. The office of the firm was found closed under lock and key and it was learnt on enquiry that the firm had discontinued its business. No reply had been received from the firm and/or its partners pursuant to the said notices of demand. It was submitted that the assessee-firm of Gulab Chand Dhanraj, in view of the aforesaid facts, stood dissolved when Budhmull Sethia left the partnership firm on or about 15th April, 1966. Furthermore, it was submitted that the assessee-firm had discontinued its business under the circumstances stated hereinabove. In the premises it was submitted that the partners of the assessee-firm were jointly and severally liable for the tax and penalty dues of the assessee-firm.

6. The learned trial judge came to the conclusion that the said partners were not the assessees within the meaning of the said Act and accordingly dismissed the said application. This appeal has been preferred against the same.

7. Mr. B.L. Pal, learned advocate appearing on behalf of the appellant, Union of India, made three-fold submissions before us. Firstly, he submitted that the appellants were entitled to the relief prayed for in view of the provisions of Section 189(3) of the said Act read with the provisions of subsection (4) of Section 226 and Sub-section (7) of Section 2 of the said Act. We set out hereinbelow the relevant provisions.

Section 2(7)

' ' assessee ' means a person by whom any tax or any other sum of money is payable under this Act, and includes-

(a) every person in respect of whom any proceeding under this Act has been taken for the assessment of his income or of the income of any other person in respect of which he is assessable, or of the loss sustained by him or by such other person, or of the amount of refund due to him or to such other person ;

(b) every person who is deemed to be an assessee under any provision of this Act;

(c) every person who is deemed to be an assessee in default under any provision of this Act. '

Section 226(4): ' The Income-tax Officer may apply to the court in whose custody there is money belonging to the assessee for payment to him of the entire amount of such money, or, if it is more than the tax due, an amount sufficient to discharge the tax. '

8. He has submitted that there has been a discontinuance or dissolution of the firm within the meaning of Section 189 of the said Act. The respondents Nos. 2, 3 and 4 were admittedly persons who were, at the time of such discontinuance or dissolution, the partners of the firm. The amount of tax and penalty as stated hereinabove was payable by the firm. The notices of demand were served on the firm. Under these circumstances these ex-partners are jointly and severally liable for the payment of taxes and penalty payable by the said firm in view of Sub-section (3) of Section 189 of the said Act. Accordingly, these persons are assessees within the meaning of Section 2(7) of the said Act. Therefore, Sub-section (4) of Section 226 of the said Act was attracted and the Union of India was entitled to proceed against the said ex-partners for the amounts due by the said firm. In this connection Mr. Pal relied on the following decisions :

C. A. Abraham v. Income-tax Officer : [1961]41ITR425(SC) , Additional Income-tax Officer v. E. Alfred : [1962]44ITR442(SC) , Daya Ram v. Additional Collector , Commissioner of Income-tax v. S.K. Basu : [1970]76ITR291(Cal) and Jain Brothers v. Union of India : [1970]77ITR107(SC) .

9. Mr. Pal frankly conceded before us that this point was not argued in this form before the lower court but he submitted that the relevant facts were there on the record.

10. The second submission of Mr. Pal was that irrespective of the question of the applicability of Section 189 of the said Act, that is, irrespective of the question as to whether the said firm was dissolved or discontinued or not, the partners are liable for the dues of the firm. In this context he has invoked the general law relating to the partnership and has submitted that the individual partners are liable for the liability of the partnership. He has submitted that'each of the partners is an ' assessee ' within the meaning of Section 2(7) of the said Act inasmuch as they are liable for the debts of the partnership firm which includes taxes and penalties under the Income-tax Act. Accordingly, Section 226(4) was applicable in this case. In this connection he relied on certain decisions.

11. The third submission of Mr. Pal was that the taxes or penalties were due to the Government by the said firm on which notices of demand were served. These were preferential claims in respect of which an application was made by the Union of India in respect of money lying 'in court in a suit. This claim is paramount to the claim of any other person includinga decree-holder. Even if Section 226(4) did not apply because the partners could not be treated as ' assessees ' within the meaning of Section 2(7) of the said Act, the Government could realise the said amount from the partners because of the joint and several liability in respect of the dues of the firm. The Government could make such application either on the analogy of Section 151 of the Code of Civil Procedure or otherwise for payment of such amount. In this connection he relied on the following decisions : Manickam Chettiar v. Income-tax Officer : [1938]6ITR180(Mad) , Raja Jagadish Pratap Sahi v. State of UP : [1973]88ITR443(SC) , Lalta Prasad Goenka v. Biratnagar Jute Mills Ltd. : [1963]48ITR653(Cal) and other cases.

12. With regard to the interpretation of fiscal statutes, Mr. Balai Lal Pal contended that the approach of the court regarding the interpretation of the charging section and the machinery for collection should not be the same. Regarding collection, the approach should be to assist the revenue authorities in recovering their just and legitimate dues. He submitted that the principles of strict interpretation, though applicable to a taxing statute, do not apply to all the taxing provisions. In this connection he relied on the following decisions : Commissioner of Income-tax v. Mahaliram Ramjidas [1940] 8 ITR 442 , Gursahai Saigal v. Commissioner of Income-tax : [1963]48ITR1(Bom) and other cases.

13. Dr. Pal, followed by Mr. P.K. Pal, appearing on behalf of the respondents, at the outset submitted that the appellants should not be allowed to agitate the first point which involves questions of fact. On the merits he submitted that when a firm is an existing firm it is a distinct entity. It was strongly disputed that the said firm was dissolved or discontinued. There was no sufficient material before the court to come to such a finding, and accordingly Section 189 had no application. In any event, he submitted that even if Section 189 of the said Act applied, in the facts and circumstances of this case, the ex partners cannot be made liable for the amount of taxes payable by the firm. It was contended that a tax does not become due or payable, until and unless a notice of demand was served. He contended that in the present case the service of the notice of demand on the firm was strongly disputed and accordingly the question of any liability of the firm does not arise. In any event, he submitted that even if the service of the notice of demand on the firm is assumed then before the partners can be proceeded against for the recovery of the amount of tax or penalty due by the firm, there must be service of notice of demand on the individual ex-partners. He submitted that there is a difference between the expression ' debt owed ' and ' debt due '. He submitted that nothing is due until the debt is quantified by assessment and notice of demand is issued. In this case, admittedly, there has been no service of notice of demand on thepartners and accordingly it was not open to the authorities concerned to proceed against the partners for recovery of the tax liability of the firm. In this connection strong reliance was placed on the provisions of Subsection (4) of Section 189 of the said Act. It was submitted that this is a new provision which was not there in the old Act. According to him this makes it clear that if a partner is sought to be made liable for the dues of the firm, then, from the date of discontinuance or dissolution of the firm, the relevant provisions of the Act have to be complied with so far as such partners are concerned. In this case the admitted position is that the assessments were made after such alleged discontinuance or dissolution. In that view of the matter the notice of demand should have been served on the partners individually to enable the authorities to proceed against them.

14. Regarding the second submission made on behalf of the appellant, Dr. Pal submitted that to invoke the provisions of Section 226(4) the person concerned must be an assessee within the meaning of Section 2(7). Even if Mr. Pal's contention was correct the individual partner became liable to pay the dues of the firm on account of the provisions of the Partnership Act and not the Income-tax Act. However, under Section 2(7) the money must be payable by the person concerned under the said Act, and not any other law, so as to make him an assessee within the meaning of Section 2(7),

15. Regarding the third submission made on behalf of the appellants it was contended, inter alia, by Dr. Pal that the decision of the Madras Full Bench in Manickam Chettiay v. Income-tax Officer : [1938]6ITR180(Mad) was no longer good law because that was a decision under the old 1922 Act. According to him the new Act provides a complete machinery for the recovery of the dues under the said Act and that it was exhaustive in nature. He also submitted that, in the absence of service of notice of demand, no tax or penalty was due either from the firm or any of its partners. The claim of the revenue authorities was very much disputed. Further, he drew our attention to Section 49 of the Partnership Act and submitted that the procedure set out therein had to be followed in such a case.

16. We shall take the third submission made on behalf of the appellant first inasmuch as, having regard to the conclusion we have arrived at regarding the same, we do not consider it necessary to express our opinion regarding the first two submissions of Mr. Pal. This amount was due, owing and payable by the said firm. Apart from anything else, the service of notice is a question of fact and having regard to the affidavit filed on behalf of the Union of India there is sufficient material before us to hold that there was such service. In any event it is to be pointed out that though the firm and the partners were made parties to the applicationthey did not file any affidavit disputing such service. This amounts in the facts and circumstances of this case to an admission on their part regarding such service. In any event, as the learned trial judge found, in respect of the assessment years 1962-63 and 1963-64, the said firm had preferred an appeal against the relevant orders of assessment. We have also seen the relevant memorandum of appeal. From the aforesaid it is clear that there was such service of notice of demand at least for these two years In any event, it is not open to the decree-holder to challenge service of such notice. In this context we should point out that the total amount due in respect of these two years is Rs. 79,345.42 which is more than the amount now lying with the Sheriff of Calcutta.

17. Having regard to such service of notice of demand, the amount of tax and penalty was due by the firm to the Union of India. Having regard to the same it is not necessary for us to decide whether the partners whose properties were sold were assessees within the meaning of the said Act or not and whether any notice of demand was personally and separately served on them or not. Under the general law a partner of a firm is liable for the debts and liabilities of the firm. They are jointly and severally liable for the same. Tax and penalties due by the firm are also such dues for which the partners are so liable. This is their liability under the general law. The question of service of any notice of demand on the partners in this context is immaterial. Accordingly, in the present case the property of the individual partners, which subsequently stands transformed into sale proceeds, could be proceeded against in respect of the dues of the firm.

18. The next question is whether this court could pass any such order as prayed for in such an application of the Union of India as made here. In our opinion, this court had and has jurisdiction to do so in the facts and circumstances of this case. It should be remembered that this was a preferential claim.

19. In the case of Manickam Chettiar v. Income-tax Officer : [1938]6ITR180(Mad) an application was made by the Income-tax Officer, Madurai, purporting to be under Section 151 of the Code and praying that out of the sum in the custody of the court in the course of the execution of a decree obtained by the decree-holder against the assessee, the arrears of income-tax due by the assessee might be paid in the first instance. Two questions, were raised before the lower court by the decree-holder, namely, (1) whether the Government was entitled to priority, and (2) whether, as a matter of procedure, the petition by the Income-tax Officer to the civil court was sustain-able. On both the points the lower court held against the decree-holder and directed payment to the Government in the first instance. A revision petition was filed against the same by the decree-holder before the Madras High Court. The matter was referred to a Full Bench. The Full Benchheld that inasmuch as the Crown has priority over unsecured creditors in the payments of debts, the court can, on application and without a formal attachment being issued, order the payment of a Crown debt due by the debtor where there are funds in the court belonging to the debtor. Leach C.J. referred to the argument of the assessee that Section 46 of the Income-tax Act (old) provides the modes of recovery and that the Crown was not entitled to adopt a different method. Rejecting this contention Leach C.J. held that this provision did not profess to be exhaustive and it cannot, without express words to that effect, take away from the Crown the right of enforcing payment by any other method open to it. It was, therefore, held that Section 46 did not impose any bar to such an application. In this context it was further held as follows (See : [1938]6ITR180(Mad) ):

' The learned advocate for the petitioner has also argued that unless there is some statute which expressly authorises a petition of this nature the petition cannot be maintained. I have in effect already dealt with this question and it follows from what I have said that I do not consider that a special Act of the legislature is required to enable the Crown to apply to the court for payment out of money to which it has an undoubted right.'

20. Mocket J. observed in this connection that the court can rightly invoke Section 151 of the Civil Procedure Code in such a case.

21. In the case of Raja Jagadish Pratap Sahi v. State of U.P. : [1973]88ITR443(SC) the appellant was assessed to agricultural income-tax and was directed to pay certain amount in four instalments. He paid only the first instalment. Notice to pay was served on him but this amount was not paid. The State sought to recover the amount and filed a suit for the amount. The appellant contended that the only remedy open to the court was that which was permitted under the relevant Act and that no regular suit was maintainable. This plea was sustained in the original trial court and the suit was dismissed as not maintainable. The High Court, however, in an appeal reversed the judgment of the trial court and decreed the suit. Against this judgment, an appeal was preferred to the Supreme Court. It was contended before the Supreme Court that the only mode of recovery of arrears was under the relevant Act. This contention was rejected by the Supreme Court and the decision in the case of Manickam Chettiar v. Income-tax Officer : [1938]6ITR180(Mad) was approved by the Supreme Court. It was held that once a notice of demand was served on the assessee and the assessee makes default, the State has a right to recover the amount. The State could recover the same by any of the modes open to it under the general law.

22. In view of the same we are of the opinion that it was open to the Union of India to make an application as it did. We are finable to accept the contention of Dr. Pal that the remedy provided by the said Act was theonly remedy. This position has been made clear by the decision of the Madras High Court which was approved by the Supreme Court. In any event, this has been now made clear by the legislature by enacting Section 232 of the said Act which is as follows : Section 232

' The several modes of recovery specified in this Chapter shall not affect in any way-

(a) any other law for the time being in force relating to the recovery of debts due to the Government; or

(b) the right of the Government to institute a suit for the recovery of the arrears due from the assessee ;

and it shall be lawful for the Income-tax Officer or the Government, as the case may be, to have recourse to any such law or suit, notwithstanding that the tax due is being recovered from the assessee by any mode specified in this Chapter.'

23. We are also of the opinion that Section 49 of the Partnership Act has no application in the facts of this case.

24. Having regard to our findings as above it is not necessary to express any opinion regarding the first two submissions made on behalf of the appellant.

25. For the aforesaid reasons we allow the appeal and the application madeby the Union of India and set aside the judgment and order passed by thetrial judge. The Sheriff of Calcutta is hereby directed to pay forthwithout of the sale proceeds in his hands in respect of the premises No. 1,Vivekananda Road, Calcutta, the claims of the petitioner. Union of India,to the extent of Rs. 7,49,062.42. There will be no order as to costs. Costsof the decree-holder to be added to his claim.

A.N. Sen, J.

26. I agree.


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