TMI Blog1974 (10) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... on, the firm took several contracts with the railway department for construction of buildings. When the firm was reconstituted in September, 1970, the work under these contracts was going on. The reconstituted firm took over the assets and liabilities of the previous firm, including the existing contracts. For the assessment year 1971-72 (accounting period ending on January 31, 1971) the firm filed a return on February 22, 1972, showing a total income of Rs. 78,648. The firm was assessed for this year on an income of Rs. 1,09,602 on March 22, 1972. It was also granted registration by a separate order of the same date. The assessment order shows that petitioners Nos. 1 and 2 were recognised as the partners of the firm, while petitioners Nos. 3 and 4 were recognised as having been admitted to its benefits. The petitioners' case is that in April, 1971, differences arose amongst the partners. The four petitioners formed one group, while the remaining partners, headed by Sri L. K. Ahuja, formed another group. The partnership firm is alleged to have been dissolved on April 30, 1971. Sri L. K. Ahuja formed a fresh firm with effect from May 1,1971, from which the four petitioners wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1970-71 1971-72 Adv. Tax Adv. Tax ---------------------------------------------------------------------------------------------- 1. M/s. L.K. Ahuja Co. (Firm) 12,551 7,500 ..... 2. Shri L.K Ahuja (Lal Chand) 17% 521 4,317 42,757 20% 3,297 3. Shri S.K. Ahuja (Shreechand) 6% 693 1,329 40,000 5% 768 4. Shri Kanhaiya Lal (Ex-partner) 10% 426 ... ... ... ... 5. Shri Dhruva Kumar 10% 250 1,302 20,000 5% 768 6.Shri S.K. Ahuja Co. ... 3,639 ... ... ... 7. Shri Chandra Kumar 10% 50 1,204 15,000 5% 768 8. Shri Ashok Kumar 8% ... 433 10,000 10% 1,536 9. Miss Ashu Kumari (Ex-partner) 8% ... 433 ... ... ... 10. Miss. Shashikala 8% ... 433 10,000 8% 1,237 11. Shri Shankar Lal (Ex-partner) 8% ... 433 ... ... ... 12. Shri Hola Ram (Ex-partner) ... 187 845 ... .. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecessary. Thereupon, the petitioners approached the ITO with a request that they may be allowed inspection of the file so that they may know how much money has been recovered and how it has been adjusted. The ITO refused this prayer on the plea that the petitioners were not the existing partners of the firm. The petitioners state that the group of partners headed by L.K. Ahuja are in collusion with the ITO and their scheme is that after getting this amount attached and recovered through the ITO they would get their personal tax demands paid out of the firm's money and get the balance refunded to them to the exclusion of the petitioners. They state that they have learnt that Sri L. K. Ahuja and his associates had made an application to the ITO to make provisional assessment against them on the basis of the return filed by them and, after adjusting the amount due, to refund the balance to them. The petitioners requested the ITO not to make any refunds, but he was reluctant to accede to this prayer. The petitioners state that the sum attached and recovered by the ITO belonged to the firm as it stood till April 30, 1971, when the four petitioners were its partners, and the same c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person to pay to him so much of the money as is sufficient to pay the amount due by the assessee in respect of arrears. The mode of recovery authorised by sub-section (3) can be resorted to in respect of arrears of tax due by the assessee. Evidently, if an assessee is not in arrears, this mode of recovery is not available. In the present case, the assessment order for the year 1971-72 was made on March 25, 1972. The ITO has not in the counter-affidavit mentioned the date on which the notice of demand was served upon the firm. Even if it be assumed that the notice of demand was served on the firm on or about March 25, 1972, the prescribed thirty-five days time to pay the demand had not expired on April 22, 1972, when the notice was issued. Till the expiry of the period of thirty-five days the assessee could not, in law, be deemed to be in default so that it could be said that the tax demand was in arrears. The same would be true with respect to the tax demand for the assessment year 1971-72, payable by the partners of this firm. Neither the firm nor the partners were, therefore, in arrears in respect of the tax demand due for the assessment year 1971-72. There is no averment that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20,000 35,547 1,00,602 -------------------------- It will be seen that barring Lal Chand, the total income assessed in hands of each of the partners was less than Rs. 10,000. None of them was hence liable to pay any advance tax in April, 1972. Under s. 210, when a person has been previously assessed by way of regular assessment under the Act, the ITO is to pass an order in writing on or after the first day of April of the financial year requiring him to pay an advance tax determined according to ss. 207, 208 and 209. A notice of demand is to be issued specifying the instalments in which the tax is to be paid. Under s. 211, advance tax is payable in equal instalments on the first day of June, first day of September, first day of December and first day of March of the financial year. In the present case, there is no averment that the ITO had issued any order in writing requiring the firm or any of its partners to pay advance tax for the financial year 1971-72 or the financial year 1972-73 till 22nd April, 1972, when the impugned notice was issued. Clearly neither the firm nor any of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd sub-clauses (i), (ii) and (iii) of clause (b) of section 48." The individual partners of a firm do not have any right or interest in any business income earned by the partnership firm. No part of such income can be deemed to vest in any individual partner. It is only the share of the profits that a partner can claim as his individual property. The interest of a partner arises only after the profits have been ascertained. No partner can say that in any particular item of income earned by the partnership firm he has a share of interest. Even after the dissolution of a firm the individual partners cannot claim interest in any money or asset belonging to the firm, till the liabilities of the firm have been satisfied. According to the petitioners, the firm stood dissolved with effect from April 30, 1971, but, according to the respondents, there was only a reconstitution of the firm which continued the business. If the firm was continuing, the income of the firm belonged to it, to the exclusion of the partners. No part of the income could be attached or adjusted against the demand due from individual partners personally. The same will be the position if the firm is deemed to hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o facilitate the payment of the tax demand including advance tax. A plea of this character may tolerably be raised by an ignoramus citizen, who, though not presumed to be ignorant of law, may yet show that he was ignorant of the provisions and acted on commonsense. But person in the position of an ITO, who is an instrumentality of the I.T. Act, clothed with statutory powers, cannot, with any justification, raise plea which, in substance, amounts to pleading ignorance of the very provisions of law under which he acted. It is trite that an ITO can exercise powers conferred on him by the I.T. Act only in accordance with the provisions of the Act and subject to the conditions and restrictions mentioned by the statute. If s. 226 authorises him to invoke the power given therein concurrently with the issuance of a certificate under s. 222, and only to recover " arrears ", he has no authority to act when these conditions are non-existent. The request of an assessee is irrelevant. The power under s. 226(3) coerces and forces stranger to pay. Such coercive measures cannot be adopted without strict compliance with the conditions precedent provided by the section. On facts also, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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