MOHAN WAHI Vs. COMMISSIONER OF INCOME TAX VARANASI

JUDGEMENT

(1.) The relevant facts are jejune and beyond any pale of controversy. Late Bhagwati Prasad owned a house property described as D-53/91-D, Luxa, Varanasi (hereinafter referred to as the house property). He had four sons - namely, P.S.R. and K. Under his will of the year 1962, probated in the year 1965, the house property devolved upon his four sons. The elder two sons- P and S, had entered into a partnership known as M/s United Provinces Commercial Corporation, Luxa, Varanasi (UPCC, for short) dealing in import and sale of heavy machinery and road rollers. The labour troubles resulted in the firm's business collapsing in the year 1967. The partners left Varanasi and migrated elsewhere. In the year 1972, Income-tax assessments of the firm UPCC were finalised for the assessment years 1967-1968 to 1969-1970. Recovery certificates were issued in 1973-1974 pursuant whereto the house property was attached. On 3-12-1979 a proclamation for sale of the property was issued setting out a demand of Rs.30,82,000/- and upset price at Rs.1,70,000/-. On 11-1-1980, at the public auction, respondent No.3 made a bid proposing to purchase the property for Rs 1,70,000/- (which was the upset price). The bid was accepted by the officer conducting the sale. An amount of Rs.42,500/- being 1/4th of the auction money, was deposited by the auction-purchaser on 11-1-1980 simultaneously with the acceptance of the bid. The balance amount of Rs.1,27,500/- was deposited on 25-1-1980 within the prescribed period of 15 days.

(2.) R, the third brother had died. His widow, Padma, filed a civil suit in the Court of Civil Judge, Varanasi submitting that the undivided property of the four brothers and in any case the share of the brothers, who were not the partners in the firm, could not have been attached and advertised for sale for recovery of dues against the firm. She also sought for an ad interim restraint on sale. On 9-1-1980, the Court of Civil Judge deemed it not proper to stay the auction sale but nevertheless felt a prima facie case having been made out to stay the confirmation of the auction sale. Accordingly, the Union of India and the authorities of the Income-tax department were directed, through an ad-interim injunction, not to confirm the sale. In the year 1984 the auction-purchaser, respondent No.3 herein, was also impleaded as a party to the suit. The ad-interim injunction continued to operate until the suit itself came to be dismissed in default of appearance on 12-1-1998. On 13-1-1998 an application for restoration of the suit was filed. On 30-7-1999 the suit was restored to file.

(3.) The assessments made against the firm UPCC were all ex-parte and a substantial part of the demand raised against the firm consisted of penalty and interest. The firm agitated the matter in the hierarchy of Income-tax Department. The challenge to the orders of assessment failed before the Commissioner of Income Tax (Appeals) who dismissed the appeals relevant to assessment years 1967-1968 to 1970-1971 as having been filed beyond the prescribed period of limitation. Four appeals were filed before the Income-tax Appellate Tribunal, Bench Allahabad. By an order dated 11-12-1987 all the four appeals were allowed. The Tribunal formed an opinion that there was sufficient cause which had prevented the assessee from filing the appeals before the CIT (A) in time and therefore the appeals were liable to be restored on the file of CIT (A) to be dealt with on merits. It was ordered accordingly. During the course of its order the Tribunal upheld a finding of fact recorded by the CIT (A) that "the assessee could not be said to have been served with the demand notice". On being so remanded, the appeals were heard on merits by the CIT (A). Most of the matter relating to demand on account of tax, penalty and interest were resolved at the stage of CIT (Appeals) while the tax demand referable to 1967-1968 was resolved before the Tribunal. The fact remains that on different dates in the year 1989 the several demands against the assessee firm had all stood wiped out and therefore reduced to nil. On 26-3-1990 the Income-tax Officer, Ward II, Varanasi wrote to Commissioner of Income-tax, Allahabad that various demands raised against the assessee firm had stood reduced to nil. On 22-11-1996 the assessee firm, M/s UPCC wrote to the Income-tax Officer, Ward II, Varanasi that all demands of tax and penalties having been cancelled/liquidated, refunds were due and the Tax Recovery Officer may be advised for cancellation of all the recovery certificates. Copy of the application was endorsed to the Tax Recovery Officer. On 16-1-1997 the advocate for the assessee firm wrote to the ITO, Ward-II, Varanasi that in view of all the demands against the firm having ceased to exist and instead refunds having become due to the firm, it may be confirmed that all the recovery certificates issued for demands against the firm had stood withdrawn/cancelled. A copy of communication dated 26-3-1990 from ITO, Ward II, Varanasi to the Commissioner of Income-tax was annexed with the letter.