SURINDER NATH KAPOOR Vs. UNION OF INDIA

JUDGEMENT

(1.) THIS case relates to the income-tax dues mainly of two firms, M/s. Krishna Kapoor and Co., Jaipur and M/s. Indo Kashmir Carpets and Handicrafts, Amritsar. The arrears of tax against M/s. Krishna Kapoor and Co., and its partners are Rs. 8,56,377 whereas the arrears of tax against M/s. Indo Kashmir Carpets and Handicrafts and its partners are Rs. 10,17,915. The petitioner, S. N. Kapoor, along with Late Shiv Dayal Kapoor, Ramnath Kapoor and N. N. Kapoor, was the partners of M/s. Krishna Kapoor and Co. Late Shiv Dayal Kapoor left behind S. N. Kapoor and N. N. Kapoor. Late Shiv Dayal Kapoor was also a partner in M/s. Indo Kashmir Carpets and Handicrafts. Besides, Late Shiv Dayal Kapoor, Smt. Kamla Kapoor, Smt. Veena Kapoor, Smt. Sharda Kapoor and Smt. Sudershan Kapoor were also partners of M/s. Indo Kashmir Carpets and Handicrafts, Amritsar.

(2.) THE above income-tax arrears relate to the demands against M/s. Krishna Kapoor and Co. and partners as per various assessments by the Income-tax authorities at Amritsar from time to time. Similarly demands of tax remained outstanding against M/s. Indo Kashmir Carpets and Handicrafts against various demands of the Income-tax authorities at Amritsar. In both the cases the demands are against firm as well as its partners. M/s. Krishna Kapoor and Co. has immovable properties comprising land and building situated at Khavasji ka Bag, Amer Road, Jaipur. THE Inspecting Assistant Commissioner (Assessment), Zone-II, Amritsar, as already stated, computed the tax outstanding against M/s. Krishna Kapoor and Co. at Rs. 8,56,377 and also found that Rs. 10,17,915 was outstanding against M/s. Indo Kashmir Carpets and Handicrafts. THE Inspecting Assistant Commissioner issued recovery certificates under Section 222 of the Income-tax Act, 1961 (Act No. XLIII of 1961) (for short " the Act "), to the Tax Recovery Officer, Income-tax Zone-II, for due execution of the certificates. THE Tax Recovery Officer Zone-II, Amritsar, sent the recovery certificate to the Tax Recovery Officer, Zone-I, Jaipur, through the Commissioner, Income-tax, Jaipur. THE Tax Recovery Officer, Jaipur, initiated proceedings to recover the two aforesaid demands by execution of the certificates of recovery. THE immovable properties, land and building of- M/s. Krishna Kapoor and Co. situated at Khavasji ka Bag, Amer Road, Jaipur, were attached, vide order dated September 28, 1984. in ITCP No. 16. Sale proclamation was drawn up on March 21, 1985. Warrant of sale dated December 11, 1985, ITCP No. 12, in respect of the above properties situated in Jaipur of M/s. Krishna Kapoor and Co. was issued to Mahavir Auctioneers, KGB ka Rasta, Johari Bazar, Jaipur, authorising them to sell by public auction so much of the properties of M/s. Krishna Kapoor and Co. as shall realise the two amounts totalling Rs. 18,74,292 and to return the warrant on or before January 24, 1986. THE auctioneers put the properties to auction and the auction was closed at Rs. 37,81,000 on January 21, 1986. THE petitioner who as already stated is a partner of M/s. Krishna Kapoor and Co. filed objections dated January 21, 1986, to the Tax Recovery Officer, Jaipur, with a copy to the Commissioner of Income-tax, Jaipur, and the Commissioner of Income-tax, Amritsar.

(3.) THERE is no dispute that the properties in dispute situated at Jaipur are the exclusive properties of M/s. Krishna Kapoor & Co, In terms of Section 223 of the Income-tax Act, the Tax Recovery Officer, Range-II, Amritsar, forwarded recovery certificates in respect of the aforesaid two demands in relation to the defaulter, M/r. Krishna Kapoor & Co. and its partners and M/s. Indo Kashmir Carpets and Handicrafts and its partners to the Tax Recovery Officer, Jaipur. So far as the outstanding against the default of M/s. Indo Kashmir Carpets and Handicrafts to the extent of Rs. 10,17,915 is concerned, the case of the non-petitioners is that M/s. Krishna Kapoor and Co. owed amount to that extent to M/s. Indo Kashmir Carpets and Handicrafts, Amritsar. THEREfore, an order under Section 226(3)(i) of the Income-tax Act was made which was served upon M/s. Krishna Kapoor and Co. requiring it to pay the amount forthwith to the Income-tax Officer. THEREfore, under Section 226(3)(iv) of the Income-tax Act, M/s. Krishna Kapoor and Co. is bound to comply with the same notice. It is the further case that under Section 226(3)(x) of the Income-tax Act, if the person to whom a notice under Sub-section (3) of Section 226 is sent fails to make payment in pursuance thereof to the Income-tax Officer, he shall be deemed to be an assessee in default in respect of the 'amount specified in the notice and further proceedings may be taken against him in the manner provided in Sections 222 to 225 of the Income-tax Act and the notice shall have the same effect as an attachment of a debt by the Tax Recovery Officer in exercise of its powers under Section 222. Learned counsel for the non-petitioners has made a reference to annexure rule 61 (page 266) issued by the Inspecting Assistant Commissioner of Income-tax (Assessment), Range-II, Amritsar, on December 10, 1984. It is an order under Section 226(3)(x) of the Income-tax Act. It has been mentioned therein that M/s. Krishna Kapoor & Co. Amer Road, Jaipur, who owed certain amounts to M/s. Indo Kashmir Carpets and Handicrafts, was issued notice under Section 226(3), vide Letter No. 1624 dated October 15, 1984, restraining it from making any payment to M/s. Indo Kashmir Carpets and Handicrafts. M/s. Krishna Kapoor & Co. was required to remit the amount standing to the credit of M/s. Indo Kashmir Carpets and Handicrafts in its books of account to the office of the Inspecting Assistant Commissioner of Income-tax (Assessment), Range-II, Amritsar, towards payment of tax arrears outstanding against M/s. Indo Kashmir Carpets and Handicrafts and its partners. It was also mentioned in the order that the terms of notice under Section 226(3) have not so far been complied with. It was declared that M/s. Krishna Kapoor & Co. is a defaulter in pursuance of Clause (x) of Subsection (3) of Section 226 of the Income-tax Act to the extent of Rs. 8,56,377 payable to the aforesaid defaulter. It was also ordered that, consequently, the amount shall be recovered from M/s, Krishna Kapoor and Co. as arrears of land Revenue. A contention has been raised by Mr. Ranka that neither this order nor any notice under Sub-section (3) of Section 226 of the Income-tax Act as alleged was served on the petitioner. It is further contended that no notice in Form ITCP No. 1 was served on the petitioner. According to learned counsel, a firm is a person separate from its partners and if any amount is due against the firm, it cannot be recovered from the partners. He further contends that under Rule 2 of the principal Rules, notice in Form ITCP No. 1 has to be issued and served upon the defaulter requiring him to pay the amount specified in the certificate. A defaulter, according to learned counsel, means, in the case of assessment against a partner, the partner and in the case of a firm, the firm. Under Section 48 of the Rules, only immovable properties of the defaulter can be attached and under Rule 49, a copy of the attachment order has to be served on the defaulter. This was not done. He has referred to annexures R-43 and 44 available at pages 230 and 231, respectively. In support of his submission that Rule 49 of the principal Rules was not complied with inasmuch as the copy of the attachment order was not served on the defaulter as aforesaid, he also referred to some Forms ITCP No. 1 which, according to him, are subsequent to that order of attachment. He made a reference to annexures R-14, 21, 12 and 16 which, according to him, were served by affixation on August 6, 1985, and the order of attachement is dated July 11, 1985. Mr. Ranka, learned counsel for the petitioner, in respect of his argument that the sale proclamation was issued in contravention of the provisions of the principal Rules referred to Rule 53 of the principal Rules under which a sale proclamation of sale of immovable property shall be drawn up after notice to the defaulter as required therein and it must specify as fairly and accurately as possible as per Clause (cc) of Rule 53, the reserve price, it any, below which the property may not be sold. The mode of making a sale proclamation has been prescribed in Rule 54 of the principal Rules. The contention of Mr. Ranka is that Rules 53 and 54 of the principal Rules have been contravened. Mr. Ranka, learned counsel for the petitioner, further contends that on January 20, 1986, the highest bid offered was of Rs. 43,31,000. Though, according to learned counsel, even this was too much below the actual value of the property, but on January 21, 1986, the bid only of Rs. 37,81,000 of M/s. Raja Properties was accepted. This clearly shows the mala fide intention of the authorities concerned. A further argument has been raised that immediately after the declaration that M/s. Raja Properties are the purchasers, 25% of the purchase price was not deposited and in default of such deposit the properties must have been resold and thus there has been contravention of Rule 57 of the principal Rules. Thus, the contention of Mr. Ranka is that there have been not only irregularities but also illegalities in the attachment of the properties, drawing up the proclamation of sale and in conducting of sale. In connection with his earlier argument that for the demand against the firm the partners are not responsible, Mr. Ranka has referred to various provisions of the Act and more so to Clauses (7), (14) and (31) of Section 2 to Sections 75 to 77 and sections 182, 183 and 189. He has made a reference to CIT v. A. W. Piggies and Company [1953] 24 ITR 405 (SC), CIT v. C. A. Quseph and Sons [1985] 154 ITR 598 (Ker) [FB], K. A. Karim and Sons v. ITO [1984] 149 ITR 172 (Ker), S. N. Santhalingam v. ITO [1980] 121 ITR 868 (Kar), TRO v. Dilip Construction Co. [1984] 148 ITR 599 (MP), Brij Ratdnlal Bhoop Kishore v. Addl. CIT [1983] 139 ITR 906 (All). Mr. Ranka, learned counsel for the petitioner, has also contended that the court has to make a distinction in cases of illegalities and irregularities and the present is a case where the various illegalities as aforesaid have been committed. In this connection, Mr. Ranka, learned counsel for the petitioner, has referred to Chhotu Sood v. TRO [1983] 141 ITR:54 (P & H), Tara Chand v. ITO [1971] 79 ITR 743 (P & H) and Shiv Narain Dhabhai v. CWT[1980] 121 ITR 224 (Raj).