Surender Gupta v. Assistant Commissioner of Income Tax, Circle 59(1) & Anr.

What happened

A liquor shop was run in the name of M/s Surender Gupta by Mr. Surender Gupta as its proprietor. On 8 June 2017 two other persons entered the business and a partnership deed was executed under which Mr. Gupta remained a partner with a 1% share and the other two held 99% jointly. The petitioner firm said that the department had recovered ₹1,00,00,000 from the firm against the outstanding demand of Mr. Gupta as an individual for assessment years 2011-12 and 2016-17, which was admittedly handed over as two fixed deposit receipts of ₹40,00,000 each and a cheque of ₹20,00,000. Its counsel argued that the demand related to a different assessee with a different Permanent Account Number, that the amount was recovered under coercion after a notice was sent to the bank, and relied on a complaint the firm filed on the public grievance portal on 6 February 2019 and the redressal report of 18 March 2019, which records that the department accepted that the business was being conducted by a partnership in which Mr. Gupta is a 1% sleeping partner. The department said that the partners handed over the receipts and the cheque of their own will, that if there was coercion nothing prevented a police complaint, and that the report of 18 March 2019 shows a serious dispute between the partners, who had been taking shifting stands, so that all of them might have joined hands to defraud the revenue. Asked by the Court whether it had placed any document showing that the department was told of the change in the constitution of the proprietorship by the partnership deed, the petitioner's counsel had no answer.

Questions before the court

• Can a partnership firm that paid ₹1,00,00,000 against a partner's personal tax demand, without informing the department of the firm's constitution, claim a refund by writ petition on the footing that it was recovered by force from a different assessee?

Why the court ruled this way

The Court held that the firm had tendered the two fixed deposit receipts and the cheque to the department voluntarily, and that even if the payment was made because the bank account had been attached, it could not be said to have been recovered forcefully (paragraph 10). The amount was in substance deposited by, or recovered from, the business in the name of Mr. Gupta, nothing on record showed that the department was told of the change in constitution, even when the amount was paid, and if the demand did not belong to the firm there was no compulsion on the firm to deposit it, while a payment by the firm towards the demand of one of its partners is essentially an inter se dispute between partners who are family members (paragraph 11). On the date of the tender the department was not informed that the firm was a partnership of three partners and was told only after the payment (paragraph 12). A writ court is not meant for redressal of individual grievances or disputes between partners, and no illegality, error or arbitrariness was found in the department's action (paragraph 13).

Controlling point

A payment tendered voluntarily by a firm towards a partner's personal tax demand, without notice to the department of the change in the constitution of the business and without established coercion, cannot be recovered through a writ petition, as the dispute is one between the partners.

Order and next steps

The Court held that the relief claimed could not be granted, dismissed the writ petition as devoid of merit and disposed of the pending applications.

Practical implications

A firm that is asked to pay a partner's personal tax demand should tell the department in writing, before paying, that the demand belongs to a different assessee, and a taxpayer who says that a payment was coerced should be ready to show the coercion, since a writ court will not treat a voluntary tender as recovery.

Limits of this ruling

• The Court did not decide the merits of the underlying demands for 2011-12 and 2016-17 or the partners' rights against each other, and it recorded but did not decide the department's suspicion that the partners had acted together to defraud the revenue. The judgment gives 8 June 2017 both as the date of the partnership deed and as the date on which the amount was tendered, and this note repeats the dates as recorded.