Income Tax Appellate Tribunal - Jodhpur
Smt. Savitri Devi And Smt. Deeplata vs Income Tax Officer on 30 October, 2007
Equivalent citations: (2007)112CTR(JODH)870
ORDER
Hari Om Maratha, J.M.
1. Both these appeals have common facts and exactly identical grounds, therefore, conveniently, we can dispose them of by a common order. The grounds raised in both these appeals are verbatim identical, so, if grounds of one appeal are extracted, our finding in relation thereto will also apply to the other appeal. The common grounds read as under:
1. That the learned CIT(A), was not justified on facts and in law in holding that the appellant is responsible for payment of outstanding demand/dues of the firm Ganganagar Cotton Ginning and Pressing factory from which she had already retired.
2. That the learned CIT(A) was not justified on facts and in law in holding that the appellant was a partner of the dissolved firm, M/s Ganganagar Cotton Ginning and Pressing factory in the asst. yr. 1999-2000 and also that she factually did not retire from the aforesaid firm in April, 1990.
3. That the learned CIT(A), was not justified on facts and in law in holding that:
(i) the partnership deed executed on 2nd April, 1990 did not evidence that the appellant opted out of the business. Further, there was no document or letter or dissolution deed to evidence that the appellant opted out of business.
(ii) the partnership deed dated on 13th Aug., 1991 is not genuine for the reason that it does not contain signatures of the retiring partners in total disregard to the fact that while constituting a new partnership the signatures of retiring partners are not sine qua-non and aforesaid deed was accepted by the AO as genuine in assessment for asst. yr. 1992-93 and no one has questioned such findings.
(iii) the appellant has received her share on or after 30th May, 1998 as her share on dissolution of firm, whereas the same represented her share retained by other group of partners on expulsion/retirement from partnership on 2nd April, 1990.
4. That the learned CIT(A) was not justified on facts and in law in confirming that the learned AO was justified in serving demand notice under Section 156 of the IT Act, 1961 on the appellant.
5. That the learned CIT(A) was not justified on facts and in law in finding that the appeal was not maintainable before him.
6. That the learned CIT(A) has not appreciated the facts and documents and his order is erroneous both on facts and in law.
7. That the appellant has not been allowed adequate opportunity by the learned CIT(A) so as to explain her side.
2. The background facts of these cases, in nutshell, are that in the case of the firm Ganganagar Cotton Ginning and Pressing factory for asst. yr. 1999-2000, a tax demand of Rs. 15,57,66,510 was raised in respect of capital gains under Section 45(4) of the IT Act, 1961, on its dissolution. The AO served demand notice on the dissolved firm and also on all the existing partners, individually, who included both these appellants, who were treated as partners of the firm during the relevant period. The basic common contention of the appellants is that they were not partners in the dissolved firm at the relevant time and had retired much earlier, long before the dissolution and therefore, no demand notice could be served on them, in lieu of the demand raised against the firm.
3. The learned CIT(A) after considering the entire facts and circumstances of the case gave verbatim identical findings in both the cases in his separate orders of the same date i.e., 2nd Aug., 2004. We extract the operational part of the order given in last para of p. 6 for ready reference, as under:
It is observed that the appellant has not objected to the liability of the firm from the additions made in case of the firm but has claimed in the grounds of appeal that she is not liable to tax and has denied her individual liability. With modification in pattern of taxation of registered firm and its partners, under Section 247 which allowed partner to file appeal was deleted by the Finance Act, 1992 w.e.f. 1st April, 1993 and hence, appeal by the appellant lady under Section 247 is not competent and thus, invalid. Under Section 246A(1)(a), an appeal can be filed by the assessee aggrieved by the AO's order under Section 143(3)/144/147, etc., where the assessee denies his liability to be assessed under IT Act or objects to the amount of income or tax determined or status, etc. The appellant lady has not denied the liability of the firm to tax nor has objected to the determination of income of the firm or tax determined payable by the firm and thus, appeal is not competent under Section 246A(1)(a) or even (b). In my opinion, the appeal by the appellant lady is premature. If the AO fails to recover the demand from firm, recovery proceedings shall be initiated against the partners as provided under Section 189(3), which provides that all the partners are jointly and severally liable for payment of demand. Thus, appeal is not maintainable.
4. From the bare reading of the above, it is clearly revealed that the learned CIT(A) has given a finding that notices of recovery served on these appellants are "premature". The AO has to first take action under Section 189(3) and only when he fails to recover the demand from the firm then he can take action against the partners. The appellants have even challenged the "fact finding" by learned CIT(A), that these appellants were partners in the firm, inter alia. They have stated that they were not the partners in the firm at the time of its dissolution and as such they are not liable for its acts and conducts.
5. We have heard rival submissions and have perused the available materials on record carefully.
6. Recently this Bench has decided the case of the firm in which a legal ground was taken in relation to service of notice under Section 148 of the Act. This Bench has given a finding of fact that the firm got dissolved w.e.f. 19th Aug., 1985, in consonance of the finding given by the learned Addl. District Judge, in his order dt. 30th May, 1998. In view of the above finding, tax demand, which is the subject-matter of these appeals, does not survive. When there is no subsisting demand of tax and that the learned CIT(A) has also in a way, held the notices of demand served on appellant to be premature, no such demand survives against them. Therefore, these demands have become infructuous. The AO can take no action on the basis of the impugned notices of demand. Therefore, the entire matter is restored back to the file of the AO to decide the same in the light of the decision given by this Bench in the case of the firm and after giving opportunity of hearing to the assessee insofar as the issue relating to the common grounds Nos. (1) and (2) of the appeals are concerned. As far as the common ground Nos. (4) and (5) are concerned, the same are allowed. The learned CIT(A) has given contradictory finding with regard to issue of notice of demand under Section 156 of the Act. On the one hand he is holding the demand as premature and, on the other, he is justifying the issue of demand notices. When the demand is being held as premature and the Department has not assailed the same, no question of issuance of demand notices arises. Ground No. (4) of these appeals is also allowed by holding that in the given facts and the circumstances of the case, no such demand notices could be issued.
7. In fact, all the common grounds raised in these appeals are interlinked and interconnected. The perusal of the records reveals that the constitution of the firm underwent changes. Both these assessees joined the firm on 9th Aug., 1977 having shares of 12 per cent each in the profits and losses of the firm. At that time total number of partners were 13, a copy of the partnership-deed is enclosed. Subsequently, this partnership had undergone a change and new deed of partnership was executed on 1st Sept., 1981, in which number of partners were reduced to 10 only. Both these appellants continued to have 12 per cent share each as above. Yet, another change took place on 2nd April, 1990 and a fresh deed was executed in which only 5 partners with 20 per cent share each remained. In this partnership both these appellants did not remain as partners. The contention of these appellants is that they did not continue to be partners in the firm and ceased to be partners. From the deed dt. 2nd April, 1990, it appears that both these assessees opted out of the firm on that date. But, in this case a demand has been raised against them in view of the order of the Court dt. 19th May, 1998. A tax liability has been raised against them, so they have a legal right to assail the tax demand raised against them. Therefore, common ground No. (5) of these appeals is allowed. The assessee being aggrieved by raising of tax demand is the person who can file appeal as per the provisions of the Act.
8. In the result, these appeals are partly allowed and are partly allowed for statistical purposes.