Surender Gupta Vs ACIT (Delhi High Court)
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The Issue
The Delhi High Court considered whether a partnership firm could obtain refund of ₹1 crore, along with interest, paid towards the outstanding income-tax demand of an individual who was one of its partners.
The firm emphasised that it was a separate assessee with a separate PAN and that the demand belonged to the individual. However, the Court rejected the claim because the payment was found to have been voluntarily tendered, and the Department had not been informed of the conversion of the proprietorship into a partnership when the amount was paid.
The Court treated the firm’s grievance concerning payment of a partner’s liability as essentially an inter se dispute between the partners, rather than a demonstrated illegality in the Department’s action.
Background
A liquor business was originally conducted as a proprietorship under the name M/s. Surender Gupta.
On 8 June 2017, Mahavir Mittal and Anu Mittal joined the business, and a partnership deed was executed. Surender Gupta retained a 1% share, while the remaining two partners jointly held 99%.
The outstanding tax demands related to Surender Gupta in his individual capacity for Assessment Years 2011-12 and 2016-17.
An amount of ₹1 crore was paid towards those demands through two fixed-deposit receipts of ₹40 lakh each and a cheque of ₹20 lakh. The Court recorded that these instruments were tendered on 8 June 2017—the same date as the partnership deed.
The firm subsequently approached the High Court seeking repayment, contending that its funds had been recovered against another assessee’s liability.
Firm’s Contentions
The petitioner argued that the individual and the partnership firm had separate PANs and were different assessees. Consequently, the individual’s tax demand could not justify recovery from the firm.
It also alleged that the payment was made under coercion following a notice to the bank.
The firm relied on its CPGRAMS complaint dated 6 February 2019 and the corresponding response dated 18 March 2019. According to the petitioner, the Department had subsequently acknowledged that the business was being conducted by a partnership firm in which Surender Gupta was a sleeping partner with a 1% share.
Revenue’s Response
The Revenue maintained that the partners had handed over the FDRs and cheque of their own will and volition.
It disputed the allegation of coercion and referred to conflicting positions taken by the partners. Although Revenue counsel also suggested a possible attempt to defraud the Revenue, the Court did not make a finding establishing fraud.
The decision ultimately rested on the circumstances of payment, the absence of prior intimation and the nature of the dispute.
No Evidence of Intimation Before Payment
A decisive question was whether the Department had been informed that the proprietorship had become a partnership.
When the Court asked for a document showing such intimation, the petitioner’s counsel could not identify one.
The Court found nothing on record establishing that the Department knew of the changed constitution when the money was tendered. Information regarding the partnership was furnished only after the payment.
The subsequent acknowledgment of the partnership therefore did not establish that the Department had knowingly taken the firm’s money against a separate individual’s demand at the relevant time.
Payment Found Voluntary
The Court held that the two FDRs and cheque had been voluntarily tendered.
It observed that the payment might have followed attachment of the bank account, but, in the circumstances before it, this did not establish that the amount had been forcibly recovered.
The Court further reasoned that, if the demand did not belong to the firm, there was no compulsion for the firm to deposit the amount. If the firm nevertheless paid a liability belonging to one of its partners, the resulting grievance was essentially a matter between the partners.
Decision
The High Court found no illegality, error or arbitrariness in the Department’s action on the record before it.
It declined to grant the refund and interest sought and dismissed the writ petition.
Author’s Comments
The judgment should be read carefully. It does not lay down a general rule that a partner’s personal tax liability can automatically be recovered from partnership assets. The Court’s conclusion turned on its finding of voluntary payment and the absence of evidence that the Department had been informed of the partnership before receiving the amount.
A separate PAN establishes a distinct tax identity, but that fact alone did not resolve the questions of who tendered the money, in what capacity and under what circumstances.
The practical lesson is the importance of contemporaneous documentation. A change in business constitution, an objection to recovery and any protest accompanying payment should be clearly recorded. A later complaint may establish that a dispute exists, while leaving unanswered what the Department knew when payment occurred.
The observation regarding attachment also requires a confined reading. The Court did not establish that every payment following attachment is necessarily voluntary; it reached that conclusion on this record.
The case concerns refusal of a writ refund on particular facts, rather than a general determination that firms bear their partners’ personal tax debts.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. By way of present writ petition, the petitioner prays for refund of Rs. 1,00,00,000/- along with interest which was recovered from the petitioner, a partnership firm though said demand was of Mr. Surender Gupta, an individual.
2. The facts in short are that a liquor shop was being run in the name and style of M/s. Surender Gupta, of which Mr. Surender Gupta was the proprietor. On 08.06.2017, Mr. Mahavir Mittal and Ms. Anu Mittal entered the business of said Surender Gupta and a partnership deed came to be executed, wherein Mr. Surender Gupta remained partner with 1% share while remaining 99% share was jointly held by Mr. Mahavir Mittal and Ms. Anu Mittal.
3. The grievance of the petitioner is that the respondents had recovered a sum of Rs. 1,00,00,000/- from M/s. Surender Gupta (firm) against the outstanding demand of Mr. Surender Gupta (individual for the assessment year 2011-12 and 2016-17). Admittedly, said amount of Rs. 1,00,00,000/- was recovered rather paid by way of two FDRs of Rs. 40,00,000/- each and one cheque of Rs. 20,00,000/-.
4. Learned counsel for the petitioner argued that the demand related to Mr. Surender Gupta who had a different Permanent Account Number, whereas the amount had been recovered from the petitioner firm, which was a different assessee having a separate Permanent Account Number.
5. On Court’s query as to whether the petitioner has placed on record any document evidencing that the respondents were informed about the change in the constitution of said proprietorship concern of Mr. Surender Gupta (vide partnership deed dated 08.06.2017)? Learned counsel for the petitioner had no answer.
6. When the Court asked as to how can it be said that the amount of Rs. 1,00,00,000/- was recovered? When amount of Rs. 80,00,000/- had been realised from FDRs and Rs. 20,00,000/- was paid by way of cheque and not by any coercive measures (such as attachment of the bank account, etc.), learned counsel submitted that a notice was sent to the bank and it was under coercion that the present petitioner-firm had to handover the two FDRs and a cheque.
7. Learned counsel for the petitioner invited Court’s attention towards the complaint which the petitioner had filed before the CPGRAMS on 06.02.2019 and the corresponding redressal dated 18.03.2019 and highlighted that the respondents had inquired and accepted the fact that the business of M/s. Surender Gupta was being conducted by a partnership firm in which Mr. Surender Gupta, having 1% share, is a sleeping partner.
8. Mr. Menon, learned counsel for the respondents, on the other hand, argued that the partners of the petitioner had handed over two FDRs and a cheque at their own will and volition. He submitted that the allegation of coercion is baseless and if there was any coercion, nothing prevented the petitioner to register a police complaint.
9. He further submitted that a perusal of the report dated 18.03.2019 shows that there is a serious dispute between the partners of the firm, and Mr. Surender Gupta on one hand and remaining partners (Mr. Mahavir Mittal and Ms. Anu Mittal) on the other hand have been taking flickering stands. He added that there is a possibility that all of them have joined hands to defraud the revenue.
10. Having heard learned counsel for the parties, we are of the considered opinion that on 08.06.2017, the petitioner had tendered two FDRs of Rs. 40,00,000/- each and a cheque of Rs. 20,00,000/- to the respondents voluntarily. It might have happened that since the bank account was attached, the petitioner paid the amount but it cannot be said that the same was recovered forcefully.
11. As a matter of fact
