Fourth Income Tax Officer and Others vs Kurumber Betta Estate

K.S. Paripoornan, J.—The Revenue (the Fourth Income Tax Officer, Mysore Circle, Mysore, and two others) is the appellant in this writ appeal. The respondent herein, a firm having its place of business at Ernakulam, is an assessee to Income Tax. In the original petition, the prayer was to quash exhibit P-25, dated January 18, 1990, and exhibit P-29, dated March 12, 1990, communications addressed by the Revenue to the respondent-firm. The said communications stated that the sum of Rs. 11,67,000 deposited by the assessee by a demand draft has been appropriated towards the arrears of income tax/wealth-tax due from the late Sri S. Channaiah and the entire one-third share of the sale proceeds has been appropriated towards the arrears as per the instructions of the Central Board of Direct Taxes. In the original petition, there is also a prayer to direct respondents Nos. 2 and 3 to refund to the petitioner the sum of Rs. 11,67,000 with interest thereon from the date of deposit to the date of refund. Padmanabhan J., in a very detailed judgment dated November 19, 1991 (see Kurumber Betta Estate Vs. Fourth Income Tax Officer and Others, ), allowed the original petition with certain directions. Exhibits P-25 and P-29 were quashed. The Revenue was directed to settle accounts in the light of the directions and observations contained in the judgment. In brief, the learned single judge held that, out of the total amount due to Channaiah from the sale consideration, the liabilities of the firm, as on the date of death of Channaiah, will have to be paid and the balance alone could be diverted and appropriated by the Revenue. Aggrieved by the aforesaid judgment of the learned single judge, the Revenue has come up in appeal.

We heard counsel for the Revenue, Mr. N. R. K. Nair. Two-fold arguments were advanced before us. They are as follows :

(1) This court has no jurisdiction to entertain the original petition. On this short ground, the original petition should have been dismissed.

(2) The assessee-firm, having made the deposit which has been appropriated towards tax due from Channaiah, cannot turn round and seek return of any portion of the amount so deposited.

A few facts to appreciate the plea advanced before us may be stated. The respondent-assessee (firm) originally consisted of four partners. One of them was Channaiah who died in 1971. Exhibit P-1 deed of partnership permitted the legal heir to be inducted as a partner. On this basis, Pramila Krishna (legal heir of Channaiah), Sarada Vijayan, and Pavizham Madhavan Nair are the present partners. One of the original partners, Bharathi Udayabhanu, retired. Channaiah, a partner till his death in 1971, was indebted to the Income Tax Department. For realising the arrears, the Revenue issued a certificate dated June 12, 1968, and the one-third share of Channaiah in the partnership assets was kept under "attachment by exhibit P-2 order, dated December 28, 1968. Nearly ten years thereafter, by exhibit P-7, dated January 5, 1978, the Income Tax Officer, Mysore, demanded the tax due from Channaiah. There was only a bare demand. The firm wanted to sell its estate in Tamil Nadu for Rs. 35 lakhs. A tax clearance certificate was necessary. The firm offered to deposit the one-third share of Channaiah out of the net surplus after deducting the liabilities of the firm. The request was not granted. Even so, by exhibit P-14, the Commissioner of Income Tax, Karnataka, informed the firm that the proposed sale could be had, provided one-third share of the sale proceeds is deposited or an irrevocable bank guarantee is secured for the amount. By exhibit P-16, dated March 14, 1987, the firm intimated the Tax Recovery Officer that one-third of the amount will be deposited without prejudice to its contention that the liability is only to deposit one-third of the net amount after deducting all liabilities of the firm incurred in running and maintaining the estate. After getting instructions from the Commissioner of Income Tax, the Tax Recovery Officer, by exhibit P-17, dated March 24, 1987, acknowledging exhibit P-16, directed remittances of the amount by demand draft offering to keep it in deposit to be appropriated towards Income Tax after final settlement, of liabilities of Channaiah towards the firm. Along with exhibit P-18 covering letter dated July 6, 1987, the firm sent the amount by demand draft expressly stating that appropriation could be had only after settlement of the liabilities of Channaiah towards the firm. It was made further clear that the question whether the Department is entitled to get one-third of the total sale proceeds or only one-third of the balance, after deducting the liabilities of the estate has to be decided. This was repeated in a subsequent letter addressed to the Department, exhibit P-19, dated July 6, 1987. By exhibit P-23, dated May 28, 1988, the firm informed the Revenue that, out of Rs. 11.67 lakhs deposited, the net one-third share of Channaiah will only be Rs. 1.46 lakhs after meeting the liabilities of Rs. 30,59,388.39 as on March 31, 1985. A request was made to refund the excess amount. By exhibit P-25 communication dated January 18, 1990, the Revenue informed the petitioner that there is no question of deducting the liabilities. Again, by exhibit P-29, dated March 12, 1990, the Tax Recovery Officer informed the firm, the assessee, that the entire amount remitted was appropriated towards the tax liability of Chahnaiah. It was in these circumstances that the respondent-firm filed the original petition to quash exhibits P-25 and P-29 and to direct the respondents to refund the amount due and the learned single judge allowed the original petition with some directions.

The first plea taken before us is that this court has no jurisdiction to entertain the original petition. This matter has been dealt with in detail in paragraphs 6 to 9 of the judgment of the learned single judge. The learned single judge held that, if a part of the cause of action arose within the jurisdiction of this court, the original petition is competent. On facts, the learned single judge held that part of the cause of action arose within the jurisdiction of this court. Exhibit P-7 notice issued by the Revenue to the respondent-firm at Cochin and the subsequent correspondence and remittance which gave rise to the claim were all held to be in Cochin or addressed to the Cochin office within the jurisdiction of this court. We hold that the learned single judge was justified in holding that the starting point for the remittance of the amount could be traced to the garnishee proceedings initiated subsequent to exhibit P-7, a communication addressed to the respondent-firm at Cochin. The basis of the deposit made by the assessee-firm was the request made by the firm in Cochin for permission to sell the estate. Permission was given to the Cochin office and the deposit was made from that office. The conditions of deposit and appropriation were negotiated between the Cochin office and the Revenue. Exhibits P-25 and P-29, the proceedings attacked in the original petition, were proceedings addressed to the Cochin office of the petitioner and accepted in that office. Based on these premises, highlighted in paragraphs 7 to 9 of the judgment in the original petition and also placing reliance on the decisions of courts, the learned single judge held that part of the cause of action arose at Cochin. We concur with the said view. The first plea regarding want of jurisdiction in this court to entertain the original petition is negatived.

The second and the only other plea was that the deposit having been made, the assessee-firm could not ask for refund of any portion of the amount. The learned single judge highlighted the fact that, before and after deposit was made, the assessee-firm was making it clear that deposit was made subject to the right to claim liabilities. Indeed, the learned single judge has highlighted the fact that the Revenue offered to consider that question and offered to keep the amount in deposit subject to determination of that question. Exhibit P-16 communication by the firm dated March 14, 1987, and its reply thereto by the Revenue dated March 24, 1987 (exhibit P-17) and also exhibits P-18 and P-19 communications by the firm dated July 6, 1987, are a few of the documents to substantiate the plea that the Revenue offered to keep the amount remitted in deposit to be appropriated towards Income Tax after final settlement of the matter of liabilities of Channaiah towards the firm. It is clear that the deposit was made subject to the right to claim liabilities. The Department, at all times, agreed to consider that question and offered to keep the amount in deposit subject to determination of that question. It is further clear that the firm never obtained the clearance certificate agreeing to pay the ''entire amount without claiming the liabilities. In these circumstances, it is idle for the Revenue to contend that the deposit or remittance having been made, it is not open to the assessee-firm to ask for refund or return of the amount or any portion of it. This plea has no substance.

As could be seen from paragraph 13 of the judgment, the assessee as well as the Revenue agreed at the time of arguments that the liabilities of the firm as on the date of death of Channaiah will have to be paid and the balance alone could be divided and appropriated by the Department. In our opinion, the learned single judge was justified in holding that the Revenue is entitled to appropriate out of the amounts in deposit only the net amount due to Channaiah after deducting the expenses and liabilities discussed in the judgment. We are, therefore, of the view that the learned single judge was justified in quashing exhibits P-25 and P-29 and in directing the Revenue to settle the accounts in the light of the observations and directions contained in the judgment.

The judgment appealed against does not merit interference in the writ appeal. We dismiss the writ appeal.