R.K. Agarwal, J. - (1.) BY means of the present writ petition, the petitioner seeks a writ of certiorari quashing the order dated April 29, 1987, passed by the Income-tax Officer, Circle-I(6), Kanpur, respondent No. 1 (filed as annexure H to the writ petition), as also the notice dated July 27, 1987, issued by the Tax Recovery Officer (A), Kanpur, respondent No. 2 (filed as annexure-I to the writ petition). The petitioner further seeks a writ, order or direction prohibiting respondent No. 2 from proceeding with the recovery of the demand mentioned in the notice dated July 22, 1987. The petitioner further seeks a direction to the Commissioner of Income-tax, Kanpur, respondent No. 3, to release the title deed of the property No. 18/183-A, Kurswan, Kanpur, to the petitioner.
(2.) THE facts of the case are that the petitioner along with two other persons stood surety and executed a surety bond dated May 7, 1974, for the value of stocks worth Rs. 1,00,559 belonging to one Guru Nanak Metal Stores, 67/40, Bhusa Toli, Daulatganj, Kanpur, which was seized by the Income-tax Department in pursuance of the search conducted on April 27, 1974, at the business premises of the aforesaid Guru Nanak Metal Stores. In order to get it released in terms of the surety bond, the petitioner deposited the title deed of his immovable property bearing house No. 18/ 183-A, Kurswan, Kanpur, with the Commissioner of Income-tax, Kanpur, respondent No. 4, by way of equitable mortgage. THE petitioner further undertook that if the said amount of Rs. 1,00,559 or as may be determined as income-tax, wealth-tax and/or gift-tax liability of the firm and its partners to the extent of Rs. 1,00,559 or less as confirmed or varied by the appellate authorities or as settled by the Commissioner of Income-tax, Kanpur, and the said tax liability as may be determined up to the extent of Rs. 1,00,559 only shall be realised from him by sale of his property mentioned in the schedule of the surety bond. He further undertook that he shall not mortgage or charge or in any way encumber the said property till the security mentioned above is released. It appears that for the assessment year 1975-76 in respect of Guru Nanak Metal Stores, Kanpur, assessment was completed by respondent No. 4, vide order dated January 19, 1978. A demand of Rs. 41,455 being income-tax and interest thereon was raised against the said firm. The aforesaid amount of Rs. 41,455 was paid by the firm and its partners some time in March, 1978, and no demand was outstanding against the said firm or its partners, The assessment order dated January 19, 1978, was modified in appeal by the Commissioner of Income-tax, Kanpur, vide order dated August 28, 19.82, and the appeal filed by the Department against the said order was dismissed by the Income-tax Appellate Tribunal, Allahabad, vide order dated August 22, 1984. The Income-tax Officer, Circle-I(6), Kanpur, respondent No. 1, gave effect to the order of the Commissioner of Income-tax (Appeals), Kanpur, and issued a refund voucher of Rs. 24,330 to the said firm on February 12, 1985. It appears that the Income-tax Officer, Circle-1(6), Kanpur, respondent No. 1, initiated penalty proceedings against the firm under Section 271(1)(c) of the Income-tax Act, 1961 (hereinafter referred to as the "Act"), and imposed penalty on the said firm. The partners of the said firm applied and obtained clearance certificate under Section 230A of the Act, even after imposition of the penalty under Section 271(1)(c) of the Act, and disposed of their immovable properties. The Tax Recovery Officer (A), Kanpur, respondent No. 2, had issued notice of demand dated September 30, 1985, to the petitioner requiring him to deposit the amount of penalty imposed upon the said firm under Section 271(1)(c) of the Act. The amount demanded is Rs. 1,18,540. On receipt of the demand notice, the petitioner filed a reply stating, inter alia, that the surety bond was executed by him only for income-tax, wealth-tax and/or gift-tax liability of the said firm and its partners and as such the amount or penalty imposed on the firm cannot be demanded from him. It was further stated that the said firm and its partners having paid the entire income-tax and also claimed refund, the amount of penalty cannot be demanded from him. The petitioner vide letter dated February 13, 1986, approached the Commissioner of Income-tax, respondent No. 3, for release of the title deed in respect of his house No. 18/183-A, Kurswan, Kanpur. However, the Commissioner of Income-tax, respondent No. 3, vide letter dated March 20, 1986, informed the petitioner that the title deed of the said property could only be released if the petitioner arranges to pay the demand which is outstanding against the firm. The petitioner once again requested respondent No. 3 to release the title deed of the property whereupon he was directed to meet the Income-tax Officer, Circle-1(G), Kanpur, respondent No. 1. However, respondent No. 1 vide order dated April 29, 1987, had informed the petitioner that the title deed of the property No. 18/183-A, Kurswan, Kanpur, cannot be released till the entire amount of the penalty is paid or satisfactory arrangement for payment is being made. Instead of releasing the title deed of his immovable property No. 18/183-A, Kanpur, he had been informed by the Tax Recovery Officer, respondent No. 2, that he will take coercive measures for the realisation of the amount of penalty (Rs. 1,18,540) which is outstanding against the said firm by attaching and selling the immovable property of the petitioner.
(3.) IN the counter affidavit filed by Sri Arun Kumar Bhatia, INspector, attached in the office of the Tax Recovery Officer (A), Kanpur, respondent No. 2, the execution of the surety bond dated May 7, 1974, has not been denied. However, it has been stated that, according to the terms of the surety bond, the petitioner stood surety for the firm and its partners to the extent of Rs. 1,00,559 jointly and severally and the petitioner was aware that if the said amount of Rs. 1,00,559 or as maybe determined as tax liability under the Direct Tax Act on the firm and its partners shall be realised from the petitioner by sale of his property. The refund of Rs. 24,330 to the firm on February 12, 1985, as stated by the petitioner in paragraph 15 of the writ petition, has been admitted in the counter affidavit filed by the said Sri Arun Kumar Bhatia. However, it has been stated that the penalty imposed under Section 271(1)(c) of the Act, on the firm is a tax liability under the Direct Taxes Act, and on the non-payment by the firm, Guru Nanak Metal Stores, the recovery can be made against the petitioner, who stood surety to the firm and its partners for a liability to the extent of Rs. 1,00,559. The fact of the applying and obtaining of income-tax clearance certificate under Section 230A of the Act, by the partners of the said firm, according to the respondents, is not relevant, and therefore, the recovery proceeding's for the realisation of the outstanding amount of penalty imposed against the firm, Guru Nanak Metal Stores, from the petitioner is perfectly justified in law. In the rejoinder affidavit filed by Sri Bhupendra Singh, son of the petitioner, it has been reiterated that the petitioner stood surety only for the liability of income-tax, wealth-tax and gift-tax and not for any penalty under Section 271(1)(c) of the Act, and, therefore, the petitioner is not liable to pay the amount of penalty imposed under Section 271(1)(c) against the firm. He is entitled for the release of the title deeds of the immovable property bearing No. 18/183A, Kurswan, Kanpur.;