Court holds no illegality in Income Tax Department's recovery; inter-se dispute between partners cannot be resolved through writ jurisdiction
In a significant ruling delivered on October 8, 2026, the Delhi High Court (Division Bench comprising Justices Dinesh Mehta and Dr. Aditi Choudhary) dismissed a writ petition filed by M/s Surender Gupta, a partnership firm, seeking refund of Rs. 1 crore paid against the individual tax demand of one of its partners, Mr. Surender Gupta.
The petitioner firm contended that the tax demand related solely to Mr. Surender Gupta as an individual assesse, who had a different Permanent Account Number (PAN) than the firm, which operated as a separate assessee with its own PAN. The firm argued that the amount was wrongly recovered from it instead of the individual partner.
Factual matrix reveals that originally the business was run as a proprietorship under Mr. Surender Gupta. On June 8, 2017, the business constitution changed when Mr. Mahavir Mittal and Ms. Anu Mittal joined as partners through a partnership deed, with Mr. Surender Gupta holding only 1% share. Despite this change, the Income Tax Department was not informed of the new partnership structure at the time the tax demand was paid.
The petitioner firm made the payment voluntarily by tendering two Fixed Deposit Receipts (FDRs) of Rs. 40 lakhs each and a cheque of Rs. 20 lakhs, totaling Rs. 1 crore. The petitioner claimed that the payment was made under coercion due to bank account attachment; however, the Court found no evidence of forceful recovery or coercion, noting absence of any contemporaneous material or police complaint.
The Income Tax Department's counsel highlighted that there was a serious dispute among the partners and suggested the possibility of collusion to defraud the revenue. The Court observed that since the Department was unaware of the change from proprietorship to partnership at the time of payment, it cannot be held liable for any illegality or arbitrariness.
Importantly, the Court noted that if the firm paid an amount concerning the tax liability of an individual partner, the dispute is essentially an internal matter between the partners (inter-se) and does not warrant interference through writ jurisdiction.
The Court emphatically ruled that a writ petition is not the proper forum to address individual grievances or inter-partner disputes. Consequently, the petition for refund was dismissed, and no relief was granted to the petitioner firm.
This judgment underscores the critical importance of timely informing tax authorities regarding changes in business constitution and clarifies that payments made voluntarily by a firm on behalf of an individual partner's tax liability may not be refundable through writ proceedings. It also highlights the limits of judicial intervention in disputes of a private nature between partners in a firm.
Bottom Line:
Income Tax - Refund of amount deposited towards tax demand - Amount paid by partnership firm against individual partner's tax demand - Where Department was not informed about change in constitution from proprietorship to partnership and amount was voluntarily tendered through FDRs and cheque, no illegality or arbitrariness in Department's action - Dispute, if any, is inter-se between partners - Refund in writ jurisdiction refused.
Statutory provision(s):
Constitution of India, 1950 Article 226, Income Tax Act (relevant provisions related to tax demand and recovery)
