Notice u/s 226(3) to a partnership firm

" QUERY-----  IS THE NOTICE ISSUED TO THE PARTNERSHIP FIRM A VALID NOTICE u/s 226(3)?"

Unless any court order for stay on recovery obtained by the assessee (partner of the firm), the notice is valid.

As the section clearly states: 

“(3) (i) The [Assessing] Officer [or Tax Recovery Officer] may, at any time or from time to time, by notice in writing require any person from whom money is due or may become due to the assessee or any person who holds or may subsequently hold money for or on account of the assessee to pay to the [Assessing] Officer [or Tax Recovery Officer] either forthwith upon the money becoming due or being held or at or within the time specified in the notice (not being before the money becomes due or is held) so much of the money as is sufficient to pay the amount due by the assessee in respect of arrears or the whole of the money when it is equal to or less than that amount."

Refer:  /experts/notice-u-s226-3-on-income-tax-act-244580.asp

OR  https://www.linkedin.com/pulse/critical-analysis-section-226-3-income-tax-act-1961-sri-maithreya

SIR,

My query is whether the FIRM can be considered as a person from whom money is due or may become due to the assessee or any person who holds or may subsequently hold money for or on account of the assessee??  

As per S.2(31) of Income Tax Act, 1961, unless the context otherwise requires, the term “person” includes:

(i)  an individual,

(ii)  a Hindu undivided family,

(iii)  a company,

(iv)  a firm,   .......................................................................................

Sir,

Can the tax libility of a partner be recovered from the Partnership Firm where he is a Partner by issuing notice u/s 226(3)?

YES!

THAT IS MY QUERY. 

Section 226(3), specifically enacted for the recovery of tax dues from the persons other than assessee, from whom any amount is available/due to assessee. I reprint the bolded part of the section as: 

“(3) (i) The [Assessing] Officer [or Tax Recovery Officer] may, at any time or from time to time, by notice in writing require any person from whom money is due or may become due to the assessee or any person who holds or may subsequently hold money for or on account of the assessee to pay to the [Assessing] Officer [or Tax Recovery Officer] either forthwith upon the money becoming due or being held or at or within the time specified in the notice (not being before the money becomes due or is held) so much of the money as is sufficient to pay the amount due by the assessee in respect of arrears or the whole of the money when it is equal to or less than that amount."

The other person can be any debtors, banks, loanee etc..

If you think, the firm is liable to pay the dues.........................NO.

The amount due to assessee by firm is to be recovered from firm, ON BEHALF OF THE ASSESSEE,  upto the amount of dues or the liability of the firm to the partner/assessee whichever is less.

Section 226(3) applies to attachment of debts by which a judgment creditor is enabled to reach money due to the  judgment debtor which is in the hands of the a third person.   

My concern is------ whether the realtionship between the Firm and its partners is that of a DEBTOR- CREDITOR? The CAPITAL Invested in a PARTNERSHIP FIRM, is it a debt owed by the Firm to the PARTNER?

Section 226 of the Income Tax Act provides for a garnishee notice in the following terms:

“Section 226 3(i) The assessing officer or tax recovery officer may, at any time or from time to time, by notice in writing require any person from whom money is due or may become due to the assessee or any person who holds or may subsequently hold money for or on account of the asssessee, to pay the assessing officer or tax recovery officer either forthwith upon the money becoming due or being held or at or within the time specified in the notice (not being before the money becomes due or is held) so much of the money as is sufficient to pay the amount due by the assessee in respect of arrears or the whole of the money when it is equal to or less than that amount.”

Under Sub-section (x), if the person to whom a notice is sent fails to make payment in pursuance thereof he shall be deemed to an assessee in default. Rule 26 of Schedule II of the Income Tax Act then provides:

“26. Debts and Shares, etc. –

(1) In case of—

a) a debt not secured by a negotiable instrument,

b) a share in a corporation, or

c) other movable property not in the possession of the defaulter except property deposited in, or in the custody of, any court,the attachment shall be made by a written order prohibiting, --

(i) in the case of the debt – the creditor from recovering the debt and the debtor from making payment thereof until the further order of the tax recovery officer;

(ii) in the case of the share – the person in whose name the share maybe standing from transferring the same or receiving any dividend thereon;

(iii) in the case of the other movable property (except as aforesaid) – the person in possession of the same from giving it over to the defaulter.

(2) A copy of such order shall be affixed on some conspicuous part of the office of the tax recovery officer, and another copy shall be sent,

 in the case of the debt, to the debtor,

in the case of the share, to proper officer of the corporation, and

in the case of the other movable property (except as aforesaid), to the person in possession of the same.

Refer: https://supremecourtofindia.nic.in/outtoday/CA435403.pdf