Court rules HUF funds can't be fully attached for individual tax, protecting assets

The court ruled in favor of the petitioner, a Hindu Undivided Family (HUF), challenging the debit of funds from its account for an individual's tax liability. The court held that only the portion attributable to the individual's share in the HUF account could be attached for personal tax obligations. The respondent was directed to recredit the amount excluding the individual's share and to retain that portion pending the appeal's outcome. The judgment emphasized the distinction between individual and HUF tax liabilities, safeguarding HUF assets from undue depletion for individual debts.

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Issues:
Debit of HUF account for individual's tax liability.

Analysis:
The petitioner, a Hindu Undivided Family (HUF), challenged the debit of Rs.63,59,240 from its account for the tax liability of Naresh Chheda, the Karta of the HUF. The HUF sought a direction for recrediting the amount. The assessment order passed against Naresh Chheda in his individual capacity led to a demand for further tax payment, resulting in a notice to the bank to debit the HUF account. The petitioner contended that the bank debited the amount without proper verification, causing the petitioner to seek an explanation and request a refund. The court examined whether the HUF account could be debited for an individual's tax liability.

The court acknowledged that Naresh Chheda, as the Karta, had an undivided share in the HUF's bank account. It was established that the tax liability belonged to Naresh Chheda individually and not the entire HUF. Therefore, the respondent was entitled to attach only the portion attributable to Naresh Chheda's share in the HUF account, not the entire amount. Both parties agreed to determine Naresh Chheda's share in the account for appropriate action.

Considering the individual nature of the tax liability, the court deemed the respondent's action of claiming the amount from the entire HUF account as unsustainable. The court directed the respondent to redeposit the amount excluding Naresh Chheda's share upon the petitioner's intimation, failing which interest would be applicable. The portion attributed to Naresh Chheda would remain with the respondent pending the appeal's outcome. The court made the rule absolute in favor of the petitioner, with each party bearing their costs.

This judgment clarifies the distinction between individual and HUF tax liabilities, ensuring that only the individual's share in the HUF account can be attached for personal tax obligations, safeguarding the HUF's assets from undue depletion for individual debts.

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