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North West Karnataka Road Transport Corporation (Nwkrtc), by Its Managing Director and anr. Vs. State of Karnataka, by Its Secretary, Department of Commercial Taxes and ors. - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtKarnataka High Court
Decided On
Case NumberW.P. Nos. 15115 and 17723-24/2004
Judge
Reported inILR2005KAR1694; [2006]144STC167(Kar)
ActsKarnataka Sales Act, 1957 - Sections 14, 14(1), 14(5) and 46(5A); Road Transportation Corporation Act, 1950; Income Tax Act, 1922; Income Tax (Amendment) Act, 1961 - Sections 226(3); Code of Civil Procedure (CPC)
AppellantNorth West Karnataka Road Transport Corporation (Nwkrtc), by Its Managing Director and anr.
RespondentState of Karnataka, by Its Secretary, Department of Commercial Taxes and ors.
Appellant AdvocateR.V. Jayaprakash, Adv.
Respondent AdvocateKempanna, HCGP for R1, R2 and R3
DispositionPetition allowed
Excerpt:
(a) karnataka sales tax act, 1957 - section 14 - road transportation corporation act, 1950 - security deposit - payment of - petitioner establishing refreshment counters and other commercial establishments in its various bus stands - license granted to the 3rd respondent to run a refreshment room - 3rd respondent defaulting in payment of taxes - the assistant commissioner of commercial taxes issuing garnishee notices under section 14 of the kst act to the petitioner corporation attaching the security deposit held by the petitioner - objection of petitioner rejected - whether the petitioner - corporation is under on obligation to make the payment of security deposit of the assessee in default below the expiry of the period of agreement or before the termination of contract - held - in the..........had held that a contingent debt is not a debt, as it has no present existence. a debt is a sum of money payable under an existing obligation. it may be payable forthwith or a future date. the relevant portion is as follows;'a contingent debt is no debt till the contingency happens. in its ordinary as well as its legal sense; a debt is a sum of money payable under an existing obligation. it may be payable forthwith, solvendum in praesenti, then it is a debt 'due' or it may be payable at a further date) solvendum future; then it is a debt 'accruing', but in either case it is a debt. but a contingent debt has no present existence, because it is payable only when the contingency happens, and exhypothesi that may or may not happen.12. in the case of hyderabad co-operative commercial.....
Judgment:
ORDER

Abdul Nazeer, J.

1. Petitioners have called in question the notices issued under Section 14 of the Karnataka Sales Act, 1957 (for short 'KST Act') whereby the second respondent has directed the petitioners to pay the amount held by them as 'security deposit' of the 3rd respondent towards his tax arrears.

2. The first Petitioner is a Road Transport Corporation established under the provisions of the Road Transportation Corporation Act, 1950 and the second respondent is its Divisional Controller. The Petitioner has established refreshment counters and other commercial establishments in its various bus- stands. In the bus-stand at Mudhol, the first petitioner was granted licence to run a refreshment room for a period of six years commencing from 8.11.1999 on a monthly licence fee of Rs. 15,800/- for the first year with escalation of 10% every year thereafter. The licence so granted would expire on 7.8.2005. Similarly, the first petitioner has granted another licence to the third respondent for running a refreshment room at Jamkhandi Bus-stand for a period of six years commencing from 20.6.2002 on a monthly licence fee of Rs. 28,500/- for the first year with escalation of 10% every year thereafter. The general standing orders of the Corporation provides for collection of Security deposit from the licensees of commercial establishments for the due performance of the terms and conditions of the agreement of licence. The agreements entered into for the said purpose are at Annexure-A and B respectively. The third respondent has deposited Rs. 94,800/- towards security deposit in respect of the first agreement. In respect of the second agreement, the 3rd respondent has deposited nine times the offered amount towards security deposit.

3. The third respondent is an assessee borne on the file of the second respondent. It appears that the third respondent has defaulted in payment of taxes. The second respondent issued garnishee notices under Section 14 of the KST Act to the petitioner attaching the aforesaid security deposit held by the petitioner. The petitioner filed objections to the said notices. The second respondent while rejecting the objections of the petitioners has called upon them to comply with the garnishee notices referred above.

4. I have heard Sri R.V. Jayaprakash, learned Counsel appearing for the petitioner-Corporation and Sri Kempanna, learned Government Pleader appearing for respondents 1 and 2. The 3rd respondent though served has remained unrepresented.

5. Sri R.V. Jayaprakash, learned Counsel appearing for the petitioners submits that the amount in deposit with the Corporation is in terms of the contract at Annexure-A and B towards due performance of the terms and conditions of the Contract and that the said amount would become due only after the expiry of the period of licence or termination of the licence whichever is earlier, that too after deduction of any liability of the 3rd respondent to the Corporation. The security deposit has not yet become payable to the 3rd respondent. The amount in deposit is not a debt due by the petitioner to the 3rd respondent and that there is no contractual relationship of debtor and creditor between them. The amount has not yet become payable to the third respondent Therefore the said amount cannot be attached under Section 14 of the Act.

6. On the other hand, learned Government Pleader submits that the amount in deposit with the Corporation is the amount due by the petitioner to the third respondent; Therefore, the Corporation is bound to honour the garnishee notices issued by the second respondent in exercise of its power passed under Section 14 of the Act.

7. Having regard to the rival contentions of the learned counsel for the parties, the point to be determined is whether the petitioner-Corporation is under an obligation to make the payment of security deposit of the assessee in default before the expiry of the period of agreement or before the termination of contract.

8. Section 14 of the KST Act provides for recovery of tax or penalty or any other amount from certain other persons. The relevant provisions are Sub-section (1) and (5) of Section 14 of the Act, which are as follows;

'Recovery of tax or penalty or any other amount from certain other persons - (1) The assessing authority may at any time or from time to time, by notice in writing (a copy of which shall be forwarded to the dealer at his last address known to the assessing authority) require any person from whom money is due or may become due to the dealer or any person who holds or may subsequently hold money for or on account of the dealer to pay to the assessing authority, either forthwith upon the money becoming due or being held 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 dealer in respect of arrears of tax or penalty or the whole of the money when it is equal to or less than that amount

(2) xxxxxxxxxxx

(3) xxxxxxxxxxx

(4) xxxxxxxxxxx

(5) Where any person to whom a notice under this section is sent objects to it on the ground that the sum demanded or any part thereof is not due by him to the dealer or that he does not hold any money for or on account of the dealer, then nothing contained in this section shall be deemed to require such person to pay the sum demanded or any part thereof to the assessing authority.'

9. The section provides a machinery for the department to collect tax arrears from the debtors of the assessee. It is in substance the garnishee proceedings under Civil Procedure Code. Similar provision under the Income Tax Act 1922 came up for consideration before the Madras High Court in BUDHA PICTURES v. FOURTH INCOME TAX OFFICER , : [1964]52ITR321(Mad) . It has been held that the basic foundation for issuing attachment is the subsistence of a relationship of debtor and creditor between the garnishee and the assessee. The liability to pay may be forthwith as on the date of receipt of notice or it may be that such liability would mature after the notice. It has been further held that as on the date of service of notice, the person should be under an existing obligation to pay the amounts to the assessee.

10. The said decision was upheld by the Apex Court in INCOME TAX OFFICER, MADRAS v. BUDHA PICTURES, MADRAS, : [1967]65ITR620(SC) . It has been held that there should be a subsisting relationship between the person to whom notice has been issued and the assessee. The expression 'may become due or may subsequently hold money' was interpreted to be the subsisting relationship between the person served with notice and the assessee. It has been held as follows:

'It seems to us that the High Court was right in holding that what was contemplated is the subsistence of a similar relationship as between a garnishee and the assessee. This construction of the sub-section is strengthened by the last para in Section 46(5-A). A person to whom the notice has been issued has only to object that the sum demanded or part thereof is not due to the assessee or that he does not hold any money on account of the assessee. He has not to say that he is not likely to owe or to hold money. It seems to us that the expressions 'may become due' or 'may subsequently hold money' suggest, in the context, a subsisting relationship between the person served with a notice and the assessee.'

11. In SHANTHI PRASAD JAIN v. DIRECTOR OF ENFORCEMENT, : [1963]2SCR297 a Constitution Bench of the Apex Court had held that a contingent debt is not a debt, as it has no present existence. A debt is a sum of money payable under an existing obligation. It may be payable forthwith or a future date. The relevant portion is as follows;

'A contingent debt is no debt till the contingency happens. In its ordinary as well as its legal sense; a debt is a sum of money payable under an existing obligation. It may be payable forthwith, solvendum in praesenti, then it is a debt 'due' or it may be payable at a further date) solvendum future; then it is a debt 'accruing', But in either case it is a debt. But a contingent debt has no present existence, because it is payable only when the contingency happens, and exhypothesi that may or may not happen.

12. In the case of HYDERABAD CO-OPERATIVE COMMERCIAL CORPORATION LIMITED v. SYED MOHIUDDIN KHADIR (DEAD) BY LRS, : [1976]1SCR159 it has been held that to be capable of attachment, there must be in existence at the date when the attachment becomes operative something, which the law recognizes as a debt. So long as there is a debt in existence, it is not necessary that it should be immediately payable. Where any existing debt is payable by future installments the garnishee order may be made to become operative as and when each instalment becomes due. The debt must be one, which the judgment-debtor could himself enforce for his own benefit. A debt is a sum of money which is now payable or will become payable in the future by reason of a present obligation.

13. In KARNATAKA BANK LTD., v. COMMISSIONER OF COMMERCIAL TAXES IN KARNATAKA AND ORS., 1991 (114) STC 19 it has been held that if there is any amount of the defaulter with the bank and the commercial tax department issues notice under Section 14 of the KST Act, then the bank is bound to remit it. But if the facility has been given to customer to draw over-draft or any credit facility, the said amount cannot be considered as belonging to the customer and bank is not under obligation to make payment to the department.

14. In VYSYA BANK LIMITED, MYSORE v. JOINT COMMISSIONER FOR INCOME TAX (ASSESSMENT) SPECIAL RANGE, MYSORE AND ANR., 1999(47) KLJ 404 (HC) this Court was considering the scope of Section 226(3) of the Income Tax Act, 1961, which is in pari materia with Section 14 of the KST Act. It has been held that in case of fixed deposits with the Bank of an assessee, the relationship between the Banker and the assessee is that of a debtor and a creditor. It has been further held that to be capable of attachment, there must be in existence at the date when the attachment becomes operative something, which the law recognizes as a debt. So long as there is a debt in existence, it is not necessary that it should be immediately payable. It is held as follows:-

'In these circumstances, the respondent has the jurisdiction to attach the fixed deposit and the bank is under obligation to make the payment of the amount even before the maturity of the fixed deposit receipt. It may be observed that according to the instructions which are issued by the Reserve Bank from time to time if a depositor wants to encash the fixed deposit receipt before its maturity, the bank is bound to refund the amount with lesser interest as is permissible looking to the time involved. The position of contracts entered into by an assessee with other companies or partners, where there is no such express or implicit contract for payment before the maturity date, the position stand on a different footing since according to the banking norms, the fixed deposit can be encashed before its maturity date.

15. As noticed above, Section 14 of the KST Act provides a machinery for the Revenue to collect tax arrears from the debtors of the defaulting assessee. The basic foundation for issue of notice under this provision is the subsistence of a relationship of a debtor and creditor, between the garnishee and the defaulting assessee. The liability to pay may be forthwith as on the date of receipt of notice or it may be that such liability would mature after the notice. But as on the date of service of notice, the person should be under an existing obligation to pay the amounts to the assessee. It does not include a contingent debt which is no debt till the contingency happens.

16. In the present case, the relationship between the defaulting assessee and the petitioner-Corporation is that of licensor and licensee. A licence is defined as a right to do or continue to do in or upon the immovable property of the grantor something which would in the absence of such right be unlawful and such right does not amount to an easement or an interest in the property. The security deposit with the Corporation is intended for due performance of licence. In Stroud's Judicial Dictionary the following meaning is given to the word 'security';

A 'security' speaking generally is anything that makes the money more assured in its payment or more readily recoverable; as distinguished from e.g., a mere I.O.U; which is only evidence of debt.'

In Black's Law Dictionary, the meaning given to the term 'security deposit' is as follows; -

'Money placed with a person as earnest money or security for the performance of a contract. The money will be forfeited if the depositor fails to perform.'

17. Thus, in the case of security deposit, the amount is deposited, by way of guarantee for the due performance of the contract. The security deposit becomes payable after the expiry of the period of contract or termination of contract whichever is earlier. A security or part thereof can be forfeited in case of breach of contract when a legal injury results and damage results thereon. A security deposit with the petitioner Corporation cannot be treated as the debt in existence. The Corporation is not liable to pay the amount to the defaulting assessee when the contract is subsisting. On the date of service of notice, the Corporation was not under an existing obligation to pay the amounts to the assessee. There is no subsisting relationship of debtor and creditor between the Corporation and the third respondent. Therefore, Section 14 of the Act is not applicable for attachment of the security deposit.

18. However, such a notice is sustainable only when the said amount becomes payable to the assessee i.e., after the expiry of the period of licence or upon termination of agreement because the State acquires precedence over other creditors. The Revenue can attach the amount which has become payable before deducting any liability of the assessee to the Corporation. (See DENA BANK v. BHIKHABHAI PRABHUDAS PAREKH & CO.,. 2000 (120) STC 610

19. For the reasons stated above, these writ petitions succeed and are allowed accordingly. The notices at Annexure-C and D dt 7.8.2003 and the endorsement of Annexure-F dated 8.12.2003 are quashed.

Rule made absolute.


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