1. The petitioner is a partnership firm carrying on business as bankers and cloth dealers. It had business dealings with B. R. Sons Ltd., at one time the selling agent of the Lakshmi Ratan Cotton Mills Company Ltd. In the course of those dealings the petitioner and B.R. Sons Ltd. maintained in their respective account books a running account of the transactions between them. On May 21, 1966, the Income-tax Officer issued a notice under Section 226(3)(i) of the Income-tax Act, 1961, to the petitioner stating that a sum of Rs. 22,89,281.97 was due from B. R. Sons Ltd. on account of income-tax and allied dues and that the petitioner should forthwith pay to the Income-tax Officer any amount due to or held for B.R. Sons Ltd. up to the aforesaid amount. The petitioner was warned that if it failed to make payment it would be deemed to be an assessee in default and proceedings would be taken against it for realisation of the amount as if it were-in arrears of tax. On July 1, 1966, the petitioner replied that according to Us account books there was no credit balance in favour of B.R. Sons Ltd. and that, on the contrary, B.R. Sons Ltd. owed a large amount to the petitioner. On October 1, 1966, the Income-tax Officer requested the petitioner to file an affidavit in support of its contention that it did not owe any amount to B.R. Sons Ltd. Then, on December 14, 1966, the Income-tax Officer informed the petitioner that he had evidence to show that the petitioner still owed money to B.R. Sons Ltd. and he again directed the petitioner to make payment. The petitioner filed an affidavit sworn on December 22, 1966, by its accountant, one Shiv Kumar Arora, stating that as on May 24, 1966, the account of B. R. Sons Ltd. showed a debit of Rs. 76,436.23. The affidavit was accompanied by a letter which further stated that as on November 30, 1966, B.R. Sons Ltd. owed Rs. 1,06,244.82 to the petitioner. On December 31, 1966, the Income-tax Officer wrote to the petitioner pointing out that during the course of a search of Bihari Niwas (the address of the petitioner) account books in Hindi, Muriya and English pertaining to the year commencing July 1, 1965, had been seized, that according to the account of B.R. Sons Ltd. in the Muriya and English cash books payment amounting to Rs. 8,69,000 had been shown to B.R. Sons Ltd. while the original cash book in Hindi did not show any payment to that company and stated that from that material he had reason to believe that the affidavit was false in material particulars. The petitioner was held personally liable to the Income-tax Officer to the extent of its liability to B.R. Sons Ltd. on May 24, 1966, and was warned that if before January 10, 1967, the petitioner did not pay that amount it would be treated as an assessee in default under Section 226(3)(x) and recovery proceedings would be taken accordingly. In its reply of January 10, 1967, the petitioner reiterated its stand and relied on the affidavit. It further maintained that the cash books in English were the only authorised and regular books of the firm and there was no other rokar bahi of the firm. Thereafter, the Income-tax Officer, by his letter dated January 11, 1967, informed the petitioner that it was an assessee in default within the meaning of Section 226(3)(x) and coercive proceedings for realising the tax were now being taken. A copy of this letter was forwarded to the Tax Recovery Officer, Kanpur, for information and necessary action. On January 27, 1967, the Tax Recovery Officer issued an order to the petitioner under rule 48 of the Second Schedule to the Income-tax Act, 1961, attaching several immovable properties. On February 7, 1967, he issued a notice to the assessee for settling the sale proclamation in respect of the sale of immovable properties.
2. The petitioner has filed the present petition under article 226 of the Constitution praying for relief against the order dated January 11, 1967, of the Icome-tax Officer treating the petitioner as an assessee in default and the order of the Tax Recovery Officer dated January 27, 1967, attaching the properties.
3. Shri C.K. Daphtary, appearing for the petitioner, has urged that the notice dated May 21, 1966, issued under Section 226(3)(i) of the Act is invalid because it does not mention the amount due by the petitioner to the assessee and has not specified the period within which the petitioner must pay the amount to the Income-tax Officer. So far as the first objection is concerned, it appears to us that the law does contemplate that the notice issued under Section 226(3)(i) should specify or give sufficient indication of the amount alleged to be due by the person on whom thenotice is served to the assessee. The mode prescribed by Section 226(3) for recovering arrears of tax has vested in the Income-tax Officer a special jurisdiction. It is a jurisdiction which extends beyond that ordinarily enjoyed by the Income-tax Officer in the matter of recovering arrears of tax. It is a jurisdiction directed against a person who is not the assessee, but who has been selected by the statute because money is due or may become due from him to the assessee or he holds money or may subsequently hold money for or on account of the assessee. The jurisdiction extends not merely to requiring such person to pay the amount of the arrears to the Income-tax Officer, but further to treating him as an assessee in default where he does not pay. It is a serious matter for a person to be exposed to such a proceeding, where the only reason is that he is or may become a debtor of the assessee or holds or may hold money for or on account of him. In our opinion, the powers conferred upon the Income-tax Officer by Section 226(3) are intended to be exercised with the greatest caution, and should be construed strictly. Before issuing the notice under Section 226(3)(i) the Income-tax Officer should have come to the prima facie opinion that the person against whom he intends to proceed is a person who answers to the description specified in that provision. It is not open to the Income-tax Officer to proceed indiscriminately and against any person arbitrarily selected for the purpose. Intelligent discrimination on the part of the Income-tax Officer implies that he has some material on the basis of which he has come to the conclusion, albeit prima facie, that the person is one from whom money is due or may become due to the assessee or is a person who holds or may subsequently hold money for or on account of the assessee. We think it proper that in the notice issued by the Income-tax Officer under Section 226(3)(i), the Income-tax Officer should mention, or give some specific indication of the amount which he believes is clue or may fall due from such person to the assessee or which he holds or may subsequently hold for or on account of the assessee. That seems to us a desirable requirement because of what is stated in Section 226(3)(vi). The provision enables the person served with such a notice to object to it by a statement on oath ' that the sum demanded or any part thereof is not due to the assessee'. It will be noticed that Section 226(3)(vi) speaks of 'the sum demanded', that is to say, the specific sum which is due or may fall due from the person to the assessee. That is also what is intended upon the plain terms of Section 226(3)(i).
4. But we are not prepared to go so far as to hold that in every case a notice which does not specify the sum due from such person to the assessee is invalid. If it appears that the person against whom the proceeding is initiated comprehends fully what money is referred to by the demand the omission in the notice cannot prejudice him and it cannot be said that theproceeding is invalid. In the present case, the petitioner raised no objection before the Income-tax Officer in that regard. It clearly understood the notice to refer to the position emerging from the transactions between the petitioner and the assessee. In the circumstances, we are unable to hold that the notice under Section 226(3)(i) can be successfully assailed on this ground.
5. As regards the contention that the notice does not mention the period within which the petitioner is required to pay, we may point out that the petitioner has been treated as an assessee in default only when it did not pay within the time allowed by the subsequent notice dated December 31, 1966, which gave it up to January 10, 1967, to do so.
6. The next contention is that the Income-tax Officer should not have disbelieved the affidavit filed on behalf of the petitioner. It is urged that the Income-tax Officer should have accepted the affidavit, and if he was in doubt as to the truth of its contents he should have summoned the deponent of the affidavit for cross-examination. Now, it seems to us that the affidavit is not one which can serve the purpose contemplated by Section 226(3)(vi). Section 226(3)(vi) envisages a statement on oath of the person to whom the notice is sent. The petitioner is a partnership firm, and one of its partners should have made the affidavit. What was filed was an affidavit of an accountant, and he does not even say that in making the statements contained in the affidavit he was authorised to speak for the petitioner. He states in the affidavit that a sum of Rs. 76,436.23 was due to the petitioner from B.R. Sons Ltd., and this information is verified ' to my knowledge and based on the account books of the firm '. There is nothing to show which part of the averment is true to his personal knowledge and which on the basis of the account books.
7. But there is the final contention of the petitioner. The contention is that, assuming that the petitioner can be treated as an assessee in default under Section 226(3)(x), the Tax Recovery Officer has no power to take the recovery proceedings against the petitioner in the absence of a recovery certificate issued by the Income-tax Officer. It seems to us that the issue of the recovery certificate is a mandatory requirement before the Tax Recovery Officer can assume power to take recovery proceedings. Section 226(3)(x) provides that ' if the person to whom a notice under Section 226(3)(vi) is sent fails to make payment in pursuance thereof to the Income-tax Officer, he shall be deemed to be an assessee in default in respect of the amount specified in the notice, and further proceedings may be taken against him for the realisation of the amount as if it was an arrear of tax due from him, in the manner provided in sections 222 to 225 and the notice shall have the same effect as an attachment of a debt by the Tax Recovery Officer in exercise of his powers under Section 222.' The manner is thatprovided in sections 222 to 225, and that commences with the issue of a recovery certificate from the Income-tax Officer to the Tax Recovery Officer. That is clear from Section 222(1). It is urged on behalf of the Income-tax Officer that the words ' in the manner' in Section 226(3)(x) refer to the different modes of recovery set out in clauses (a) to (d) of Section 222(1), which refers to a stage after a recovery certificate is contemplated, and, therefore, Section 226(3)(x) does not require the issue of a recovery certificate. The submission, we think, is without substance, because Section 226(3)(x) refers not merely to Section 222 but all the sections from sections 222 to 225. Sections 223, 224 and 225 expressly contemplate that a recovery certificate has already been issued, and it is on that assumption that the powers conferred in those sections can be exercised. It seems clear, therefore, that when Section 226(3)(x) speaks of the manner provided in sections 222 to 225, it necessarily requires the issue of a recovery certificate by the Income-tax Officer to the Tax Recovery Officer. We are satisfied that no recovery certificate was issued by the Income-tax Officer so far as the petitioner is concerned. In, paragraph 13 of the counter-affidavit of M. S. Prasad, Income-tax Officer, B-Ward, Special Circle, Kanpur, it is stated that no recovery certificate was required to be sent to the Tax Recovery Officer. Reliance was placed upon the notice dated January U, 1967, issued by the Income-tax Officer and it is stated that that notice was sufficient to arm the Tax Recovery Officer with power to take recovery proceedings. Upon a perusal of that notice, we are unable to hold that it can be construed as a recovery certificate. It is, upon its plain terms, a communication from the Income-tax Officer to the petitioner declaring that he is being treated as an assessee in default and that coercive steps for realising the tax are being taken against it. A copy of this notice was sent to the Tax Recovery Officer but that copy cannot be described as a recovery certificate. Some indication of what a recovery certificate should be is provided by Section 222. It is a certificate under the signature of the Income-tax Officer specifying the amount of arrears due from an assessee and forwarded by the Income-tax Officer to the Tax Recovery Officer. It is a formal document which vests the Tax Recovery Officer with power to take recovery proceedings. It is a document which can be passed on from one Tax Recovery Officer to another in the circumstances set out in Section 223(2). It is a document which, within the contemplation of Section 224 and Section 225, can be withdrawn, corrected, or amended. That no recovery certificate was in fact issued appears also from the notices dated January 27, 1967, and February 7, 1967, issued by the Tax Recovery Officer to the petitioner. The two notices are in the statutory form No. I.T.C.P. 16 and No. I.T.C.P. 17, and in the blank space where the number and date of the recovery certificate should be filled inthe entry is ' number nil and dated nil ' In the instant case, as no recovery certificate was issued, the recovery proceedings taken by the Tax Recovery Officer are without jurisdiction.
8. Accordingly, the petition is allowed in so far that the recovery proceedings taken by the Tax Recovery Officer against the petitioner are quashed. The remaining relief prayed for is refused. In the circumstances, there is no order as to costs.