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Tara Chand Vs. Income-tax Officer, Special Investigation Circle b - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtPunjab and Haryana High Court
Decided On
Case NumberLetters Patent Appeal No. 144 of 1966 and Civil Miscellaneous No. 2339 of 1970
Judge
Reported in[1971]79ITR743(P& H)
ActsIncome Tax Act, 1961 - Sections 226(3)
AppellantTara Chand
Respondentincome-tax Officer, Special Investigation Circle "b"
Appellant Advocate Bhagirath Dass,; B.K. Jhingan and; S.K. Hirajee, Adv
Respondent Advocate D.N. Awasthy and; B.S. Gupta, Advs.
Cases ReferredBansal and Co. v. Income
Excerpt:
.....him to messrs shankar lal ram parkash but in spite of various opportunities having been granted to him, the garnishee failed to produce the books of account before the income-tax officer. it is only on his failure to pay the amount specified in the notice within the time specified therein that recovery proceedings can be taken against him. the appellant shall be entitled to his costs of the writ petition as well as the appeal, counsel's fee being rs......the facts relevant to the decision of this appeal are that the appellant worked as a broker for shri surinder singh kairon for the sale of his cars. the income-tax officer, special investigation circle ' b ', amritsar, was entrusted to make the assessment against shri surinder singh kairon and to realise the amounts of tax due from him. in the course of assessment proceedings the appellant made a statement before the said income-tax officer on january 13, 1965, in which he gave details of some of the cars which were sold by shri surinder singh kairon to his brother, shri gurinder singh kairon, through the appellant. in this statement the appellant admitted that he had sold a chevrolet car, 1961 model, belonging to shri surinder singh kairon to messrs. jaggi pammi car dealers of.....
Judgment:

Bal Raj Tuli, J.

1. This appeal under Clause 10 of the Letters Patent is directed against the judgment of the learned single judge dismissing the writ petition of the appellant under Article 226 of the Constitution wherein a prayer had been made for the quashing of the tax recovery certificate, dated August 25, 1965, the warrant of attachment dated September 16, 1965, and the notice dated October 11, 1965, calling upon the appellant to show cause why he should not be arrested.

2. The facts relevant to the decision of this appeal are that the appellant worked as a broker for Shri Surinder Singh Kairon for the sale of his cars. The Income-tax Officer, Special Investigation Circle ' B ', Amritsar, was entrusted to make the assessment against Shri Surinder Singh Kairon and to realise the amounts of tax due from him. In the course of assessment proceedings the appellant made a statement before the said Income-tax Officer on January 13, 1965, in which he gave details of some of the cars which were sold by Shri Surinder Singh Kairon to his brother, Shri Gurinder Singh Kairon, through the appellant. In this statement the appellant admitted that he had sold a Chevrolet car, 1961 model, belonging to Shri Surinder Singh Kairon to Messrs. Jaggi Pammi Car Dealers of Bombay, for a sum of Rs. 73,000 out of which he received Rs. 16,000 in cash and three cars being Mercedes, Rover and Austin. In exchange for those three cars he had taken two De-Soto cars and one Ford Country Sedan car and all these three cars were lying with him in Green Hotel, Marine Drive, Bombay, for sale on behalf of Shri Surinder Singh Kairon. He further stated that he had paid Rs. 8,000 to Shrimati Kusum Kumari, wife of Shri Surinder Singh Kairon, by a bank draft on the Central Bank of India Ltd., Chandigarh, and Rs. 16,000 were taken from him by S. Surjit Singh, a manager of Shri Surinder Singh Kairon. He also stated that he would be able to pay the remaining amount after the sale of those cars.

3. On May 24, 1965, the said Income-tax Officer issued a notice under Section 226(3) of the Income-tax Act, 1961, (hereinafter referred to as 'the Act') calling upon the appellant to pay to him forthwith any amount due from him to or held by him for or on account of S. Surinder Singh Kairon up to the amount of arrears due from the latter, the amount of which was mentioned as Rs. 2,83,752'98. The appellant sent no reply to this notice but it is alleged by the Income-tax Officer that on June 3, 1965, the appellant appeared before him along with Shri R. K. Bansal, a representative of Shri Surinder Singh Kairon and made a statement, a memo of which was made by the Income-tax Officer, to the effect that out of Rs. 73,000 on account of the sale proceeds of the Chevrolet car, the appellant owed Rs. 49,000 to Shri Surinder Singh Kairon after deducting Rs. 3,000 on account of expenses, the rest of the amount having been paid to Shri Surinder Singh Kairon prior thereto. The appellant is alleged to have asked for time up to July 31, 1965, to make the payment. The appellant did not make the payment on or before July 31, 1965 and the Income-tax Officer wrote to him a letter on August 25, 1965, reading as under:

' You had promised to deposit your dues of Rs. 52,000 to Shri Surinder Singh Kairon in the Government Treasury towards his income-tax dues by 31st July, 1965. It is extremely regretted to note that you have not yet deposited the said amount. Kindly let me know as to why attachment notice should not be issued against you for having committed the aforesaid default.'

4. In spite of the fact that in this letter the Income-tax Officer asked the appellant to show cause why attachment notice should not be issued against him, without waiting for his reply he sent a tax recovery certificate to the Tax Recovery Officer, Amritsar District, on the same day, i e., August 25, 1965, with a covering letter to realise the amount of Rs. 52,000 from the appellant. To the letter dated August 25, 1965, the appellant sent a reply on September 9, 1965, denying his liability for any amount due to Shri Surinder Singh Kairon and stating that he had never promised to pay to the Government Treasury such dues by the 31st day of July, 1965. Further he stated :

' I am an illiterate person. I cannot read or write. Your goodself has been calling me in your office at Amritsar regarding certain enquiries against S. Surinder Singh Kairon. I have been telling you whatever I knew regarding his affairs considering it my duty towards the National Government. You once called me at Delhi through S. Surinder Singh Kairon when I was there on a private visit. You asked me to sign a piece of paper on which you had written something and I signed the paper thinking that it is again something regarding the income-tax enquiries against S. Surinder Singh Kairon.

I am a man of poor means. How can I promise such a huge sum to be paid to the Government Treasury specially when I have nothing to pay to S, Surinder Singh Kairon. All this happened due to some misunderstanding on my part or on the part of the income-tax department.

As I have nothing to pay to S. Surinder Singh Kairon, I humbly request you to kindly not to start any proceedings against me. '

5. To this letter of the appellant, the Income-tax Officer sent a reply by letter dated September 15, 1965, giving bis own version of what had happened on June 3, 1965. On September 16, 1965, the Tax Recovery Officer, Amritsar, issued an order of attachment of immovable property of the appellant and on October 11, 1965, he issued a notice to the appellant to show cause on December 4, 1965, why he should not be committed to the civil prison in execution of the tax recovery certificate. Thereafter, on October 27, 1965, the appellant sent a letter to the Income-tax Officer accompanied by his affidavit denying that he owed any amount to Shri Surinder Singh Kairon on or after May 24, 1965. In this affidavit he explained the sale of the cars. In spite of this denial by the appellant, the recovery proceedings against him were not stopped and, therefore, he filed Civil Writ No. 2940 of 1965, which was dismissed by the learned single judge on April 27, 1966.

6. The substance of the argument on the side of the respondents is that the appellant ought to have denied his liability on oath on receipt of the notice dated May 24, 1965, and should not have waited till October 27, 1965, to make that denial. The learned single judge accepted this submission and expressed the opinion that in any case the denial should have been made before the issue of the tax recovery certificate by the Income-tax Officer, For this conclusion the learned judge relied upon a judgment of S. C. Manchanda J. of the Allahabad High Court in Bansal and Co. v. Income-tax Officer, D-Ward, Agra, [1966] 62 I.T.R. 402 (All.). In my opinion the Allahabad case is clearly distinguishable on facts. In that case the Income-tax Officer issued a notice under Section 226(3) of the Act to the garnishee stating that the sum of Rs. 8,429.29 out of the sum of Rs. 12,000 alleged to be due from him to Shankar Lal Ram Parkash should not be paid to them but to the Income-tax Officer. The Income-tax Officer fixed some time for the payment of the amount but as the amount was not paid within that time, the Income-tax Officer issued a reminder extending the period of compliance with the notice under Section 226(3) of the Act to November 18, 1963. On November 8, 1963, the garnishee sent a reply to the Income-tax Officer that a sum of Rs. 2,000 only was due from him to Messrs. Shankar Lal Ram Parkash and that he would pay this amount by instalments. He was asked to produce his books of account in order to ascertain the amount actually due from him to Messrs Shankar Lal Ram Parkash but in spite of various opportunities having been granted to him, the garnishee failed to produce the books of account before the Income-tax Officer. On January 13, 1964, the Income-tax Officer forwarded the tax recovery certificate to the Tax Recovery Officer in exercise of his powers under Section 222 of the Act. Thereafter, on January 25, 1964, the Tax Recovery Officer contacted the garnishee for compliance with the tax recovery certificate but he asked for time to obtain the stay order from the Income-tax Officer. Instead of obtaining the stay order from the Income-tax Officer, the garnishee filed an affidavit before him denying his liability on March 18, 1964. This affidavit was not accepted by the Income-tax Officer and the learned judge held that the garnishee could not choose his own time for filing his affidavit denying his liability. He should have done so within a reasonable time of the receipt of the notice under Section 226(3) of the Act and in any case before the Income-tax Onicer issued the tax recovery certificate to the Tax Recovery Officer. It is to be noted that in the notice issued to the garnishee under Section 226(3) of the Act, the Income-tax Officer had mentioned the amount alleged to be due from him to the assessee and fixed a time within which to pay the same to the Income-tax Officer. In those circumstances, a duty was cast on the garnishee to deny his liability on oath within the time fixed for the payment of the amount due from him. The same cannot be said in the instant case as the notice dated May 24, 1965, did not state the amount alleged to be due from the appellant to Shri Surinder Singh Kairon nor fixed any time limit for the payment of the amount. All that was stated was that the appellant should pay forthwith to the Income-tax Officer any amount due from him to Shri Surinder Singh Kairon or when it becomes due in future. This order was thus in the nature of a freezing order or attachment order and not a notice of demand in respect of a specific amount. In his written statement the Income-tax Officer stated that he issued the notice dated May 24, 1965, on the information given to him by Shri Surinder Singh Kairon that a sum of Rs. 50,000 and odd was due to him from the appellant. If that be true, the Income-tax Onicer ought to have mentioned in the said notice that it was alleged by Shri Surinder Singh Kairon that a sum of Rs. 50,000 and odd was due to him from the appellant. It is also pertinent to note that the Income-tax Officer, after recording the statement of the appellant on June 3, 1965, did not pass any order directing him to pay the amount by July 31, 1965, the date up to which the appellant is alleged to have asked for time for payment. It was the duty of the Income-tax Onicer at that time to issue a fresh notice under Section 226(3) of the Act to the appellant asking him to pay the sum of Rs. 49,000 on or before July 31, 1965, in accordance with his statement. No such notice was issued to the appellant. On August 25, 1965, a letter was issued to him by the Income-tax Officer informing him that he had not kept his promise to pay the amount by July 31, 1965, and he should let him know why attachment notice should not be issued. In reply to that letter the appellant denied his liability by letter dated September 9, 1965. It is true that the denial of liability by this letter was not on oath. In the nature of things, it could not be on oath as it was in reply to the letter dated August 25, 1965, which was not a notice under Section 226(3) of the Act. Later, when the Tax Recovery Officer issued the warrant of attachment and the notice to the appellant to show cause why he should not be arrested, he filed his affidavit denying his liability for any amount to Shri Surinder Singh Kairon on October 27, 1965. It cannot be said in these circumstances that the denial of liability made by the appellant on October 27, 1965, was not in accordance with Clause (vi) of Sub-section (3) of Section 226 of the Act. As no specified demand had been made from the appellant earlier, the occasion had not arisen for him to deny on oath the liability for the amount demanded from him.

7. Section 226(3)(i) of the Act authorises the Income-tax Officer to issue a notice in writing to 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 Income-tax Officer either forthwith upon the money becoming due or being held or at or within the time specified in the notice 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. From the language of this clause it is clear that in case any specific amount is alleged to be due from a person to an assessee, that amount should be mentioned and the garnishee should be given some time to make the payment. It can only then be said that the garnishee will be required to deny his liability on oath under Clause (vi) of Sub-section (3) of Section 226 of the Act promptly. A vague notice that whenever any amount becomes due from the garnishee to the assessee, it should be paid to the Income-tax Officer, does not oblige the garnishee to deny his liability promptly if nothing is due from him to the assessee on the date he received the notice. It was left to the appellant in the present case to decide for himself whether any amount was due from him to Shri Surinder Singh Kairon on the date he received the notice and if in his opinion nothing was due, he was justified in not denying his liability on oath under Clause (vi) of Sub-section (3) of Section 226 of the Act. It has also to be noted that under Clause (x) of the said sub-section, the amount due from the garnishee has to be stated in the notice which has to be issued to the garnishee and time is to be fixed for him to make the payment of that amount. It is only on his failure to pay the amount specified in the notice within the time specified therein that recovery proceedings can be taken against him. No such notice was issued to the appellant by the Income-tax Officer in the instant case. No occasion, therefore, arose for the Income-tax Officer to start recovery proceedings by issuing recovery certificate to the Tax Recovery Officer on August 25, 1965. That recovery certificate was issued without jurisdiction and without the authority of law and all proceedings taken in pursuance thereof are without jurisdiction and, therefore, null and void.

8. On behalf of the appellant an application (C.M. No. 2339 of 1970) has been filed which was ordered to be considered along with the appeal. In this application the appellant has stated that after the decision of Civil Writ No. 2940 of 1965, Shri Surinder Singh Kairon filed a suit for accounts against the appellant on April 15, 1967, which is still pending in the court, of Shri G. L. Chopra, Subordinate Judge, First Class, Amritsar. A prayer had been made in the application that this fact may be taken into consideration while deciding the appeal. Shri D. N. Awasthy, the learned advocate for the respondents, expresses ignorance of the facts stated in this application. We, however, consider that the facts mentioned in the application are not relevant to the decision of the appeal. We, therefore, reject this application.

9. For the reasons given above, we accept this appeal, allow the writ petition (C. W. No. 2940 of 1965) and quash the tax recovery certificate dated August 25, 1965, the warrant of attachment dated September 16, 1965, and the notice dated October 11, 1965, calling upon the appellant to show cause why he should not be arrested. The appellant shall be entitled to his costs of the writ petition as well as the appeal, counsel's fee being Rs. 250 in each case.

Mehar Singh, C.J.

10. I agree.


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