SRINIVASAN, J. - The petitioner in these two writ petitions is the assessee, the General Commercial Corporation Private Ltd. The assessment, were made for the years 1948-49 and 1949-50 on March 23,1953. Appeals were taken to the Appellate Assistant Commissioner, which were disposed of in May, 1957. These appeals failed. Further appeals to the Income-tax Appellate Tribunal were filed which were pending on the date of the filing of these writ petitions. We are informed that they were subsequently disposed of on November 7, 1958. Some relief is said to have been given to the assessee by the Appellate Tribunal and revised demands have been issued under section 29 of the Act on March 14, 1959. It is also stated that applications under section 66(1) of the Act were filed before the Tribunal which were dismissed.
The action on the part of the Income-tax authorities which has led to the filing of these writ petitions is the issue of notices by the Income-tax Officer on July 26, 1957, to the Bank of India Ltd., Madras under section 46(5A) restraining the Bank of India from paying moneys standing to the credit of the assessee company in current account with the bank and calling upon the bank to pay the amounts to the Income-tax Department in discharge of the Income-tax demands against the assessee. According to the assessee, the limitation for taking proceedings under section 46 of the Act against the assessee had expired by the end of 1955 and the impugned proceedings started against the assessee in 1957 are barred. On this basis, these petition praying for writs of prohibition have been filed.
In order to deal with the merits of the case, it is necessary to set out the following facts which emerge from the petition, the counter thereto, the reply affidavit of the petitioner and the supplemental counter affidavit filed by the Department. It has been stated that the assessments for the two years were completed on March 23, 1953. It is common ground that notices of demand were issued on March 25, 1953, under section 29 of the Act. Appeals to the Appellate Assistant Commissioner filed on April 15, 1953, were dismissed on May 15, 1957. In the meantime, a writ petition had been filed in the High Court seeking an appropriate writ to direct the Income-tax Officer not to treat the petitioner as a defaulter and not to start or take any proceedings against the petitioner for the collection of tax pending the disposal of the appeals before the Appellate Assistant Commissioner. The High Court dismissed the writ petition. An interim stay that had been granted in C.M.P. No. 10180 of 1953 in the writ petition was, however, ordered to continue for one month from the date of the order which was March 8, 1954. Under section 46, sub-section (7), clause (ii) of the proviso thereto, the period of limitation of one year for the commencement of recovery proceedings under the Act has to be reckoned from the date from which any order of the court staying recovery proceedings in any case is withdrawn. It is common ground, therefore, that if the above proviso applied, the period of limitation in this case would expire on April 7, 1955. Had it been the case then of issue of notice under section 46(5A) for the first time in 1957, and had that been the only mode of recovery resorted to by the Department, the conclusion would be inescapable that the proceedings under section 46(5A) were barred by time. Now, even according to the assessee, in December, 1954, the Income-tax Officer had issued notice of attachment under section 46(5A) to several of the assessees constituents, the Electrical and Hardware Mart, Getz Brothers and General Commercial Corporation (India) Ltd., but at the time no such notice was issued to the Bank of India Ltd. While the Department takes the plea that the issue of the notices to other constituents under section 46(5A) in 1954, would enure to the validity of the notice issued to the Bank of India Ltd. in 1957, the learned counsel for the assessee contends that it would not, and that a notice issued to one debtor of the assessee within the period of limitation would not save limitation in respect of the notice issued to another debtor, though both notices may be in the nature of proceedings under section 46(5A). This is one of the important contentions which calls for an interpretation of the explanation to section 46(7) of the Act.
In the counter affidavit filed by the Department it was pleaded that even as early as on October 29, 1953, a certificate under section 46(2) of the Act had been issued to the Collector of Madras for recovery of the arrears of the tax from the petitioner-assessee. In his reply affidavit, the petitioner claimed that he was not aware of any such certificate having been issued and that if such a certificate had been issued as long back as October, 1953, the inaction of the Collector in taking steps on the basis of such a certificate remains unexplained. The Department states that, though there is evidence to show that this certificate was forwarded to the Collector, it subsequently transpired that it was untraceable in the office of the Collector. But, nevertheless, it is claimed that the issue of this certificate is an action towards the recovery of arrears within the meaning of the Explanation to section 46(7) of the Act, and that it would save limitation in respect of the subsequent proceedings under section 46(5A). On this point, therefore, two questions arise for examination : (1) whether a certificate was in fact forwarded to the Collector within the meaning of section 46(2) of the Act and whether the issue thereof amounts to the commencement of a proceeding for recovery; and (2) if so, whether the subsequent issue of notices to the debtors of the assessee both in 1954 and 1957 under section 46(5A) is saved from the bar of limitation.
We may first of all deal with the question whether under section 46(2) of the Act a certificate was issued by the Income-tax Officer to the Collector. According to the Department, a certificate was in fact so issued in October, 1953. The petitioner, however, contended that he was not aware of the forwarding of any such certificate to the Collector. It was not, however, till 1957 that the Department woke up to the fact that no action had been taken by the Collector on the basis of the certificate. The petitioner appears to rely upon the circumstance that no action was at all taken by the Collector to suggest that no certificate was in fact forwarded to the Collector. Had such a certificate been issued on the date as claimed, there is no doubt that it would have been within the period of limitation, having been issued within one year from the last day of the financial year in which the demand was made. On the factum of the issue of this certificate, we are inclined to hold that it was so issued. In the supplemental counter affidavit filed by the Department, it is stated that the records of the Department disclose that on October 26, 1953, the Income-tax Officer directed the office to issue a certificate under section 46(2). A certificate was put up for the officers signature on October 29,1953. AT the same time, the office seems to have brought to the notice of the Income-tax Officer the fact that a petition had been filed by the assessee asking for the stay of coercive steps pending the disposal of a petition filed by him under section 66(2) of the Act. But the Income-tax Officer noted that the proceedings could not be stayed and that the certificate should issued. The marginal entry in the record shows that this certificate was dispatched on or about November 2, 1953. It is also stated in this supplemental affidavit that in May, 1954, the Collector was reminded but the Collector informed the Income-tax Officer on June 9, 1954, that the certificate dated October 29, 1953, did not appear to have been received in his office and requested that a copy might be furnished. Apparently, owing to some changes in the jurisdiction of the officers, the matter was lost sight of till the commencement of these writ proceedings.
The circumstance that even in May, 1954, the Income-tax Officer addressed the Collector for a report of the action taken on the certificate forwarded to him is strongly in support of the conclusion, that a certificate did in fact issue on October 29, 1953, as claimed by the Department. This query by the Income-tax Officer was made long before any dispute regarding the present proceedings arose, and at or about the time when the earlier writ petition, W.P. No. 868 of 1953, was disposed of. Immediately after the stay of the recovery proceedings was vacated by the High Court in that writ proceedings, this enquiry appears to have been made. That is a clear indication that the Department was at that time aware that a certificate had been issued and that further action by the Collector on that certificate was pending. We are, therefore, justified in inferring that notwithstanding the long inaction on the part of the Department and the Collector, the factum of the issue of the certificate under section 46(2) cannot be disputed.
On this point the petitioner has another contention to put forward. It is claimed that the mere forwarding of a certificate under section 46(2) does not amount to the commencement of recovery proceedings. Under Section 46(7) of the Act 'no proceedings for the recovery of any sum payable under this Act shall be commenced after the expiration of one year from the relevant date'. Again, in the explanation to this subsection, it is stated 'A proceeding for the recovery of any sum shall be deemed to have commenced within the meaning of this section, if some action is taken to recover the whole or any part of the sum within the period hereinbefore referred to...' According to the learned counsel for the petitioner, the forwarding of a certificate by the Income-tax Officer to the Collector does not mark the commencement of recovery proceedings. What he claims marks such commencement of recovery proceedings. What he claims marks such commencement is some action taken by the Collector on the basis of the certificate. It would follow from this argument that, if for some reason the Collector fails to take action on the certificate within the period of limitation prescribed by sub-section (7), whether such failure was occasioned by negligence or design, the Revenue would lose all chances of recovery of the sum due. On a reading of the relevant provisions, we are not satisfied that the interpretation placed upon these provisions by Mr. Viswanatha Aiyar, learned counsel for the petitioner, is at all sustainable. The several modes of recovery laid down in section 46 are those which are intended to be initiated by the Income-tax Officer concerned, though for purposes of putting through the measures of actual recovery, other machinery such as the Collector or the local authority may be employed. What this section contemplates as the commencement of proceeding is an action initiated by the Department, which may set in motion other agencies for the actual recovery. it seems to us, therefore, that since the procedure for recovery of the amount cannot be set in motion except by the issue of a certificate under section 46(2), the issue of such a certificate marks the commencement of the recovery proceedings. There is support for this view in the decision, George v. Income-tax Officer, Madras of this court. The argument to the contrary must, therefore, be rejected.
It follows then that a proceeding for recovery was validly commenced by the issue of the certificate to the Collector under section 46(2) of the Act, before the expiry of one year from the last day of the financial year in which the demand was issued under section 29. The fact that the Collector failed or was unable to take further action on the certificate or that it proved infructuous does not militate against the view, that the issue of the certificate itself was a proceeding for recovery within the meaning of the explanation to section 46(7) of the Act.
It has been noted that the validity of the issue of the notice under section 46(5A) to the Bank of India Ltd. is sought to be sustained by the Department by reference to the other notices also under that provision issued in December, 1954, to certain other constituents of the petitioner. On this point, it has been contended by the petitioner, firstly, that it was beyond the period of limitation; secondly, that as they proved futile and no action against the constituents was taken, they cannot be used as steps in aid to prevent limitation running; and, thirdly, that those notices themselves do not amount to proceedings in recovery. We shall disregard for the present the question whether the proceedings under section 46(5A) will be unaffected by the bar of limitation, in view of the action having been taken under section 46(2) well before the expiry of the period of limitation. Normally, the period of limitation in this case would have expired by March 31, 1954. Now the Department relies on the stay ordered by the High Court in W.P. No. 868 of 1953 as extending the period of limitation up to April 8, 1955, under proviso (ii) to section 46(7). It is contended by the petitioner, however, that the stay ordered by the High Court was not with reference to any pending recovery proceeding and that, therefore, the above proviso cannot apply. We find ourselves unable to accept the contention, that in order to make this proviso apply the stay should have been with reference to any specified recovery proceeding. The relevant part of the proviso reads :
'(ii) where recovery proceedings in any case have been stayed by any order of a court, be reckoned from the date from which the order was withdrawn.'
It is clear that the proviso does not refer to 'any recovery proceeding' being stayed but no 'recovery proceedings in any case'. The proviso couid, therefore, have effect even in situations where no recovery proceedings have been commenced; and if stay had been ordered on a petition presented within what may be called the ordinary period of limitation, the extended period would commence from the date of withdrawal of the order of stay. The argument that the stay was no with reference to any particular recovery proceeding must fail on a proper construction of the proviso.
The date of service of the demand was March 25, 1953. Limitation would normally expire by March 31, 1954. The order of stay by the High court was vacated with effect from April 8, 1954. Under the above-said proviso, the period of limitation for proceedings in recovery would stand extended up to April 8, 1955. It should thus follow that the issue of notice under section 46(5A) to the constituents of the petitioner in December, 1954, would be well within this period of limitation.
We can hardly see how the effectiveness or otherwise of a recovery proceeding can affect its validity. That the notices issued under section 46(5A) did not yield successful results, or that on the denial of constituents that they had in their hands any sums due to the assessee, no further action could be or was taken against them by the Department, has no relevance at all in examining the validity of the action taken under section 46(5A).
Nor are we able to appreciate the argument that the notices do not amount to recovery proceedings. One of the modes of recovery contemplated by section 46 of the Act is by requiring any person from whom money is due or may become due to the assessee to pay it over to the Department in full or partial discharge of the income-tax demand against the assessee. Two results are possible : either the party to whom the notice is issued complies with the demand or he denies possession of funds belonging to the assessee. In either case, the notice may be said to discharge itself and no further action by the Department is either called for or is possible. That being so, we fail to understand how the action of the Department in issuing the notice under section 46(5A) loses its character as a recovery proceeding, solely for the reason that no positive results flowed therefrom.
We shall now deal with the further contention of the petitioner, that the issue of notices under section 46(5A) to other persons in 1954 will not save limitation running against the Department in so far as the notice, also under section 46(5A) issued to the Bank of India Ltd., is concerned. The argument is that each notice issued under section 46(5A) to a debtor of the assessee is an independent proceeding and the issue of a notice to one debtor cannot be regarded as a continuation of a proceeding commenced by the issue of a notice under section 46(5A) to another debtor. An examination of this question calls for a scrutiny of the explanation to section 46(7).
This explanation is extracted in full below :
'A proceeding for the recovery of any sum shall be deemed to have commenced within the meaning of this section, if some action is taken to recover the whole or any part of the sum within the period hereinbefore referred to, and for the removal of doubts it is hereby declared that the several modes of recovery specified in this section are neither mutually exclusive, not affect in any way any other law for the time being in force relating to the recovery of debts due to Government, and it shall be lawful for the Income-tax Officer, if for any special reasons to be recorded he so thinks fit, to have recourse to any such mode of recovery notwithstanding that the tax due is being recovered from an assessee by any other mode.'
The significant parts of this explanation are the declaration that the several modes of recovery specified in this section are not mutually exclusive and the last part of the explanation, which lays down that the Income-tax Officer may lawfully have recourse to one mode of recovery notwithstanding that the tax due is being recovered from an assessee by another mode. The explanation itself starts by saying that if some action is taken to recover the whole or any part of the sum within the period of limitation prescribed, a proceeding for the recovery shall be deemed to have commenced within the meaning of the section. What this provision contemplates is clearly that the adoption of one mode of recovery (specified in the section) by the Department does not exclude the simultaneous adoption of another mode of recovery also specified therein. It declares that the several modes of recovery are not mutually exclusive; they do not affect in any way any other law for the time being in force relating to the recovery of debts due to Government. It accordingly enables the Department not only to put the several modes of recovery into operation at the same time, but also to proceed to recover the dues by other means outside the scope of the Income-tax Act. This explanation clearly contemplates each mode of recovery, that is, the modes which are provided by the several sub-sections of section 46, as a distinct proceeding. By no possible means of interpretation can we arrive at the result, that each mode is itself severable into distinct transactions, and that any action taken under one particular mode does not mark the commencement of a proceeding for recovery with respect to some other action also taken under that mode. That is exactly what the learned counsel for the petitioner contends for, in claiming that the notices issued in December, 1954, under section 46(5A) to some debtors of the assessee will not mark the commencement of a proceeding for recovery in so far as the notice issued to the Bank of India in 1957 is concerned. It seems to us that not only is this interpretation in conflict with the clear wording of the provision, but such a view would also lead to enormous practical difficulties. In the very nature of things, resort to section 46(5A) depends upon the knowledge secured by the Department that the money of the assessee are in the hands of this or that person. If the interpretation of the learned counsel for the petitioner is accepted, it would mean that the adoption of the mode of recovery contemplated by section 46(5A) will be limited to those debtors of the assessee who could become known to the Department within the period of limitation. If within the period of one year from the relevant date, the Department issues notices to certain debtors-A, B,C of the assessee-and recovers any part of the amount or fails to recover, then after the period of one year had expired, other debtors of the assessee would be rendered immune from the operation of this sub-section (5A) itself which states that 'the Income-tax Officer may at any time or from time to time, by notice in writing require any person from whom money is due.......'.While, no doubt, action under this provision must be taken in the light of section 46(7) prescribing the period of limitation, a mode of recovery commenced under this section within the period of limitation, not that the same mode of recovery becomes a different mode, in so far as different persons are concerned.
In the reply affidavit of the petitioner, a contention of considerable importance has been put forward. It is shortly that in order that the Department might resort to more than one mode of recovery at the same time, the explanation to section 46(7) requires that special reasons should be recorded by the Income-tax Officer. The concluding part of the explanation reads :
'and it shall be lawful for the Income-tax Officer, if for any special reasons to be recorded he so thinks fit, to have recourse to any such mode of recovery notwithstanding that the tax due is being recovered from an assessee by any other mode.'
We have earlier found that one mode of recovery was commenced by the Department by the issue of the certificate to the Collector under Section 46(2) of the Act on October 29, 1953. We are not at present entering into the larger question; it is not necessary for us to do so, whether having started proceedings under one mode of recovery within the period of limitation, it is open to the Department to resort to another mode of recovery after the expiry of the period of limitation. We have also stated and it is common ground that the proceedings for recovery under section 46(5A) of the Act were started in respect of some constituents of the assessee by issue of notices in December, 1954, which independently of the action under section 46(2) was also within the extended period of limitation. We have found that in so far as the notice under section 46(5A) to the Bank of India Ltd. is concerned, it is in pursuit of the same mode, that is, the mode under section 46(5A) which had been commenced even in December, 1954. But the important point to consider is whether having resorted to the mode of recovery contemplated by section 46(2) of the Act, the Income-tax Officer could not resort to the mode of recovery under section 46(5A) without recording special reasons as required in the explanation. This part of the explanation makes it clear beyond doubt that, in the absence of any such special reasons, it shall not be lawful to resort to an additional mode of recovery. On behalf of the Department, Sri Rama Rao Sahib argued that this restriction upon the adoption of more that one mode is designed to operate only against the adoption of methods of recovery under any other law for the time being in force relating to the recovery of debts due to the Government, and that this requirement of special reasons to be recorded does not apply to the adoption of one or other of the modes set out in section 46. We are unable to accept this interpretation. This part of the explanation lays down the following :
(1) The several modes of recovery specified in this section are not mutually exclusive;
(2) Recourse to one mode of recovery while tax is being recovered from the assessee by any other mode is permissible, but shall be only for special reasons to be recorded; and
(3) The right to recover available under any other law for the time being in force relating to the recovery of debts due to Government is unaffected by the modes of recovery under section 46 and the adoption of methods outside the Act for recovery does not require the recording of special reasons.
The specific reference to the 'several modes of recovery specified in the section' earlier in the explanation and to 'any such mode of recovery' and 'any other modes' in the later part of the section can have no other significance except that the modes of recovery in the later part refer only to the several modes of recovery specified in the section. The last part of the section dealing with 'any such mode of recovery' cannot, as argued by Sri Rama Rao Sahib, be read as relating to methods of recovery outside the scope of the Income-tax Act. it accordingly follows that before the Income-tax Officer could take any steps under section 46(5A) of the Act, While proceedings for recovery under section 46(2) of the Act were already on foot, he should record special reasons why the adoption of an additional mode was necessary. If no such reasons are recorded, it should necessarily follow that the later proceedings are not lawful.
On behalf of the Department, Sri Rama Rao Sahib has been compelled to concede that no special reasons were recorded by the Income-tax Officer. The result is inevitable that the entire proceedings under section 46(5A), whether of 1954 or 1957, stand vitiated thereby. We are of the view that on this narrow ground the petitions succeed.
Rule nisi is made absolute. The petitioner will be entitled to his costs in W.P. No. 603. from respondent No. 1. No order as to costs in W.P. No. 604 of 1957. Counsels fee Rs. 250.