VEERASWAMI J. - These petitions under article 226 of the Constitution, one for prohibition and the other for mandamus, are by the same firm, Mohamedaly Sarafaly & Co. The first respondent, pursuant to a notice dated May 17, 1966, under section 226(3) of the Income-tax Act, 1961, took coercive proceedings. The petitioner says that the first respondent acted without jurisdiction in issuing the notice. This is on the ground that, though the petitioner admitted the debt to the second respondent, he disputed that the principle was payable on demand and before the expiry of 10 years from the date of borrowing and that, in any case, without issuing a certificate in the first instance against the assessee for recovery under section 222, he has no power to proceed against the petitioner straightaway. The second ground has not been actually taken in the affidavits in support of the petitions. Nevertheless, we heard arguments on that too.
The first ground turns purely on a factual matter, whether the debt admittedly owing to the second respondent by the petitioner was payable on demand or only after an alleged stipulated date. The petitioner himself stated that the second respondent had unaccounted money out of which the latter advanced to him a sum of Rs. 2,70,000 during 1960-61. According to the petitioner, however, the loan was taken on the basis of an oral agreement for repayment whenever it was convenient to do so for the petitioner and that no demand for repayment would be made for a period of 10 years, but interest would be paid on the loan outstanding at the agreed rate before the end of each year. The second respondent under section 24 of the Finance (No. 2) Act, 1965, filed, however, a voluntary declaration disclosing a substantial amount of undisclosed income. This declaration was accepted by the Commissioner of Income-tax on February 24, 1966, and the second respondent was charged to Rs. 1,93,230 as income-tax. A demand for the same was sent to him by a notice dated February 26, 1966, which was actually received by him on March 2, 1966. The second respondent paid certain amounts towards the demand on several dates subsequently and the arrears of tax as a result were brought down to Rs. 1,73,907. Even at the time of the voluntary declaration the second respondent had disclosed to the department that the petitioner owed him a sum of Rs. 2,45,000. By a letter dated March 4, 1966, the second respondent called upon the petitioner to repay at least a sum of Rs. 2,00,000 to enable him to discharge his income-tax arrears. The petitioner in reply on April 5, 1966, acknowledged its liability to pay and expressed its readiness to pay over the money to the income-tax department in discharge of the second respondents tax arrears. But at the same time, the petitioner regretted that its funds having been locked up in business, it was not just then in a position to make the payment forthwith. It, however, indicated its willingness to offer its properties charged for its own tax arrears as security for the second respondents arrears as well. On May 18, 1966, relying on the disclosure by the second respondent. the Income-tax Officer, first respondent, issued a notice to the petitioner under section 226(3) telling him about the second respondents arrears of tax in a sum of Rs. 1,73,907 and requiring the petitioner to pay the same forthwith out of the amounts due from him to the second respondent. The notice was served on the petitioner on May 19, 1966. The petitioner on receipt of the notice, acknowledged its liabililty to the second respondent and undertook to pay the amount to the income-tax department, but pleaded for easy instalmental payments. As no part payments at least was made in the meantime, on July 1, 1966, the Income-tax Officer required the second respondent to pay the entire arrears on pain of coercive proceedings being taken. The petitioner then came forward on July 8, 1966, with an undertaking to pay Rs. 10,000 initially and requested permission to pay the balance in monthly instalments of Rs. 5,000, each. The petitioner having defaulted, the Income-tax Officer wrote to him on July 19, 1966, asking why penalty should not be levied on the ground of non-payment, and July 28, 1966, was fixed for hearing on the matter, but the petitioner failed to appear. He, however, on July 28, 1966, paid a sum of Rs. 10,000 as first instalment. On August 11, 1966, the Income-tax Officer issued a certificate for recovery of the tax arrears from the petitioner treating him as in default of payment. Pending the proceedings on the certificate the petitioner would appear to have moved the Commissioner on August 25, 1966, for withdrawing the certificate and for permission to pay the arrears by mothly instalments of Rs. 5,000, and subsequently the question of payment of the arrears by the petitioner was discussed by its representative with the Inspecting Assistant Commissioner of Income-tax (Central Range), Madras. The Income-tax Officer in his counter-affidavit says that on September 6, 1966, the petitioner agreed in writing to pay a sum of Rs. 25,000 on or before September 25, 1966, and also gave an undertaking to pay the balance in monthly instalments of Rs. 25,000 each, in every succeeding month till the arrears were cleared in full. We ourselves looked into the original and the averment of the Income-tax Officer in this regard appears to be correct. Following this undertaking, the Income-tax Officer asked the Collector on September 6, 1966, to stay his hands. A chalan was issued for payment of Rs. 25,000 being the first instalment on or before September 25, 1966, but no payment was made. Instead, it would appear, the petitioner, on September 20, 1966, produced through an advocate a sworn statement by one of its partners raising the plea that the petitioner was not under a present obligation to pay the second respondent, Rs. 2,70,000 or any amount by way of principal. On that ground it was represented to the Income-tax Officer that he should drop the proceedings under section 226(3). As the department did not accede to the stand taken up by it, the petitioner has then moved this court under article 226 of the Constitution.
It will be obvious from the facts narrated by us that at no time before September 20, 1966, did not petitioner deny its liability to repay the entire debt. It never said that the principal of the debt was repayable only after 10 years. In fact, as it will be obvious from the facts mentioned by us, the petitioner more than once admitted its liability to pay the debt including the principal and undertook to pay the same directly to the department in discharge of the income-tax arrears owned by the second respondent. Pursuant to the undertaking, the petitioner also paid a sum of Rs. 10,000, but defaulted to pay further sums as undertaken. As the Income-tax Officer says in his counter-affidavit, for the first time the petitioner took up the plea on September 20, 1966, that thought there was an obligation to pay the principal, the actual payment would be due only after the expiry of 10 years. Under section 226(3) of the Income-tax Act, it is open to the Income-tax Officer to proceed against a third party for recovery of his creditors tax arrears from moneys which are admittedly due to such assessee from him. Where the third party does not admit or denies that the debt is owing to the assessee, the Income-tax Officer will be powerless to proceed under section 226(3). It will not then be open to him to sit in judgment over the denial and come to his own conclusion. But, to start with, he may assume that the debt is owing and initiate proceedings under section 226(3). With respect, we are inclined to accept the statement of the law to that effect by Bhimasankaran J. in Rajeswaramma v. Income-tax Officer. But this is a case in which the petitioner before us admitted that the debt was repayable, and as we said, undertook to pay it to the department in discharge of the arrears of income-tax due from the second respondent and actually paid at least Rs. 10,000. It appears that the sums advanced to the petitioner are covered by promissory notes which show that the entire debt was payable on demand. It is, in the circumstances, impossible to accept the belated sworn statement of one of the partners of the petitioner that the principal of the debt was not payable until after expiry of 10 years. The Income-tax Officer, it should follow, is entitled to proceed under section 226(3).
On the second ground, the contention is that the Income-tax Officer cannot proceed under section 226 unless he has first issued a certificate against the assessee under section 222. We are unable to accept this contention, There is nothing in section 222 or section 226 which justifies the contention. The non-obstante opening words in section 226(1) only mean that the other modes of recovery are but concurrent. This is made perfectly clear by sub-section (2) of section 222. We find not substance in this ground too.
The writ petitions are dismissed with costs. Counsels fee Rs. 250.