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1991 DIGILAW 834 (ALL)

Girdhari v. Commissioner Of Income-Tax

1991-05-27

G.D.DUBE, V.K.KHANNA

body1991
JUDGMENT V.K. Khanna, J. 1. The petitioner is an agriculturist. 2. Certain agricultural land belonging to the petitioner was acquired by the Uttar Pradesh Avas Evam Vikas Parishad, Meerut. In a reference made under Section 18 of the Land Acquisition Act, the Additional District Judge IV, Meerut, by his order dated May 28, 1990, enhanced the amount of compensation. Against the order of the Additional District Judge, the U. P. Avas Evam Vikas Parishad, Lucknow, filed First Appeal No. Nil of 1990 in this court and a Bench, on September 12, 1990, passed the following order : "Issue notice returnable within six weeks through Registered A/D Post. Until further orders, the realisation of the amount awarded by the court below shall remain stayed provided the appellant deposits with the court below half of the enhanced amount of compensation together with the costs awarded within a period of two months. On the amount being so deposited, half of the amount will be allowed to be withdrawn without security and remaining half only on furnishing security. (Sd.) N. N. M., (Sd.) C. P. M. andnbsp; 12-9-1990." andnbsp; The Assistant Commissioner of Income-tax, Meerut Circle, vide his letter dated October 16, 1990, addressed to the IVth Additional District Judge, Meerut, had requested the additional District Judge for payment under Section 226(4) of the Income-tax Act in respect of the outstanding income-tax demand to the tune of Rs. 11,32,531 in respect of the assessment years 1980-81 and 1987-88. It is against this action of the income-tax authorities taken under Section 226(4) of the Income-tax Act that the present writ petition has been filed praying for a writ of certiorari quashing the order dated October 16, 1990, passed under Section 226(4) of the Income-tax Act by the Assistant Commissioner of Income-tax, Meerut, addressed to the IVth Additional District Judge, Meerut. 3. Learned counsel for the petitioner has urged that the amount which has been deposited under the orders of the High Court dated September 12, 1990, does not belong to the petitioner and thus the request made by the Assistant Commissioner under Section 226(4) of the Act is liable to be quashed and no action should be taken on that request for transferring the amount to the Income-tax Department. 4. 4. At the admission stage, Sri Bhupeshwar Dayal has appeared on behalf of the Income-tax Department and as the questions raised in the present writ petition are purely legal, learned counsel for both the parties have prayed that the present writ petition be disposed of finally in accordance with the rules of the court. Learned counsel for the petitioner has first urged that as the Income-tax Department has given no notice under Section 226(4) of the Income-tax Act, 1961 (hereinafter described as the "Act"), the entire proceedings are invalid and are liable to be quashed. Reliance has been placed in support of this contention on a decision of this court in the case of National Textile Corporation Ltd. v. IAC of I. T. [1990] 181 ITR 351. Learned counsel for the respondent has, however, urged before us that Section 226(3) requires the giving of notice in writing by the Income-tax Officer while Section 226(4) only requires that the Income-tax Officer has to apply to the court in whose custody there is money belonging to the assessee. It has been urged that there is thus no requirement of giving of notice under Section 226(4) of the Act. 5. Section 226(3) of the Income-tax Act runs as follows ; "(3) (i) 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 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 (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 assessee in respect of arrears or the whole of the money when it is equal to or less than that amount. (ii) A notice under this sub-section may be issued to any person who holds or may subsequently hold any money for or on account of the assessee jointly with any other person and for the purposes of this subsection, the shares of the joint holders in such account shall be presumed, until the contrary is proved, to be equal. (ii) A notice under this sub-section may be issued to any person who holds or may subsequently hold any money for or on account of the assessee jointly with any other person and for the purposes of this subsection, the shares of the joint holders in such account shall be presumed, until the contrary is proved, to be equal. (iii) A copy of the notice shall be forwarded to the assessee at his last address known to the Income-tax Officer, and in the case of a joint account to all the joint holders at their last addresses known to the Income-tax Officer. (iv) Save as otherwise provided in this sub-section, every person to whom a notice is issued under this sub-section, shall be bound to comply with such notice, and, in particular, where any such notice is issued to a post office, banking company or an insurer, it shall not be necessary for any pass book, deposit receipt, policy or any other document to be produced for the purpose of any entry, endorsement or the like being made before payment is made, notwithstanding any rule, practice or requirement to the contrary. (v) Any claim respecting any property in relation to which a notice under this sub-section has been issued arising after the date of the notice shall be void as against any demand contained in the notice. (vi) Where a person to whom a notice under this sub-section is sent objects to it by a statement on oath that the sum demanded or any part thereof is not due to the assessee or that he does not hold any money for or on account of the assessee, then, nothing contained in this sub-section shall be deemed to require such person to pay any such sum or part thereof, as the case may be, but if it is discovered that such statement was false in any material particular, such person shall be personally liable to the Income-tax Officer to the extent of his own liability to the assessee on the date of the notice or to the extent of the assessee's liability for any sum due under this Act, whichever is less. (vii) The Income-tax Officer may, at any time or from time to time, amend or revoke any notice issued under this sub-section or extend the time for making any payment in pursuance of such notice. (vii) The Income-tax Officer may, at any time or from time to time, amend or revoke any notice issued under this sub-section or extend the time for making any payment in pursuance of such notice. (viii) The Income-tax Officer shall grant a receipt for any amount paid in compliance with a notice issued under this sub-section, and the person so paying shall be fully discharged from his liability to the assessee to the extent of the amount so paid. (ix) Any person discharging any liability to the assessee after receipt of a notice under this sub-section shall be personally liable to the Income-tax Officer to the extent of his own liability to the assessee so discharged or to the extent of the assessee's liability for any sum due under this Act, whichever is less. (x) If the person to whom a notice under this sub-section is sent fails to make repayment 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 were 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." 6. In the present case, as would be evident from annexure 4 to the writ petition, the request by the Assistant Commissioner of Income-tax to the Additional District Judge IV, Meerut, has been made under Section 226(4) of the Income-tax Act which runs as follows : "4. The Income-tax Officer may apply to the court in whose custody there is money belonging to the assessee for payment to him of the entire amount of such money, or, if it is more than the tax due, an amount sufficient to discharge the tax." A bare perusal of Section 226(3) of the Act would indicate that giving of a notice is an essential ingredient for exercising the power by the Income'-tax Officer under Section 226(3). It is only after the issuance of the notice that the liability to pay the amount to the Income-tax Department arises. It is only after the issuance of the notice that the liability to pay the amount to the Income-tax Department arises. A right has also been given to the person to whom a notice under Section 226(3) is issued tp file objections. On the other hand, we find that, under Section 226(4), the Income-tax Officer makes an application to the court in whose custody there is money belonging to the assessee for payment to him. Section 226(4) of the Act does not require the giving of notice to the assessee inasmuch as the application has to be made by the Income-tax Officer to the court. The basic difference in Sub-section (4) regarding absence of notice to the assessee is obvious. The proceedings in the court are judicial proceedings and, if an application under Section 226(4) of the Act is received by the court, a judicial order will have to be passed by the court in respect of that application after hearing the parties concerned. We are thus of the opinion that Section 226(4) of the Act, on its plain reading, does not require the giving of notice to the assessee and further, even otherwise, there is no necessity of giving notice to the assessee inasmuch as the assessee is bound to be heard as, on the application of the Income-tax Officer under Section 226(4) of the Act, the court has to pass a judicial order after hearing all the parties including the assessee. 7. Learned counsel for the petitioner has then urged that the money in respect of which the Income-tax Officer has made an application under Section 226(4) of the Act does not belong to the petitioner and thus the aforesaid amount cannot be transferred to the Income-tax Department. Reliance has been placed on the case of Syed Khaja v. Raghavendra Rao [1976] 103 ITR 294, 296 (AP) and State v. P. Topno, ITO [1959] 36 ITR 135 (Orissa). 8. Shri Bhupeshwar Dayal, learned counsel appearing for the Income-tax Department has, however, urged that the amount which has been ordered to be appropriated by the assessee under the orders of the High Court without furnishing security belongs to the assessee and that the. amount which has been ordered to be appropriated by the assessee after furnishing security will belong to the assessee after he has furnished security for the same. amount which has been ordered to be appropriated by the assessee after furnishing security will belong to the assessee after he has furnished security for the same. Reliance has been placed on the case of Sri Ramalingeswara Rice and Oil Mill Co. Ltd, v. Addl. ITO, AIR 1964 AP 74 . So far as the cases cited by learned counsel for the petitioner are concerned, we are of the opinion that they have no application to the present case. The case of State v. P. Topno, ITO [1959] 36 ITR 135 (Orissa) related to a matter which was pending under the Companies Act, 1956. It was held that, when a winding up order has been made or the official liquidator has been appointed as provisional liquidator, no suit or other legal proceeding shall be commenced or if pending at the date of the winding up order, shall be proceeded with, against the company, except by leave of the court and subject to such terms as the court may impose. According to the law laid down in the aforesaid case, it was held that it is a mandatory direction of law and the notice of attachment issued by the Income-tax Officer amounted to starting of legal proceedings. In the present case, no proceedings under the Companies Act are pending and thus, by no stretch of imagination, it can be said that there is any legal impediment in making the request under Section 226(4) of the Act to the Additional District Judge IV, Meerut. 9. So far as the case of Syed Khaja v. Raghavendra Rao [1976] 103 ITR 294 (AP) is concerned, we are of the opinion that the same has also no application inasmuch as, in the aforesaid case, the petitioner-assessee had instituted a suit for specific performance of an agreement of sale of a house against the third respondent. Certain amount was paid at the time of entering into the agreement. When the suit was instituted, the petitioner-plaintiff deposited the balance sale consideration in the court. The suit was partly decreed and the assessee was held entitled to damages. On appeal, the High Court held that the plaintiff-assessee was entitled to the specific performance of the agreement. As the sale deed was not executed by the vendor, the Commissioner appointed by the court executed the sale deed. The suit was partly decreed and the assessee was held entitled to damages. On appeal, the High Court held that the plaintiff-assessee was entitled to the specific performance of the agreement. As the sale deed was not executed by the vendor, the Commissioner appointed by the court executed the sale deed. However, it could not be registered for want of production of a tax clearance certificate by the vendor. While so, the Income-tax Officer filed a petition before the trial court under Section 226(4) of the Act for payment of money, lying in deposit in the court, towards tax due from the petitioner vendee. The trial court held that, as the sale deed was not registered, the vendor had not become the owner of the money lying in deposit in court and allowed the application. Aggrieved, the vendee-assessee filed a revision before the High Court in which it was held (at page 297) : "Further, the amount had been deposited and by virtue of the decree passed by this court in appeal, the amount has become earmarked towards the payment of the balance of consideration to the second respondent. Once it is earmarked for the specific purpose of payment to the second respondent, the amount ceases to he the property of the petitioner .... As a matter of fact, the very purpose, spirit and intendment of Section 226(4) make it patent that only such amounts over which the assessee has full proprietary right or an exercisable right can be proceeded against. Otherwise, there is no question of recovery of the income-tax. By no stretch of imagination could it be said that the petitioner has still the option open to him to withdraw the amount." 10. It is, therefore, clear that, in the aforesaid case, a finding was recorded that the assessee could not withdraw the amount. If that be so, the amount could not be said to belong to the assessee. Learned counsel for the respondent, on the other hand, has placed reliance on the case of Sri Ramalingeswara Rice and Oil Mill Co. Ltd. v. Addl. ITO, AIR 1964 AP 74 . It will be useful to recite the relevant facts of this case. 11. A suit was instituted against the judgment-debtor for eviction from the factory which the judgment-debtor was holding on lease. Ltd. v. Addl. ITO, AIR 1964 AP 74 . It will be useful to recite the relevant facts of this case. 11. A suit was instituted against the judgment-debtor for eviction from the factory which the judgment-debtor was holding on lease. The plaintiff during the pendency of the suit filed an application under Order 40, Rule 1, C. P. C., for appointment of a receiver to take possession of the factory and lease for two or more years on the ground that the assessee was threatening to commit acts of waste on the machinery and the structure. This application was contested by the assessee-judgment-debtor on the ground that he was willing to deposit the annual rent of Rs. 7,250 into court and give security as required by the court. The subordinate judge thereupon passed an order to the effect that the defendant should deposit in the court Rs. 12,500 by December 23, 1955, and furnish security of immovable property for a sum of Rs. 12,500 within three weeks, failing which a receiver would be appointed to take possession of the suit mill and to auction the leasehold rights. The plaintiff's suit ultimately succeeded and, in execution of the decree, attached the aforesaid amount deposited under the orders of the court. Another decree-holder also attached this amount. The Additional Income-tax Officer made a request for issuance of a cheque for Rs. 3,281-88 representing the arrears of income-tax and penalty due by the judgment-debtor. The aforesaid application of the Income-tax Officer was allowed. Aggrieved, a revision was filed in the High Court. In the aforesaid case, the High Court held (at page 76) : "In the instant case, the deposit was made to avoid a receiver being appointed and to protect the interests of the plaintiff. There was no order giving a direction to appropriate it towards any decree that might be passed. The order was merely to deposit the amount into court. It is only when an appropriation is made of the money deposited in court under the orders of the court towards the decree that it ceases to be the property of the judgment-debtor and his creditors could not proceed against it either in execution of the decree or in realisation of arrears of land revenue or taxes. Mere direction to deposit a particular sum of money does not amount to its being earmarked for a particular purpose. Mere direction to deposit a particular sum of money does not amount to its being earmarked for a particular purpose. It is only when there is a definite order directing appropriation of the amount deposited that other creditors or the Government could have no claim to it." 12. A bare perusal of the order passed by this court on September 12, 1990, would show that the court has stayed the realisation of the amount awarded by the court below subject to the condition that half of the enhanced amount of compensation together with costs awarded are deposited. After this amount is deposited, the court has allowed half of the amount to be withdrawn without any condition and the remaining half has been allowed to be withdrawn on furnishing security. As far as the amount which has been ordered to be withdrawn by furnishing security is concerned, we are of the opinion that the court has permitted the aforesaid amount to be appropriated by the petitioner. The petitioner has been made entitled to withdraw the same and appropriate it. The aforesaid amount, under the orders of the court, definitely belongs to the assessee as contemplated under Section 226(4) of the Act and thus an application could very well be moved in respect of that amount under Section 226(4) of the Act by the Department. As far as the amount which has been ordered to be withdrawn, after furnishing security, it cannot be said that, till the security has been furnished, the petitioner becomes entitled to appropriate that amount. Thus the amount would not belong to the petitioner till he furnishes security. After the furnishing of the security, the amount would belong to the assessee and the request of the Income-tax Department under Section 226(4) of the Act will have to be considered by the court below. 13. For the reasons stated above, we are of the opinion that the impugned request made by the Assistant Commissioner of Income-tax-under Section 226(4) of the Act is not liable to be quashed. The writ petition is, accordingly, dismissed with costs.