TMI Blog1981 (7) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioners and B. R. Sons Ltd. in respect of these dealings and according to the petitioners, there was a debit balance of Rs. 76,436.23 against B. R. Sons Ltd. in this account as on 24th May, 1966. On 21st May, 1966, the ITO, Central Circle, Kanpur, issued a notice to the petitioners under s. 226(3)(i) stating that a sum of Rs. 22,89,281.97 was due from B. R. Sons Ltd. on account of income-tax, super-tax, penalty, etc., and requiring the petitioners to pay to him forthwith any amount due from the petitioners to B.R. Sons Ltd. or held by the petitioners for or on account of B. R. Sons Ltd. to the extent of the aforesaid arrears of tax due from B. R. Sons Ltd. The petitioners were warned that if they failed to make payment pursuant to this notice, they would be deemed to be assessee in default and proceedings would be taken against them for realisation of the amount as if it were an arrear of tax due from them. This notice was served on the petitioners on 24th May, 1966, and the petitioners replied to it on 1st July, 1966, pointing out that according to the state of the account between the petitioners and B. R. Sons Ltd., there was no credit balance in favour of B. R. Sons Ltd. and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against them. The petitioners, however, reiterated their stand and reaffirmed the correctness of their affidavit by their letter dated 10th January, 1967. The ITO thereupon addressed a letter dated 11th January, 1967, stating that the petitioners had not furnished any material or evidence to rebut his conclusion that the affidavit filed on behalf of the petitioners was false in material particulars and since the petitioners had failed to pay up the amount due from them to B. R. Sons Ltd., they were " assessee in default " within the meaning of s. 226(3)(x) and, consequently, appropriate coercive steps were being taken for realising the amount of the tax. A copy of this letter was forwarded to the Tax Recovery Officer, Kanpur, for information and necessary action. The TRO, on the basis of this letter issued an order dated 27th January, 1967, under r. 48 of the Second Schedule to the Act attaching some of the immovable properties belonging to the petitioners and following upon this order of attachment, he issued a notice on 7th February, 1967, for setting the proclamation in respect of the sale of these immovable properties. The petitioners thereupon filed a writ petition in the Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that the ITO was justified in treating the petitioners as " assessee in default " on the ground of non-payment of the amount due and owing from them to B. R. Sons Ltd. But so far as the recovery proceedings adopted by the TRO were concerned, the High Court took the view that no recovery proceedings could be adopted without issue of a recovery certificate by the ITO under s. 222 and since in the present case, no such recovery certificate was issued by the ITO, the recovery proceedings adopted by the TRO were invalid and they were accordingly quashed. This was the only limited relief granted by the High Court to the petitioners and the rest of the reliefs claimed were rejected. The petitioners thereupon preferred the present appeal in this court after obtaining a certificate from the High Court. The principal question that arises for determination in this appeal is as to whether, on a true interpretation of s. 226(3)(vi), the ITO was bound to hold an inquiry before he came to the conclusion that the statement contained in the affidavit filed on behalf of the petitioners was false in any material particular. Section 226(3) deals with recovery of arrears of tax from an assessee by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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... (x) If the person to whom a notice under this sub-section 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 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." It was in exercise of the power conferred under cl. (i) that the notice dated 21st May, 1966, was issued by the ITO to the petitioners. This notice did not mention or even indicate any specific amount alleged to be due from the petitioners to B. R. Sons Ltd. and it was, therefore, observed by the High Court that the notice was not in accordance with the provisions of cl. (i). We are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of cl. (vi) so as to attract the applicability of that clause. The argument of the revenue was, and this argument was accepted by the High Court, that though this affidavit was undoubtedly made on oath, it was not a " statement on oath " within the contemplation of cl. (vi), because it was not a statement of any of the partners of the petitioners but was merely a statement of an accountant of the petitioners. Now, it is true that this affidavit filed on behalf of the petitioners was sworn to by an accountant of the petitioners and not by one of their partners but we do not think that on that account it could be disregarded by the ITO. The accountant of the petitioners would obviously have knowledge of the state of the account between the petitioners and B. R. Sons Ltd. and he would be competent to make a statement on oath in regard to the position of such account. In fact, the accountant of the petitioners stated in para. 1 of the affidavit that he was acquainted with the facts deposed to in the affidavit and he also mentioned in the verification clause that so far as the averments in paras. 2 and 3 of the affidavit were concerned, which related to the position of the account betw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1st May, 1966, by filing an affidavit of their accountant that nothing was due from the petitioners to B. R. Sons Ltd., were not bound to comply with the requisition contained in such notice, but if the ITO discovered that such statement on oath was false in material particular and that some amount was due from the petitioners to B. R. Sons Ltd., the petitioners would be personally liable to pay such amount to the ITO. The question is whether the ITO could be said to have discovered that the statement on oath made in the affidavit of the accountant of the petitioners that nothing was due from the petitioners to B. R. Sons Ltd. was false in any material particular, as claimed by the revenue in the notices dated 31st December, 1966, and 11th January, 1967. Now, it is obvious that under cl. (vi) the discovery by the ITO that the statement on oath made on behalf of the garnishee is false in any material particular has the consequence of imposing a personal liability for payment on the garnishee and it must, therefore, be a quasi-judicial decision preceded by a quasi-judicial inquiry involving observance of the principles of natural justice. The ITO cannot subjectively reach the conclus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hing was due from the petitioners to B. R. Sons Ltd. as on 24th May, 1966. The ITO, however, adhered to the decision reached by him and his notice dated 11th January, 1967, intimated to the petitioners that he was treating them as assessee in default within the meaning of cl. (x) and proceeding to take appropriate coercive steps for realising the amount of tax due from them. It will thus be seen that after receipt of the affidavit of the accountant, the ITO did not give any notice or hold any inquiry for the purpose of determining whether or not the statement on oath made by the accountant in the affidavit was false in any material particular and whether any and, if so, what amount was due from the petitioners to B. R. Sons Ltd. but straightaway reached the conclusion that the statement on oath that nothing was due from the petitioners to B. R. Sons Ltd. was false in material particulars and, without even determining what precise amount was due from the petitioners to B. R. Sons Ltd., held that the petitioners were personally liable to the ITO under cl. (vi). The ITO did set out in his notice dated 31st December, 1966, the reasons which prevailed with him in reaching this decision ..... X X X X Extracts X X X X X X X X Extracts X X X X
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