TMI Blog1965 (11) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... e now in West Pakistan. In the wake of partition of the country under the Indian Independence Act, the Gujranwala branch of the bank was burnt down by rioters on or about August 12, 1947. Round about the same time, the Lyallpur branch of the bank was reported to have been looted. On and with effect from August 14, 1947, the bank abandoned all its assets in the territory now known as Pakistan and has not thereafter been able to resume work in those branches. On account of the restrictions imposed by the Foreign Exchange Regulation Act, 1947, no money could be transferred out of India to Pakistan or to any other country without the permission of the Reserve Bank of India after the passing of that Act in 1947. The Indian branches of the bank continued to do normal business including the meeting of liabilities towards its Muslim customers till May 6, 1948. On or about May 11, 1948, the bank submitted an application under section 153 of the Companies Act, 1913, to the East Punjab High Court at Simla for the sanction of a scheme framed by it. The High Court duly sanctioned the scheme on or about July 16, 1948, copy whereof is annexare "A" to the writ petition. Admittedly, the manner of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1942-43 to 1948-49. Demand notices were issued to the assessees in respect of those assessments on August 20, 1951. Since no payment of any part of the demand was made, a recovery certificate was issued by the assessing authority on March 12, 1953, to the Collector, Ludhiana, for the recovery of the abovesaid arrears. Recovery proceedings against the above named assessees have been pending since then. Mohammad Akram alias Akram Ullah had also been carrying on business in Ludhiana under the style of Messrs. Akram Ullah and Sons. On July 28, 1959, the Income-tax Officer, Ludhiana, wrote to the manager of the bank in exercise of his powers under section 38(5) of the 1922 Act to intimate to the Income-tax Officer if Mohammad Akram or Akram Ullah, Proprietor of Messrs. Akram Ullah and Sons, had any account with the bank and, if so, to intimate the amount to the credit of that party. By letter dated August 4, 1959, the bank replied to the Income-tax Officer as follows: " We have to advise that we do not appear to have any account in our books in the name of Shri Mohammad Akram or Akram Ullah, Proprietor, Messrs. Akram Ullah and Sons, Ludhiana." On December 24, 1959, the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the notice under section 46(5A) under the assumption that a sum of Rs. 10,000 is due to Shri Mohd. Akram of Shri Ikramullah Sons, Proprietor, Army Stores Supplying Co., Bazar Kharadian, Ludhiana. We informed you in our letter dated 24th December, 1959, that nothing is due or held by us relating to the above party and, therefore, the demand made by you under section 46(5A) is inoperative. Your attention is invited to the provisions of section 46(5A), last paragraph of which states that where a person to whom a notice under this sub-section is sent, objects to it on the ground that the sum demanded or any part thereof is not due to the assessee or that he does not hold any money for and on account of the assessee, then nothing contained in this section shall be deemed to require such persons to pay any sum or part thereof, as the case may be, to the Income-tax Officer. Since there is no amount due to the said defaulter from us, you have no jurisdiction to demand an assumed sum from us or to take any action under section 46 of the Income-tax Act. We, therefore, request you to kindly cancel all the proceedings contemplated by you under section 46." It is significant to note that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter by various reminders including the one dated June 26, 1961. In reply thereto, the manager of the bank wrote to the Income-tax Officer as follows: " With reference to your letter No. 2875 dated 26th June, 1961, and in reply thereto, we beg to state that as the undersigned was busy in some domestic work so it could not be dealt with earlier. We are contacting our legal adviser in this matter and on receiving his advice the needful will be done as per his instructions. " Tired of the manner in which the bank was behaving, the Income-tax Officer sent a letter dated October 29, 1961, to the bank wherein it was stated that the Income-tax Officer was satisfied that the amount to the credit of the assessee in question still lay in the custody of the bank which the bank had not paid in spite of service of the notice under section 46(5A) of the 1922 Act and, therefore, calling upon the bank to pay Rs. 10,000 to the Government, out of the said account. The bank again remained silent. By letter dated December 6, 7, 1961, the Income-tax Officer afforded the bank a final opportunity to pay the amount in question or to convince the Income-tax Officer with necessary evidence on or before D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment did not arise. An objection was taken against the recovery proceedings on that account. The bank also wrote letter dated nil (copy annexure "A") to the Income-tax Officer, wherein it again reiterated its stand in the following words: "We have already filed our objections that no amount is due to Shri Mohammad Akram from the bank in India within the terms of the scheme of the Punjab High Court sanctioned on 15th July, 1948. As we have repeatedly denied our liability and hold no money on behalf of Shri Mohammad Akram in India we submit that the provisions of section 46(5A) are not applicable." In the bank's reply (annexure " I ") dated February 16, 1962, to the Special Assistant Collector, it again raised the objection that the notice of the Income-tax Officer was inoperative " because the bank had never accepted any liability in India of any amount due to a Shri Mohammad Akram of Messrs. Army Stores Supplying Company, Ludhiana." In the same letter it was again repeated that reference to the bank's balance-sheet would show that there was no such account in the bank's "books in its Indian branches." The Special Assistant Collector, 1st Grade, wrote to the bank on December ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osit in question from the bank's Ludhiana head office to its defunct branch in Pakistan. The Income-tax Officer has also pointed out in his written statement that the bank failed to show its alleged Pakistan books of account in which the credit in question may be standing. When this case came up before my learned brother Dua J. on November 26, 1965, it was ordered to be heard by a larger Bench as the points raised by the petitioner are of some importance and are also bare of authority. Before noticing the rival contentions of the parties, it is necessary to state that the learned counsel for both sides expressly agreed that the question of validity and legality of the entire impugned proceedings and orders had to be decided in this case according to the provisions of the 1922 Act and that the 1961 Act is not relevant for that purpose. It is on the basis of this assumption, which even otherwise does not appear to be incorrect, that we have proceeded to decide this petition. At the time of the issue of the impugned notices, it was the 1922 Act which was in force. By operation of section 1(3) of the Act of 1961, the latter Act (Act 43 of 1961) came into force only on and with effe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an income-tax authority, be reckoned from the date up to which the time for payment had been extended ; (iv) where the sum payable is allowed to be paid by instalments, from the date on which the last of such instalments was due: Provided further that nothing in the foregoing proviso shall have the effect of reducing the period within which proceedings for recovery can be commenced, namely, after the expiration of one year from the last day of the financial year in which the demand is made. Explanation.---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, nor 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 bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tice 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 . . . . . (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. 231. Save in accordance with the provisions of section 173 or sub-section (7) of section 220 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not barred by time. Fifthly, it appears to us that the case falls within the purview of Explanation 2 to section 231 (reproduced above). The sixth reason for rejecting this contention of the bank is that, in any case, under Explanation 1 (iii) to section 231, the extended dates fell within the last day of the financial year before the issue of the recovery certificate. From whatever angle the argument is tested, it has no force. A third argument was then sought to be advanced by Mr. Chiranjiv Lal to show that the proceedings against the bank are beyond time. This argument is based on the provisions of section 34(3) of the 1922 Act, which sub-section reads as follows: "(3) No order of assessment or reassessment, other than an order of assessment under section 23 to which clause (c) of sub-section (1) of section 28 applies or an order of assessment or reassessment in cases falling within clause (a) of sub-section (1) or sub-section (1A) of this section shall be made after the expiry of four years from the end of the year in which the income, profits or gains were first assessable : Provided that where a notice under clause (b) of sub-section (1) has been issued within the time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 taxpayer in respect of arrears of income-tax and penalty or the whole of the money when it is equal to or less than that amount. The Income-tax Officer may at any time or from time to time amend or revoke any such notice or extend the time for making any payment in pursuance of the notice. Any person making any payment in compliance with a notice under this sub-section shall be deemed to have made the payment under the authority of the assessee and the receipt of the Income-tax Officer shall constitute a good and sufficient discharge of the liability of such person to the assessee to the extent of the amount referred to in the receipt. Any person discharging any liability to the assessee after receipt of the notice referred to in this sub-section shall be personally liable to the Income-tax Officer to the extent of the liability discha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pay it and may well be exposed to the penal provision which enables the Income-tax Officer to take further proceedings before the Collector on the footing that the notice issued has the same effect as an attachment by the Collector in exercise of his powers under the proviso to sub-section (2) of this section. . . . . Where, however, the person to whom the notice is sent denies that any money is due from him, then the Income-tax Officer cannot take any further proceedings under this sub-section even though the denial may not be true. Mr. Kondaiah's contention is that the last clause applies only to cases where the person to whom the notice is sent is raising a bona fide objection, an objection which is true and not false to his knowledge. Insuch a case, he contends, it is open to the authorities to ascertain and find whether, as a matter of fact, any money is or is not due to the assessee and resort to the coercive processes if it be found that there is a debt due to the assessee. I am not prepared to accede to this contention. If the position taken up by Mr. Kondaiah were right, then the authorities acting under the Act would be armed with what seems to me a very extraordinary pow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 46(5A) of the 1922 Act has created new rights and liabilities and is not merely by way of clarification. The powers, if any, conferred on the Income-tax Officer under the 1961 Act in this connection cannot therefore be imported into the 1922 Act. I am also in substantial agreement with the view expressed by the learned judge of the Andhra Pradesh High Court in P. Rajeswaramma's case, though I may not be prepared to go to the extent to which that judgment is capable of being understood. It appears to be correct that the phraseology of sub-section (5A) of section 46 of the 1922 Act does not appear to arm the income-tax authorities with jurisdiction to decide factually disputed questions of liability of the garnishee to the original assessee. That does not, however, mean that the provision exonerates a garnishee of his liability to the income-tax authorities by merely denying his liability to the assessee though expressly admitting that he holds the requisite amount of the assessee in his hands which he does not owe to any other person and in which the garnishee claims no personal interest. In any case, it is no defence whatever to a notice under section 46(5A) of the old Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the bank at Ludhiana. Admittedly, no instructions have been given by the original assessee to the bank to transfer the amount to any other place. The situs of the debt in dispute in the instant case is, therefore, in the circumstances referred to above, Ludhiana, and no other place. In this conclusion I am also supported by a Division Bench judgment of this court (G. D. Khosla C. J. and Mahajan J.) in Okara Grain Buyers Syndicate Ltd. v. United Commercial Bank Ltd., wherein it was held that, when a bank closes its branch, the assets and liabilities of that branch go over to the head office and the persons who have claims on the branch have to lodge those claims with the head office. The learned judges further held that in the case of a bank deposit, whether current or otherwise, the demand for its return has to be made at the branch where the deposit was made and, if such branch is no longer functioning, then the demand has to be made at the head office of the bank. The original assessee had made the deposit at Ludhiana. The head office of the bank is also at Ludhiana. In any case, the Pakistan branches of the bank have ceased to function. It is, therefore, wholly futile for the ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer have jurisdiction to decide the liability of the garnishee to the assessee in case the liability itself is factually in dispute. But the denial, in order to prevail against the income-tax authorities, must be factual, unambiguous and bona fide. Mr. Aggarwala emphasises the fact that in the written objections dated March 5, 1960 (annexure " G "), the bank had denied its liability. Mr. Awasthy rightly points out that even in the written objections dated March 5, 1960, the bank has clearly based itself for the factual position on its communication dated December 24, 1959. On the admitted facts of this case it is necessary to read the two communications (letters dated December 24, 1959, and March 5, 1960) together. Both these letters taken together imply a clear admission of the bank to the assessee and a further admission that the bank holds the said amount but it is sought to be stated that the amount is not payable in India but in Pakistan. This does not amount to a valid objection within the scope of sub-section (5A) of section 46 of the 1922 Act and does not exonerate the bank from its liability to the income-tax department for the amount of the assessee held by it. In parag ..... X X X X Extracts X X X X X X X X Extracts X X X X
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