TMI Blog1988 (4) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... xpatriate employees. The first of its 31 vessels entered the Indian territorial waters on January 5, 1978. On completion of the contract, the last of the petitioner's vessels left the Indian territorial waters on June 20, 1978. Thus in the accounting year April 1, 1978, to March 31, 1979, (for the assessment year 1979-80) the expatriate employees of the petitioner were in India for a period of less than 90 days. Each of these employees had worked on and from the vessels which were brought into the Indian territorial waters by the petitioner. Since each of the employees had rendered services of a technical nature for a period of less than 90 days, the petitioner reasonably believed that their salaries were exempt from income-tax under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k Ltd. under section 226(3) of the Income-tax Act, along with his letter of the same date. The second respondent referred to the earlier three notices under section 226(3) and informed Mazgaon Dock Ltd. that it was required to make payment of Rs. 3,92,11,150 at the earliest in respect of tax liability of the petitioner's employees for the assessment Year 1979-80, along with interest under section 201 (1A) and penalty under section 221(1). A copy of this notice was sent by Mazgaon Dock Ltd. to the petitioner along with its letter dated March 18, 1986. Mazgaon Dock Ltd. informed the petitioner that in view of this notice, it had already paid the said amount on behalf of the petitioner to the Income-tax authorities. The present petition challe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver from such assessee the amount under the modes prescribed in the section. Section 226 prescribes other modes of recovery. Section 226(1) says : " 226. (1) Notwithstanding the issue of a certificate to the Tax Recovery Officer under section 222, the Income-tax Officer may recover the tax by any one or more of the modes provided in this section ...... (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to pay either the whole of this amount or something less. But the basis of a notice under section 226(3) is that the assessee should be in arrears of tax. Unless there is an order of assessment against the assessee and a notice of demand, it is difficult to see how the assessee can be said to be having any tax arrears. Even under section 201 of the Income-tax Act, an order must be passed against the assessee. This is clear if one looks at section 246 which provides for appeals to the Appellate Assistant Commissioner. Sub-section (1) of section 246 refers to an order under section 201. In the present case, there is no order under section 201 against the petitioner. Without any such order, a notice under section 226(3) cannot be issued. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that amount. " These observations have been doubted by a subsequent decision of the Supreme Court in the case of Madan Lal Lohia v. Assistant Controller [1977] 108 ITR 627 at p. 645. The Supreme Court Bench of two judges in that case has said, while referring to this decision, "...In the first place, the decision seems to have overlooked the fact that it is only when a notice of demand is served on the assessee under section 156 and the period for payment of tax mentioned in it expires that the tax becomes payable by the assessee and it is only then that the Income-tax Officer can proceed to recover it from the assessee. The garnishee proceeding under section 226, sub-section(3), is merely one of the modes of recovery prescribed by law and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, it is difficult to see how the assessee can be said to be in arrears in payment of tax. There is also no order levying either interest or penalty. It is also difficult to see on what basis a third party like Mazgaon Dock Ltd. can be called upon to pay a sum of over Rs. 3 crores to the incometax authorities when the income-tax authorities have not even assessed the tax dues, much less interest or penalty, if any, payable by the petitioner. The notices, therefore, are contrary to the provisions of section 226(3) of the Income-tax Act, 1961. The respondents are liable to return the amount of Rs. 3,92,11,150 together with interest thereon at the rate of 15% p.a. to Mazgaon Dock Ltd. This notice was clearly in violation of the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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