TMI Blog1977 (12) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... under the bona fide belief that there was no need to reply, she remained silent. On November 13, 1973, the ITO, Central Circle XIII, Madras, sent a letter to the petitioner stating that since no reply had been sent by her to the notice dated March 6, 1973, she was directed to send a copy of the account of R. R. Pictures as found in her books enclosing the latest transaction as on date. The letter further called upon her to show cause why she should not be treated as an "assessee in default", under s. 226(3)(x) of the Act, in respect of the amounts specified therein, and why further proceedings may not be taken against her for the realisation of the amount due by her to the said "R. R. Pictures". Pursuant to this notice, the petitioner caused to be produced before the ITO, the books of Rajakumari Theatre which is her proprietary concern, on January 22, 1974. It was explained that no money was due by her to the said R. R. Pictures. On May 4, 1974, the ITO, Central Circle XIII, Madras, sent a letter to the petitioner intimating that the stand taken by her is untenable and, therefore, she would be treated as a defaulter under the provisions of s. 226(3)(x) of the Act. It was further s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reat the petitioner as all assessee in default, nor could he issue a certificate to the TRO. Equally, the TRO could not gain jurisdiction to make any attachment of her properties under r. 48 of the 2nd Sch. When a notice is issued under s. 226(3) of the Act, it is for the purpose of recovering the tax due from the assessee by calling upon the assessee's debtor to pay the money due by him. It is in the nature of garnishee proceedings. Such proceedings could not be continued against the debtor when the right to recover the money is barred. The debtor is also entitled to urge the equitable plea to set off the money due to the creditor by him. In the circumstances stated, the monies advanced by R. R. Pictures to the petitioner were set off against the large amount of advance made by her to the partners of R. R. Pictures. Further, the claim of R. R. Pictures against the petitioner had become barred long ago. Hence, the proceedings under s. 226(3) of the Act could not be continued against her. In opposing the stand of the petitioner in the counter-affidavit, it is stated : The petitioner has admitted in her letter dated January 25, 1974, that a sum of Rs. 4,42,348 is due by her to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be recovered from the debtor, when it had become time-barred, which is so in this case, the revenue cannot seek to recover that amount. Nor can the debtor be called upon to pay that amount. According to him, if the right to recover the money from the debtor is lost for some reason or other garnishee proceedings cannot be taken. The proceedings under s. 226 of the Act are in the nature of summary proceedings for enforcing the existing liabilities. It does not create any new right. Where, therefore, the liability had ceased to exist as against the principal debtor, the revenue cannot seek the recovery of the same. The word "due" occurring under s. 226(3) must be held to be "legally recoverable". The mere existence of the liability does not clothe the officer with jurisdiction to take recovery proceedings under the said section. In support of this contention, reliance is placed on the passage occurring in the Supreme Court Practice, 1973, Vol. I, at pages 720 and 721 ; and also In re General Horticultural Company : Ex parte Whitehouse [1886] 32 Ch D 512 (Ch D), Glegg v. Bromley [1912] 3 KB 474 (CA) and Sinnott v. Bowden [1912] 2 Ch 414 (Ch D). If there is a disputed liability, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 35 days or within the extended period, as the case may be, the assessee is deemed to be in default. Such an assesee is liable to pay penalty also under s. 221. Once the assessee is in default or is deemed to be in default, the ITO may forward to the TRO, a certificate specifying the tax arrears due from the assessee. Armed with that certificate, the TRO takes recovery proceedings against the assessee by (i) attachment and sale of the assessee's movable property ; (ii) attachment and sale of the assessee's immovable property; (iii) arrest of the assessee and his detention in prison ; and (iv) appointing a receiver for the management of the assessee's movable and immovable properties. S. 226 contemplates other modes of recovery and sub-s. (3)(i) which is material for deciding the issue in question reads : "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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Liquidator, Union Bank of India, AIR 1924 Lah 53, it was held that a debt time-barred (and therefore unenforceable in suit) could not be enforced by a summary order under s. 186, on the ground that the section does not create new liabilities or confer new rights, but merely creates a summary procedure for enforcing existing liabilities." In Malabar Petroleum Co. v. Continental Oil Company Ltd. [1963] 2 Corn LJ 38 ; [1963] 33 Comp Cas 367, dealing with s. 469 of the Companies Act (Act 1 of 1956), it was held : " ...before an order for payment can be made under section 469 (of the Companies Act, 1956), the applicant (official liquidator) must show that the amount is 'due' and if under the law of limitation governing actions for recovery of money, the claim would be barred, it cannot be said that the amount is a sum 'due' within the meaning of section 469. The test will be if the company were to institute a suit as on the date of an application under section 469, it would or would not be barred by time under the Indian Limitation Act, 1908." 'Any time' in section 469(1) is not used with reference to limitation. The effect of the expression 'any time' is not that the court ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht. But does it mean a liability which cannot be recovered in law, could be recovered by the revenue ? Our answer should be "no", because such a liability does not exist in law. Further, no new right is created in favour of the revenue. It is in this connection, we have to note that the proceedings under this section are in the nature of garnishee proceedings. As to what is the right of a garnishee is to be gathered from the Supreme Court Practice, 1973, Vol. 1, at page 721, wherein it is stated: "It is essential that the relation of creditor and debtor should exist between the judgment debtor and the garnishee. If the judgment-debtor could sue the garnishee for the amount and recover it, it is plain that there would be an attachable debt ; but this is not an infallible test." Again it is stated : "A judgment creditor cannot, by means of attachment, stand in a better position as regards the garnishee than the judgment-debtor did ; he can only obtain what the judgment-debtor could, honestly give him: Re General Horticultural Co. : Ex-parte Whitehouse [1886] 32 Ch D 512 (Ch D), Glegg v. Bromley [1912] 3 KB 474 (CA) and Sinnott v. Bowden [1912] 2 Ch 414 (Ch D)." In Halsbury's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me up to this court even at the stage when the Income-tax Officer did not fully go into the question so as to find whether the contention of the petitioner is bona fide, false or otherwise, the revenue did not have any opportunity to discover whether the statements made by the petitioner were false in any material particular. Section 226(3)(vi) read as a whole, lays on the shoulders of the revenue, the responsibility to discover in cases like the one before us whether the statements made by the garnishee are false in any material particular. That has not been undertaken so far by the revenue and it is not very clear from the record whether all the materials were placed by the petitioner and the assessee to enable the Income-tax Officer to discover the falsity or otherwise of such particulars made available before him. In those circumstances and as we are not inclined in our discretion to engage ourselves in such an enquiry for discovery, we refrain from making the rule absolute but would give a direction instead so that the matter may be readverted to by the Income-tax Officer in the correct perspective as required by law." Having regard to the above decision, we necessarily hol ..... X X X X Extracts X X X X X X X X Extracts X X X X
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