Gujarat High Court
Tejal R. Amin vs Assistant Commissioner Of Income-Tax on 15 March, 1994
Equivalent citations: [1994]208ITR103(GUJ)
Author: M.B. Shah
Bench: H.L. Gokhale, M.B. Shah
JUDGMENT M.B. Shah, J.
1. It is the say of the petitioner that she is a paid employee of two concerns, namely, (i) B. L. Fuse Gear Pvt. Ltd., and (ii) Insutech Industries. The respondent has attached her salary with these two concerns and asked them to pay the amount of salary as and when due forthwith to the Income-tax Department. The said notices dated October 23, 1993, are produced at annexure "C" to this petition. As per the said notices, the petitioner's employers are informed that as per the record an amount of Rs. 2,18,887 for the accounting year 1987-88 is outstanding in the case Shri Rahul N. Amin and that for the demand outstanding in the case of Shri Rahul N. Amin, Smt. Tejal R. Amin, who is a debtor of Shri Rahul N. Amin, has been issued notices under section 226(3) of the Act and she has failed to discharge her liabilities as per the notice; therefore, she is deemed to be an assessee in default and it personally liable to pay the outstanding demand of her husband; so, her salary which is paid by the company is attached under section 226(2) of the act subject to the proviso to that section.
2. Being aggrieved by the aforesaid action of the respondent, the petitioner has filed this petition praying, inter alia, that the said notices dated October 23, 1993 (annexure "C"), be quashed and set aside as the same are illegal and without authority of law.
3. It is the contention of the petitioner that she is an individual and is being assessed as such under the Income-tax Act. 1961 (hereinafter referred to as "the Act"). The husband of the petitioner, Rahul N. Amin, is also being assessed under the Act. It is the say of the respondent that, for the assessment year 1987-88, R. N. Amin is required to pay Rs. 2,38,951 towards outstanding income-tax liability. The respondent served a notice dated August 27, 1992, under section 226(3) of the Act to the petitioner asking her to make the letter dated December 20, 1992, has admitted that her husband has advanced Rs. 2,18,887 to her and that the said amount would be refunded only after getting permission from the respondent. It is also pointed out that pending the appeal before the Tribunal, R. N. Amin had paid Rs. 1,38,966 towards the aforesaid dues and that at present the outstanding liability is Rs. 99,985. It is contended that the attachment of her salary is wholly unjustifiable as section 226(2) of the Act does not empower the concerned authority to attach the salary of a garnishee.
4. On behalf of the respondent, an affidavit in reply is filed wherein it is contended that the petitioner's husband, namely, Rahul N. Amin, is an assessee in default. For the assessment year 1987-88, there was an outstanding income-tax liability of Rs. 99,985 plus Rs. 2,85,427. With regard to the outstanding income-tax liability of Rahul N. Amin, notices were served upon the petitioner and in response to the said notices, the petitioner assured the respondent that the outstanding demand to the extent of debt will be paid in instalments. But, in spite of the indulgence granted to the petitioner, she has failed to pay the said amount. Therefore, the petitioner was also treated as an assessee in default under the provisions of section 226 of the Act. It is also pointed out that in the instant case, the petitioner had acknowledged the debt and had also shown her willingness to make the payment of the amount of debt due in instalments. Therefore, the notices at annexure 'C' are valid.
5. Mr. Shah, learned counsel appearing for the petitioner, vehemently submitted that the petitioner is not an assessee in default and, therefore, her salary could not be attached under section 226(2) of the Act.
6. As against this, Mr. Thakore, learned counsel appearing for the Revenue, contended that the petitioner is deemed to be an assessee in default as provided under section 226(3)(x) of the Act and, hence, her salary could be attached.
7. For appreciating the rival contentions of learned counsel for the parties, it would be necessary to refer to the relevant part of section 226 of the Act, which is as under :
"226. Other modes of recovery. - (1) Where no certificate has been drawn up under section 222, the Assessing Officer may recover the tax by any one or more of the modes provided in this section.
(1A) Where a certificate has been drawn up under section 222, the Tax Recovery Officer may, without prejudice to the modes of recovery specified in that section, recover the tax by any one or more of the modes provided in this section.
(2) If any assessee is in receipt of any income chargeable under the head 'Salaries', the Assessing Officer or the Tax Recovery Officer may require any person paying the same to deduct from any payment subsequent to the date of such requisition any arrears of tax due from such assessee, and such person shall comply with any such requisition and shall pay the sum so deducted to the credit of the Central Government or as the Board directs :
Provided that any part of the salary exempt from attachment in execution of a decree of a civil court under section 60 of the Code of Civil Procedure, 1908 (5 of 1908), shall be exempt from any requisition made under this sub-section.
(3) (i) The Assessing Officer or the Tax Recovery 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 my subsequently hold money for or on account of the assessee, to pay to the Assessing Officer or Tax Recovery 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 Assessing Officer or Tax Recovery 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. .....
(5) The Assessing Officer or Tax Recovery Officer may, if so authorised by the Chief Commissioner or Commissioner, by general or special order, recover any arrears of tax due from an assessee by distraint and sale of his movable property in the manner laid down in the Third Schedule."
8. This section 226 which provides for other modes or additional modes of recovery of tax payable by the assessee is required to be considered along with sections 220 to 225 of the Act. Section 220, inter alia, provides that any amount specified as payable in a notice of demand under section 156 shall be paid within thirty days of the service of the notice. If the assessee fails to pay the amount specified in any notice, the assessee is required to pay simple interest at one and one-half per cent, for every month or part of a month. Sub-section (4) of section 220 provides that if the amount is not paid within the time limited under sub-section (1) or extended under sub-section (3), as the case may be, at the place and to the person mentioned in the said notice, the assessee shall be deemed to be in default. Section 221(1) provides that when an assessee is in default or is deemed to the amount of the arrears and the amount of interest payable under sub-section (2) of section 220, be liable, by way of penalty, to pay such amount as the Assessing Officer may direct. Section 222 provides that when an assessee is in default or is deemed to be in default in making a payment of tax, the Tax Recovery Officer may draw up under his signature a statement in the prescribed form specifying the amount of arrears due from the assessee. Such statement is to be considered a "certificate". After drawing up a certificate, the Tax Recovery Officer is entitled to proceed to recover from such assessee the amount prescribed in the certificate by one or more of the modes mentioned hereinbelow :
(a) attachment and sale of the assessee's movable property;
(b) attachment and sale of the assessee's immovable property;
(c) arrest of the assessee and his detention in prison;
(d) appointing a receiver for the management of the assessee's movable and immovable properties.
9. Sub-section (2) of section 222 empowers the Tax Recovery Officer to take action under sub-section (1) of section 222 even though the proceedings for recovery of arrears by any other mode have been taken.
10. In the context of sections 220 to 222, we are required to consider the provisions of section 226. Sub-section (1) of section 226 specifically empowers the Assessing Officer to recover tax by any one or more of the modes provided in the said section if no certificate has been drawn up under section 222. Sub-section (1A) of section 226 clarifies that where a certificate has been drawn up under section 222, the Tax Recovery Officer is also entitled to recover tax by any one or more of the modes provided in that section. In view of sub-section (1) and (1A) of section 226, either the Assessing Officer is entitled to recover tax if no certificate is drawn up under section 222 or the Tax Recovery Officer is entitled to recover tax where certificate has been drawn up under section 222. Sub-section (2) of section 226 provides that if the assessee is in receipt of any income chargeable under the head "Salaries", the Assessing Officer or the Tax Recovery Officer may require any person to deduct from the salary the arrears of tax due from the assessee. If would mean that sub-section (2) provides one more mode of recovery of tax payable by the assessee if he is having income under the head "Salaries".
11. One additional mode under sub-section (3) of recovering tax from the debtor of the assessee is prescribed. It provides a procedure (which is similar to a garnishee order which could be passed by a civil court under the provisions of the Civil Procedure Code) of giving a notice and hearing of objections, if any, that may be filed by a third party from whom money is due or may become due to the assessee. In response to the said notice, if the objection is raised to the effect 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 clause (vi) of sub-section (3) of section 226 provides that the sub-section which required the garnishee to pay the amount shall not be applicable. If no objection is raised under clause (ix), the person discharging any liability to the assessee after receipt of a notice under this sub-section, shall be personally liable to the Assessing Officer or the Tax Recovery Officer to the extent of his own liability to the assessee. Clause (x) which is relevant for our consideration provides that 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. It further provides that the proceedings against him may be taken for realisation of the amount "as if it were an arrear of tax due from him", in the manner provided in section 222 to 225. This clause therefore specifically provides that, if the person to whom a notice under sub-section (3) is sent fails to make payment, he shall be deemed to be an assessee in default in respect of the amount specified in the notice. That amount specified in the notice is further deemed to be as if it were an arrear of tax due from him and the said amount could be recovered in the manner provided in sections 222 to 225. Hence, under this clause, the amount from a third party, who is liable to pay to the assessee and to whom the notice under sub-section (3) is given, can be recovered from him by following the procedure under sections 222 to 225, as if he is an assessee in default to the extent of the amount specified in the notice.
12. Further, reading clause (x) of sub-section (3) of section 226, it is apparent that the Legislature has not provided that from the debtor of the assessee who is deemed to be an assessee in default as provided in clause (x), the arrears of tax can be recovered as provided under sub-section (2) of section 226. On the contrary, there is specific provision that it is to be recovered as provided in section 222 to 225. If we accept the contention raised by learned counsel, Mr. Thakore, for the Revenue, that once the debtor of the assessee is deemed to be an assessee in default, then his salary can also be attached as provided under section 226(2), then, the relevant part of the sentence "in the manner as provided in sections 222 to 225" in clause (x) of sub-section (3) would be redundant. The Legislature would have stopped only by providing that - in such cases - further proceedings may be taken against him for the realisation of the amount as if it were an arrear of tax due from him - and the second part "in the manner provided in sections 222 to 225" was not necessary.
13. Not only this, but it is further clear that the Legislature has made two specific deeming provisions, namely -
(i) if the person to whom a notice under this sub-section is sent fails to make payment in pursuance thereof to the Assessing Officer or the Tax Recovery Officer, he shall be deemed to be an assessee in default in respect of the amount specified in the notice;
The liability of such person is limited to the extent of the amount specified in the notice; and
(ii) the amount specified in the notice can be realised from such person as if it were an arrear of tax due from him.
After making these two deeming provisions, the Legislature provided that from such a person, the amount specified in the notice can be recovered in the manner provided in sections 222 to 225. It is nowhere provided that such a person shall be deemed to be an assessee in default for all intents and purposes of the Income-tax Act. In our view, such a person would be deemed to be an assessee in default for a limited purpose. From him only the amount specified in the notice and not the entire amount of arrears of tax due can be recovered by following the procedure under sections 222 to 225. There is no provision that the salary of a third party, who is a debtor of the assessee, can be attached and recovered "as an arrear of tax".
14. Hence, in our view, the notices issued by the authority are illegal and contrary to the provisions of section 226 of the Act.
15. In the result, the petition is allowed. The notices dated October 23, 1993 (annexure "C"), are quashed and set aside. Rule made absolute with no order as to costs.