Judicial Analysis Court Copy Headnote Facts Arguments Court observation

1967 Supreme(SC) 117

SUPREME COURT OF INDIA
J.C. SHAH, S.M. SIKRI AND V. RAMASWAMI, JJ.
Income-tax Officer, Madras and another, Appellants
Versus
Budha Pictures, Madras, Respondent.
Civil Appeal No. 401 of 1966
D/-5-4-1967.
Advocates appeared
Mr. T. V. Viswanatha Iyer, Senior Advocate, (Mr. S. K. Aiyar, Advocate, and Mr. S. P. Nayyar, Advocate for Mr. R. N. Sachythey, Advocate, with him), for Appellants; M/s. K. Srinivasan and R. Gopalkrishnan, Advocates, for Respondents.

Advocates:
K.SRINIVASAN INDRAJEETH SHAH, R.GOPAL KRISHNAN, R.N.SACH, S.K.AIYAR, S.P.NAIR, T.V.VISHVANATH IYER

Section 46 (5-A) of the Indian Income-tax Act, 1922, applies only when there is a subsisting relationship between the person served with a notice and the assessee.

Headnote:
INCOME TAX - Section 46 (5-A) - Scope and applicability - Subsisting relationship between the person served with a notice and the assessee is necessary - Notice cannot be issued to all possible employers or traders.
Fact of the Case:

The Income Tax Officer issued notices under Section 46 (5-A) of the Indian Income-tax Act, 1922, to Budha Pictures, Madras, to recover arrears of income tax from cine artist T. S. Baliah, who was in arrears of income tax. Budha Pictures contended that they had no subsisting relationship with Baliah and hence were not liable to pay the arrears.
Finding of the Court:

The court held that Section 46 (5-A) applies only when there is a subsisting relationship between the person served with a notice and the assessee, such as an employer-employee relationship, banker-customer relationship, or debtor-creditor relationship. The court further held that the notice cannot be issued to all possible employers or traders, as this would cast an enormous burden on the persons receiving such notices.
Issues: Whether Section 46 (5-A) of the Indian Income-tax Act, 1922, applies when there is no subsisting relationship between the person served with a notice and the assessee.
Ratio Decidendi: The court interpreted Section 46 (5-A) of the Indian Income-tax Act, 1922, to mean that it applies only when there is a subsisting relationship between the person served with a notice and the assessee. The court reasoned that the Legislature contemplated a subsisting relationship of which the Income-tax Officer gets information and which could reasonably lead to recovery of arrears. The court also considered the last paragraph of Section 46 (5-A), which allows the person served with a notice to object that the sum demanded is not due to the assessee or that he does not hold any money on account of the assessee. The court held that this provision suggests that a subsisting relationship between the person served with a notice and the assessee is necessary.
Final Decision: The court dismissed the appeal filed by the Income Tax Officer, holding that the Department was not entitled to call upon Budha Pictures to make good the sum of Rs. 20,000 already paid to Baliah as such payments did not contravene the notice under Section 46 (5-A) dated June 18, 1959.

Judgement

SIKRI, J. : This appeal by special leave is directed against the judgment of the Madras High Court allowing the petition filed under Article 226 of the Constitution by Budha Pictures. Madras, respondent before us. The respondent had, inter alia, prayed for a writ of mandamus or such other appropriate writ, order or direction in the nature of a writ directing the 4th Income-tax Officer, City Circle V, Madras, to forbear from collecting from the respondent the sum of Rs. 20,000 in pursuance of his notices dated June 18, 1959, and March 21, 1961, issued under S. 46 (5-A) of the Indian Income-tax Act, 1922. These notices came to be issued in the following circumstances:

One, T. S. Baliah, a cine artist, was apparently in arrears of income-tax. The III Additional Income-tax Officer sent a letter dated June 18, 1959 to the respondent saying:

"I understand that you have engaged the services of Shri T. S. Baliah for a film being produced by you. As the above gentleman is in arrears of income-tax, I herewith enclose a notice under Section 46 (5-A) of the I T. Act, attaching the remuneration payable by you to Shri Baliah. Please credit to the Government account all amount that is and will become payable to him."

The first paragraph of the notice reads as under:

"A sum of Rs. 46,819-15 is due from Shri T. S. Baliah on account of Income-tax and/or penalty, I am to request you, under Section 46 (5-A) of the Income-tax Act, 1922, to pay to me forthwith any amount due from you to, or held by you for or on account of the said Shri T. S. Baliah of 4 Arulammal St., Madras-17 upto the amount of arrears shown above, and also request you to pay any money which may subsequently become due from you to him or which you may subsequently hold for or on account of him upto the amount of arrears still remaining unpaid, forthwith on the money becoming due or being held by you as aforesaid as such payment is required to meet the amount due by the tax-payer in respect of arrears of Income-tax and penalty. I am to say that any payment made by you in compliance with this Notice is in law deemed to have been made under the authority of the tax-payer and my receipt will constitute a good and sufficient discharge of your liability to the person to the extent the amount referred to in the receipt.

2. The respondent replied on June 26, 1959, as follows:-

"We have not engaged Sri T. S. Baliah for acting in our production No. 2. Hence there is no contract with said Sri T. S. Baliah, and consequently we are unable to comply with your request."

On March 22 1961, another communication was sent enclosing a notice under S. 46 (5-A) of the Indian Income-tax Act. The notice is in the same form except that the sum to be recovered had increased to Rs. 86111/12. The respondent replied on March 25, 1961, saying that "there are no payments due and payable to Shri T. S. Baliah, cine-artiste, as on the date of receipt of your letter". The respondent enclosed a statement of account which showed that on March 28, 1960, a cheque for Rs. 7,000 was given to T. S. Bsaliah on February 9, 1961, cash amounting to Rs. 6,000 was paid to him, and again on March 18, 1961, cash amounting to Rs. 7,000 was paid to him. The respondent also enclosed a copy of the contract with T. S. Baliah. The contract shows that there was an agreement between T. S. Baliah and the respondent, signed on March 28, 1960, whereby T. S. Baliah agreed to a role in production No 2 (Tamil) for a consolidated remuneration of Rs. 20,000. On April 26, 1961, the Income-tax Officer wrote to the respondent stating that payment of Rs. 20,000 made to T. S. Baliah was in violation of notice under S. 46 (5-A) issued on June 18, 1959, and requested the respondent to pay the sum of Rs. 20,000 to the Income-tax Department within three days from the receipt of the letter. On June 26, 1961, the respondent wrote to the Income-tax Officer protesting that the respondent was not liable to pay the sum of Rs. 20,000 giving various reas

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