Judgment

BHAGWATI, J.:- This appeal by certificate raises a short question of law relating to the interpretation of S. 226 (3) of the Income-tax Act, 1961. The petitioners were at all material times a partnership firm carrying on business as bankers and dealers in cloth and over the years, they had dealing with a limited company called B. R. Sons Limited which at one time acted as the sole selling agent of Laxmi Ratan Cotton Mills Company Limited. There was a running account between the petitioners and B. R. Sons Limited in respect of these dealings and according to the petitioners, there was a debit balance of Rs. 76,436.23 against B. R. Sons Limited in this account as on 24th May, 1966. On 21st May, 1966 the Income-tax Officer, Central Circle, Kanpur issued a notice to the petitioners under Section 226 (3) (i) stating that a sum of Rs. 22,89,281.97 was due from B. R. Sons Limited on account of income-tax, supertax, penalty etc. and requiring the petitioners to pay to him forthwith any amount due from the petitioners to B. R. Sons Limited or held by the petitioners for or on account of B. R. Sons Limited to the extent of the aforesaid arrears of tax due from B. R. Sons Limited. The petitioners were warned that if they failed to make payment pursuant to this notice, they would be deemed to be assessee in default and proceedings would be taken against them for realisation of the amount as if it were an arrear of tax due from them. This notice was served on the petitioners on 24th May, 1966 and the petitioners replied to it on 1st July, 1966 pointing out that according to the state of the account between the petitioners and B. R. Sons Limited, there was no credit balance in favour of B. R. Sons Limited and that on the contrary B. R. Sons Limited owed a large amount to the Petitioners and in the circumstances the notice should be discharged. The Income-tax Officer by his letter dated 11th, October, 1966 intimated to the petitioners that they should file a sworn affidavit setting out their contention that they did not owe any amount to B. R. Sons Limited. This was followed by another letter dated 14th December, 1966 addressed by the Income-tax Officer to the petitioners in which the Income-tax-Officer pointed out that he had in his possession evidence to show that the petitioners still owed money to B. R. Sons Limited to a substantial extent and requesting the petitioners to pay up the amount due to B. R. Sons Limited on or before 21st December, 1966. The petitioners thereupon filed an affidavit sworn by their accountant Shiv Kumar Arora on 22nd December, 1966 setting out the position of the account of B. R. Sons Limited and stating that far from any amount being due from the petitioners to B. R. Sons Limited, there was a debit balance of Rs. 76,436.23 against B. R. Sons Limited as on 24th May, 1966 and the notice issued against the petitioners under Section 226 (3) (i) was therefore unjustified. The affidavit was forwarded to the Income-tax Officer along with a letter addressed by the petitioners. The Income-tax Officer replied to the petitioners by his letter dated 31st December, 1966 in which he pointed out that during the course of search of Bihari Niwas, the Income-tax Authorities have seized account books in Hindi, Muriya and English pertaining to the year commencing from 1st July 1965 and that the account of B. R. Sons Limited in the Muriya and English cash books showed that payments aggregating to Rupees 8,69,000.00 had been made to B. R. Sons Limited prior to 24th May, 1966 but the original cash book in Hindi did not show any such payments having been made and he had therefore reason to believe that the affidavit filed on behalf of the petitioners showing that B. R. Sons Limited had a debit balance against them in the books of the petitioners as on 24th May, 1966 was false in material particulars. The Income-tax Officer accordingly held the petitioners to be personally liable to make payment to the extent of their liabilit