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2004 Supreme(Cal) 29
High Court Of Calcutta
D.K. Seth, R.N. Sinha, JJ.
Shaw Wallace And Co. Ltd. : Appellant
Versus
Union Of India : Respondent
A.P.O.T. 543 Of 2003, A.P.O 511 Of 2003, W.P. 941 Of 2003
Decided On : Jan 15,2004
Sudipta Sarkar, S.N.Mukherjee, J.P.Khaitan, Ratnanko Banerjee, Sandeep Chowdhury, S.K. Kapur, P.K.Ghosh, B.Samaddar
The notice under Section 226(3) could not be issued on the debtor of the garnishee. If no such notice could be issued on the debtor of the garnishee, such notice cannot be treated to be a notice under Section 222 having the effect of attachment of the debt due to the garnishee from its debtor.
Headnote:
INCOME TAX - Section 226(3) - Notice under - Issuance to debtor of garnishee - Legality - Held, no notice under Section 226(3) could be issued on the debtor of the garnishee - Such notice cannot be treated to be a notice under Section 222 having the effect of attachment of the debt due to the garnishee from its debtor.
Fact of the Case:
The appellant, SWCL, had obtained a loan from the decree-holder, VCVL. This loan, reflected in the return of SWCL, was held to be a sham transaction and was assessed and charged to income-tax in the assessment of income of SWCL made by the income-tax authority at Calcutta. The tax payable on the said loan amount held to be an income of the assessee/appellant was being recovered from the appellant, SWCL, in instalments. Claiming to recover the said loan amount since held to be a sham transaction, the VCVL filed a suit against SWCL. This suit was decreed. The decree-holder, VCVL, was assessed in respect of its own income. The tax payable by the decree-holder, VCVL, was sought to be recovered by the income-tax authority at Delhi where VCVL was assessed. VCVL, the decree-holder, offered the decree obtained by it against the appellant, SWCL, for recovery of the income-tax payable by VCVL. After a certificate was drawn up against VCVL, the Tax Recovery Officer (TRO) at Delhi through a notice under Section 226(3) of the Act sought to recover the tax payable by the decree-holder, VCVL, from the appellant, SWCL, pursuant to the said decree.
Finding of the Court:
The notice under Section 226(3) (annexures P29 to P34 of the writ petition) issued upon APBCL and the other debtors of SWCL (respondents Nos. 9 to 18) in the facts and circumstances of the case, is incompetent and cannot be treated to be a notice of attachment as discussed above.
Issues: Whether a notice under Section 226(3) could be issued on the debtor of the garnishee? Whether such notice could be treated to be a notice under Section 222 having the effect of attachment of the debt due to the garnishee from its debtor?
Ratio Decidendi: The definition of "assessee" given in Section 2(7) of the Act includes a person deemed to be an assessee in default under any of the provisions of the Act. Clause (x) of Section 226(3) makes the garnishee in default of compliance with the notice under Section 226(3) a person deemed to be an assessee in default against whom the amount specified in the notice under Section 226(3) can be realised as if it were an arrear of tax due from the garnishee in the manner provided in Sections 222 to 225 and the notice under Section 226(3) issued to the garnishee shall have the same effect as an attachment of debt by the Tax Recovery Officer in exercise of his power under Section 222. Thus, Clause (x) creates a fiction by which the notice under Section 226(3) becomes a notice of attachment under Section 222 in respect of the debt payable by the garnishee to the assessee and such debt is recoverable in the manner provided in Sections 222 to 225.
Final Decision: The appeal thus stands allowed to the extent indicated above. The notices (annexures P29 to P34 of the writ petition) issued to APBCL and the other debtors of SWCL (respondents Nos. 9 to 18) under Section 226(3) and the order (annexure P62 of the writ petition) passed by the Tax Recovery Officer on the objection of SWCL under Clause (vi) of Section 226(3) are hereby quashed subject to the order passed above.
D.K. Seth, J.
1. THIS appeal is directed against an order dated August 28, 2003, passed by the learned single judge disposing of W. P. No. 941 of 2003 (see [2004] 267 ITR 241). The writ petitioner/appellant-Shaw Wallace and Company Limited (SWCL) had assailed the notices issued under Section 226(3)(x) of the Income-tax Act, 1961 ("the Act"), against the Andhra Pradesh Beverages Corporation Limited (APBCL) as debtor of SWCL, the garnishee against whom a notice under Section 226(3) of the Act was issued, seeking to recover the tax due and payable by Visisth Chay Vyapar Limited (VCVL) in respect of the amount due and payable by SWCL, the garnishee to VCVL, the decree-holder, pursuant to a decree obtained by the latter against the former.
2. THE case has a chequered history. A brief reference to the facts would be of great assistance to understand the situation and follow the erudite arguments advanced respectively by Mr. Sudipta Sarkar, senior counsel for the appellants, Mr. S.K. Kapoor, Additional Solicitor General for the Income-tax Department, and Mr. Anindya Mitra, senior advocate for VCVL.
It appears that SWCL obtained a loan from the decree-holder, VCVL. This loan, reflected in the return of SWCL, was held to be a sham transaction and was assessed and charged to income-tax in the assessment of income of SWCL made by the income-tax authority at Calcutta. The tax payable on the said loan amount held to be an income of the assessee/ appellant was being recovered from the appellant, SWCL, in instalments. Claiming to recover the said loan amount since held to be a sham transaction, the VCVL filed a suit against SWCL. This suit was decreed. The decree-holder, VCVL, was assessed in respect of its own income. The tax payable by the decree-holder, VCVL, was sought to be recovered by the income-tax authority at Delhi where VCVL was assessed. VCVL, the decree-holder, offered the decree obtained by it against the appellant, SWCL, for recovery of the income-tax payable by VCVL. After a certificate was drawn up against VCVL, the Tax Recovery Officer (TRO) at Delhi through a notice under Section 226(3) of the Act sought to recover the tax payable by the decree-holder, VCVL, from the appellant, SWCL, pursuant to the said decree. It appears that some amount has since been recovered from SWCL pursuant to the notice under Section 226(3). Series of litigations ensued. SWCL was all along objecting to the realisation under Section 226(3). However, the balance amount was again sought to be recovered from the debtors of SWCL, particularly from APBCL through a notice under Section 226(3), which has since been challenged in the writ petition out of which the appeal arises. On an earlier occasion challenging the notice under Section 226(3) issued upon SWCL, this court had observed as to whether Section 226(3) could be applicable having regard to the facts and circumstances of the case or not should be determined by the Tax Recovery Officer. After this order, the Tax Recovery Officer determined that Section 226(3) is applicable in the present case. Against this order, W. P. No. 941 of 2003 was moved.
3. THE learned single judge in the order dated August 28, 2003 (see [2004] 267 ITR 241), disposing of W. P. No. 941 of 2003 was pleased to observe that the provisions of Section 226(3) do not apply against the debtor of the garnishee, inasmuch as upon default of the garnishee, he may be proceeded against under Sections 222 to 225 without Section 226 as has been expressly provided by the Legislature in Clause (x) of Section 226(3). But, however, the learned single judge was pleased to observe that this notice under Section 226(3) issued to APBCL was, in fact, a notice of attachment with an intimation to APBCL pursuant to which the APBCL may pay the attached amount to the Tax Recovery Officer. The learned single judge was further pleased to grant liberty to the Tax Recovery Officer to intimate APBCL that if the attached amount is not paid within the
