The court established that the Assessing Officer's jurisdiction under Section 226(3) of the Income Tax Act is limited to cases where a third party admits to owing money or holding money on account of the assessee, and that the officer cannot adjudicate disputes between the assessee and a third party.

Vibhu Bakhru, J.

1. This is a writ petition filed by the petitioners challenging the order dated 01.02.2013 passed by Respondent no.1 (hereinafter referred to as the “Assessing Officer”) and the consequential notice dated 04.02.2013 issued under Section 226(3) of the Income Tax Act,1961 (hereinafter referred to as the "Act"). The petitioners are aggrieved on account of the action of the Assessing Officer in appropriating a sum of Rs.95,85,30,934/- which was lying in escrow with respondent No.2 bank.

2. The petitioners held shares in respondent No.3 company, namely, scorts Heart Institute & Research Centre Ltd. (hereinafter referred to as the “assessee company”). Petitioner Nos.1 & 2 held 1,00,000 shares each of the assessee company and the petitioner No.3 held 16,00,000 shares of the assessee company. The petitioners along with three other entities, namely Charak Ayurvedic Institute, Escorts Employees Welfare Trust and Diamond Leasing and Finance Limited who held 100 shares of the assessee company each entered into a share purchase agreement dated 25.9.2005 for sale of their shares in the assessee company to M/s Fortis Health Care Ltd. (hereinafter referred to as the “purchaser”). In all 18,00,300 shares of the assessee company which aggregated 90.01% of the issued and paid up share capital of the assessee company were agreed to be sold by the petitioners and three other entities (hereinafter collectively referred to as the “sellers”). The consideration for the sale of 18,00,300 shares of the assessee company was agreed at Rs.585,00,97,485/-@ Rs.3249.51 per share. As agreed under the share purchase agreement, the purchaser was required to deposit the entire consideration with the escrow agent and the sellers agreed to deposit certain documents including share transfer deeds and instructions with the escrow agents in order to consummate the transaction for sale and purchase of an aggregate of 18,00,300 equity shares of the assessee company. The shares held by petitioner No.3 were pledged with certain lenders and the escrow agent was required to release part of the consideration to the lenders in order that the petitioner No.3 could redeem the pledge and transfer unencumbered shares to the purchaser.

3. It was agreed between the sellers and the purchaser that the escrow agent would release Rs.3,24,951/- each to Charak Ayurvedic Institute, Escorts Employees Welfare Trust and Diamond Leasing and Finance Limited as consideration for the sale of the 100 shares each held by them in the assessee company and out of the balance consideration deposited by the purchaser an aggregate sum of Rs.149,99,02,514/-would be withheld with the escrow agent and the remaining balance amount would be released to the petitioner No.3. The amount to be withheld by the escrow agent included a sum of Rs.64,99,02,514/- which was the entire consideration payable to petitioner Nos.1 and 2 for sale of their shares in the assessee company to the purchaser.

4. The purpose for withholding the sum of Rs.64,99,02,514/- from the sale consideration payable by the purchaser was on account of the income tax liability of the assessee company that was being contested. It is relevant to state that M/s Escorts Heart Institute and Research Centre, which was a charitable society was merged with another society and subsequently, the same was converted into a company incorporated under the Companies Act, namely, the assessee company. The Assessing Officer denied the exemption to the assessee company under Section 35(1)(ii) of the Act and passed an assessment order for the assessment year 2001002 raising a demand of Rs.124.36 crores. The said demand is disputed by the assesssee company. As there were disputes pending with the Income Tax Department regarding the tax liability of the assessee company, it was agreed between the purchaser and the petitioners that a certain sum would be held back from the sale consideration by the escrow agent and would not be released to