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2007 Supreme(Raj) 1328
(Supreme Court)
Honble S.B. SINHA, J. Honble HARJIT SINGH BEDI, J.
Administrator, Unit Trust of India - Appellant
Versus
B.M. Malani & Ors. - Respondents
Appeal (civil) 4792 of 2007
Decided On : October 11, 2007
Headnote:ncome Tax Act, 1961, Sec. 226(3) Clause VI – Respondent assessee was defaulter in payment of income tax – On receiving notice from Income Tax Department, the appellant paid the value of the unit held by respondent at the rate at relevant time – Whether the action on the part of the appellant to act thereupon was valid? – Held – Sec. 226(3) of the Act is applicable only when a money is due to the assessee from any person – In absence of any right of option having been exercised by the respondent, the appellant could not have transferred the amount – Unit Trust of India was not authorised to dispose of the units on its own without any notice to the holder of the units.(Paras 13, 17, 18 & 23) Appeal dismissed.
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(2). Interpretation of sub-section (3) of Section 226 of the Income Tax Act, 1961 (Act) is involved in these appeals which arises out of a judgment and order dated 27-8-2004 passed by the High Court of Judicature of Andhra Pradesh at Hyderabad in Writ Petition No.2305 of 2002 whereby and whereunder the writ petition filed by B.M. Malani (hereafter referred to as the respondent) was allowed in part.
(3). Respondent is an assessee of income tax. He was admittedly a defaulter in payment of income-tax. He had invested an amount of 65 lacs in the Monthly Income Plan (III) offered by the Unit Trust of India under Capital Gains Scheme, the predecessor in interest of the petitioner in the year 1998 with an object to seek exemption under Section 84-E of the Act. The `Highlights projected for such an offer were as under :
"A five year close ended income plan
The plan offers three options 1) Monthly Income Option, 2) Annual Income Option & 3) Cumulative Option
The face value of a unit is Rs.10/- and units will be sold at par.
The Trust shall pay an assured income @ 12.50% p.a. payable monthly under monthly income option and @ 13.25% p.a. payable annually under annual income option, for all the five years of the plan.
Under the Monthly Income Option, income distribution warrants for the period upto March 1999 will be sent along with the membership advice/unit certificate. Thereafter income warrants payable monthly will be sent in advance for every April- March period.
Repurchase allowed from 1st September, 2001 at NAV based repurchase price under all the three options.
Scheme shall be listed on the whole sale debt segment of the NSE within six months from the closure of subscription.
It is guaranteed that the capital invested in the scheme will be protected on maturity i.e. units will not be redeemed below par. The Development Reserve Fund (DRF) of the Trust will guarantee this capital protection. There is no such guarantee for premature repurchases and the repurchase price in such cases will be as per prevailing NAV. There is scope for capital appreciation as a part of investment will be in equities.
Tax benefits under Section 80L and Sections 48 and 112 of Income Tax Act, 1961 on income distributed and capital gains from capital appreciation. Capital gains tax exemption under Section 54EA of the Income Tax Act, 1961 subject to lock-in for three years from the date of acceptance."
(4). Appellant received a notice from the Income Tax Department purported to be under sub-section (3) of Section 226 of the Income Tax Act. In compliance of the demand made therein, a sum of Rs.43]69]083.30 p. was paid to the Department by the appellant wherefor, the value of the unit at the relevant time was calculated at the rate of Rs-6-93 p. per unit.
(5). Respondent herein filed a writ petition questioning the said action of the appellant in resorting to sale of the said units without his consent.
(6). Admittedly, although the units were transferred, their value had not become due to the assessee on the date on which such notice was given. It was held by the High Court that the respondent was entitled to the redemption value of the units at the rate of Rs.10/- per unit after five years.
(7). Appellant is, thus, before us. An appeal has also been filed by the respondent contending that the dividend declared on the said amount also should have been directed to be paid by the High Court.
(8). Mr. M.L. Verma, learned senior counsel appearing on behalf of the appellant, would submit that the respondent being a defaulter and the appellant having been holding the units on its behalf, the High Court committed a serious error in passing the impugned judgment. The learned counsel urged that admittedly the units were transferable on the day on which the payments were made and keeping in view the purported tenor of the notice in terms whereof the appellant was to be treated as an assessee-in- default, it had no other option but to make payment.
(9). Mr.
