Tax Recovery Officers cannot adjudicate disputes over liability when a third party denies owing money to the assessee.

1. The Special Deputy Collector, the competent authority for land acquisition under the National Highways Act , 1956 (hereinafter referred to as 'the 1956 Act'), is before this Court challenging certain proceedings initiated against him under the provisions of the Income Tax Act , 1961 (hereinafter referred to as 'the 1961 Act').

2. The brief facts are as follows: -
On account of the development of NH - 66 between Paravur to Kottukulangara in Alappuzha District, certain land in the possession of the NSS Karayogam, Alappuzha Branch No.1365, Neerkunnam, Alappuzha was acquired. An award was passed determining the compensation payable on account of the acquisition of land. However, since the persons from whom the land was acquired had not produced the title deeds, the amount of compensation was not paid. Meanwhile, the Income Tax Department initiated proceedings and issued a notice requiring the deposit of a sum of Rs.1,47,83,123/- (Rupees One Crore Forty - seven Lakhs Eighty - three Thousand One Hundred and Twenty - three only) from out of the compensation to the Income Tax Department towards alleged dues of the NSS Karayogam. Since the title deeds had not been produced by the NSS Karayogam and on account of the claim raised by the Income Tax Department, the petitioner referred the matter to the District Court as contemplated by the provisions of S.3H (4) of the 1956 Act. In the meanwhile, Exts. P.9(a) and P.9(b) proceedings dated 10/04/2023 have been drawn up under the provisions of the 1961 Act. While Ext.P.9(a) is a Notice of Demand under the IInd Schedule to the 1961 Act and Ext.P.9(b) is an order under S.226(3)(x) of the 1961 Act holding the petitioner (the officer holding the post) to be an 'assessee in default' under the 1961 Act. The petitioner is thus before this Court seeking to quash Exts.P.9(a) and P.9(b). According to the petitioner, the impugned proceedings are illegal and without jurisdiction.

3. Smt. N. Sudha Devi, learned Special Government Pleader (LA) appearing for the petitioner would submit that since the title deeds of the property had not been produced, there was a dispute as to whether the compensation to be awarded could be released to the NSS Karayogam. It is submitted that for the same reason the amount could not be remitted to the Income Tax Department towards the alleged dues of NSS Karayogam. In other words, it is submitted that without determining the question as to whether the NSS Karayogam was actually entitled to the amount awarded as compensation, there could not be any remittance of the amount to the Income Tax Department. It is submitted that in such circumstances the matter was referred to the District Court, Alappuzha (Principal Civil Court of Original Jurisdiction) as contemplated by the provisions of S.3H(4) of the 1956 Act. The learned Government Pleader places reliance on the Division Bench judgment of the Delhi High Court in AAA Portfolios (P) Ltd. v. CIT, 2013 SCC OnLine Del. 2798, in support of her contention that under no circumstances can the petitioner be treated as an 'assessee in default' for the purposes of S.226(3)(x) of the 1961 Act.

4. Sri. Jose Joseph, the learned Senior Standing Counsel appearing for the Income Tax Department would refer to the statement filed on behalf of the respondents. He also refers to the provisions of S.226(3) of the 1961 Act to establish that in the facts and circumstances of this case, the petitioner has not made out any ground to interfere with Exts. P.9(a) and P.9(b). He also submits that the Income Tax Department is proposing to file a claim petition before the Additional District Court - III, Alappuzha, where the reference is pending as OP (LA) NH No.17/2023 and OP (LA) NH No.62