Calcutta H.C : The petitioner is an assessee under the Act. The petitioner received a notice dt. 15th Feb., 2000, under s. 158BC of the Act from the office of the Jt. CIT, Special Range-8, directing the petitioner to submit a return for the block period, viz., 1989—2nd December, 1999.

High Court Of Calcutta

Golam Momen vs. Assistant Commissioner Of Income Tax & Ors.

Sections 156, 220(6), 226(3)

Bhaskar Bhattacharya, J.

Writ Petn. No. 540 of 2003

24th April, 2003

JUDGMENT

Bhaskar Bhattacharya, J. :

By this writ application, the writ petitioner has prayed for setting aside notice dt. 16th Jan., 2003, under s. 226(3) of the Income-tax Act, 1961 (the “Act”), issued by respondent No. 1 for realisation of the demanded amount from the different persons who are holding money for or on account of the petitioner.

2. The petitioner is an assessee under the Act. The petitioner received a notice dt. 15th Feb., 2000, under s. 158BC of the Act from the office of the Jt. CIT, Special Range-8, directing the petitioner to submit a return for the block period, viz., 1989—2nd December, 1999. Pursuant to such notice, the petitioner submitted a return on 30th March, 2000, under protest. Ultimately, the petitioner was assessed and on 31st Dec., 2000, a demand of Rs. 2,29,50,263 was raised. Subsequently, the petitioner came to know from his bankers that respondent No. 1 had issuedpurported notices under s. 226(3) of the Act asking the various banks to pay money deposited in the petitioner’s account to the said respondent pursuant to the demand against the petitioner. The petitioner challenged those notices before this Court under Art. 226 of the Constitution of India and Dilip Kumar Seth J., by order dt. 10th May, 2002, quashed those garnishee notices and directed the respondents to repay the amount debited from the petitioner’s account. In the meantime, an order dt. 9th Dec., 2000, passed by the CIT(A) Central-I, Kolkata, in Appeal No. 360/CC-III/CIT(A), C-I of 2001-2002, preferred by the petitioner against the block assessments, partly went against him. Being dissatisfied, the petitioner preferred an appeal on 24th Dec., 2002, before the Tribunal and the said appeal is pending. On 19th Dec., 2002, the petitioner received a letter issued by respondent No. 1 dt. 17th Dec., 2002, demanding purported arrears of Rs. 2,25,47,840 within 15 days from the receipt of such letter. Immediately after receiving the letter, the petitioner wrote to respondent No. 1 stating that he would prefer an appeal before the Tribunal and would also pray for stay of the aforesaid order passed by the CIT(A). On the aforesaid ground, the petitioner requested that the proceeding for realisation of tax should be kept in abeyance for three months. Subsequently, the petitioner came to know that by various garnishee notices under s. 226(3) of the IT Act dt. 17th Jan., 2003, respondent No. 1 has asked the petitioner’s bankers to pay the amount in terms of those notices. On 5th Feb., 2003, the petitioner filed a stay application before the Tribunal praying for stay of the order impugned passed by the CIT(A), Central-I, Kolkata, and after filing such application the petitioner served a copy of the said application upon one of the bankers, viz., the State Bank of India, La Martiniere Branch, Kolkata. By a forwarding letter, the petitioner requested the bank to hold payment of the amount demanded by the Asstt. CIT till the disposal of the case by the Tribunal. Respondent No. 1 in answering the letter dt. 7th Feb., 2003, written by the bank informed that there was nothing on record regarding stay of collection of demand in the case of the petitioner by any competent authority and the stay petition filed by the petitioner had nothing to do with recovery proceedings initiated under s. 226(3) of the IT Act. By the said letter the bank was requested to make payment of the amount lying to the credit of the petitioner forthwith. Being dissatisfied the petitioner has come up with the instant writ application.

3. Mr. Bhattacherjee, learned senior counsel appearing on behalf of the petitioner, has raised two pure questions of law in this application. The first question advanced by Mr. Bhattacherjee is that once an appeal has been preferred before the IT appellate authority and a stay application has also been filed in such appeal, till the disposal of such stay application, the IT authorities cannot proceed for recovery of the amount which is a subject-matter of the appeal. In other words, Mr. Bhattacherjee contends that filing of a stay application before the appellate forum constitutes automatic stay of recovery proceeding so long as such stay application is not disposed of by the appellate authority. The other point put forward by Mr. Bhattacherjee is that without serving a notice under s. 226(3) (iii) of the IT Act upon the assessee, the IT authorities cannot recover any amount by taking aid of s. 226(3) of the IT Act. Mr. Bhattacherjee contends that in this case till date, the petitioner has not been served with any notice as required under s. 226(3)(iii) of the Act so far as the collection of the amount from the State Bank of India is concerned. Under such circumstances, the petitioner prays for a direction upon respondent No. 1 to redeposit the amount collected from the State Bank of India and to stay recovery proceeding so long as the stay application is not disposed of by the Tribunal. In support of the first contention, Mr. Bhattacherjee has relied upon the following decisions of different Courts : (1) Bongaigaon Refinery & Petro Chemicals Ltd. vs. CIT (2002) 177 CTR (Gau) 239 : (2002) 256 ITR 698 (Gau); (2) Mohan Singh vs. CIT (1993) 115 CTR (P&H) 170 : (1993) 204 ITR 571 (P&H); (3) K. T. Building Materials (P) Ltd. vs. Commr. of Central Excise and Customs (1997) 94 ELT 59 (Raj); (4) Dwarka Minerals & Chemicals (P) Ltd. vs. CCE (1997) 93 ELT 330 (P&H); (5) Mahindra & Mahindra Ltd. vs. Union of India (1992) 59 ELT 505 (Bom); (6) Sitaram Sreegopal vs. CTO 10 STC 27; and (7) Narendra Kumar Steel Traders vs. ITAT (1994) 117 CTR (All) 13. Both the points taken by Mr. Bhattacherjee have been seriously disputed by Mr. Ghosh appearing on behalf of the IT authorities.

4. Mr. Ghosh contends that mere filing of an appeal and stay application before the appellate authority cannot ipso facto stay the recovery proceeding. Mr. Ghosh contends that so long as the appellate authority does not pass any order of stay, his clients are entitled to recover the amount in accordance with law. In support of such contention Mr. Ghosh relies upon a Division Bench decision in this Court in the case of Union of India vs. B. C. Nawn & Ors. (1972) 84 ITR 526 (Cal). As regards the second question raised by Mr. Bhattacherjee, Mr. Ghosh contends that a notice upon the assessee of the garnishee proceeding is mandatory but there is no necessity of serving such notice before actual recovery of the amount. According to Mr. Ghosh such notice can be given even subsequently. Mr. Ghosh contends that the object of such notice is only to inform the assessee that the amount has been recovered by virtue of a proceeding under s. 226(3) of the IT Act. He thus prays for dismissal of this writ application.

5. The first question that falls for determination in this writ application is whether the filing of an appeal before the appellate authority and further filing of a stay application in such appeal affords automatic stay of recovery proceedings till the disposal of the stay application before the appellate authority.

6. After hearing learned counsel for the parties and after going through the scheme of the IT Act, 1961, it is apparent that after the tax has been assessed and a notice of demand is issued under s. 156, the tax so assessed becomes payabla and after the expiry of the period mentioned in s. 220 if the tax remains unpaid, the assessee becomes a defaulter enabling the TRO to proceed by any of the modes prescribed in s. 222 of the Act. Sec. 220(6) of the Act, however, authorises the AO to treat the assessee as not being in default in his discretion subject to such condition as he may imposed during the pendency of an appeal under s. 246 of the Act. The aforesaid provision manifests the intention of the legislature that the fact of mere filing of an appeal does not constitute stay of the demand. As pointed out by the Supreme Court in the case of ITO vs. M. K. Mohammed Kunhi (1969) 71 ITR 815 (SC), although the Act is silent, s. 254 of the Act impliedly grants the authority to the Tribunal to make necessary order staying recovery proceeding. But the apex Court hastened to add that such power should not be exercised in a routine way or as a matter of course in view of the special nature of taxation and revenue law. It will only be when a strong prirna facie case is made out that the Tribunal will consider whether to stay recovery proceedings and on what conditions and the stay should be granted in most deserving and appropriate cases where the Tribunal is satisfied that the entire purpose of the appeal will be frustrated or rendered nugatory by allowing the recovery proceedings to continue during the pendency of the appeal. Therefore, so long as the appellate authority does not pass any specific order granting stay of recovery during the pendency of an appeal, there is no bar to proceeding with the process of recovery unless a favourable order has been passed in terms of s. 220(6) of the Act. Mere filing of an application for stay cannot place the assessee in any better position. My aforesaid observation is in conformity with the Division Bench decision of this Court in the case of Union of India vs. B. C. Nawn (supra) relied upon by Mr. Ghosh.

7. I now proceed to consider the decisions referred to by Mr. Bhattacharya. In the case of Narendra Kumar Steel Traders vs. ITAT (supra), during the pendency of an appeal by the assessee before the Tribunal, the Recovery Officer having proceeded to recover the amount from the bankers of the assessee by taking aid of s. 226(3) of the Act, the assessee moved a Division Bench of the Allahabad High Court by way of an application under Art. 226 of the Constitution of India. Such writ application was disposed of by directing the Tribunal to decide the pending stay application within three weeks and in the meantime the bankers were directed not to act upon the notice under s. 226(3) of the Act; the Division Bench, however, kept the amount under attachment. The aforesaid decision cannot be cited as an authority for the proposition of law that pendency of a stay application before the appellate authority constitutes stay of the recovery proceeding; on the other hand, passing of the order of attachment during the pendency of such application implies that the Division Bench did not even grant unconditional stay. In other words, the said decision supports the argument of Mr. Ghosh that unconditional stay in a routine manner should not be passed even during the pendency of a stay application.

8. In the case of Mahindra and Mahindra Ltd. vs. Union of India (supra) although an appeal was filed before the Tribunal and a date was fixed for hearing the stay application, the Department encashed the bank guarantee given by the assessee and the Tribunal directed the Department to hold the money till the disposal of the appeal. Under such circumstances, a Division Bench of the Bombay High Court set aside the order of the Tribunal with a direction to refund the money; however, the assessee was directed to give fresh bank guarantee which should continue. The aforesaid decision rather upholds the contention that there should not be unconditional stay even during the pendency of an application for stay.

9. The case of K.T. Building Materials (P) Ltd. vs. Commr. of Central Excise & Customs (supra) was one where during the pendency of stay application before the appellate forum, coercive process was employed for recovery of the amount. The Division Bench disposed of the writ application by directing the appellate authority to dispose of the stay application within two months with further observation that if in the meantime the amount has already been recovered, then the appeal itself should be disposed of within two months.

10. In the case of Dwarka Minerals & Chemicals (P) Ltd. vs. CCE(A) (supra), a Division Bench of the Punjab and Haryana High Court was of the view that if the appellate authority does not pass an appropriate order on the request made by the appellant for stay and at the same time does not even hear out the appeal, a writ Court will be justified in concluding that the remedy of appeal was not effective. However, the Division Bench directed the appellate authority to dispose of the stay application within four weeks and stayed the recovery proceeding till the disposal of the application. Similarly, in the case of Bongaigaon Refinery & Petro Chemicals Ltd. vs. CIT & Ors. (supra) a learned judge of the Gauhati High Court stayed the operation of demand till a stay application is disposed of by the appellate authority.

11. All the aforesaid decisions merely reiterate the principle that the appellate authority should dispose of the stay application as expeditiously as possible so that taking advantage of the delayed disposal of such application, the coercive steps for recovery of the amount cannot be made. But those decisions do not lay down the law that there should be automatic stay till the disposal of the stay application as suggested by Mr. Bhattacharya.

12. Now the next question is whether it is mandatory to issue notice upon the assessee and hear him before passing an order under s. 226(3) of the Act. In support of the contention that no order under s. 226(3) of the Act before service of notice upon the assessee, Mr. Bhattacharya has placed strong reliance upon the decision of a learned single judge of the Punjab and Haryana High Court in the case of Mohan Singh vs. CIT (supra). The reason assigned by the learned judge in support of such proposition is quoted below : “This course was not at all permissible as it is an admitted position that, under the provisions of the IT Act, while raising a demand for recovery, the concerned assessee has to be issued a notice and it is only after hearing him that an appropriate order can be passed.”

13. To appreciate the aforesaid question, the provisions contained in s. 226(3) are quoted below : “Sec. 226(3) : (i) The AO or TRO may, at any time or from time to time, by notice in writing require any person from whom money is due or may become due to the assessee or any person who holds or may subsequently hold money for or on account of the assessee, to pay to the AO or TRO either forthwith upon the money becoming due or being held or at or within the time specified in the notice (not being before the money becomes due or is held) so much of the money as is sufficient to pay the amount due by the assessee in respect of arrears or the whole of the money when it is equal to or less than that amount. (ii) A notice under this sub-section may be issued to any person who holds or may subsequently hold any money for or on account of the assessee jointly with any other person and for the purposes of this sub-section, the shares of the joint-holders in such account shall be presumed, until the contrary is proved, to be equal. (iii) A copy of the notice shall be forwarded to the assessee at his last address known to the AO or TRO, and in the case of a joint account to all the joint-holders at their last addresses known to the AO or TRO. (iv) Save as otherwise provided in this sub-section, every person to whom a notice is issued under this sub- section, shall be bound to comply with such notice, and, in particular, where any such notice is issued to a post office, banking company or an insurer, it shall not be necessary for any pass book, deposit receipt, policy or any other document to be produced for the purpose of any entry, endorsement or the like being made before payment is made, notwithstanding any rule, practice or requirement to the contrary. (v) Any claim respecting any property in relation to which, a notice under this sub-section has been issued arising after the date of the notice shall be void as against any demand contained in the notice. (vi) Where a person to whom a notice under this sub-section is sent objects to it by a statement on oath that the sum demanded or any part thereof is not due to the assessee or that he does not hold any money for or on account of the assessee, then, nothing contained in this sub-section shall be deemed to require such person to pay any such sum or part thereof, as the case may be, but if it is discovered that such statement was false in any material particular, such person shall be personally liable to the AO or TRO to the extent of his own liability to the assessee on the date of the notice, or to the extent of the assessee’s liability for any sum due under this Act, whichever is less. (vii) The AO or TRO may, at any time or from time to time, amend or revoke any notice issued under this sub-section or extend the time for making any payment in pursuance of such notice. (viii) The AO or TRO shall grant a receipt for any amount paid in compliance with a notice issued under this sub-section, and the person so paying shall be fully discharged from his liability to the assessee to the extent of the amount so paid. (ix) Any person discharging any liability to the assessee after receipt of a notice under this subsection shall be personally liable to the AO or TRO to the extent of his own liability to the assessee so discharged or to the extent of the assessee’s liability for any sum due under this Act, whichever is less. (x) If the person to whom a notice under this sub-section is sent fails to make payment in pursuance thereof to the AO or TRO, he shall be deemed to be an assessee in default in respect of the amount specified in the notice and further proceedings may be taken against him for the realisation of the amount as if it were an arrear of tax due from him, in the manner provided in ss. 222 to 225 and the notice shall have the same effect as an attachment of a debt by the TRO in exercise of his powers under s. 222.”

14. A bare reading of the aforesaid provisions leaves no doubt that there is no scope for giving further hearing to an assessee once the AO proceeds under s. 226(3). All that the aforesaid subsection directs is to “forward” a copy of the notice given to the person from whom money is payable to the assessee or who holds money on account of the assessee, to the assessee for his information. The assessee at this stage has no role to play except to be informed that the AO has proceeded to recover the amount. Such notice is generally forwarded to the assessee after the issue of notice upon the debtors or bankers of the assessee lest he can escape the recovery. Therefore, I find no substance in the contention of Mr. Bhattacharya that for non-service of notice under s. 226(3)(iv) of the Act the process of recovery under s. 226(3) should be annulled. With great respect, I am unable to subscribe to the opinion expressed by the learned judge of the Punjab and Haryana High Court in the case of Mohan Singh (supra).

15. I thus find no substance in the contention of the petitioner that recovery of amount by giving notice under s. 226(3) of the Act from the State Bank of India is vitiated in any way.

16. I, however, direct the appellate authority to dispose of the appeal itself positively within a month from date if the entire amount has been realised. Otherwise, stay application should be disposed of within a fortnight and till

the disposal of the application for stay, the petitioner will not withdraw the amount from the bank to the extent of demanded amount.

There will be, however, no order as to costs.

[Citation : 263 ITR 69]

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