Gujarat H.C : PPF account cannot be attached for recovery of income-tax dues

High Court Of Gujarat

Dineshchandra Bhailalbhai Gandhi VS. TRO

Section : 222

Akil Kureshi And Ms. Sonia Gokani, Jj.

Special Civil Application No. 11575 Of 2005

February 12, 2014

JUDGMENT

Akil Kureshi, J. – Petitioner has challenged action of the respondent in attaching and recovering an amount of Rs. 9,05,000/= from the Public Provident Fund account [“PPF account” for short] of the petitioner. Brief facts are as under :—

2. The petitioner is assessed as an individual by the Income-tax Department. On 5th August 1992, the petitioner had opened a PPF account with State Bank of India, Salabatpura Branch, Surat under the Public Provident Fund Scheme, 1968 [“the Scheme” for short]. From time to time, the petitioner went on depositing various amounts in the said account. As on 29th October 2004, there was a sum of Rs. 9,06,466.01p. accumulated in the PPF account of the petitioner.

3. The respondent-Tax Recovery Officer, Surat issued a notice dated 25th February 2005 under section 226(3) of the Income-tax Act, 1961 (“Act” for short) to the Branch Manager of Salabatpur Branch of the State Bank of India stating that a sum of Rs. 25,16,790/= is due from the petitioner to the Income-tax Department. His PPF account is therefore attached under section 226 (3) of the Act and the amount lying in the said account may be remitted to the Tax Recovery Officer.

4. On 17th March 2005, the Branch Manager, State Bank of India wrote to the petitioner informing him that he had received the order from the Tax Recovery Officer under which a lien had been created on his PPF account and therefore, no withdrawal or loans would be permitted against the balance in the said account.

5. The case of the petitioner is that the order of assessment giving rise to the income-tax dues of the petitioner was under challenge before the Appellate Commissioner. Pending such appeal, the petitioner had deposited substantial amount of taxes and that therefore, the rest of the demand would be stayed. According to the petitioner, his outstanding dues even pending appeal were only Rs. 5,06,142/=. Despite this, the respondent recovered a sum of Rs. 9,05,000/= unilaterally from the PPF account of the petitioner. The petitioner has, therefore, challenged the said action of the respondent.

6. Counsel for the petitioner placed heavy reliance on Section 9 of the Public Provident Fund Act, 1968 [“PPF Act” for short] to contend that the amount outstanding in the petitioner’s PPF account cannot be attached for recovery of his tax dues. He also relied on Rule 10 of Schedule-II to the Income-tax Act, 1961 in this respect. Our attention was drawn to Section 60 of the Civil Procedure Code to contend that the amount in the PPF account cannot be attached.

7. On the other hand, learned counsel Shri Sudhir Mehta for the Department opposed the petition contending that Section 9 of the PPF Act only pertains to the attachment under any decree or order of the Court in respect of any debt or liability incurred by the subscriber and has no reference to his income-tax dues. He relied on CBDT circular dated 7th November 1990 in which it is clarified as under :—

“It has been clarified by the C.B.D.T and the Ministry of Law that Section 9 of the Public Provident Fund applies only to attachment under a decree/order of a Court of Law and not to attachment by the Income Tax Authorities. In view of this clarification, the amount standing to the credit of subscriber in PPF Account shall be liable to attachment under any order of income tax authorities in respect of debt or liability incurred by the subscriber.”

Under an interim order dated 2nd August 2005, this Court directed the respondent to deposit the sum of Rs. 9,05,000/= in the PPF account of the petitioner, however, upon a stipulation that such amount shall be attached in favour of the respondent till final disposal of the petition.

8. The Scheme is framed under the Public Provident Fund Act, 1968. The statement of objects and reasons for enactment of the Act state inter alia that the object of the bill is to provide for the institution of a Provident Fund for general public. The fund is meant to be a medium for long term savings for individuals. With such object in mind, the Public Provident Fund Act was enacted. Section 3 of the PPF Act, 1968 provides for framing of the Public Provident Fund Scheme. Sub-section (1) of Section 3 provides that the Central Government may, by a notification in the official Gazette, frame a scheme to be called the Public Provident Fund Scheme for the establishment of a provident fund for the general public and there shall be established, as soon as may be after the framing of the Scheme, a Fund in accordance with the provisions of this Act and the Scheme.

9. Section 4 of the PPF Act, 1968 provides that any individual may, on his own behalf or on behalf of a minor, of whom he is the guardian, subscribe to the Fund in such manner and subject to such maximum and minimum limits as may be prescribed in the Scheme. Section 5 pertains to interest to be paid on such subscriptions. Section 6 pertains to withdrawals which may be permitted to the extend and subject to terms and conditions as may be specified. Section 9, which is important for us, reads as under :—

“9. Protection against attachment — The amount standing to the credit of any subscriber in the Fund shall not be liable to attachment under any decree or order of any Court in respect of any debt or liability incurred by the subscriber.”

From the provisions of the PPF Act, 1968 it can be seen that the same is a benevolent statute and envisages creation of an institution of the Provident Fund for the general public, for the purpose of a medium for long term savings for individuals. The Act envisages framing up of a Public Provident Fund Scheme and creation of a fund in accordance with the provisions of the Act and the Scheme. The Act contains provisions for the subscription to the fund and interest to be paid on the subscriptions. It also controls the withdrawals and granting of loan against the amount standing to the credit of a subscriber in the Fund. Section 9 of the PPF Act, therefore, has to be seen in the background of such benevolent provisions. The provision of the PPF Act, 1968 seen in light of the PPF Scheme would demonstrate that the withdrawals and loans against the amount lying in the account of a subscriber are controlled thereby encouraging long term savings for an individual and discouraging withdrawals intermittently and pre-maturely. It can thus be seen that the PPF Scheme which covers all individuals whether employed in the public sector or not or covered under the labour welfare legislations or not. In essence, therefore, even for individuals not covered by the public employment and therefore enjoying contributory provident fund or pension scheme or organized sector, and therefore, covered under the labour welfare schemes, provides for a social security and a fund to depend upon in old age; post-retirement.

10. In case of Union of India v. Radha Kissen Agarwalla AIR 1969 SC 762, in the context of Railway Provident Fund created under the Provident Funds Act, 1925, the Apex Court observed that the Union of India was a trustee for the subscriber of the money. When the amount lying with the Reserve Bank as an agent of the Railway administration was attached, the Union had clearly an interest to maintain the application for removal of the attachment. With such observation, the order of attachment of the amount by the Railway Administration was held to be contrary to Section 3 of the PPF Act, 1925. We may refer to Section 3 (1) of the PPF Act, 1925 which provides, inter alia, that, “..A compulsory deposit in any Government or Railway Provident Fund shall not in any way be capable of being assigned or charged and shall not be liable to attachment under any decree or order of any Civil, Revenue or Criminal Court in respect of any debt or liability incurred by the subscriber or depositor, and neither the Official Assignee nor any receiver appointed under the Provincial Insolvency Act, 1920, shall be entitled to, or have any claim on, any such compulsory deposit.”

11. The decision in case of Radha Kissen Agarwalla . (supra) was reiterated in case of Union of India v. Jyoti Chit Fund & Finance AIR 1976 SC 1163. Here also, the Court was considering Section 3 of the PPF Act, 1925. Referring to clause (k) of Section 60 of the Code of Civil Procedure, the Court observed that so long as the amounts are provident fund dues, pensions and other compulsory deposits then, till they are actually paid to the government servant who is entitled to it on retirement or otherwise, the nature of the dues is not altered. The government is a trustee for those sums and has an interest in maintaining the objection in court to attachment.

12. At this stage, we may refer to Rule 10 of Schedule-II to the Income-tax Act, 1961. The second schedule pertains to procedure for recovery of tax. Rules contained in the schedule make detailed provisions and the manner in which tax dues of the department could be recovered from the debtors. Rule 10 thereof reads as under :—

“10. Property exempt from attachment :

(1) All such property as is by the Code of Civil Procedure, 1908 (5 of 1908), shall be exempt from attachment and sale in execution of a decree of a civil court shall be exempt from attachment and sale under this Schedule.

(2) The Tax Recovery Officer’s decision as to what property is so entitled to exemption shall be conclusive.”

From the said rule, it could be seen that all such property as is by the Code of Civil Procedure exempted from attachment and sale in execution of a decree of a civil court shall be exempt from attachment and sale under the said schedule also.

13. In turn, if one peruses Section 60 of the Code of Civil Procedure, it pertains to property liable to attachment and sale in execution of decree. Sub-section (1) of Section 60 lists the properties which shall be liable to attachment or sale. Proviso to section 60(1) contains list of properties which shall not be liable to attachment or sale. Clause (ka) thereof reads as under :—

“(ka) all deposits and other sums in or derived from any fund to which the Public Provident Fund Act, 1968 (23 of 1968), for the time being applies, in so far as they are declared by the said Act as not to be liable to attachment.”

To our mind, three provisions noted above, namely, Section 9 of the PPF Act, 1968 Rule 10 of Schedule-II to the Income-tax Act, 1961 and clause (ka) to the proviso to Section 60(1) of the Code of Civil Procedure complete a full circuit, making any amount lying in the public provident fund of a subscriber immune from attachment and sale for recovery of the income tax dues. We may recall that Rule 10 of Schedule-II to the Income-tax Act, 1961 exempts all such properties as by the Civil Procedure Code are exempted from attachment and sale in execution of a decree of a civil court from attachment and sale under the said schedule. In turn, clause (ka) of the provision to Section 60 (1) of the Code of Civil Procedure provides that all deposits and other sums in or derived from any fund to which the Public Provident Fund Act, 1968 applies in so far as they are declaring by the said Act not to be liable to attachment, shall not be liable for attachment or sale under the Code. This brings us right back to Section 9 of the PPF Act, 1968 which provides that the amount standing to the credit of any subscriber shall not be liable to attachment under any decree or order of any Court in respect of any debt or liability incurred by the subscriber.

14. In case of Union of India v. Smt. Hira Devi AIR 1952 SC 227, the Apex Court held and observed that the compulsory deposit made in the Provident Fund under Section 2 (1) of the Provident Fund Act, 1925 is not liable to attachment. It was observed that the prohibition against the assignment or the attachment of such compulsory deposits is based on grounds of public policy.

15. Considering the benevolent provisions of the PPF Act, 1968 and taking harmonious construction of the relevant provisions of the PPF Act read with the provisions of the Civil Procedure Code and the provisions contained in the Income-tax Act, 1961 for recovery of the tax dues, it clearly emerges that as long as an amount remains invested in a PPF account of an individual, the same would be immune from attachment from recovery of the tax dues. The situation may change as and when such amount is withdrawn and paid over to the subscriber, which is not the situation in the present case. In our opinion, the clarification issued by the CBDT does not take into account the provisions of Rule 10 of the Second Schedule to the Income-tax Act, 1961 and the provisions of Section 60(1) of the Code of Civil Procedure. The said clarification is contrary to such statutory provisions.

16. In the result, writ petition is allowed. Action of the respondent in first attaching and thereafter unilaterally withdrawing a sum of Rs. 9,05,000/= from the PPF account of the petitioner is quashed. Rule is made absolute.

[Citation : 362 ITR 380]