Invalid Attachment Proceedings for Units under Income-tax Act; Unauthorized Sale Deemed Unlawful

The court found the attachment proceedings under section 226(3) of the Income-tax Act invalid as the units were not money due at the time of notice. The sale of units without consent was deemed unauthorized and not in line with the Act. The court clarified that the attachment of a debt requires the money to be due, which was not the case with transferable units. The redemption value of the units was set at Rs. 10 per unit, directing the third respondent to pay the difference to the petitioner. The writ petition was disposed of in the interest of justice without costs.

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Issues:
1. Validity of attachment proceedings under section 226(3) of the Income-tax Act.
2. Legality of the sale of units by the third respondent without consent.
3. Interpretation of section 226(3)(i) of the Income-tax Act regarding garnishee proceedings.
4. Dispute over the redemption value of the units held by the petitioner.

Analysis:

1. The court examined the validity of the attachment proceedings under section 226(3) of the Income-tax Act. It was observed that the units held by the assessee with the third respondent were not money due at the time of the notice but were transferable units whose value would become due on maturity. The court concluded that no money was due to the assessee from the third respondent at the time of the notice, rendering the attachment illegal.

2. The legality of the sale of units by the third respondent without the petitioner's consent was questioned. The court noted that the third respondent prematurely purchased the units held by the assessee, transferred them without permission, and submitted money to the Income-tax Department. This action was deemed unauthorized and not in line with the provisions of section 226(3) of the Act. The court held that the loss incurred due to the sale cannot be attributed to the second respondent.

3. The interpretation of section 226(3)(i) of the Income-tax Act regarding garnishee proceedings was crucial. The court emphasized that the attachment of a debt requires the money to be due or become due to the assessee. Since the units were not due money but transferable units, the attachment was deemed illegal. The court clarified that the third respondent should have obtained the petitioner's consent before the sale.

4. A dispute arose over the redemption value of the units held by the petitioner. The court noted that the redemption value of the units was Rs. 10 per unit after five years, entitling the petitioner to the face value of Rs. 10 per unit. Consequently, the court quashed the transfer of units to the third respondent and directed the third respondent to calculate the face value at Rs. 10 per unit and pay the difference to the petitioner, considering that the tax had already been paid. The writ petition was disposed of in the interest of justice without costs.

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