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Issues: (i) Whether the notice issued under Section 226(3) of the Income-tax Act, 1961 was without jurisdiction or arbitrary on the ground that the petitioners claimed ownership of the property and denied that the assessee was the owner. (ii) Whether the existence of intimation or protective assessment in respect of income from the property barred recovery action against the person treated by the Revenue as the owner.
Issue (i): Whether the notice issued under Section 226(3) of the Income-tax Act, 1961 was without jurisdiction or arbitrary on the ground that the petitioners claimed ownership of the property and denied that the assessee was the owner.
Analysis: Section 226(3) is a recovery provision enabling the Department to require payment by a person from whom money is due or may become due to the assessee, or who holds money for the assessee. The provision requires prima facie satisfaction on relevant material before notice is issued. The materials before the Department showed that the assessee was treated as owner of the premises, and the petitioners' own claim to title was disputed and was also the subject of a civil suit. The writ court was not the proper forum to decide title, and the adequacy of the materials supporting the Revenue's conclusion could not be reappraised in judicial review.
Conclusion: The notice under Section 226(3) was held to be within jurisdiction and not arbitrary.
Issue (ii): Whether the existence of intimation or protective assessment in respect of income from the property barred recovery action against the person treated by the Revenue as the owner.
Analysis: The documents relied upon by the petitioners were treated only as intimation under Section 143(1)(a) and as protective assessments. A protective assessment is permissible where liability to tax is uncertain, but such protection does not bar the Revenue from proceeding on the basis of the person presently found liable. The Court held that the assessments relied on by the petitioners did not displace the Revenue's recovery action, particularly when the Revenue had acted on available materials and had treated the assessee as the owner.
Conclusion: The plea based on protective assessment and intimation was rejected.
Final Conclusion: The writ court declined to interfere with the recovery action under Chapter XVII of the Income-tax Act, 1961, and upheld the impugned notice as a lawful exercise of power on the materials before the Department.
Ratio Decidendi: In judicial review, a recovery notice under Section 226(3) of the Income-tax Act, 1961 is sustainable if the authority has prima facie relevant material showing that the noticee falls within the statutory category, and the court will not redecide title disputes or substitute its view on the sufficiency of the material.
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