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of <h1>Bank not liable for dealer's tax arrears payment under Income-tax Act</h1> <h3>K.M. ADAM Versus INCOME-TAX OFFICER, II ADDITIONAL II CIRCLE, MADRAS</h3> The court held that the notice issued under section 46(5A) of the Income-tax Act to a bank for payment towards a dealer's tax arrears was invalid. The ... - Issues:1. Validity of notice under section 46(5A) of the Income-tax Act.2. Action taken by the Income-tax Officer in pursuance of the notice.Analysis:Issue 1: Validity of notice under section 46(5A) of the Income-tax ActThe petitioner, a dealer in skins, was assessed to income tax for several years, resulting in arrears of over Rs. 3 lakhs. The Income-tax Officer issued a notice under section 46(5A) to the Indian Bank, requesting payment of any amount due from the bank to the petitioner towards the arrears. The bank, having an overdraft account with the petitioner, responded that no amount was payable to the petitioner. The court analyzed the provision of section 46(5A) which allows the Income-tax Officer to require payment from a person holding money for or on account of the assessee. The court considered whether the bank, providing overdraft facilities, could be considered as holding money for the petitioner. It was held that an unutilized overdraft account does not render the bank a debtor, and the bank does not hold money on behalf of the customer in such a case. The court concluded that the notice was beyond the scope of the provision, and the order directing payment was set aside, allowing the Department to proceed with recovery through authorized means.Issue 2: Action taken by the Income-tax Officer in pursuance of the noticeThe Income-tax Officer's communication with the bank led to the bank refusing further payments on the petitioner's overdraft account. The petitioner filed a writ petition challenging the validity of the notice and the subsequent actions. Although there was a prayer in the petition regarding the tax recovery for a specific year, the focus of the argument was on the validity of the notice under section 46(5A) and the actions taken based on it. The court clarified that the bank, in providing overdraft facilities, does not hold money on behalf of the customer as required by the provision. The court held that the order directing the bank to pay the difference between the overdraft limit and the amount drawn by the petitioner was beyond the jurisdiction of the Income-tax Officer. The notice was set aside, allowing the Department to pursue lawful means for tax recovery. The petition was allowed in part, with no order as to costs.This judgment clarifies the application of section 46(5A) of the Income-tax Act concerning the recovery of tax arrears and highlights the distinction between a bank's role in providing overdraft facilities and holding money on behalf of a customer for tax recovery purposes.
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