Protective assessment is valid, but protective recovery is impermissible; writ relief was refused in discretionary jurisdiction.

Protective assessment was held permissible under the Income-tax Act where the identity of the correct assessee remained unresolved and the revenue needed to keep its claim alive against limitation; the assessment was therefore valid in law. Protective recovery on the basis of such a non-final assessment was not permissible, because enforcement on alternative bases risked double recovery and was inconsistent with the taxing scheme. However, relief under Article 226 was refused: although the recovery notices were treated as defective on a protective footing, the Court declined discretionary writ intervention because the amount appeared prima facie payable and interference could prejudice the revenue claim.

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Issues: (i) whether a protective assessment is permissible under the Indian Income-tax Act; (ii) whether protective recovery proceedings can be sustained on the basis of such an assessment; and (iii) whether relief under Article 226 should be granted to restrain the notices issued for recovery.

Issue (i): Whether a protective assessment is permissible under the Indian Income-tax Act.

Analysis: The assessment was made to safeguard the revenue while the real status of the assessee remained unresolved because of pending proceedings. The absence of an express statutory provision did not make the device unlawful, since the purpose was only to keep the claim alive until the proper assessee was finally determined and to prevent the demand from becoming time-barred.

Conclusion: Protective assessment is permissible and valid in law.

Issue (ii): Whether protective recovery proceedings can be sustained on the basis of such an assessment.

Analysis: A distinction was drawn between keeping an assessment in abeyance as a precaution and enforcing recovery on the footing of an assessment which the taxing authority itself treated as not final. Recovery on both alternative bases would create the risk of proceeding twice for the same demand, which was inconsistent with the scheme and spirit of the taxing law.

Conclusion: Protective recovery is not permissible in law.

Issue (iii): Whether relief under Article 226 should be granted to restrain the notices issued for recovery.

Analysis: Although the recovery notices were treated as defective insofar as they proceeded on a protective basis, the Court found that the money was prima facie payable to the firm, and that granting relief would enable the petitioner to take the funds beyond the reach of the revenue. As the jurisdiction under Article 226 is discretionary, the Court declined to exercise it in aid of such an outcome.

Conclusion: Relief under Article 226 was refused and the rule was discharged.

Final Conclusion: The demand could be kept alive by way of protective assessment, but the Court would not interfere to stop the recovery notices in the exercise of writ jurisdiction, leaving the parties to pursue their other remedies.

Ratio Decidendi: A protective assessment may be made to prevent the revenue claim from being defeated by limitation where the true assessee is not finally determined, but protective recovery on the basis of a professedly non-final assessment is not warranted; nevertheless, writ relief may be refused where its grant would prejudice a lawful revenue claim and Article 226 is invoked only as a discretionary remedy.

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