1993 (12) TMI 53 - HC - Income Tax

Court prioritizes bank's equitable assignment over Income-tax Officer, directs refund with interest.

The court held that the powers of attorney constituted an equitable assignment of monies due to the first respondent, giving priority to the bank over the ... Equitable Assignment, Garnishee Order Issues Involved:1. Whether the powers of attorney, exhibits P-1 and P-3, amount to an equitable assignment of the monies due to the first respondent.2. Whether the Income-tax Officer (fourth respondent) had jurisdiction to issue orders under section 226(3) of the Income-tax Act against the amounts due to the first respondent.3. Whether the bank has priority or charge over the amounts due from respondents Nos. 2 and 3 to the first respondent.4. Whether the amounts collected by the Income-tax Officer should be refunded to the petitioner bank.Detailed Analysis:1. Equitable Assignment of Monies Due:The main question addressed was whether the powers of attorney, exhibits P-1 and P-3, dated March 8, 1975, and October 15, 1973, respectively, constituted an equitable assignment of the monies due to the first respondent. The court examined the recitals in exhibits P-1 and P-3, which authorized the bank to receive payment of all monies due to the first respondent and credit them towards the amount borrowed by the first respondent from the bank. The court concluded that these documents were not merely pay orders but amounted to an equitable assignment of actionable claims or choses-in-action. The court relied on the principles laid down by the Supreme Court in Bharat Nidhi Ltd. v. Takhatmal [1969] and other relevant case law to hold that exhibits P-1 and P-3 created an interest in favor of the bank over the monies due to the first respondent.2. Jurisdiction of the Income-tax Officer:The fourth respondent, the Income-tax Officer, issued orders under section 226(3) of the Income-tax Act, directing respondents Nos. 2 and 3 to deposit amounts due to the first respondent to the credit of the Central Government for arrears of income-tax. The court found that the ownership of the amounts had vested in the bank due to the equitable assignment created by the powers of attorney. Therefore, the Income-tax Officer had no jurisdiction to proceed against those amounts. The court held that the income-tax liability of the first respondent could not be enforced over the amounts which had already been transferred in favor of the bank.3. Priority or Charge Over the Amounts:The counter-affidavit filed by the fourth respondent contended that the equitable assignments were subject to the amounts due to the Central Government and that the bank had no priority or charge over those amounts. The court rejected this argument, holding that the equitable assignment created an interest in favor of the bank, making it the owner of the amounts due from respondents Nos. 2 and 3. Consequently, no other person, including the Income-tax Department, could have any claim over those amounts.4. Refund of Amounts Collected:The court addressed the claim for the refund of amounts collected by the fourth respondent from respondents Nos. 2 and 3. It was admitted that the fourth respondent had collected Rs. 6,091 from the second respondent and Rs. 56,267 from the third respondent. The court held that these amounts were due to the bank based on the equitable assignment and directed the fourth respondent to pay these amounts to the petitioner bank. Additionally, the court ordered the fourth respondent to pay interest at the rate of 15 percent per annum from the date of filing the original petition until the date of payment.Conclusion:The court allowed the original petition, quashed the notices issued by the fourth respondent, and directed respondents Nos. 4 and 5 to refrain from collecting amounts due from respondents Nos. 2 and 3 to the first respondent. The fourth respondent was also directed to pay the petitioner an amount of Rs. 62,358 with interest at 15 percent per annum from June 29, 1983, until the date of payment.