Court upholds Income-tax Department's request under Section 226(4) Act, dismissing writ petition for withdrawal of funds.

The court dismissed the writ petition, affirming the validity of the Assistant Commissioner of Income-tax's request under Section 226(4) of the Act. It held that the amount allowed to be withdrawn without security belonged to the petitioner and could be appropriated by the Income-tax Department. The amount requiring security would only belong to the petitioner after furnishing security. The court ruled in favor of the Income-tax Department, dismissing the petition with costs.

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Issues Involved:
1. Validity of proceedings under Section 226(4) of the Income-tax Act without notice to the assessee.
2. Ownership of the deposited amount and its appropriateness for tax recovery under Section 226(4) of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Validity of Proceedings under Section 226(4) of the Income-tax Act Without Notice to the Assessee:

The petitioner argued that the proceedings initiated by the Income-tax Department under Section 226(4) of the Income-tax Act were invalid due to the lack of notice. The petitioner relied on the case of National Textile Corporation Ltd. v. IAC of I.T. [1990] 181 ITR 351, which emphasized the necessity of notice under Section 226(3).

However, the court differentiated between Sections 226(3) and 226(4) of the Act. Section 226(3) mandates a notice in writing by the Income-tax Officer to the person holding money for the assessee, allowing objections to be filed. Conversely, Section 226(4) permits the Income-tax Officer to apply directly to the court holding the money without requiring notice to the assessee. The court reasoned that judicial proceedings under Section 226(4) inherently provide an opportunity for the assessee to be heard, as the court must pass a judicial order after considering all parties involved. Thus, the court concluded that Section 226(4) does not necessitate a notice to the assessee.

2. Ownership of the Deposited Amount and Its Appropriateness for Tax Recovery Under Section 226(4) of the Income-tax Act:

The petitioner contended that the deposited amount under the High Court's order did not belong to them, and thus, could not be appropriated by the Income-tax Department. The petitioner cited cases such as Syed Khaja v. Raghavendra Rao [1976] 103 ITR 294 (AP) and State v. P. Topno, ITO [1959] 36 ITR 135 (Orissa) to support their claim.

The court examined these cases and found them inapplicable. In the case of State v. P. Topno, ITO, the issue was related to proceedings under the Companies Act, which was not relevant in the present context. In Syed Khaja v. Raghavendra Rao, the court had ruled that the deposited amount, earmarked for a specific purpose, ceased to be the property of the petitioner. However, the present case differed as the amount was deposited under court orders without specific earmarking.

The court then referred to the case of Sri Ramalingeswara Rice and Oil Mill Co. Ltd. v. Addl. ITO, AIR 1964 AP 74, which held that a deposited amount remains the property of the depositor until appropriated by a judicial order. The High Court's order on September 12, 1990, allowed half of the deposited amount to be withdrawn without security and the other half upon furnishing security. The court concluded that the amount allowed to be withdrawn without security belonged to the petitioner and could be appropriated by the Income-tax Department under Section 226(4). However, the amount requiring security did not belong to the petitioner until the security was furnished.

Conclusion:

The court dismissed the writ petition, ruling that the request made by the Assistant Commissioner of Income-tax under Section 226(4) of the Act was valid. The court held that the amount allowed to be withdrawn without security belonged to the petitioner and could be appropriated by the Income-tax Department. The amount requiring security would belong to the petitioner only after furnishing the security, at which point the Income-tax Department's request could be considered. The writ petition was dismissed with costs.

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