1990 (3) TMI 51 - HC - Income Tax

Court Limits Guarantee Scope under Income-tax Act; Rules in Favor of Petitioner

Laura Hamilton Versus VKP. Menon, Tax Recovery Officer And Another

Laura Hamilton Versus VKP. Menon, Tax Recovery Officer And Another - [1990] 184 ITR 252, 84 CTR 3, 51 TAXMANN 391 Issues: Challenge to tax demand under guarantee given under section 230(1) of the Income-tax Act, 1961.Analysis:The petitioner challenged a tax demand made by the Tax Recovery Officer under a guarantee given under section 230(1) of the Income-tax Act, 1961. The guarantee was given on behalf of a Canadian citizen conducting business in India, who required an income-tax clearance certificate before leaving the country in 1966. The petitioner undertook to pay all taxes on behalf of the Canadian citizen, covering various tax acts. Years later, in 1983, the petitioner received a notice to pay a sum of Rs. 25,222 for assessment years 1969-70 to 1972-73. The petitioner contended that the guarantee only covered taxes up to the date of the citizen's departure and not for subsequent years. The court noted that section 230(1) requires a tax clearance certificate for liabilities outstanding at the time of departure or with reference to that date. The court rejected the argument that satisfactory arrangements or guarantees should extend beyond the period of departure. The court emphasized that the guarantee's scope cannot exceed the requirements of section 230(1) and ruled in favor of the petitioner, making the rule absolute in her favor.In summary, the court held that the guarantee given under section 230(1) of the Income-tax Act, 1961, is limited to liabilities outstanding at the time of departure or with reference to that date. The court emphasized that satisfactory arrangements or guarantees cannot extend beyond the period of departure. The court ruled in favor of the petitioner, stating that the guarantee's scope cannot exceed the requirements of section 230(1) and made the rule absolute in her favor.