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Issues: (i) Whether money payable by the Coal Board to the assessee as assistance under the Coal Mines (Conservation and Safety) Act, 1952 could be attached under section 226(3) of the Income-tax Act, 1961 towards the assessee's tax arrears; (ii) Whether the notice under section 226(3) was invalid because it was addressed to the Secretary of the Coal Board instead of the Board itself under section 282(2) of the Income-tax Act, 1961.
Issue (i): Whether money payable by the Coal Board to the assessee as assistance under the Coal Mines (Conservation and Safety) Act, 1952 could be attached under section 226(3) of the Income-tax Act, 1961 towards the assessee's tax arrears.
Analysis: The assistance payable by the Coal Board was found to be impressed with statutory limitations under section 12 of the Coal Mines (Conservation and Safety) Act, 1952 and the relevant Rules, under which the grant had to be used only for stowing and connected safety or conservation purposes. The notice under section 226(3) was treated as garnishee in character, and the court applied the principle that such recovery provisions should not be construed so as to compel payment from funds that the assessee itself could not lawfully divert. A literal construction would have required the Board to breach its statutory obligations and would also have compelled the assessee to violate the attached conditions of the grant. The provision was therefore read in a restricted manner to avoid an absurd result and interference with statutory duties and private rights.
Conclusion: The revenue could not lawfully require the Coal Board to pay the assistance amounts towards the assessee's income-tax arrears, and the notice was void on this ground.
Issue (ii): Whether the notice under section 226(3) was invalid because it was addressed to the Secretary of the Coal Board instead of the Board itself under section 282(2) of the Income-tax Act, 1961.
Analysis: The Secretary of the Coal Board was treated as the principal executive officer and as a person who managed and controlled the affairs of the Board within the meaning of section 282(2)(d) of the Income-tax Act, 1961. On that basis, service on the Secretary satisfied the statutory requirement for addressing the notice.
Conclusion: The notice was not invalid on the ground of its address and service upon the Secretary was held to be proper.
Final Conclusion: The challenge to the recovery notice succeeded because section 226(3) could not be used to attach the specially conditioned Coal Board assistance, and the notice was quashed with consequential relief.
Ratio Decidendi: A tax recovery notice under section 226(3) cannot attach money due to an assessee when the recipient is statutorily bound to apply that money only for a specified public purpose and the assessee cannot lawfully divert it to satisfy tax liability.
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