TaxTMI 
TaxTMI 
2014 (7) TMI 1004
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....since then for the assessment years 2007-08 onwards, the income tax returns were being filed with the Income Tax Department at Varanasi. It transpires that M/s Rich Capital and Financial Services Ltd. became a defaulter of income tax dues with the Income Tax Department and that a demand of approximate Rs. 3.2 Crores was raised against the said assessee. The said assessee alleged that the petitioner is a debtor and owed to him a sum of Rs. 1.55 Crore. On the basis of this assertion made by the said assessee to the Tax Recovery Officer, it transpires that the Tax Recovery Officer issued a notice dated 22.11.2007, under Section 226(3) of the Income Tax Act (hereinafter referred to as "the Act") to the petitioner indicating that certain amount was due from the garnishee (i.e. the petitioner) to the assessee and accordingly, required the garnishee to pay within the time specified in the notice so much of the amount as was sufficient to pay the amount due from the assessee in respect of arrears of tax. This notice was alleged to have been sent at the previous registered office of the petitioner at Kanpur, which was not received by the petitioner. Since no reply was received from the p....
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....ue summons dated 16.4.2008 and again on 1.5.2008 directed the petitioner to appear. Since the petitioner feared that the shares of Jhunjhunwala Vanaspati Ltd. held by the petitioner, which was attached and subsequently transferred to the Demat Account of the Tax Recovery Officer could be sold, the petitioner, at this stage approached the Writ Court by filing the present writ petition praying for a writ of mandamus commanding the respondents to restore 1,70,000 equity shares of Jhunjhunwala Vanaspati Ltd. in the Demat Account of the petitioner with Karvi Stock Broking Ltd. and further restore the amount of Rs. 28,988.78 in the bank account of the petitioner with ICICI Bank, Chowk Branch, Varanasi along interest, etc. The petitioner also prayed for the quashing of the notice dated 17.3.2008 whereby the Tax Recovery Officer treated the petitioner as an assessee in default. The petitioner has also prayed for the quashing of the entire proceedings initiated under Section 226(3) of the Act. The learned senior counsel for the petitioner contended that the initial notice under Section 226(3) of the Act was never served upon the petitioner and consequently the entire proceedings initiate....
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.... affidavit denying its liability. The learned counsel submitted that in view of Section 292-BB of the Act, the initial notice under Section 226(3) shall be deemed to be served to the petitioner in accordance with the provisions of the Act and that the petitioner is now precluded from taking any objection in the proceedings initiated under Section 226 of the Act, on the ground, that the notice was not served upon him. The learned counsel submitted that in view of the provisions of Section 226(3)(vi) of the Act, the Tax Recovery Officer has the power and the jurisdiction to make an inquiry into the genuineness of the affidavit filed by the petitioner and, if it was found that a certain definite amount was due from the garnishee to the assessee, then the Tax Recovery Officer could hold the petitioner to be personally liable for payment under Section 226(3)(vi) of the Act. The learned counsel contended that the remedy of filing a suit was barred under Section 293 of the Act and that the Tax Recovery Officer was competent to decide the dispute between the garnishee and the assessee. In support of his submission, the learned counsel placed reliance upon a decision of the Supreme Court....
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....t of the assessee jointly with any other person and for the purposes of this sub-section, the shares of the joint holders in such account shall be presumed, until the contrary is proved, to be equal. (iii)A copy of the notice shall be forwarded to the assessee at his last address known to the [Assessing] Officer [or Tax Recovery Officer], and in the case of a joint account to all the joint holders at their last addresses known to the [Assessing] Officer [or Tax Recovery Officer]. (iv)Save as otherwise provided in this sub-section, every person to whom a notice is issued under this sub-section shall be bound to comply with such notice, and, in particular, where any such notice is issued to a post office, banking company or an insurer, it shall not be necessary for any pass book, deposit receipt, policy or any other document to be produced for the purpose of any entry, endorsement or the like being made before payment is made, notwithstanding any rule, practice or requirement to the contrary. (v)Any claim respecting any property in relation to which a notice under this sub-section has been issued arising after the date of the notice shall be void as against any demand contai....
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....ecome due to the assessee or any person who holds or may subsequently hold money for or on account of the assessee, namely, the garnishee to pay to the Income Tax Officer so much of the money as it sufficient to pay the amount due by the assessee in respect of arrears or whole of the money when it is equal to or less than that amount. In such a situation the Income Tax Officer may issue a notice requiring the person to pay the amount directly to the Tax Recovery Officer or the assessing officer instead of paying it to the assessee. Sub clause (iv) of Section 226(3) of the Act provides that every person to whom a notice is issued is bound to comply with such notice. Sub clause (vi) provides that in the event the amount is not payable, it would be open at that stage for the garnishee to make a statement on oath indicating that the sum demanded or any part thereof is not due to the assessee or that he does not hold any money for or on account of the assessee. Sub-clause (x) of Section 226(3) of the Act provides that if a person to whom a notice is sent fails to make the payment, he shall be deemed to be an assessee in default in respect of the amount specified in the notice and furthe....
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....him, has been duly served upon him in time in accordance with the provisions of this Act and such assessee shall be precluded from taking any objection in any proceeding or inquiry under this Act that the notice was - (a) not served upon him; or (b) not served upon him in time; or (c) served upon him in an improper manner: Provided that nothing contained in this section shall apply where the assessee has raised such objection before the completion of such assessment or reassessment." From a perusal of the aforesaid provision, the irregularity, if any, in non-service of the notice under Section 226(3) of the Act is deemed to be cured upon the petitioner's subsequently appearing on 15.4.2008 and participating in the proceedings by production of its books of account and filing an affidavit of denial on 17.4.2008. We, accordingly, hold that the proceedings under Section 226(3) of the Act cannot be quashed at this stage, on the ground of non-service of notice under Section 226(3) of the Act, inasmuch as, the invalidity of the said notice was cured and the defect, if any, was removed by the petitioner's by participating in the proceedings subsequently. Under ....
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....r does it gives any power to the Tax Recovery Officer to adjudicate a dispute. This Court is of the opinion that bonafide disputes, if any, between the garnishee and the assessee cannot be adjudicated by the authorities under Section 226(3) of the Act. The legislature could not have meant to entrust the authority with the jurisdiction to decide the questions relating to the quantum of such liability between the garnishee and the assessee, which matter is within the purview of the civil courts. The powers under Section 226(3) of the Act have not been given to the assessing officer or the Tax Recovery Officer to adjudicate private disputes between the garnishee and the assessee. In the instant case, we find that the assessee, who has come up before the Court has contended that it had advanced certain sums of money to the petitioner and, therefore, the petitioner is its debtor, but, the petitioner has denied this assertion. We find from a perusal of the affidavit that no steps have been taken by the assessee, namely, M/s Rich Capital and Financial Services Ltd. initiating any proceeding for recovery of that amount before any forum or any appropriate court of law. We also find th....