AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2004 (1) TMI 52
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....ectively by Mr. Sudipta Sarkar, senior counsel for the appellants, Mr. S.K. Kapoor, Additional Solicitor General for the Income-tax Department, and Mr. Anindya Mitra, senior advocate for VCVL. Facts: It appears that SWCL obtained a loan from the decree-holder, VCVL. This loan, reflected in the return of SWCL, was held to be a sham transaction and was assessed and charged to income tax in the assessment of income of SWCL made by the income tax authority at Calcutta. The tax payable on the said loan amount held to be an income of the assessee/appellant was being recovered from the appellant, SWCL, in instalments. Claiming to recover the said loan amount since held to be a sham transaction, the VCVL filed a suit against SWCL. This suit was decreed. The decree-holder, VCVL, was assessed in respect of its own income. The tax payable by the decree-holder, VCVL, was sought to be recovered by the income-tax authority at Delhi where VCVL was assessed. VCVL, the decree-holder, offered the decree obtained by it against the appellant, SWCL, for recovery of the income-tax payable by VCVL. After a certificate was drawn up against VCVL, the Tax Recovery Officer (TRO) at Delhi through a noti....
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....n on account of default of SWCL, the Tax Recovery Officer cannot exercise his power under section 226(3) against the garnishee/debtor of the garnishee SWCL in view of the express provision contained in section 226(3)(x). In support of this contention, Mr. Sarkar relied on Smt. Tejal R. Amin v. Asst. CIT [1994] 208 ITR 103 (Guj); (3) Section 226(3)(x) contemplates recovery of tax in default by a garnishee in the manner prescribed in sections 222 to 225 and not in the manner provided under section 226 since expressly omitted by the Legislature in the clause itself; (4) Except as provided in the Act and the Rules, no step can be taken to recover the dues as against the debtor of the garnishee even if the provisions seem to be ambiguous, inasmuch as a tax statute is to be interpreted in case of ambiguity in favour of the assessee. To support this contention, he relied on Union of India v. Onkar S. Kanwar [2002] 258 ITR 761 (SC); [2002] 7 SCC 591 (para.15); (5) An act or thing prescribed to be done in a particular manner in the statute has to be done in that particular manner as prescribed and no other. To support this contention, he relied on Nazir Ahmad v. King-Emperor, AIR 1936 PC 25....
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....iction of the Tax Recovery Officer is confined only to the adjudication as to the genuineness of the claim and excepting falsity of the claim it cannot proceed under section 226(3) and then again the recovery is limited to the amount mentioned in the certificate. In support he relied on Mohamedaly Sarafaly and Co. v. ITO [1968] 68 ITR 128 (Mad) and P.K. Trading Co. v. ITO [1970] 78 ITR 427 (Cal), which followed Mohamedaly Sarafaly and Co.; (12) The law being crystal clear the court could not convert a notice under section 226(3) issued to the debtor of the garnishee as a notice of attachment of debt not contemplated in clause (x) thereof nor can it direct nor can it grant liberty either to the debtor of the garnishee to pay or to the Tax Recovery Officer to sell the debt in default nor can it direct the Tax Recovery Officer to act in a particular manner in exercise of its jurisdiction since it would amount to an action intended to land the court in the shoes of the Tax Recovery Officer, a quasi-judicial authority having its independent discretion within the scope and ambit of the statute that empowered him to take such action. On these grounds, Mr. Sarkar submits that the appeal sh....
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.... garnishee an assessee in default attracting the mischief of section 222. Section 223(2) empowers the Tax Recovery Officer to recover the amount under Chapter XVII as if the due is a certificate due in the manner prescribed. Admittedly, VCVL was in default and it has offered the decree against SWCL for recovery and, therefore, there is no bar in recovering the amount from SWCL pursuant to the decree even to the extent of attachment of the debt payable by the debtor of the garnishee SWCL; (5) In this case a certificate has already been issued against the assessee VCVL, which satisfies the test for proceeding to recover the amount pursuant to such certificate against the garnishee as well as the debtor of the garnishee; (6) Section 226(1A) prescribed that where a certificate has been drawn up under section 222, the Tax Recovery Officer may without prejudice to the modes of recovery specified in that section recover the tax by anyone or more of the modes provided in section 226. Therefore, the provisions contained in section 226 are in addition to the provisions contained in section 222. In view of the expression used in section 226(1A), there is no bar on the part of the Tax Recovery....
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....226 in clause (x) would not denude the Tax Recovery Officer from exercising its power under section 226 in addition to its power under sections 222 to 225; (11) There is no infirmity in the judgment appealed against and the notice being a notice of attachment by fiction created by clause (x), the debtor of the garnishee is bound by the same and the debt payable by the debtor to the garnishee becomes attached with the issue of the notice under section 226(3) in the same manner such notice operates as a notice of attachment under section 222. To support his contention, he relied on the decision in Life Insurance Corporation of India v. Gangadhar Vishwanath Ranade [1989] 180 ITR 1 (SC) pages 12, 15, 18; (12) SWCL did not prefer any appeal despite the execution having been levied until the notice under section 226(3) was issued and the decree having been based on admission; there is no scope of success in the appeal. The attempt of SWCL is aimed at thwarting the recovery of tax due and for no other purpose. In these circumstances, the appeal should be dismissed and the order of the learned single judge should be affirmed. Submissions on behalf of VCVL: Mr. Anindya Mitra, learned ....
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....re had intended that section 226 would also be applicable, in that event, it would have stopped before the phrase "in the manner provided under sections 222 to 225". We do not find any reason to differ from the view taken by the Gujarat High Court. We may buttress the said view with the reason following. Since clause (x) prescribes a particular mode of recovery through the procedure prescribed under sections 222 to 225 in case of default by a garnishee, the recovery is to be made in accordance with those provisions and not otherwise, as was held in Nazir Ahmad, AIR 1936 PC 253 (II), followed in Chandra Kishore Jha [1999] 8 SCC 266. When clause (x) does not include section 226, it is to be presumed that the Legislature had deliberately and intentionally omitted and had intended to exclude the application of section 226 in a case contemplated under clause (x) of section 226(3). Therefore, we are of the view that the learned single judge has correctly decided the question. Notice under section 226(3): Attachment of debt: Extent and scope: Now let us examine as to whether the notice issued to APBCL under section 226(3) could be treated to be a notice of attachment under section 2....
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....mprehension of the express provision contained in clause (x). It is the garnishee, who is deemed to be the assessee in default from whom the tax can be recovered as an arrear of taxes due from him, but until the provisions of sections 222 to 225 are resorted to against the garnishee and a certificate is drawn against him, we do not think that there is any scope of resorting to section 226(3) as against the debtor of the garnishee or attach the debt payable by the debtor of the garnishee to the latter without following the provisions provided in sections 222 to 225 read with the provisions contained in the Second Schedule providing detailed procedure related to recovery of tax due. Therefore, the notice under section 226(3) could not be issued on the debtor of the garnishee. If no such notice could be issued on the debtor of the garnishee, such notice cannot be treated to be a notice under section 222 having the effect of attachment of the debt due to the garnishee from its debtor. It is only a valid notice under section 226(3), which has the effect of a notice under section 222 in respect of the debt specified in the notice under section 226(3). Since no notice under section 226(3)....
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.... defaulter requiring the defaulter to pay the amount specified in the certificate within 15 days from the date of service of the notice, intimating the defaulter that in default, steps would be taken to realise the amount under the Second Schedule. Rule 2 prescribes that no step in execution of a certificate shall be taken until the period of 15 days elapses from the date of the service of the notice issued under rule 2 except in exceptional cases mentioned in the proviso. In the present case, no such exceptional case has been made out by the Department for attracting the provisions provided in the proviso. Rule 20 prescribes that when a movable property is to be attached a warrant written and signed by the Tax Recovery Officer is to be furnished specifying the name of the defaulter and the amount to be realised and such warrant is to be served under rule 21 on the defaulter. If after service of the warrant the amount is not paid forthwith, under rule 22 the Tax Recovery Officer shall proceed to attach the movable property of the defaulter. The mode of attachment of different kinds of property has been prescribed in diverse rules. We are concerned with the debt, which comes within ....
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....ishee. A notice could be issued on the debtor of the garnishee only after compliance with section 222 and the rules contained in the Second Schedule as discussed above and not otherwise. Therefore, the alleged notice served upon the debtor of the garnishee APBCL under section 226(3) cannot be treated to be a notice of attachment under section 222. Therefore, the notices under section 226(3) issued upon the debtors of the garnishee cannot be sustained and are liable to be quashed. However, the amount already paid by APBCL and realised by the Tax Recovery Officer shall grant full discharge with regard to the debts due to SWCL so far as APBCL is concerned. The recovery of such amount shall be subject to the final determination of the proceedings under section 226(3) as against SWCL following the provisions of sections 222 to 225 read with the rules prescribed in the Second Schedule. Section 226(3): Clause (vi): Scope and extent: Under section 226(1) the provisions of section 226 can be resorted to by the Assessing Officer if no certificate is drawn up. In this case a certificate having been drawn up and section 226 having been resorted to by the Tax Recovery Officer, sub-section....
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....annot decide the merits of the claim raised. In support of his contention Mr. Kapoor had relied on the decision in Life Insurance Corporation of India v. Gangadhar Vishwanath Ranade [1989] 180 ITR 1 (SC). But this decision does not help us in the context. Inasmuch as in the said decision, the LICI had informed the Tax Recovery Officer only about the assignment of the policy but did not make any statement on oath denying its liability in the manner as specified in clause (vi). Since the objection was not raised in the manner it ought to be, the objection was held to be invalid. This invalidity was arrived at also on another ground that the objection was raised after inordinate delay. Whereas the Madras High Court in Mohamedaly Sarafaly and Co. v. ITO [1968] 68 ITR 128 had held that the Income-tax Officer is powerless to proceed under section 226(3) where the third party does not admit or denies that the debt is owing to the assessee and the officer cannot sit in judgment over the denial and come to his own conclusion, though, however, if there is an admission the notice under section 226(3) can be proceeded with. In P.K. Trading Co. v. ITO [1970] 78 ITR 427, the Calcutta High Cou....
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....t be executed and until the decree becomes executable, the same cannot be proceeded against by the Tax Recovery Officer unless admitted by the SWCL. Admission of one officer whether binding on other officer of the same Department: We are unable to accept the contention of Mr. Sarkar that when one officer of the Department has held the transaction to be a sham transaction, another officer of the same Department would be bound by such decision in the context of this case. Inasmuch as in the proceeding for assessment of SWCL, VCVL was not a party, any finding by the income-tax authority in an assessment against SWCL would not bind VCVL. The relation between VCVL and SWCL is independent of the decision by the income-tax authority. VCVL has every right to recover the amount from SWCL through due process. SWCL can defend such claim of VCVL only through appropriate process in the suit independent of the finding of the income-tax authority. The decision in Gitanjali Electronics v. Amarnani (H.R.), Asst. Collector of Central Excise [1989] 39 ELT 531 (Bom), therefore, would not help us, inasmuch as the facts of the case, dealt with in the said decision, are clearly distinguishable from....
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....es of the case, is incompetent and cannot be treated to be a notice of attachment as discussed above. But since, however, some amount has already been recovered by reason of voluntary payment by APBCL, the same may not be interfered with at this stage. However, this amount shall be held by the Income-tax Department without prejudice to the rights and contention of the parties and subject to the ultimate decision in the appeal filed by SWCL in relation to the decree obtained against it by VCVL and the ultimate decision in the proceeding, under section 226(3) of the Act as against SWCL. It would be open to the Income-tax Department to proceed to recover the amount from SWCL pursuant to the decree if the appeal is decided in favour of VCVL, affirming the decree or as soon the decree becomes executable, as the case may be. The decision by the Tax Recovery Officer rejecting the objection raised under clause (vi) of section 226(3) by SWCL on the merits cannot be sustained unless any ingenuinity of the objection is found or any falsity in the statement is discovered. Therefore, the order impugned (annexure P62 of the writ petition) is set aside with liberty to the Tax Recovery Officer to ....