2004 (1) TMI 52 - HC - Income Tax

Garnishee Proceedings - writ petitioner/appellant- SWCL had assailed the notices issued u/s 226(3)(x) against the APBCL as debtor of SWCL the garnishee against whom a notice under section 226(3) was issued seeking to recover the tax due and payable by VCVL in respect of the amount due and payable by SWCL the garnishee to VCVL the decree-holder pursuant to a decree obtained by the latter against the former Held that Tax Recovery Officer has no power to attach the debt due to the garnishee without following the provisions of section 222

Summary

Issues Involved:
1. Applicability of Section 226(3) of the Income-tax Act, 1961 to a debtor of a garnishee.
2. Validity and scope of notices issued under Section 226(3) as attachment of debt.
3. Jurisdiction and scope of Tax Recovery Officer under Section 226(3)(vi).
4. Binding nature of departmental decisions.
5. Maintainability of the writ petition.

Detailed Analysis:

1. Applicability of Section 226(3) to a Debtor of a Garnishee:
The court examined whether Section 226(3) could be applied against the debtor of a garnishee. It was concluded that Section 226(3) does not apply to the debtor of a garnishee. This decision was supported by the fact that clause (x) of Section 226(3) expressly omits Section 226, indicating the Legislature's intent. The court relied on the precedent set by the Gujarat High Court in Smt. Tejal R. Amin [1994] 208 ITR 103 (Guj), which held that Section 226(3) does not extend to the debtor of a garnishee. Thus, the court affirmed that the learned single judge had correctly interpreted the law.

2. Validity and Scope of Notices Issued Under Section 226(3):
The court analyzed whether the notice issued to APBCL under Section 226(3) could be treated as a notice of attachment under Section 222. It was determined that a notice under Section 226(3) could not be issued to the debtor of a garnishee without following the procedures prescribed in Sections 222 to 225 and the Second Schedule. The court emphasized that the Tax Recovery Officer must follow the specific procedures for attachment and recovery as outlined in the Second Schedule. Consequently, the notices issued to the debtors of the garnishee under Section 226(3) were deemed incompetent and were quashed.

3. Jurisdiction and Scope of Tax Recovery Officer Under Section 226(3)(vi):
The court scrutinized the jurisdiction of the Tax Recovery Officer under Section 226(3)(vi). It was held that the Tax Recovery Officer's jurisdiction is limited to determining the genuineness or falsity of the objection raised by the garnishee and not to decide the merits of the claim. The court found that the Tax Recovery Officer had overstepped his jurisdiction by delving into the merits of the objection raised by SWCL. The decision rejecting SWCL's objection on the merits was set aside, and the Tax Recovery Officer was directed to reconsider the objection strictly within the scope of Section 226(3)(vi).

4. Binding Nature of Departmental Decisions:
The court rejected the argument that a decision by one officer of the Income-tax Department binds another officer in the context of the same transaction. It was clarified that the assessment of SWCL by the income-tax authority does not bind VCVL, as VCVL was not a party to that assessment. Therefore, the recovery proceedings based on the decree obtained by VCVL were not affected by the assessment decision against SWCL.

5. Maintainability of the Writ Petition:
The court addressed the objection regarding the maintainability of the writ petition, noting that the existence of alternative remedies under rules 86 and 87 of the Second Schedule does not preclude the writ petition when a question of jurisdiction is raised. Given that the action taken by the income-tax authority was found to be beyond its jurisdiction, the writ petition was deemed maintainable.

Order:
The appeal was allowed to the extent indicated. The notices issued under Section 226(3) to APBCL and other debtors of SWCL were quashed. The Tax Recovery Officer's decision rejecting SWCL's objection under Section 226(3)(vi) was set aside. The Tax Recovery Officer was directed to decide the objection raised by SWCL within the scope of Section 226(3)(vi) before proceeding further. The Tax Recovery Officer was restrained from proceeding against SWCL under Section 226(3) until the decree becomes executable and a fresh decision on the objection is made. There was no order as to costs.