2003 (4) TMI 60 - HC - Income Tax

Recovery stay - By this writ application the writ petitioner has prayed for setting aside notice u/s 226(3) of the Income-tax Act 1961 issued by respondent No. 1 for realisation of the demanded amount from the different persons who are holding money for or on account of the petitioner. - no substance in the contention of Mr. Bhattacharya that for non-service of notice under section 226(3)(iv) of the Act the process of recovery under section 226(3) should be annulled - I find no substance in the contention of the petitioner that recovery of amount by giving notice under section 226(3) of the Act from the State Bank of India is vitiated in any way.

Issues Involved:
1. Whether the filing of an appeal and a stay application before the appellate authority results in an automatic stay of recovery proceedings.
2. Whether it is mandatory to serve a notice under section 226(3)(iii) of the Income-tax Act upon the assessee before recovering any amount.

Detailed Analysis:

1. Automatic Stay of Recovery Proceedings:
The petitioner argued that once an appeal and a stay application are filed, the income-tax authority cannot proceed with the recovery of the amount under appeal until the stay application is disposed of. The petitioner cited several cases to support this contention, including Bongaigaon Refinery and Petro Chemicals Ltd. v. CIT, Mohan Singh v. CIT, and others, which suggested that recovery proceedings should be stayed until the appellate authority decides on the stay application.

However, the court held that mere filing of an appeal and stay application does not automatically stay the recovery proceedings. The court referred to the scheme of the Income-tax Act, 1961, specifically sections 156, 220, and 222, which indicate that tax assessed becomes payable after the expiry of the period mentioned in section 220. The court also cited the Supreme Court's decision in ITO v. M.K. Mohammed Kunhi, which stated that the Tribunal has the authority to stay recovery proceedings but should exercise this power judiciously and not as a routine matter. The court concluded that unless the appellate authority passes a specific order granting stay, the recovery process can continue.

2. Mandatory Notice under Section 226(3)(iii):
The petitioner contended that without serving a notice under section 226(3)(iii) of the Income-tax Act upon the assessee, the income-tax authority cannot recover any amount. The petitioner relied on the decision of the Punjab and Haryana High Court in Mohan Singh v. CIT, which suggested that an assessee must be issued a notice and heard before any recovery order is passed.

The court examined section 226(3) of the Income-tax Act, which allows the Assessing Officer to issue a notice to any person holding money for the assessee to pay the amount due. The court noted that section 226(3)(iii) requires forwarding a copy of the notice to the assessee but does not mandate a prior hearing. The court found no substance in the petitioner's contention and disagreed with the Punjab and Haryana High Court's decision in Mohan Singh, concluding that the notice to the assessee is for information purposes only and does not necessitate a hearing before recovery.

Conclusion:
The court dismissed the writ application, holding that the mere filing of an appeal and stay application does not automatically stay recovery proceedings, and the income-tax authority is not required to serve a notice under section 226(3)(iii) before recovering the amount. The court directed the appellate authority to dispose of the appeal within a month if the entire amount has been realized, or to dispose of the stay application within a fortnight, with the petitioner not withdrawing the amount from the bank to the extent of the demanded amount until the stay application is decided. No order as to costs was made.

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