2003 (3) TMI 86 - HC - Income Tax

Tax recovery - Garnishee Order - A notice under section 226(3) of the Income-tax Act, 1961 ( the Act ), issued by the Tax Recovery Officer, Delhi ( the TRO ), has since been challenged by the petitioners/appellants herein. Initially this court remitted the matter to the Tax Recovery Officer, who had issued the said notice. The matter was adjudicated upon and the claim of the petitioners was rejected. Against this order the petitioners had moved the present writ petition since dismissed by the learned single judge. Out of the said order, the present appeal arises.

Summary

Issues Involved:
1. Validity of the notice under section 226(3) of the Income-tax Act, 1961.
2. Estoppel of the Income-tax Department from treating the transaction as genuine.
3. Applicability of section 226(3) concerning a decree that has not reached finality.
4. Petitioners' right to raise objections under section 226(3)(vi).
5. Alleged suppression of material facts by the petitioners.
6. Recovery of income-tax dues from multiple sources.

Issue-wise Detailed Analysis:

1. Validity of the Notice under Section 226(3):
The petitioners challenged the notice issued by the Tax Recovery Officer (TRO) under section 226(3) of the Income-tax Act, 1961. The court initially remitted the matter to the TRO, who rejected the petitioners' claim. The petitioners then filed a writ petition, which was dismissed, leading to the present appeal. The court observed that the TRO could not proceed to recover the amount until the objection raised by the petitioners was found to be false.

2. Estoppel of the Income-tax Department from Treating the Transaction as Genuine:
The appellants argued that the income-tax authority in Calcutta had held the transaction with VCVL to be non-genuine, and thus the department was estopped from treating it as genuine for recovery purposes. The court noted that the department could not blow hot and cold by treating the transaction as genuine in one instance and non-genuine in another. The subject matter of the judicial proceeding had not reached finality, and the TRO could not assume jurisdiction to decide a dispute between the garnishee and the assessee.

3. Applicability of Section 226(3) Concerning a Decree that has not Reached Finality:
The appellants contended that section 226(3) could not be applied to a decree until it became final. The court acknowledged that the decree obtained by VCVL was not challenged until the writ petition was dismissed. The TRO could proceed only when the amount was found due and payable, and the decree's finality was a prerequisite for invoking section 226(3).

4. Petitioners' Right to Raise Objections under Section 226(3)(vi):
Under section 226(3)(vi), the petitioners were entitled to raise objections. The court observed that the petitioners had not denied the entire dues under the decree but disputed the extent or quantum. The TRO could not proceed to recover the amount until the objection was found to be false. The court cited precedents indicating that the burden of proving the falsity of the objection lay with the Revenue.

5. Alleged Suppression of Material Facts by the Petitioners:
The Revenue argued that the petitioners had suppressed material facts. The petitioners contended that the facts were known to the income-tax authority, as evident from the order dated December 13, 2002. The court noted that the petitioners had not taken a clear stand before the income-tax authority and had not come with clean hands. They should have specified the extent of their liability under the decree.

6. Recovery of Income-tax Dues from Multiple Sources:
The appellants argued that the income-tax authority was recovering from two sources for the same transaction, which was unfair. The court agreed that recovery should be made from one source only. The petitioners were directed to specify the amount payable under the scheme formulated by the company forum, and recovery would be limited to that extent. The TRO was instructed to ensure that the total amount recovered did not exceed the amount sought under section 68A of the Act.

Conclusion:
The court disposed of the appeal by directing the petitioners to specify the amount payable under the scheme without prejudice to their rights in the pending appeal before the Tribunal and the proceedings before the TRO. The recovery would be limited to that specified amount. The order was without prejudice to the rights and contentions of the parties in any other proceedings. The appeal and the application were thus disposed of with no order as to costs.