1996 (6) TMI 6 - HC - Income Tax

Summary

Issues Involved:
1. Legality of the assessment proceedings against the petitioner.
2. Legality of the notice issued under Section 226(3) of the IT Act.
3. Petitioner's liability for the tax arrears of her husband.

Detailed Analysis:

1. Legality of the Assessment Proceedings Against the Petitioner:
The petitioner contended that the assessment proceedings initiated by the respondents, treating her as the benami holder of the property, were vitiated by an error apparent. She argued that the respondents had no power under the provisions of the Act to foist action contemplated against her husband on her by attaching the rents payable to her by her tenants occupying her properties owned by her exclusively. The petitioner further pointed out that the assessment orders were illegal and the notices issued to the tenants in occupation of the building were not legally permissible.

2. Legality of the Notice Issued Under Section 226(3) of the IT Act:
The Income-Tax Officer (ITO) issued a notice under Section 226(3) of the IT Act, requiring the tenants of the petitioner's properties to pay any amount due to her to the ITO instead, for recovery of the arrears of income-tax of her husband. The notice mentioned a sum of Rs. 48,88,450 due from the petitioner as a benami owner on account of income-tax, super-tax, penalty, interest, and fine. The petitioner argued that the notice could not be treated as valid for a sum of Rs. 13,65,778, which was the assessment amount for the year 1981-82, since the authorities had to issue a separate notice following the procedure prescribed in the IT Act.

The court examined the relevant sections of the IT Act, including Section 226(3)(i), Section 224, and Section 225. It was noted that the amount specified in the certificate issued under Section 222 of the Act could be valid, and a notice issued under Section 226(3) of the Act could be amended. The court concluded that the notice issued by the second respondent could be modified to reflect the correct amount due.

3. Petitioner's Liability for the Tax Arrears of Her Husband:
The petitioner contended that the assessment order was passed without giving an opportunity to her husband and that the assessment for the years 1973 to 1977 was time-barred. The IT Department, in their counter-affidavit, acknowledged that the assessment orders for the assessment years 1973-74 to 1979-80 and 1982-83 had been set aside by the CIT(A) on 31st October 1988. However, for the assessment year 1981-82, a sum of Rs. 13,65,778 was still due from the assessee (petitioner's husband). The court noted that the IT Department was prepared to confine the notice to the said amount instead of Rs. 48,68,400.

The court referred to a decision in Lal Man vs. CIT, where it was held that an order of attachment issued under Section 226(3) could not survive if the assessment order was set aside. However, in the present case, the assessment for the year 1981-82 was upheld, and hence, the decision cited by the petitioner's counsel did not apply.

Conclusion:
The court modified the notice issued by the second respondent, confining it to a sum of Rs. 13,65,778 instead of Rs. 48,68,400. The writ petition was disposed of with this modification, and there was no order as to costs.