1963 (10) TMI 37 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the notice under section 46(5A) of the Indian Income-tax Act.
2. Interpretation of the phrase "may become due" under section 46(5A).
3. Liability of the petitioner to pay the sum of Rs. 20,000 to the Income-tax department.

Detailed Analysis:

1. Validity of the notice under section 46(5A) of the Indian Income-tax Act:

The petitioner, a film production firm, received notices from the Income-tax department on June 18, 1959, and March 21, 1961, under section 46(5A) of the Indian Income-tax Act, attaching payments due to a cine artiste, Baliah, for his tax arrears. The petitioner initially responded that no payments were due to Baliah at that time. However, a subsequent contract on March 28, 1960, resulted in payments to Baliah totaling Rs. 20,000. The department argued that these payments violated the initial notice under section 46(5A). The petitioner contended that the contract with Baliah was entered into after the first notice and thus did not violate the provision.

2. Interpretation of the phrase "may become due" under section 46(5A):

The court examined the statutory provision of section 46(5A) to determine if the petitioner was liable for payments made to Baliah after the initial notice. The key issue was the interpretation of "may become due." The court considered whether this phrase included liabilities arising after the notice was served or was limited to pre-existing liabilities that matured after the notice. The court referenced the interpretation in "Adam v. Income-tax Officer [1958] 33 I.T.R. 26," which clarified that an unutilized overdraft does not render a banker a debtor and that the notice under section 46(5A) does not apply to future contracts created after the notice.

3. Liability of the petitioner to pay the sum of Rs. 20,000 to the Income-tax department:

The court held that the term "due" implies an existing obligation to pay at the time of the notice. It would be inappropriate to extend this to future obligations arising from contracts entered into after the notice. The court emphasized that the statutory provision should not interfere with the normal freedom of contract unless explicitly stated. The court concluded that the petitioner was not liable to pay the Rs. 20,000 to the department as the payments to Baliah did not contravene the notice under section 46(5A) dated June 18, 1959.

Conclusion:

The court allowed the petition, making the rule nisi absolute, and directed that the petitioner was not liable to pay the sum of Rs. 20,000 to the Income-tax department. The court found that the payments made to Baliah did not violate the initial notice under section 46(5A) as the contract with Baliah was entered into subsequently and did not constitute a pre-existing liability. The interpretation of "may become due" was limited to existing obligations at the time of the notice, not future contracts. The petition was allowed with no order as to costs.