1994 (3) TMI 67 - HC - Income Tax

Issues Involved:
1. Legality of salary attachment under Section 226(2) of the Income-tax Act, 1961.
2. Interpretation of Section 226(3)(x) of the Income-tax Act, 1961.
3. Applicability of recovery procedures under Sections 222 to 225 of the Income-tax Act, 1961.

Detailed Analysis:

1. Legality of Salary Attachment under Section 226(2) of the Income-tax Act, 1961:
The petitioner, a paid employee of two concerns, challenged the attachment of her salary by the Income-tax Department under Section 226(2) of the Act. The respondent had issued notices to her employers to pay her salary directly to the Income-tax Department to recover the outstanding tax liability of her husband, Rahul N. Amin, for the assessment year 1987-88. The petitioner argued that Section 226(2) does not empower the authority to attach the salary of a garnishee (a third party who owes money to the assessee). The court examined Section 226(2), which allows the Assessing Officer or Tax Recovery Officer to require any person paying salary to the assessee to deduct arrears of tax due. However, this provision applies only to the assessee's salary and not to the salary of a third party debtor.

2. Interpretation of Section 226(3)(x) of the Income-tax Act, 1961:
The respondent contended that the petitioner is deemed to be an assessee in default under Section 226(3)(x) because she failed to discharge her liabilities as per the notice. Section 226(3)(x) states that if a person fails to make payment in pursuance of a notice, they shall be deemed to be an assessee in default and the amount specified in the notice can be recovered as if it were an arrear of tax due from them. The court noted that this provision does not extend to attaching the salary of the debtor of the assessee. Instead, it provides that the amount can be recovered in the manner specified in Sections 222 to 225.

3. Applicability of Recovery Procedures under Sections 222 to 225 of the Income-tax Act, 1961:
The court analyzed the recovery procedures under Sections 222 to 225, which include attachment and sale of movable and immovable property, arrest and detention of the assessee, and appointment of a receiver for the management of the assessee's properties. These sections outline the methods for recovering tax arrears from the assessee. Section 226(3) allows recovery from a debtor of the assessee but does not extend the same recovery methods to the debtor's salary. The court emphasized that the Legislature has not provided for the attachment of a third party's salary under Section 226(3)(x). The specific provision that the amount can be recovered "in the manner provided in sections 222 to 225" indicates a limited scope of recovery, not encompassing salary attachment.

Conclusion:
The court concluded that the notices issued by the authority to attach the petitioner's salary were illegal and contrary to the provisions of Section 226 of the Income-tax Act. The petition was allowed, and the notices dated October 23, 1993, were quashed and set aside. The court ruled that the petitioner's salary could not be attached under Section 226(2) as she is not an assessee in default for all intents and purposes of the Act. The recovery from a third party debtor is limited to the amount specified in the notice and must follow the procedures outlined in Sections 222 to 225.

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