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Issues:
1. Challenge to a letter by the Deputy Commissioner of Income-tax to withhold payment. 2. Interpretation of section 226(3) of the Income-tax Act, 1961. 3. Effect of agreements on tax liabilities between parties. 4. Precedents regarding recovery of tax liabilities. Analysis: The High Court of BOMBAY delivered a judgment in a writ petition challenging a letter dated May 6, 1991, issued by the Deputy Commissioner of Income-tax to withhold payment from respondent No. 3, the Oil and Natural Gas Commission (ONGC). The petitioner, a South Korean company, had contracts with ONGC and an Italian concern, Micoperi S.P.A., for fabrication work. The issue arose when Micoperi S.P.A. faced income-tax assessment, leading to a tax liability of over Rs. 14 crores. The letter requested ONGC to withhold Rs. 10 to 12 crores from payments due to the petitioner, citing tax liabilities of Micoperi S.P.A. The court analyzed the provisions of section 226(3) of the Income-tax Act, 1961, and noted that the letter lacked legal authority as it did not comply with the requirements of the Act. In a precedent cited, the court emphasized that the Income-tax Officer can only demand payment from parties holding money for or on account of the assessee, as per section 226(3). The court also highlighted that private agreements between parties regarding tax liabilities do not affect the rights of income-tax authorities to recover dues from the liable party under the Income-tax Act. This principle was further supported by referencing past cases where agreements between parties did not absolve the liable party from tax obligations under the law. The judgment concluded that agreements between the parties involved in this case, including the petitioner, Micoperi S.P.A., and ONGC, regarding tax liability discharge, could not be enforced by income-tax authorities. The court ruled in favor of the petitioner, restraining respondents from recovering the tax amount from ONGC based on the agreement between the petitioner and Micoperi S.P.A. The court's decision was based on the legal principles discussed, disregarding the agreements between the parties as they did not alter the tax liability obligations under the Income-tax Act. In summary, the judgment addressed the challenge to the Deputy Commissioner's letter, analyzed the statutory provisions of the Income-tax Act, and emphasized the precedence of legal principles governing the recovery of tax liabilities. The court's decision upheld the rule in favor of the petitioner, highlighting the importance of adhering to legal provisions and disregarding private agreements in tax recovery matters.
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