2012 (5) TMI 284 - HC - Income Tax

Garnishee notice - Section 226 (3) - attachment orders - held that - Having regard to the facts and circumstances of the case, we are of the opinion that it is just and proper to grant stay of the impugned garnishee order, and the subsequent attachment orders pending disposal of the appeal before the CIT(A) subject to condition the petitioner pays 50% of the demanded tax at the rate of Rs.2 crores per month commencing from May 2012 payable by 5 th of every month. The Commissioner of Income Tax (Appeals)-IV is directed to dispose of the appeal as expeditiously as possible preferably within a period of 3 (three) months from today.

Issues involved:
1. Legality of garnishee notice issued by the Assistant Commissioner of Income Tax.
2. Disputed tax recovery from the petitioner Board.
3. Appeal filed by the petitioner Board against assessment order.
4. Stay of recovery of demanded tax.
5. Classification of the petitioner Board as a local authority.
6. Exemption from provisions of the Income Tax Act.
7. Pending application under Section 12AA of the Income Tax Act.
8. Grant of stay of the garnishee order.

Analysis:
1. The High Court considered the legality of the garnishee notice issued by the Assistant Commissioner of Income Tax to recover disputed tax from the petitioner Board. The petitioner challenged the notice as illegal, arbitrary, and against the provisions of the Income Tax Act, seeking a direction to withhold payment until the appeal against the assessment order was resolved.

2. The petitioner Board had previously filed a writ petition questioning the assessment order for the year 2003-2004, which was dismissed. Subsequent appeals were made against similar assessment orders. The petitioner contended errors in assessment and raised issues regarding the application of Section 147 and reliance on internal audit.

3. The Court noted that the grounds raised in the appeal before the Commissioner of Income Tax (Appeals) were not within its purview and should be addressed by the appellate authority. The appeal process was ongoing, and the Court emphasized the need for the appellate authority to consider the contentions raised.

4. Regarding the stay of recovery of demanded tax, the Commissioner of Income Tax-III had previously allowed a partial stay subject to conditions. The petitioner's inability to meet the conditions led to the writ petition. The Court directed the Commissioner of Income Tax (Appeals)-IV to extend the same relief granted by the Commissioner of Income Tax-III pending appeal disposal.

5. The classification of the petitioner Board as a local authority was a crucial aspect. The petitioner argued its status as a service-oriented organization established by an Act of the Government, not for profit but for public utility. The Court refrained from expressing an opinion on these contentions, leaving them for the appellate authority to decide.

6. The Court discussed the exemption of local authorities from the Income Tax Act, noting the amendments and the petitioner's application for registration as a charitable institution under Section 12AA, pending consideration by the Central Board of Direct Taxes.

7. Considering the circumstances, the Court granted a stay of the garnishee order and subsequent attachment orders pending appeal disposal. The petitioner was directed to pay 50% of the demanded tax monthly, with the appeal to be expedited within three months.

8. Ultimately, the writ petition was disposed of without costs, emphasizing the need for a speedy resolution of the appeal and the stay of recovery pending the appeal process.

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