2012 (9) TMI 625 - HC - Income Tax

Notice u/s 271(1)(c) - two impugned notices were issued to the petitioner in respect of deposits in accounts held by him in various banks - Held that - This Court is of the opinion that the proceedings pending before the TRO should be concluded after involving the writ petitioner and making available to him such material as the tax authorities choose to rely against him in support of their position that the monies and deposits which are said to be the subject matter of judgment under Section 226(3) do not belong to him but to the assessee - Copies of such materials, if in the possession of the TRO shall be made available within two weeks to the petitioner, who shall thereafter make written representation within a week thereafter, setting-out the grounds or reasons why the course of action proposed in attaching the amounts is not feasible or legal The interim arrangement subsisting and binding the parties whereby the amounts lying in deposit are not to be withdrawn.

Issues:
1. Validity of notices under Section 226(3) of the Income Tax Act.
2. Interpretation of provisions regarding garnishee proceedings.
3. Legal representation and attachment of accounts.
4. Granting of interim orders and maintaining status quo.
5. Conclusion of proceedings before the Tax Recovery Officer (TRO) and involvement of the writ petitioner.

Analysis:

1. The petitioner challenged two notices under Section 226(3) of the Income Tax Act, claiming they were illegal and contrary to law. The notices were issued regarding deposits in accounts held by the petitioner, leading to the attachment of his accounts. Initially, income tax authorities considered the petitioner as the legal representative of his brother but later withdrew that stance. Despite the petitioner's objections, the authorities continued with the garnishee notices/orders.

2. The senior counsel for the petitioner argued that the income earned and kept in Fixed Deposits by the petitioner should not be treated as belonging to his brother to trigger Section 226(3). It was contended that the authorities persisted in their demands despite evidence suggesting otherwise.

3. The counsel for the Revenue maintained that the funds in various banks were held on behalf of the petitioner's brother and payable to him. Even though the petitioner was not currently treated as the legal representative of his brother, circumstances might warrant such treatment in the future.

4. The Court granted interim orders to halt further remittance by the bank to the Tax Recovery Officer (TRO) until the writ petition was resolved. It also directed the maintenance of status quo regarding Fixed Deposits and clarified that its orders would not impact proceedings under other sections of the IT Act.

5. After hearing both parties, the Court decided that the TRO proceedings should involve the petitioner and provide him with relevant materials supporting the authorities' position. The petitioner was given an opportunity to respond in writing and present grounds against the proposed attachment of funds. The TRO was instructed to consider the representation, hold a hearing, and issue a reasoned order within eight weeks. Interim arrangements regarding fund withdrawal and renewal of Fixed Deposits were to remain in place until the TRO's decision. The writ petition was disposed of with all rights and contentions reserved.

This detailed analysis of the judgment highlights the key issues addressed by the High Court and the comprehensive legal considerations taken into account during the proceedings.

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