1989 (7) TMI 54 - HC - Income Tax

Summary

Issues:
Challenge to notice under section 226(3) of the Income-tax Act for recovery of dues from a company, Validity of the notice issued, Liability of the National Textile Corporation Limited for income-tax dues of another company, Application of the Acquisition Act in suspending liabilities, Principles of natural justice in tax recovery process.

Analysis:
The petition challenged a notice under section 226(3) of the Income-tax Act demanding payment from the National Textile Corporation Limited for income-tax dues of Swadeshi Cloth Dealers Limited. The petitioner argued that the amount in question had been adjusted against outstandings and that the National Textile Corporation Limited did not possess any funds from Swadeshi Cloth Dealers Limited. Additionally, it was contended that the tax dues could be recovered from the Central Government under the Acquisition Act. The High Court noted that the demand could not be recovered from the petitioner as the liability of Swadeshi Cloth Dealers Limited was suspended under the Acquisition Act. The Court highlighted that the Income-tax Officer failed to consider whether the commission payable had already been settled and whether any funds were available for payment to the Income-tax Department.

The Court found that the Assistant Commissioner of Income-tax could not enforce the dues against the National Textile Corporation Limited as the liability of Swadeshi Cloth Dealers Limited was suspended by the Central Government's notification. The Court emphasized that the proper course of action was to pursue recovery from Swadeshi Cotton Mills Company Limited under specific statutory provisions. It was also noted that the petitioner was not given a fair opportunity to address the issue, rendering the notice invalid. Consequently, the Court allowed the writ petition, quashing the notice issued under section 226(3) of the Income-tax Act.

In conclusion, the judgment delved into the intricacies of tax recovery, liability transfer under the Acquisition Act, and the importance of adhering to principles of natural justice in such proceedings. It clarified that the petitioner could not be held accountable for the income-tax dues of another entity whose liabilities were suspended under the law. The decision underscored the necessity of a fair and thorough assessment before demanding payments from third parties and upheld the petitioner's challenge against the notice.