1987 (12) TMI 9 - HC - Income Tax

Summary

Issues Involved:
1. Service of demand notices under Section 156 of the Income-tax Act.
2. Jurisdiction of the civil court to investigate the service of demand notices.
3. Recovery of arrears of income-tax dues from the opposite parties.

Detailed Analysis:

1. Service of Demand Notices under Section 156 of the Income-tax Act:
The petitioner challenged the order of the learned Sub-judge, First Court, Cuttack, which rejected a petition under Section 226(4) of the Income-tax Act. The undisputed facts were that opposite parties Nos. 1 and 2, partners of the firm opposite party No. 3, owed income-tax, penalty, and interest totaling Rs. 6,88,244. The Income-tax Officer filed an application under Section 226(4) to recover Rs. 2,99,413.50 from the amount deposited in the court. The opposite parties objected, claiming that demand notices under Section 156 were not served, except for the years 1962-63 and 1963-64, where the demands were later modified on appeal, and no fresh notices were served.

The learned Sub-judge found that demand notices were not served on the opposite parties and that the demand for 1962-63 was reduced by Rs. 20,000, which the Income-tax Officer did not consider. The court also noted the absence of documents proving the outstanding dues of Rs. 6,88,244.

2. Jurisdiction of the Civil Court to Investigate the Service of Demand Notices:
The main contention was whether the civil court had jurisdiction to investigate the service of demand notices. The court, referencing its judgment in ITO v. Manmohanlal [1987] 168 ITR 56 (Orissa), held that the civil court could not investigate whether notices under Section 156 were served. The proper forum for such objections was before the Tax Recovery Officer. The Supreme Court, in Manmohanlal v. ITO [1987] 168 ITR 616 (SC), upheld that tax recovery could only proceed if a valid notice of demand had been served, remanding the case to the High Court to decide afresh.

3. Recovery of Arrears of Income-tax Dues from the Opposite Parties:
Upon remand, the High Court examined the arrears for the years 1962-63 and 1963-64. For 1962-63, the net tax due was Rs. 97,832.25, reduced by Rs. 20,000 on appeal. For 1963-64, the demand was Rs. 1,973. The court noted that a concession was made before the Supreme Court that these amounts should be paid from the deposit in the civil court. Thus, Rs. 77,832.25 and Rs. 1,973 were ordered to be paid to the Income-tax Officer.

For other years, the Sub-judge found no proof of service of demand notices under Section 156. The High Court reviewed the documents and found that the notices were not properly served according to law. The court emphasized that service must be personal or on an authorized agent, as per Section 282 of the Act and relevant provisions of the Code of Civil Procedure. The documents did not show that notices were received by the opposite parties or their authorized agents. Consequently, the finding of no service of notices was upheld.

Conclusion:
The civil revision succeeded in part. The petitioner was entitled to recover Rs. 77,832.25 for 1962-63 and Rs. 1,973 for 1963-64 from the deposit in the civil court. The balance amount could not be recovered due to improper service of demand notices. Each party was to bear its own costs.