2015 (2) TMI 252 - HC - Income Tax

Recovery of dues - Demand notice from the petitioner-Bank - there is outstanding amount of ₹ 41 lacs from the respondent No.4 and the respondent No.4 has several fixed deposits with the petitioner-bank which comes to ₹ 31 lacs and if we include the interest on the said fixed deposits, it comes to ₹ 40 lacs - Held that - Petitioner-Bank has paid an amount of ₹ 58,54,700/- to the IT Department on 25.03.2005 towards the outstanding tax dues of respondent no.4. The petitioner-Bank has further paid an amount of ₹ 58,37,991/- to the IT Department on 19.11.2012 towards the outstanding tax dues of respondent no.4. Admittedly, the amount paid by the petitioner-Bank (in liquidation) to the IT Department were not belonging to the petitioner- Bank but, it belonged to respondent no.4, who was the depositor of the Bank. The said amounts have been appropriated by the IT Department towards the outstanding tax demand due and payable by respondent no.4. From the above set of facts, it is evident that the petitioner-Bank has already released proportionate amount deposited by respondent no.4 in favour of the IT Department. As per the further affidavit filed by respondent no.1, respondent no.4 is still in arrears of tax demand to the tune of ₹ 43,85,806/- as on 31.03.2013. If that be so, then the same is to be recovered from respondent no.4 and not from the petitioner-Bank. Hence, the impugned Notice deserves to be quashed and set aside. The impugned Notice dated 25.07.2005 issued by respondent no.1 to respondent no.2 is quashed and set aside. It is, however, clarified that if any tax demand is due and payable by respondent no.4 herein, it shall be open to the IT Department to initiate necessary proceedings for recovering the same from the personal properties of respondent no.4. - Decided against revenue.

Summary

Issues:
1. Validity of the Notice dated 25.07.2005 issued by respondent no.1 to respondent no.2.
2. Legal authority to recover outstanding dues from the petitioner.
3. Applicability of Section 226(3) of the Income Tax Act, 1961.
4. Role of liquidator in the recovery proceedings.
5. Liability of respondent no.4 in the tax demand.

Analysis:

1. The petitioner challenged the Notice dated 25.07.2005, arguing that respondent no.1 did not obtain permission from the Registrar before taking action against the petitioner-Bank, which was under liquidation. The petitioner contended that the Notice was unlawful as no prior notice under Section 226(3) of the Income Tax Act had been issued before. The petitioner's counsel emphasized that respondent no.1 should recover dues from respondent no.4's assets rather than targeting the petitioner-Bank.

2. The Revenue Department, represented by Mr. KM Parikh, asserted that the petitioner-Bank defaulted in paying the tax demands despite previous recovery attempts. It was argued that the petitioner-Bank was obligated to settle the outstanding tax dues as an assessee in default under Section 226(3). The Revenue Department highlighted the continuous arrears and emphasized the need to protect its interests by recovering the dues from respondent no.4 and his group of companies.

3. Respondent no.4's counsel, Mr. B.S. Patel, contended that the petitioner-Bank was discharged from liability under Section 226(10) of the Act as it received a prior Notice under Section 226(3). Respondent no.4 argued against its liability to pay the tax dues and suggested that the petition should be dismissed based on the legal provisions.

4. The Court considered the arguments from all parties and previous orders. It noted the payments made by the petitioner-Bank towards respondent no.4's tax dues, which were appropriated by the IT Department. The Court highlighted that respondent no.4 still owed a significant amount in tax arrears as of 31.03.2013. Consequently, the Court allowed the petition, quashed the impugned Notice, and directed the IT Department to recover any dues from respondent no.4's personal properties, clarifying the liquidator's role in the process.

This detailed analysis of the judgment addresses the key issues raised in the legal dispute, providing a comprehensive overview of the arguments presented by each party and the Court's final decision.