1960 (8) TMI 108 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the notices issued under section 46(5A) of the Income Tax Act.
2. Whether the limitation period for recovery proceedings had expired.
3. Whether the issuance of a certificate under section 46(2) marked the commencement of recovery proceedings.
4. Whether the effectiveness of recovery proceedings affects their validity.
5. Whether the issue of notices under section 46(5A) to other debtors within the limitation period saves the limitation for subsequent notices.
6. Requirement of recording special reasons for adopting multiple modes of recovery.

Detailed Analysis:

1. Validity of the Notices Issued Under Section 46(5A):
The petitioner argued that the notices issued by the Income Tax Officer to the Bank of India Ltd. in 1957 were barred by limitation. The Department contended that earlier notices issued to other debtors in 1954 under section 46(5A) validated the 1957 notices. The court held that each notice under section 46(5A) is an independent proceeding and the issuance of a notice to one debtor does not save the limitation for notices issued to other debtors.

2. Limitation Period for Recovery Proceedings:
The petitioner claimed that the limitation for taking proceedings under section 46 had expired by the end of 1955, making the 1957 proceedings barred. The court examined the proviso to section 46(7), which extends the limitation period if recovery proceedings are stayed by a court order. The court found that the period of limitation was extended to April 8, 1955, due to a stay order by the High Court, making the 1954 notices within the limitation period.

3. Commencement of Recovery Proceedings Under Section 46(2):
The Department argued that a certificate issued to the Collector in October 1953 under section 46(2) marked the commencement of recovery proceedings. The petitioner contended that mere forwarding of a certificate does not amount to the commencement of recovery proceedings. The court held that the issuance of the certificate marked the commencement of recovery proceedings, as it set in motion the machinery for actual recovery.

4. Effectiveness of Recovery Proceedings:
The petitioner argued that since the notices issued under section 46(5A) in 1954 did not yield successful results, they could not be considered valid recovery proceedings. The court rejected this argument, stating that the effectiveness of recovery proceedings does not affect their validity. The issuance of notices under section 46(5A) constitutes a recovery proceeding regardless of the outcome.

5. Notices to Other Debtors and Limitation:
The court examined whether the issuance of notices under section 46(5A) to other debtors within the limitation period saved the limitation for subsequent notices. The court held that each mode of recovery specified in section 46 is distinct and not mutually exclusive. Therefore, the issuance of notices to other debtors in 1954 did not save the limitation for the 1957 notice to the Bank of India Ltd.

6. Requirement of Recording Special Reasons:
The petitioner argued that the Department could not resort to multiple modes of recovery without recording special reasons as required by the explanation to section 46(7). The court agreed, stating that the adoption of an additional mode of recovery requires special reasons to be recorded by the Income Tax Officer. Since no special reasons were recorded, the proceedings under section 46(5A) were deemed unlawful.

Conclusion:
The court concluded that the entire proceedings under section 46(5A), whether of 1954 or 1957, were vitiated due to the failure to record special reasons for adopting multiple modes of recovery. The petitions were allowed on this narrow ground, and the rule nisi was made absolute. The petitioner was entitled to costs in W.P. No. 603, while no order as to costs was made in W.P. No. 604.