2008 (10) TMI 235 - HC - Income Tax

Recovery of Tax Garnisheee Proceedings Mutt property Attachment Recovery from third party - the assessee, who is due in money to the Department is the mutt. The petitioner is willing to pay the amounts due to Department by the mutt, provided he is recognised by the Department as the successor of Krishnananda Giri Gowswami of mahant of the mutt. But the Department is not willing to recognise him as the person who has inherited any right in the properties of the mutt or as a successor to the mahant of the mutt - Department issued notice to the garnishee of the petitioner who is holding the money which belongs to the petitioner held that - the notices issued under section 226(3) of the Act are without jurisdiction and require to be quashed. If any money is already received by the Department from the banks in pursuance of the said notice, they are bound to refund the money to the persons from whom they have received it, i.e., the bankers who have made payment to the Department, as the collection of the said money has no legal basis and is without authority of law.

Issues Involved:
1. Validity of notices issued under section 226(3) of the Income-tax Act, 1961.
2. Recognition of the petitioner as the successor of the mutt.
3. Jurisdiction of the Income-tax Department to proceed against the petitioner.
4. Maintainability of the writ petition by the petitioner.

Detailed Analysis:

1. Validity of Notices Issued Under Section 226(3) of the Income-tax Act, 1961:
The petitioner sought to quash the notices issued under section 226(3) of the Income-tax Act, 1961, by the first respondent to various banks. The Department issued these notices to recover the amount due from the mutt, which was allegedly kept in bank accounts by the petitioner's power of attorney holder. The court analyzed the relevant provisions of section 226(3) and concluded that for the application of this section, the person from whom the money is demanded should be due in any money to the assessee. The court noted that the petitioner was not recognized by the Department as having any right in the properties of the mutt or as a successor to the mahant. Therefore, section 226(3)(i) was not applicable. The court also referenced judgments from the Gujarat High Court and the Calcutta High Court, which supported the interpretation that section 226(3) cannot be invoked against a debtor of a garnishee.

2. Recognition of the Petitioner as the Successor of the Mutt:
The petitioner claimed to be the successor of Krishnananda Giri Goswami, the previous mahant of the mutt. However, the Department did not recognize the petitioner as the successor or as having inherited any rights in the properties of the mutt. The court observed that the petitioner was willing to pay the amounts due to the Department by the mutt, provided he was recognized as the successor. Since the Department did not recognize him, the court found that the petitioner owed no money to the mutt, and thus, section 226(3) was not attracted.

3. Jurisdiction of the Income-tax Department to Proceed Against the Petitioner:
The court examined whether the Department had jurisdiction to proceed against the petitioner, who allegedly sold the properties of the mutt. The court found that the Department had no provision under the Income-tax Act to proceed against a person who wrongfully sells the property of the assessee. The entire scheme of the Income-tax Act did not vest the power in the Department to recover monies from such a person. Therefore, the notices issued under section 226(3) were deemed to be without jurisdiction and required to be quashed.

4. Maintainability of the Writ Petition by the Petitioner:
The respondents contended that the writ petition was not maintainable as the attached amount was in the account of the petitioner's power of attorney holder, not the petitioner himself. The court rejected this contention, stating that the money in the bank belonged to the petitioner, and the attachment affected the petitioner's interests. Therefore, the petitioner was the aggrieved person whose rights were affected by the respondent's actions, making the writ petition maintainable.

Conclusion:
The court allowed the writ petition, quashed the impugned notices, and directed the Department to refund the sum of Rs. 18,57,999 to the banks with interest at nine percent. The court held that the actions of the Department were without jurisdiction and that the petitioner had the right to challenge these actions.

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