2018 (1) TMI 746 - HC - Income Tax

Garnishee Notice u/s 226(3) addressed to the Special Tahsildar, calling to pay the arrears of tax payable by the company - Income Tax Department concern with the land acquisition proceedings or the compensation amount - According to the petitioners, the lands owned by them stand covered in the area, which is now proposed to be retained in the acquisition proceedings and the payment of compensation as awarded is in the advanced stage of being settled and probably within 30 days, the compensation amount will be paid to the Department - Held that - This Court is of the considered view that the demand in the impugned assessment order can remain stayed till the disposal of the appeals by the Commissioner of Income Tax (Appeals) subject to a condition. Accordingly, W.P. is allowed and the garnishee notice dated 06.7.2016 is set aside subject to the condition that both the petitioner company and the Managing Director of the company pay 20% of the disputed tax for all the assessment years within a period of five weeks from the date of receipt of a copy of this order. If the petitioners comply with the above condition, payment of balance tax shall remain paid till the disposal of the appeals pending before the Commissioner of Income Tax (Appeals-II), Chennai. In the event the petitioners fail to comply with said condition as ordered above within the time stipulated, the Income Tax Department is entitled to initiate recovery proceedings.

Summary

Issues:
1. Impugned notice issued by the Income Tax Department under Section 226(3) of the Income Tax Act, 1961.
2. Appeal for direction to State Officials to pay 15% of disputed demand directly to Income Tax Department.
3. Stay of coercive recovery steps by Income Tax Department pending appeal disposal.
4. Garnishee notice sent by Assessing Officer to Special Tahsildar.
5. Interest of Revenue vs. granting reprieve to assessees.
6. Payment of compensation in land acquisition proceedings.
7. Setting aside garnishee notice subject to payment condition.

Analysis:
The petitioners, a company and its Managing Director, challenged the notice issued by the Income Tax Department demanding arrears of tax for assessment years 2008-09, 2011-12, 2012-13, and 2013-14. The company sought a direction for State Officials to pay 15% of the disputed demand directly to the Income Tax Department, while the Managing Director requested the same for assessment years 2008-09 to 2014-15. The petitioners had filed appeals against the assessment orders, and while seeking a stay on the balance tax amount, a garnishee notice was sent to the Special Tahsildar by the Assessing Officer, without deciding on the stay petitions. The Revenue argued that they were only concerned with tax recovery, not land acquisition proceedings, but the Court noted the connection due to the garnishee notice. The Court aimed to protect Revenue interests while granting relief to the assessees to ensure their appeals were not affected.

The Court acknowledged the progress in land acquisition proceedings and the pending payment of compensation, indicating that the lands owned by the petitioners were part of the area proposed for retention in the acquisition. Consequently, the Court allowed one writ petition, setting aside the garnishee notice subject to the condition that the petitioners pay 20% of the disputed tax within five weeks. Failure to comply would allow the Income Tax Department to initiate recovery proceedings. The Court also addressed a request to substitute security given to the Income Tax Department with the Assessing Officer's satisfaction, which would be considered in accordance with the law.

In conclusion, the Court's judgment focused on balancing the interests of the Revenue with providing relief to the assessees during the pending appeal process. By setting conditions for payment and considering the progress in land acquisition proceedings, the Court aimed to ensure a fair resolution for both parties involved.