2018 (4) TMI 139 - HC - Income Tax

Refund of amount deducted from the petitioner account due to garnishee proceedings - garnishee proceeding initiated against the petitioner on account of income tax dues not of the petitioner but of the respondent District Mining Officer - Exercise of jurisdiction under section 226 (3) (x) by ITO - Held that - We are of the considered view that the ITO (TDS) Bhagalpur cannot act arbitrarily and extend favour to the Mining Department and release their Bank account and decide to attach the Bank account of the petitioner and recover the tax liability from the Bank account of the petitioner. After exchange of pleading it has emerged in this case (a) there was no amount recoverable from the petitioner (b) on 14.10.2017 the petitioner has surrendered the settlement of Mining lease and the State Government vide letter dated 20.10.2017 directed calculation of outstanding and as such on 23.10.2017 while passing order declaring assessee in default under Section 226(3)(x) the aforesaid development was not considered. Accordingly the order contained in Annexure-12 dated 23.10.2017 is hereby set aside. After closure scrutiny of the entire facts and circumstances of the case we notice that neither the Income Tax Department nor the Mines Department has come out with any corrective measures to refund the excess amount or the amount deducted from the bank account of the petitioner and as such we hereby direct the Income Tax Department to forthwith return the amount recovered from the bank account of the petitioner as we are of the considered view that the action of the Department is illegal arbitrary and totally unauthorized in the peculiar facts and circumstances since amount was recovered by the respondent Income Tax Department therefore the Department is liable to pay the said amount with interest at the rate applied - We direct that after refund of the amount recovered from the bank account of the petitioner the Income Tax Department may pursue the matter for recovery in accordance with law against the Mines and Geology Department and take all legal recourse which is admissible under the law including under Section 276B and 276BB.

Summary

Issues Involved:
1. Legality of the Income Tax Department's action under Section 226(3) of the Income Tax Act, 1961.
2. Responsibility for the Tax Collected at Source (TCS) liability.
3. Arbitrary exercise of power by the Income Tax Department.
4. Liability of the petitioner after surrender of the mining lease.
5. Corrective measures and refund of the amount deducted from the petitioner's bank account.

Detailed Analysis:

1. Legality of the Income Tax Department's action under Section 226(3) of the Income Tax Act, 1961:
The petitioner, a registered company, was subjected to a garnishee proceeding initiated by the Income Tax Department under Section 226(3) of the Income Tax Act, 1961, to recover the tax liability of the District Mining Officer, Bhagalpur. The court found that the action of the Income Tax Department in attaching the petitioner's bank account and recovering ?73,75,559/- was arbitrary and unjustified. The court noted that the petitioner was not liable for this amount, which was the responsibility of the District Mining Officer.

2. Responsibility for the Tax Collected at Source (TCS) liability:
The court acknowledged that the primary responsibility for the TCS liability lay with the Mines and Geology Department, which failed to deposit the TCS collected from various settlees, including the petitioner. The court noted that the Income Tax Department had previously attached the bank account of the District Mining Officer but later released it without ensuring the TCS was deposited. The court criticized the Income Tax Department for not taking action against the Mining Department under Sections 276B and 276BB of the Income Tax Act.

3. Arbitrary exercise of power by the Income Tax Department:
The court held that the Income Tax Department's action of attaching the petitioner's bank account and recovering the tax liability of the Mining Department was an arbitrary exercise of power. The court emphasized that the petitioner could not be held liable for the failures of the Mining Department. The court found that the Income Tax Department acted unreasonably by not conducting a factual enquiry to determine the actual liability of the petitioner.

4. Liability of the petitioner after surrender of the mining lease:
The petitioner had surrendered the mining lease on 14.10.2017, which was accepted by the State Government on 20.10.2017. The court found that the petitioner was not a debtor of the Mines and Geology Department after the surrender of the lease. The court noted that the Income Tax Department's order dated 23.10.2017, which declared the petitioner as an assessee in default, did not consider the surrender of the lease and the acceptance by the State Government.

5. Corrective measures and refund of the amount deducted from the petitioner's bank account:
The court directed the Income Tax Department to refund the amount recovered from the petitioner's bank account with interest at the rate applied by the Department while calculating the dues. The court ordered that the refund be made within three months, failing which a cost of ?1 lakh would be imposed, to be recovered from the pocket of the Income Tax Officer. The court also directed the Mines and Geology Department to pay a cost of ?1 lakh to the petitioner for the ordeal faced due to the Department's lapses. The court allowed the Income Tax Department to pursue recovery from the Mines and Geology Department in accordance with the law.

Conclusion:
The court allowed the writ application, declaring the actions of the Income Tax Department as illegal, arbitrary, and unauthorized. The court ordered the refund of the amount deducted from the petitioner's bank account with interest and imposed costs on both the Income Tax Department and the Mines and Geology Department for their lapses.