1979 (11) TMI 94 - HC - Income Tax

Summary

Issues:
Challenge to notice of demand under the Second Schedule to the I.T. Act, 1961 for recovery of income tax arrears. Jurisdictional challenge regarding the issuance of the notice. Dispute over the defaulter mentioned in the certificate and whether it applies to the petitioner. Interpretation of the term "defaulter" under the Second Schedule to the Act. Analysis of relevant case laws and legal provisions regarding assessment, notice of demand, and recovery proceedings.

Jurisdictional Challenge:
The petitioner contested a notice of demand under the Second Schedule to the I.T. Act, 1961, issued by the TRO, Bangalore, for the recovery of income tax arrears. The petitioner argued that the notice was without jurisdiction as he was not the assessee and no notice of demand had been issued to him. The certificate for recovery mentioned M/s. Rajalakshmi Textiles as the defaulter, not the petitioner. The petitioner relied on case law to support the contention that a certificate cannot be enforced against a person not named in it.

Defaulter Identification:
Two certificates were issued for different assessment years, both addressed to the TRO, Bangalore, naming M/s. Rajalakshmi Textiles as the defaulter. The court clarified that the defaulter mentioned in the certificate refers to the assessee named in it. The respondent argued that the petitioner's name was included in the certificate only as a partner of the firm, not as the defaulter. Legal interpretation of the term "defaulter" under the Second Schedule was crucial in determining liability.

Assessment and Recovery Proceedings:
The court emphasized the procedural requirements under the Act. It stated that an assessment must precede a notice of demand served on the assessee, who, if in default, becomes an assessee in default. Only then can recovery proceedings be initiated. The court highlighted that the assessment and notice of demand must pertain to the individual sought to be proceeded against. Citing case laws and legal provisions, the court underscored the necessity of proper assessment and notice of demand before initiating recovery proceedings.

Conclusion:
The court found that the proceedings for recovery against the petitioner were not legally justified. It ruled in favor of the petitioner, quashing the notice of demand. The judgment emphasized the importance of adherence to procedural requirements in assessment, notice of demand, and recovery proceedings. The decision was based on legal principles, case laws, and the interpretation of relevant provisions under the I.T. Act, 1961.