1977 (12) TMI 8 - HC - Income Tax

Summary

Issues Involved:
1. Jurisdiction of the ITO under Section 226(3) of the I.T. Act.
2. Validity of garnishee proceedings when the debt is time-barred.
3. Legality of treating the petitioner as an "assessee in default."
4. Validity of attachment of the petitioner's properties.

Issue-Wise Detailed Analysis:

1. Jurisdiction of the ITO under Section 226(3) of the I.T. Act:
The petitioner contended that the ITO had no jurisdiction to call upon her to pay any amount under Section 226(3) of the I.T. Act, as the right of R. R. Pictures to recover the sum had become time-barred. The court noted that Section 226(3) is in the nature of garnishee proceedings, intended to enforce existing liabilities. The court emphasized that the law of limitation bars the remedy without extinguishing the right. However, it concluded that a liability that cannot be recovered in law could not be recovered by the revenue, thus negating the jurisdiction of the ITO under Section 226(3).

2. Validity of Garnishee Proceedings When the Debt is Time-Barred:
The court discussed various authorities and legal principles, including the Supreme Court Practice and decisions in Hansraj Gupta v. Dehra Dun Mussourie Electric Tramway Co. and New Delhi Municipal Committee v. Kalu Ram. It was established that garnishee proceedings could not be initiated for a debt that had become time-barred. The court held that once the debt became time-barred, there was no subsisting legal relationship as "debtor and creditor," and thus, garnishee proceedings under Section 226(3) could not be continued against the petitioner.

3. Legality of Treating the Petitioner as an "Assessee in Default":
The petitioner argued that she could not be treated as an assessee in default as she had denied her liability to R. R. Pictures. The court agreed, stating that the ITO could not call upon the petitioner to pay any amount alleged to be due to R. R. Pictures once the debt had become time-barred. The court referred to the decision in ITO v. Budha Pictures, which emphasized that the subsistence of a debtor-creditor relationship is essential for such proceedings. Therefore, the ITO had no jurisdiction to treat the petitioner as an assessee in default.

4. Validity of Attachment of the Petitioner's Properties:
The court examined the validity of the attachment of the petitioner's properties under Rule 48 of the 2nd Schedule to the Act. It was noted that the TRO issued a warrant of attachment prohibiting the petitioner from transferring her properties, including her residential house and Rajakumari Theatre. The court held that since the debt was time-barred and the garnishee proceedings could not be initiated, the attachment of the petitioner's properties was invalid. The court emphasized that the powers conferred upon the ITO by Section 226(3) should be exercised with the greatest caution and construed strictly.

Conclusion:
The court concluded that the ITO and TRO had no jurisdiction to proceed against the petitioner under Section 226(3) of the I.T. Act, as the debt owed to R. R. Pictures was time-barred. The garnishee proceedings and the attachment of the petitioner's properties were deemed invalid. The writ petition was allowed, and the rule nisi was made absolute, with the petitioner entitled to her costs.