1974 (11) TMI 16 - HC - Income Tax

Summary

Issues Involved:
1. Liability of the surety under the security bond.
2. Applicability of Section 220(7) of the Income-tax Act, 1961.
3. Doctrine of promissory estoppel.

Detailed Analysis:

1. Liability of the Surety under the Security Bond
The petitioner, who executed the security bond, contended that his liability arises only if the assessee defaults on the monthly instalments. The bond stated: "In the event of any default on the part of Shri SP. Viswanathan Chettiar to pay the monthly instalment of tax arrears as mentioned above, I shall duly carry out any order that may be made against me with regard to the payment of the tax arrears." The court found that the tax clearance certificate was issued based on the specific undertaking by the assessee to pay arrears in instalments and provide a security bond. The petitioner had agreed to be liable for the arrears in case of default, and this bond was intended to be acted upon irrespective of the applicability of Section 220(7).

2. Applicability of Section 220(7) of the Income-tax Act, 1961
The petitioner argued that the assessee could not be treated as a defaulter under Section 220(7) because he could not repatriate funds from Ceylon due to the Exchange Control authorities' refusal. However, the court held that Section 220(7) was not applicable for enforcing the security bond against the petitioner. The court noted that the tax clearance certificate was issued based on the assessee's promise to pay in instalments and provide security, thus contracting out of Section 220(7). The court concluded that the petitioner could not claim that the assessee was not in default under Section 220(7) to avoid liability under the bond.

3. Doctrine of Promissory Estoppel
The court invoked the doctrine of promissory estoppel, which prevents a party from going back on a promise that was intended to affect legal relations and was acted upon by the other party. The court cited precedents, including Union of India v. Anglo-Afghan Agencies, where the Supreme Court held that assurances intended to be acted upon and actually acted upon are enforceable. The court found that the assessee's promise to pay in instalments and the petitioner's execution of the security bond were intended to be and were acted upon by the Income-tax department, which issued the tax clearance certificate based on these undertakings. Therefore, the assessee and the petitioner could not repudiate their promises or act inconsistently with them.

Conclusion
The court dismissed the writ petition, holding that the petitioner was liable under the security bond and could not invoke Section 220(7) to avoid this liability. The court also applied the doctrine of promissory estoppel, preventing the petitioner and the assessee from reneging on their promises. The respondent was entitled to costs, and the rule nisi was discharged.