1967 (4) TMI 3 - SC - Income Tax

Whether the department was entitled to call upon the respondent to make good the sum as the payments did not contravene the notice u/s. 46(5A) - A person to whom the notice has been issued has only to object that the sum demanded or part thereof is not due to the assessee or that he does not hold any money on account of the assessee - Appeal of department dismissed

Summary

Issues:
1. Interpretation of section 46(5A) of the Indian Income-tax Act, 1922.
2. Validity of the notice issued under section 46(5A).
3. Liability of the respondent to pay the sum of Rs. 20,000.
4. Jurisdiction of the Income-tax Officer in demanding payment.

Interpretation of section 46(5A) of the Indian Income-tax Act, 1922:
The case involved an appeal challenging the judgment of the Madras High Court regarding the interpretation of section 46(5A) of the Indian Income-tax Act, 1922. The appellant contended that the section applies in specific circumstances when money is due from a person to the assessee, when money may become due to the assessee, when a person holds money for an assessee, and when a person may hold money on account of the assessee. However, the court emphasized the importance of a subsisting relationship between the person served with a notice and the assessee. The court reasoned that the legislative intent was not to allow speculative recovery actions but to target actual relationships that could lead to the recovery of arrears. The court held that the High Court's interpretation aligning with the requirement of a subsisting relationship was correct, and rejected the appellant's argument.

Validity of the notice issued under section 46(5A):
The case involved notices issued under section 46(5A) of the Income-tax Act to recover arrears from a cine-artist engaged by the respondent. The notices demanded payment from the respondent for the arrears owed by the cine-artist. The respondent contested the demand, stating that there was no contract with the cine-artist and no payments were due to him. The court examined the language of the notices and the subsequent communications between the parties. It was found that the respondent had paid the cine-artist for his services, which was in compliance with the contract signed between them. The court concluded that the notices did not contravene the payments made to the cine-artist, and thus, the demand for payment from the respondent was deemed invalid.

Liability of the respondent to pay the sum of Rs. 20,000:
The Income-tax Officer demanded the respondent to pay a sum of Rs. 20,000, alleging that the payment made to the cine-artist was in violation of the notice issued under section 46(5A). The respondent disputed this claim, stating that the payments made were in accordance with the contract signed with the cine-artist and not in violation of any legal requirements. The court examined the contract, the payments made, and the correspondence between the parties. It was established that the payments were made as per the contractual agreement and were not subject to the demands made by the Income-tax Officer. Therefore, the court held that the respondent was not liable to pay the sum of Rs. 20,000 as demanded by the Income-tax Officer.

Jurisdiction of the Income-tax Officer in demanding payment:
The case raised questions regarding the jurisdiction of the Income-tax Officer in demanding payment from the respondent under section 46(5A) of the Income-tax Act. The Income-tax Officer insisted on the payment of Rs. 20,000, alleging non-compliance with the notice issued earlier. The respondent refuted this claim, arguing that the payments made were valid and in accordance with the contract signed with the cine-artist. The court analyzed the legal provisions and the facts of the case to determine the validity of the demand made by the Income-tax Officer. It was concluded that the Income-tax Officer's demand was unfounded as the payments made were legitimate and not in violation of any legal requirements. Therefore, the court held that the Income-tax Officer did not have jurisdiction to demand the payment of Rs. 20,000 from the respondent.

In conclusion, the Supreme Court dismissed the appeal, upholding the judgment of the Madras High Court. The court ruled in favor of the respondent, stating that the demand made by the Income-tax Officer was illegal and without jurisdiction, as the payments made to the cine-artist were in compliance with the contractual agreement and did not contravene the provisions of section 46(5A) of the Indian Income-tax Act, 1922.