1987 (9) TMI 1 - SC - Income Tax

It is settled by authority long accepted that tax can be recovered from an assessee only when it becomes a debt due from him and that it becomes a debt due when a notice of demand calling for payment of the tax has been served on the assessee - matter is remanded to the High Court

Summary

Issues:
1. Jurisdiction of a court to decide the validity of an Income-tax Department's claim under section 226(4) of the Income-tax Act.
2. Proper notice of demand requirement for recovery of tax under section 226(4).
3. Authority of the court to determine if tax becomes a debt due from the assessee.
4. Revisional jurisdiction of the High Court in tax recovery matters.

Analysis:

The judgment deals with the issue of whether a court, in proceedings for recovery of tax under section 226(4) of the Income-tax Act, has the jurisdiction to decide the validity of the Income-tax Department's claim. The case involved a situation where the Income-tax Officer sought to recover alleged income-tax dues from the decreeholders without serving proper notices of demand as required under section 156 of the Act. The court held that it is within the court's purview to determine if there has been proper notice of demand served on the assessee in default before paying the demanded amount to the Income-tax Officer.

Furthermore, the judgment emphasized that tax can only be recovered from an assessee when it becomes a debt due from them, which occurs when a valid notice of demand has been served. If an assessee objects to the recovery proceedings based on the lack of a valid notice of demand, the court must decide on this objection. If the objection is upheld, the court cannot permit the recovery of the tax claimed.

The High Court's revisional jurisdiction in tax recovery matters was also discussed in the judgment. It was clarified that the High Court must consider the validity of the Income-tax Officer's claim in light of the proper notice of demand requirement and the court's authority to determine if tax becomes a debt due from the assessee. The matter was remanded to the High Court for a fresh determination, emphasizing the importance of adhering to the limits of revisional jurisdiction and aiming for a timely resolution within four months.

In conclusion, the judgment established that a court has the authority to decide on the validity of the Income-tax Department's claim under section 226(4) by ensuring proper notice of demand has been served and confirming that tax becomes a debt due from the assessee. The High Court was directed to reexamine the case, considering these principles and the boundaries of revisional jurisdiction in tax recovery matters.