1977 (4) TMI 5 - SC - Income Tax

Provisional Assessment - Whether penalty can be imposed on a garnishee for failure to pay in accordance with a garnishee notice - Notice cannot be held invalid - but penalty on assessee is set aside - Assessee s appeal is allowed in part

Summary

Issues Involved:
1. Validity of the notice dated 9th January 1962 issued by the Assistant Controller.
2. Imposition of penalty on the appellant for non-compliance with the notice.

Issue-Wise Detailed Analysis:

1. Validity of the Notice Dated 9th January 1962:
The first issue concerns whether the notice dated 9th January 1962 issued by the Assistant Controller to the appellant was valid. The notice required the appellant to pay the rent due to the estate of the deceased to the Assistant Controller. The appellant argued that the notice was invalid because the rent was payable to the lessors, not respondents Nos. 3 and 4, who were named as accountable persons in the notice.

The court analyzed the relevant provisions of the Estate Duty Act, 1953, and the Indian Income-tax Act, 1922. It was noted that the lessors were accountable persons as they took possession of the leased premises, which were part of the estate of the deceased. The lessors were liable to pay the estate duty of Rs. 1,40,090.20, limited to the extent of the leased premises. The court held that the notice was valid as it required the appellant to pay the rent due to the estate of the deceased, which could be described as an amount due to the estate of the deceased. The appellant was thus obligated to pay the rent to the Assistant Controller.

2. Imposition of Penalty on the Appellant:
The second issue concerns whether any penalty could be levied on the appellant for contravention of the notice dated 9th January 1962. The court examined the provisions of section 73, sub-section (5) of the Estate Duty Act, 1953, read with section 46(1) and section 46(5A) of the Indian Income-tax Act, 1922.

The court noted that penalty under sub-section (1) of section 46 can be imposed only on an assessee in default. The garnishee (appellant) does not become an assessee as defined in section 2, sub-section (2) of the Act. The Act does not contain any provision deeming a defaulting garnishee as an assessee in default. Therefore, no penalty could be imposed on the appellant under section 73, sub-section (5) of the Estate Duty Act, 1953, read with section 46(1) of the Act of 1922. The court quashed and set aside the order dated 25th March 1964, imposing a penalty of Rs. 3,000 on the appellant.

Conclusion:
The court concluded that the notice dated 9th January 1962 was valid and the appellant was bound to comply with it and pay the rent to the Assistant Controller. However, the imposition of a penalty of Rs. 3,000 on the appellant was outside the power of the Assistant Controller and was quashed. The appeal was allowed in part, with no order as to costs.