1965 (11) TMI 7 - HC - Income Tax

Income-tax authorities are not authorised by s. 46(5A) to decide any bona fide dispute about the factum of the amount being available with the garnishee or not - further, ITO have jurisdiction to decide the liability of the garnishee to the assessee in case the liability itself is factually in dispute

Issues Involved:
1. Jurisdiction and Limitation of Recovery Proceedings.
2. Validity of Objections Raised by the Bank under Section 46(5A) of the Indian Income-tax Act, 1922.
3. Liability of the Bank to Pay the Assessee's Dues.

Issue-Wise Detailed Analysis:

1. Jurisdiction and Limitation of Recovery Proceedings:

The bank argued that the recovery proceedings were barred by time as the demand against the original assessee was raised on August 20, 1951, and the notice under section 46(5A) was issued on January 9, 12, 1960. The court noted that a recovery certificate was issued by the Income-tax Officer on March 12, 1953, which was within the stipulated time frame. The court verified from the original record that the assertion made by the Income-tax Officer was correct. Therefore, the impugned certificate issued against the bank on January 24, 1962, was within time, and the first argument of the bank was dismissed.

The bank also argued that under the 1961 Act, the recovery certificate issued on January 24, 1962, was barred by section 231 as it was issued after more than one year from the date the bank became a defaulter. The court rejected this contention on various grounds, including the fact that the argument was not open to the bank as it had asked the court to consider the case under the 1922 Act. Additionally, the plea involved disputed questions of fact not raised before the Income-tax Officer, and the relevant plea was not specifically taken in the writ petition.

2. Validity of Objections Raised by the Bank under Section 46(5A) of the Indian Income-tax Act, 1922:

The bank contended that the Income-tax authorities had no jurisdiction to proceed against it as a garnishee once it raised an objection that the sum demanded was not due or that it did not hold any money for the assessee. The court referred to section 46(5A) and noted that the income-tax authorities are not authorized to decide factually disputed questions of liability of the garnishee to the original assessee. However, the court held that if a garnishee takes a wholly mala fide stand regarding its liability, it would be open to the income-tax authorities to attach the amount.

The court cited the Andhra Pradesh High Court judgment in P. Rajeswaramma v. Income-tax Officer, which held that sub-section (5A) is intended to apply only to an admitted liability. The court agreed with this view but clarified that it does not exonerate a garnishee by merely denying liability if the garnishee admits holding the amount without claiming any personal interest.

In this case, the bank admitted that a sum of Rs. 10,266-7-6 was held to the credit of the assessee but claimed it was transferred to the Pakistan branch. The court held that the bank's objection was not valid as it was based on a book entry and not on the actual transfer of funds. The situs of the debt was Ludhiana, and the bank's objection did not exonerate it from liability.

3. Liability of the Bank to Pay the Assessee's Dues:

The bank argued that the Income-tax Officer should have held that the bank could not be compelled to part with the amount under section 46(5A). The court, based on its findings, held that the bank's defence was not valid and did not avail the garnishee. The court noted that the bank had admitted holding the amount but claimed it was transferred to the Pakistan branch, which was not a valid objection.

The court concluded that the bank's objection did not fall within the scope of sub-section (5A) of section 46 and did not exonerate it from liability. The court dismissed the writ petition with costs, holding that the bank was liable to pay the amount due to the assessee.

Conclusion:

The court dismissed the writ petition, holding that the recovery proceedings were within time, the bank's objections under section 46(5A) were not valid, and the bank was liable to pay the amount due to the assessee. The court emphasized that the bank's defence was based on a book entry and not on the actual transfer of funds, and the situs of the debt was Ludhiana.

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