1967 (7) TMI 16 - HC - Income Tax

ITO could not take any further steps for the recovery of the debt which was not admitted by the maker of the promissory note - So the delivery of the promissory note to the ITO and its endorsement, even if true, could not result in the extinction of the petitioner s liability to pay the arrears of tax

Summary

Issues:
- Challenge to demand for arrears of tax based on promissory note delivery
- Dispute regarding endorsement of promissory note to income-tax department
- Interpretation of section 46(5A) of the Indian Income-tax Act, 1922
- Effect of certificate of clearance on petitioner's liability

Analysis:

The petitioner contested a demand for arrears of tax, asserting that a promissory note delivered to the Income-tax Officer in 1958 for collection and appropriation towards tax arrears should have relieved him of the liability. However, the Income-tax Officer denied receiving any promissory note or its endorsement, clarifying that the note was sent by post and could be returned to the petitioner. Subsequently, attempts to recover the debt from the promissory note debtor were unsuccessful, leading to the petitioner's argument that his tax liability should be extinguished.

The court examined the provisions of section 46(5A) of the Indian Income-tax Act, 1922, emphasizing that the Income-tax Officer, while empowered to demand payment from a debtor of the assessee under this section, does not act as the assessee's agent for debt recovery. The section allows the Officer to abandon debt recovery efforts at their discretion, and if the debtor repudiates the debt, no further action can be taken. Therefore, the delivery and potential endorsement of the promissory note did not absolve the petitioner of tax arrears, as the Officer's inability to recover the debt did not alter the petitioner's liability.

The petitioner argued that a certificate of clearance issued by the Income-tax Officer in 1960 discharged his liability. However, the court found that the certificate merely confirmed the petitioner's efforts to pay taxes promptly, without indicating full payment of arrears. Consequently, the court dismissed the writ petition, ruling against the petitioner's challenge to the tax demand, with no costs awarded.

In conclusion, the judgment upheld the Income-tax Officer's actions, emphasizing that the delivery of the promissory note and the certificate of clearance did not relieve the petitioner of his tax liability. The court's interpretation of the relevant tax law provisions supported the decision to dismiss the petition challenging the arrears demand.