1967 (8) TMI 13 - HC - Income Tax

Notice of Reassessment - Service of Notice - held that ITO has power to proceed against third party u/s 226(3) for recovery of tax due to assessee, without issuing certificate against assessee u/s 222

Summary

Issues:
1. Jurisdiction of the first respondent in issuing the notice under section 226(3) of the Income-tax Act, 1961.
2. Whether the debt owed by the petitioner was payable on demand or after a stipulated period.
3. Validity of the proceedings initiated by the Income-tax Officer under section 226(3).
4. Requirement of issuing a certificate against the assessee under section 222 before proceeding under section 226.

Analysis:

1. The first issue revolves around the jurisdiction of the first respondent in issuing the notice under section 226(3) of the Income-tax Act, 1961. The petitioner contended that the notice was issued without jurisdiction as the debt owed to the second respondent was disputed in terms of repayment conditions. However, the court observed that the petitioner had admitted the debt and even undertook to pay it to the department in discharge of the second respondent's tax arrears. The court found that the debt was repayable on demand based on promissory notes, and the petitioner's belated claim that the principal was not payable for 10 years was not accepted. Consequently, the court held that the Income-tax Officer was entitled to proceed under section 226(3).

2. The second issue pertains to whether the Income-tax Officer can proceed under section 226 without first issuing a certificate against the assessee under section 222. The court rejected this contention, emphasizing that there is no requirement in either section 222 or section 226 necessitating the issuance of a certificate before proceeding under section 226. The court clarified that the provisions allow for concurrent modes of recovery, and there was no merit in the argument against the validity of the proceedings under section 226.

3. In conclusion, the court dismissed the writ petitions filed by the petitioner firm, Mohamedaly Sarafaly & Co., with costs and counsel's fee. The judgment highlighted the petitioner's admission of the debt owed, the undertaking to pay it towards tax arrears, and the lack of legal basis for challenging the jurisdiction of the first respondent or the validity of the proceedings under sections 222 and 226 of the Income-tax Act, 1961. The court's decision reaffirmed the authority of the Income-tax Officer to proceed under section 226(3) based on the admitted debt and rejected the petitioner's arguments on repayment conditions and procedural requirements under the law.