1971 (11) TMI 24 - HC - Income Tax

Petitioner applies under article 226 of the Constitution against recovery proceedings taken by the Income-tax Officer and the Tax Recovery Officer - petitioner says that the impugned recovery proceeding is not sanctioned by any existing recovery certificate respondents contend that the certificates in the present case could be said to have been cancelled and not withdrawn, and, therefore, the action of the Income-tax Officer cannot be referred to section 224(2) - Whether the order can be attributed to sub-section (2) or sub-section (3) of section 224, it plainly appears that the said order was passed by the Income-tax Officer. In our opinion, the Tax Recovery Officer was bound, without anything more, to terminate the recovery proceedings altogether.

Summary

Issues:
1. Validity of recovery proceedings by Income-tax Officer and Tax Recovery Officer.
2. Existence of recovery certificate to support recovery proceedings.
3. Interpretation of the letter dated June 15, 1965, from the Income-tax Officer.
4. Authority of Income-tax Officer to withdraw or cancel recovery certificates.
5. Legal implications of administrative orders made by the Income-tax Officer.
6. Termination of recovery proceedings based on the order of June 16, 1965.

Analysis:
The High Court of Allahabad heard a petition under Article 226 of the Constitution challenging the recovery proceedings initiated by the Income-tax Officer and the Tax Recovery Officer against a partnership firm engaged in banking and cloth business. The petitioner contended that the recovery proceedings were illegal as no tax was due, no recovery certificate existed, and no notice under the Second Schedule to the Income-tax Act, 1961, was served. The court focused on the absence of a valid recovery certificate as the primary ground for disposal of the petition.

The court examined a letter dated June 15, 1965, from the Income-tax Officer to the Tax Recovery Officer, which indicated that all previous recovery certificates had been either paid or written off up to the assessment year 1957-58. The Income-tax Officer directed the Tax Recovery Officer not to press for recovery except for a specific amount due from individual partners, not the petitioner-firm. Subsequently, on January 15, 1967, the Income-tax Officer listed substantial amounts due from the petitioner-firm, leading to the attachment of its property. The court emphasized that the letter of January 15, 1967, did not constitute a recovery certificate as required by section 222 of the Income-tax Act, 1961.

The respondents argued that recovery certificates issued earlier were canceled, not withdrawn, and thus, the Income-tax Officer's actions were questioned. The court clarified that under section 224(2), the Income-tax Officer had the authority to withdraw a recovery certificate, making it effective upon intimation to the Tax Recovery Officer. The court rejected the respondents' contention that the cancellation was invalid due to alleged misunderstandings, emphasizing that administrative errors do not invalidate statutory orders within the authority's powers.

Ultimately, the court held that the recovery proceedings lacked legal sanction after the Income-tax Officer's order of June 15, 1965, canceling the recovery certificates. As no subsequent valid certificate was issued, the recovery proceedings were quashed. The court allowed the petition, terminated the recovery proceedings initiated post the cancellation letter, and awarded costs to the petitioner.