1966 (2) TMI 19 - HC - Income Tax

This petition under articles 226 and 227 of the Constitution has been filed by the Lakshmi Narayan Public Charity Trust, through its sole trustee, for quashing the notices issued by Tax Recovery Officer - Whether recovery proceedings can be initiated against the trust in respect of the tax arrears of the settlor

Issues Involved:
1. Jurisdiction of the Tax Recovery Officer to attach property.
2. Ownership of the property attached.
3. Legality of directing respondents to deposit money in the Government Treasury.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Tax Recovery Officer to Attach Property:

The petitioner, Lakshmi Narayan Public Charity Trust, argued that respondent No. 1, the Tax Recovery Officer, had no jurisdiction to attach the property belonging to the trust, which was not a "defaulter". The trust was a legal entity recognized by the income-tax department as a charitable and religious trust, with its income exempt under section 4(3)(i) of the Indian Income-tax Act, 1922, corresponding to section 11(1) of the Income-tax Act, 1961. The action of respondent No. 1 in issuing the impugned notices was claimed to be wholly without jurisdiction.

The department's position, as detailed in the affidavit of Shri B. K. Srivastava, Income-tax Officer, was that the property ostensibly in the name of the trust actually belonged to the defaulter, S. Narain Singh. The Tax Recovery Officer is authorized to attach property ostensibly standing in the name of a person other than the defaulter if asserted by the income-tax department that the property really belongs to the defaulting assessee. This was supported by the Bench decision in C. Dhanalakshmi Ammal v. Income-tax Officer, Madras. The ostensible owner has the right to prefer objections to the attachment before the Tax Recovery Officer and, if necessary, to file a regular suit in a civil court.

2. Ownership of the Property Attached:

The petitioner maintained that the property attached belonged to the trust, while the income-tax department contended that it was owned by the defaulter, S. Narain Singh. The department's investigation revealed that S. Narain Singh had accumulated wealth through undisclosed war profits and had ostensibly transferred assets to the trust and family members to avoid tax liabilities. Various trust deeds executed between 1940 and 1957 were scrutinized, revealing that S. Narain Singh continued to treat the trust properties as his own.

Given the conflicting claims regarding the ownership of the property, the court held that this was a disputed question of fact. Such disputes should be resolved through the procedures provided in the statute or by a regular civil suit, not under proceedings of article 226 of the Constitution.

3. Legality of Directing Respondents to Deposit Money in the Government Treasury:

The petitioner also objected to respondent No. 1 directing respondents Nos. 2 to 4 to deposit the attached amounts in the Government Treasury. This objection was not specifically raised in the writ petition. The court noted that respondents Nos. 2 to 4 were asked to deposit the amounts under section 222 of the Income-tax Act, 1961, which authorizes the Tax Recovery Officer to recover arrears from the assessee upon receipt of a certificate from the Income-tax Officer. If the petitioner's objections are upheld or a civil suit is decided in their favor, they would be entitled to a refund of these amounts.

Conclusion:
The petition was dismissed, with the court concluding that the Tax Recovery Officer had jurisdiction to attach the property and direct the deposit of amounts in the treasury. The ownership dispute of the attached property was deemed a factual issue to be resolved through statutory procedures or a civil suit. The petition was dismissed with no order as to costs.

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