2017 (4) TMI 1195 - HC - Income Tax

Validity of recovery proceedings u/s 226(3) - whether the first respondent has validly recovered the money and whether the petitioners are entitled for refund of such money so recovered? - Held that - As already pointed out that on the date of issuance of the notice under Section 226(3), there is no legal impediment or bar for the first respondent to recover such dues. Section 226(3) of the Act also enables and empowers the Assessing Officer or the Tax Recovery Officer to seek such payment from the person to whom such notice was issued either forthwith or within the time specified in the notice. In other words, it is the discretion of such authority to specify the time for such payment in the said notice. In this case, the first respondent directed the second respondent to make the payment forthwith. Therefore, legally, the first respondent is not barred from seeking such payment forthwith. The impugned action of the first respondent cannot be termed as illegal, merely because the recovery was made on the same day of issuance of notice, especially when the liability of the petitioners exists. On the other hand, it only exhibits the over enthusiastic act of the first respondent to see that a target goal is achieved on that day, being the end of the financial year. Apart from the above, it is an admitted fact that the impugned proceedings are already lifted on the same day after recovery and as such those proceedings are not in force as on today. Petitioners are not entitled to seek for refund of the amount recovered at this stage, as a matter of right, since neither Section 237 nor Section 240 of the Act would come to their rescue as on date. Admittedly the amount recovered is the amount due as per the assessment order confirmed in appeal. On the date of recovery or even thereafter till this date, there is no legal impediment for the first respondent to collect such due. When that being the factual position, I do not understand as to how the petitioners are justified in seeking for refund unless they satisfy that their claim would come under the purview of either section 237 or section 240. As already pointed out that both the provisions, in this case, would not come into operation as of now, as such situation has not arisen so far. Therefore, the refund claim made by the petitioners cannot be sustained. No justification on the part of the petitioner in contending that the amount recovered is over and above the amount liable to be paid, more particularly, the impugned proceedings does not specifically refer to any Assessment Years.

Summary

Issues Involved:
1. Validity of the proceedings issued under Section 226(3) of the Income Tax Act, 1961.
2. Entitlement of the petitioners to a refund of the amounts recovered.

Issue-Wise Detailed Analysis:

1. Validity of the Proceedings Issued under Section 226(3) of the Income Tax Act, 1961:

Background and Arguments:
- The petitioners, both cooperative societies engaged in banking, challenged the proceedings issued by the first respondent under Section 226(3) of the Income Tax Act, 1961, dated 31.03.2017. The proceedings demanded payments of ?34,63,21,380/- and ?2,07,89,510/- from the petitioners' bank accounts.
- The petitioners argued that the recovery was made without allowing them to file statutory appeals before the Appellate Tribunal and seek interim relief. They contended that this action was arbitrary and unreasonable.
- The first respondent countered that the petitioners had not paid the required percentage of the tax demand while filing appeals before the First Appellate Authority. The first respondent stated that the demand crystallized with the service of the original notice under Section 156 of the Income Tax Act and that the recovery was lawful.

Court's Analysis:
- The court examined the statutory provisions under Sections 220, 226, and 156 of the Income Tax Act, 1961, and the Taxation Laws (Continuation and Validation of Recovery Proceedings) Act, 1964.
- It was observed that the liability to pay tax arises with the issuance of a notice of demand under Section 156, and such demand remains valid till the disposal of the appeal by the last appellate authority.
- The court noted that the first respondent was empowered to recover the tax due under Section 226(3) of the Income Tax Act, which allows the Assessing Officer to require any person holding money for the assessee to pay the amount due.
- The court found that the first respondent's action, although carried out in a hurried manner on the same day, was not illegal but an improper exercise of power. The first respondent should have allowed a reasonable time for the petitioners to react to the notice.

2. Entitlement of the Petitioners to a Refund of the Amounts Recovered:

Background and Arguments:
- The petitioners sought a refund of the amounts recovered, arguing that the recovery was made without allowing them to seek interim relief from the Appellate Tribunal.
- The first respondent argued that the recovery was lawful and that the petitioners could seek a refund only if the Tribunal's decision favored them.

Court's Analysis:
- The court referred to Sections 237 and 240 of the Income Tax Act, 1961, which deal with refunds. It was noted that a refund is due only if the tax paid exceeds the amount chargeable or as a result of an order passed in appeal.
- The court found that as of the date of recovery, there was no legal impediment for the first respondent to collect the dues. The petitioners had not demonstrated that they were entitled to a refund under Sections 237 or 240.
- The court acknowledged that the petitioners had filed appeals before the Income Tax Appellate Tribunal and that they could seek interim relief from the Tribunal. The Tribunal is empowered to grant stay against any demand under the proviso to Section 254(2A) of the Income Tax Act.
- The court concluded that the petitioners were not entitled to a refund at this stage and that the recoveries made by the first respondent were subject to the outcome of the appeals before the Tribunal.

Conclusion:
The court dismissed both writ petitions, granting liberty to the petitioners to seek interim relief and work out their remedies before the Income Tax Appellate Tribunal. The court did not express any view on the merits of the assessment and the order passed by the Appellate Authority. No costs were awarded, and the connected miscellaneous petitions were closed.