1969 (7) TMI 27 - HC - Income Tax

Garnishee Order for tax arrears under s. 226(3) of Income-tax Act 1961 - Whether the grant payable by the Coal Board to a coal company under Coal Mines (Conservation and Safety) Act 1952 could be subjected to garnishee order

Issues Involved:
1. Legality of the notice issued under section 226(3) of the Income-tax Act, 1961.
2. Compliance with statutory obligations by the Coal Board.
3. Applicability of garnishee proceedings principles.
4. Proper addressing of the notice under section 282 of the Income-tax Act, 1961.

Detailed Analysis:

1. Legality of the Notice Issued Under Section 226(3) of the Income-tax Act, 1961

The petitioner, Coal Products Private Ltd., challenged a notice dated 22nd February 1967, issued by the Income-tax Officer under section 226(3) of the Income-tax Act, 1961. The notice required the Coal Board to pay a sum of Rs. 12,94,782.43 due from the petitioner on account of income-tax, super-tax, penalty, interest, and fine.

The principal contention by the petitioner was that the money due from the Coal Board was for specific purposes related to stowing and safety operations in coal mines, as mandated by the Coal Mines (Conservation and Safety) Act, 1952. The petitioner argued that the Coal Board had no authority to utilize these funds for any purpose other than those specified in the Act.

2. Compliance with Statutory Obligations by the Coal Board

The petitioner referred to section 12 of the Coal Mines (Conservation and Safety) Act, 1952, which specifies that funds received by the Coal Board must be credited to the Coal Mines Safety and Conservation Fund and used only for purposes related to the administration of the Board, stowing operations, safety, and conservation of coal mines. The petitioner further cited rules 49, 52, and 54 of the Coal Mines (Conservation and Safety) Rules, 1954, which outline the conditions and purposes for which assistance may be granted by the Coal Board.

The court found that the grants in question were indeed subject to conditions that they be used solely for stowing and related operations. The petitioner had accepted these conditions, making it clear that the funds could not be diverted for other purposes, including the payment of income-tax liabilities.

3. Applicability of Garnishee Proceedings Principles

The petitioner argued that proceedings under section 226(3) of the Income-tax Act were akin to garnishee proceedings. The general law of garnishee proceedings, as established in various judicial decisions, dictates that garnishee orders can only charge what the judgment-debtor can honestly deal with. The petitioner cited cases such as In re General Horticultural Company and Amarendra Nath Laha v. S. Banerjee to support the argument that the revenue could not claim funds that the petitioner was not free to use for tax payments.

The court agreed with this contention, noting that the Income-tax Department could not stand in a better position than the petitioner regarding the Coal Board. Since the petitioner was not entitled to use the funds for tax payments, the revenue could not compel the Coal Board to pay these funds to satisfy the petitioner's tax liabilities.

4. Proper Addressing of the Notice Under Section 282 of the Income-tax Act, 1961

The petitioner also contended that the notice should have been addressed to the Coal Board itself and not to its Secretary, arguing that this violated section 282 of the Income-tax Act. Section 282(2) specifies that notices should be addressed to the principal officer of a company or local authority.

The court rejected this contention, accepting the revenue's argument that the Secretary of the Coal Board, being the principal executive officer, was an appropriate recipient of the notice under section 282(2)(d) of the Act. The Secretary was deemed to manage and control the affairs of the Board, making the notice compliant with statutory requirements.

Conclusion

The court held that the revenue was not entitled to demand payment from the Coal Board for the petitioner's tax liabilities, as this would breach statutory obligations and the conditions attached to the grants. The impugned notice was declared void. The application succeeded, and a writ of mandamus was issued to recall and cancel the notice, with a prohibition on giving effect to it. The court also stayed the operation of its order for a fortnight and made no order as to costs.

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