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TMI Blog2013 (4) TMI 548X X X X Extracts X X X X X X X X Extracts X X X X ..... posed to attach the saving bank account of Mukesh Kumar Agrawal in pursuance of the said garnishee notice, even if Mukesh Kumar Agarwal happens to be proprietor of M/s. Singhal Casting Company, specially, when the first garnishee notice was in the name of Mukesh Kumar Agrawal, was not pursued any further by the department. No show cause notice was issued nor further action was taken in pursuance of the first notice after passing of the judgment by this Court in Civil Misc. The petitioner cannot be held as deemed assessee in default in view of the fact that the bank was not debtor of the said assessee on the date of garnishee notice. The position of the bank qua the assessee M/s. Singhal Casting Company was that of creditor of the assessee. The assessee company was indisputably enjoying the open cash credit limit and had debit balance at the relevant point of time. The saving bank account no.9313 which had even if a credit balance on 8th of May, 2006 or 6th June, 2006 belongs to Mukesh Kumar Agrawal, a separate entity, who was not assessee in default, could not be clubbed with the bank account of M/s. Singhal Casting Company. Bankers have a right to combine one or more accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imits with the bank and are indebted to the bank. Sardar Paramjeet Singh is not having any account with the bank. The above attachment notice referred to above hereinafter is called as first notice. Subsequent thereto, the Branch Manager, Canara Bank was served with another notice (hereinafter called as second notice) under section 226(3) of the Act dated 22.2.2006 requiring the Branch Manager to pay to the Tax Recovery Officer forthwith any amount due from to or held by the noticee for or on account of the assessee namely M/s. Singhal Casting Company. On 8th of August, 2006 the Tax Recovery Officer (Central), Kanpur issued a fresh notice under section 226 (3) of the Act, Annexure-15 to the writ petition, (hereinafter referred to as the third notice) informing the Branch Manager, Canara Bank under section 226(3) of the Income Tax Act that a sum of Rs.41,43,342 + interest is due from Sri Mukesh Kumar Agrawal, proprietor of M/s. Singhal Casting Co. Ltd. The reply was given by the petitioner and the bank, which were not found satisfactory. Thereafter, a show cause notice dated 7.6.2006 was issued for non compliance of the letter and notice issued under section 226 (3) dated 22.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of recovery till the disposal of the stay application or the appeal has also been mentioned. Further, it has been pleaded that the Saving Bank Account No.9319 in the name of Mukesh Agrawal and cash credit account in the name of his proprietary Firm M/s. Singhal Casting Company should not have been clubbed by the petitioner for the purposes of notice issued under section 226(3) of the Act. Along with the counter affidavit a copy of the notice under section 226 (3) dated 5th of September, 2005 for Shivangi Steels Private Limited has been annexed. The stand taken in the counter affidavit in brief is that in pursuance of the second notice dated 22.2.2006 under section 226 (3) of the Act, the Saving Bank Account no.9319 of Sri Mukesh Agrawal should have been attached and he should not have been permitted to operate the same. Further, no lien is recorded over the said account by the bank and as such, the petitioner is deemed assessee in default as he failed to comply with the second notice dated 22.2.2006. Heard Sri Ashok Bhatnagar, learned counsel for the petitioner and Sri Dhananjai Awasthi, learned standing counsel for the department. The Court was taken through all the three noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect to the block period 1st of April, 1989 to 16th of February, 2000. The matter is pending and subjudice before the CIT (Appeals) in pursuance of the order passed by the Income Tax Appellate Tribunal vide para 38 of the writ petition. Mukesh Kumar Agrawal, proprietor of M/s. Singhal Casting Company has also moved an application for settlement of the case under section 243 C (1) of the Act in the Settlement Commission, New Delhi on 28th of May, 2007 and has deposited a sum of Rs.8,70,000/- before the Settlement Commission on 25th of July, 2007. Reliance was placed on para 39 of the writ petition. Lastly, it was submitted that in any case, the petitioner cannot be held personally liable. He was discharging the duties as an officer of the bank. He has acted in the light of the instructions issued by the Head Office from time to time. Submission is that no personal liability can be fastened on the petitioner who has discharged the duties in the official functioning of the bank for which he cannot be made personally liable. In reply, the learned counsel for the department submitted that on a true and correct reading of the second notice dated 22.2.2006, it would be clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... you may subsequently hold for or on account of him/them upto the amount of arrears still remaining unpaid, forthwith on the money becoming due or being held by your as aforesaid............................" The said notice was replied by the petitioner on 8th of September, 2005 informing that M/s. Singhal Casting Company and M/s. Shivangi Steel Private Limited are enjoying the open credit limits with the bank and indebted to the bank and bank has general lien. Thereafter, it appears that being aggrieved by the recovery proceedings, M/s. Singhal Casting Company filed a writ petition no.1356 of 2005 before this Court impleading the Tax Recovery Officer and Branch Manager, Canara Bank as respondents, for quashing of the notice dated 5th of September, 2005 and 13th of September, 2005 issued by the Tax Recovery Officer, Kanpur. The writ petition was allowed in part and it was disposed of with the direction that an early date be fixed by the Commissioner of Income Tax (Appeals) for disposal of the stay application till the orders are passed on the stay application the Tax Recovery Officer, Kanpur shall keep in abeyance the notices dated 5th of September, 2005 and 13th of September, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nagar Agra on account of Income-tax/penalty/interest/fine. You are hereby required under section 226(3) of the Income-tax Act, 1961, to pay to me forthwith any amount due from you to or, held by you, for or on account of the said assessee upto the amount of arrears shown above. I also request you to pay any money which may subsequently become due from you to him/them or which you may subsequently hold for or on account of him/them upto the amount of arrears still remaining unpaid, forthwith on the money becoming due or being held by your as aforesaid..........................................." The argument of the petitioner's counsel is that the said notice is in respect of the dues from M/s. Singhal Casting Company. M/s. Singhal Casting Company had no credit balance and Canara Bank was not the debtor of M/s. Singhal Casting Company. In reply, the learned counsel for the department submitted that the said notice on true and proper consideration is in respect of proprietor Mukesh Kumar Agrawal of M/s. Singhal Casting Company. From the above quoted portion of the notice, it is crystal clear that the said notice was given in respect of dues from M/s. Singhal Casting Company, pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the party. Hence, those who are enjoying OCC facility will be indebted to bank, not vice versa. On the date of receipt of the notice u/s 226(3) on 22.05.2006 (date) the parties in question owed the bank the following amounts :- Name of the Party Particulars of account Credit Limit Actual Liabilites as on 22.05.06 (in Rs.) M/s Shivangi Steels Pvt. Ltd. OCC Rs.95 Lacs 6450457.71 M/s.Singhal Casting Co. OCC Rs. 9.75 Lacs 1290160.77 Regarding your contention that no payments/withdrawals/transfer should have been allowed in the party account, we submit that section 226(3) confer any such power on you. In this regard we invite your attention to the decision of the Madras High Court in the case of Adam (K.M.) vs. Income Tax Officer (33 ITR 26) (Mad.), wherein the Hon'ble High Court has held that ".. when a bank lends money on overdraft and that customer is always in debit balance there is no stage at which the bank is a debtor to its customer, nor any point of time at which it holds any money of his on his account. Section 46(5A) [of Income Tax Act, 1921, similar to section 226 (3) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section, the shares of the joint holders in such account shall be presumed, until the contrary is proved, to be equal. (iii) A copy of the notice shall be forwarded to the assessee at his last address known to the Assessing Officer or Tax Recovery Officer, and in the case of a joint account to all the joint holders at their last addresses known to the Assessing Officer or Tax Recovery Officer. (iv) Save as otherwise provided in this sub-section, every person to whom a notice is issued under this sub-section shall be bound to comply with such notice, and, in particular, where any such notice is issued to a post office, banking company or an insurer, it shall not be necessary for any pass book, deposit receipt, policy or any other document to be produced for the purpose of any entry, endorsement or the like being made before payment is made, notwithstanding any rule, practice or requirement to the contrary. (v) Any claim respecting any property in relation to which a notice under this sub-section has been issued arising after the date of the notice shall be void as against any demand contained in the notice. (vi) Where a person to whom a notice under this sub-section is sent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are in nature of what is commonly called garnishee proceedings. Attachment of debts is a process by means of which judgement creditor is enabled to reach the money due to a judgment debtor which is in the hands of a third person. These are garnishee proceedings. To be capable of attachment, there must be in existence at the time when attachment becomes operative something which the law recognises as a debt. So long as there is a debt in existence, it is not necessary that it should be immediately payable. Where any existing debt is payable by future instalments, the garnishee order may be made to become operative as and when each instalment becomes due. The debt must be one which the judgment debtor could himself enforce for his own benefit. A debt is sum of money which is now payable or will become payable in future by reason of present obligation (See Hyderabad Cooperative Commercial Corporation Limited Vs. Sayeed Mohit Khadir, AIR 1975 SC 2254). The crux appears to be that the person to whom garnishee order/notice is issued must be in the position of a creditor with respect to the assessee in default. In Income Tax Officer, Madras and another Vs. Buddha Pictures, Madras, A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall be deemed to be an assessee in default. For the present purposes clause (vi) is important. The use of words 'due to the assessee' is important. At the time of the garnishee notice, the sum must be due to the assessee. In this context the learned counsel for the petitioner submitted that on the date of second notice as also on the date of first notice, nothing was due from the bank to the assessee i.e. M/s. Singhal Casting Co. Ltd.. The bank had provided open cash credit limit and there was debit balance in the account of the assessee namely M/s. Casting Co. Limited. This was so stated in reply to the first notice (which has not been pursued any further and is not basis of the impugned order). The basis of the impugned order is the second notice dated 22.2.2006 in reply whereof, the petitioner submitted that nothing was due from the bank to M/s. Singhal Casting Co. Limited, a fact which has not been found to be incorrect even in the order impugned in the writ petition, thus, stands unchallenged. As pointed out herein above, and keeping the very nature of the garnishee proceedings in the background of mind, as also the observation by the Apex Court in the case of Hyderabad C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wisted the facts to lend support to the impugned order. The very important fact which has been twisted is as follows:- In paragraph-7 of the impugned order, the Tax Recovery Officer has reproduced the notice issued under section 226(3) of the Act dated 22.2.2006. The said reproduction, we are sorry to say, is not correct reproduction of the said notice and it goes to the very root of the matter. A photostat copy of the said notice dated 22.2.2006 has been filed as Annexure-4 to the writ petition, the correctness of which has not been disputed in the counter affidavit. It shows that in the said notice it is mentioned that "a sum of Rs.41,43,342/- + interest under section 220(2) is due from M/s. Singhal Casting Company (Prop. Mukesh Kumar Agrawal) of ........................ . While in the impugned order the things have been reversed and it reads as follows:- "A sum of Rs.41,43,342/- + interest under section 220(2) "is due from Mukesh KumarAgrawal", Prop. "M/s. Singhal Casting Co. ........................ ." The learned counsel for the petitioner submitted that this mistake is intentional. The department had realized its mistake that in the second notice which is dated 22.2.200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cash credit limit. 3. The bank was maintaining the various accounts of Mukesh Kumar Agrawal under different capacities/distinct entities which could not be clubbed together. Mukesh Kumar was having bank account of Mukesh Kumar Agrawal HUF, Account No.GA 17105 in the name of M/s. Shivangi Steels Private Limited. The Tax Recovery Officer himself has noticed that these accounts belong to the separate entities and could not be clubbed and as a matter of fact, has raised objection on the ground that "the bank wrongly mixed the account Nos. SB 11738 and SB 21608 which are in the name of Mukesh Kumar Agrawal HUF and Account No. GA 17105 which is lying in the name of M/s. Shivangi Steels Private Limited. After saying so, he in the above quoted paragraph pointed out two instances by clubbing the saving bank account of Mukesh Kumar Agrawal with that of M/s. Singhal Casting Company, which under law according to the petitioner, could not have been done. We find sufficient force in the argument of the petitioner's counsel that the bank was maintaining multiple accounts of different natures and all these accounts belong to the respective entities. The garnishee notice dated 22.2.2006 being i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y case, the petitioner can not be held personally deemed assessee in default in view of the fact that the garnishee notice was addressed to the Branch Manager, Canara Bank. Clause (vi) of section 226(3) of the Act provides where a person to whom garnishee notice is sent, objects that the sum demanded or any part thereof is not due to the assessee etc. shall not be required to pay the amount to, if it is discovered that such statement was false in any material particular such person shall be personally liable. To hold such person personally liable it is to be found that the objection raised by the person was false in any material particular. According to Black's Law Dictionary (6th Edition), the word "false" has two distinct and well recognised meanings: (1) intentionally or knowingly or negligently untrue; (2) untrue by mistake or accident, or honestly after the exercise of reasonable care. A thing is called "false" when it is done or made, with knowledge, actual or constructive, that is untrue or illegal, or it is said to be done falsely when the meaning is that the party is in fault of its error. P. Ramnatha Aiyar in Advanced Law Lexicon (3rd Edition, 2003) explains the wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epted in India. In order to create Banker's lien on several accounts it is necessary that they must belong to the payer in one and in the same capacity. Where the person has two accounts, one a trustee account and another private account at a Bank, deposits in the two accounts cannot be set off, the one against the other (see AIR 1934 Rang 66). Bankers have a right to combine one or more accounts of the same customer. But it cannot combine the account belonging to another or to himself alone with another account which is the joint account with another and third person, vide Radha Raman v. Chota Nagpur Banking Association Ltd., AIR 1944 Pat. 368 and Punjab National Bank Ltd. v. Satyapal Virmani, AIR 1956 Punj 118. Similarly, the Banks have no lien, on the deposit of a partner, on his separate account, for a balance due to the Bank from the firm. Therefore the banker is entitled to combine all accounts kept in the same right by the customer. It does not matter whether the accounts are current or deposit or whether they are in the same or different branches (Garnett v. Mckewan (1872), 8 Ex. 10). It is of essence to the validity of a banker's lien, that there should be a mutually ..... X X X X Extracts X X X X X X X X Extracts X X X X
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