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TMI Blog2014 (6) TMI 373X X X X Extracts X X X X X X X X Extracts X X X X ..... arnishee notice under Section 226 (3) came to be issued by the Department to the petitioner-Society on 12.02.2014 vide Annexure-G1. Same was not replied by the petitioner. Hence, one more notice came to be issued on 28.02.2014 Annexure-H calling upon petitioner-Society to show cause as to why it should not be treated as an assessee in default as per Section 226 (3) (x) of the Act and as to why further proceedings should not be initiated for realisation of the amount as if it was an arrears of tax due from the petitioner-Society itself by treating it as assessee in default. Said notice came to be replied by the petitioner by reply dated 01.03.2014 which was communicated to the respondent by registered post acknowledgment due and it was duly served on the respondent on 10.03.2014. However, by the time reply could be received, respondent had already proceeded to pass an order under Section 226 (3) (x) by treating petitioner as a deemed defaulter for not complying with the demand made under notice issued under Section 226 (3) of the Act. Accordingly, Garnishee notices came to be issued as per Annexures-A to A4 and demand notices was raised as per Annexures-A-5 to A-9. Immediately, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tax Recovery Officer stepping into the shoes of the assessee, it cannot be contended that Assessing Officer will have to wait till maturity of the fixed deposits and thereafter invoke provision of Section 226 (3) since their fixed deposits had already been attached by the Department by issuance of prohibitory orders at the time of conducting search proceedings under Section 132 against the petitioner- Society and as such Tax Recovery Officer is well within his bounds to recover the amounts due to the assessee from Society by treating the petitioner-Society as an assessee in defaulter. In support of his submission, he has relied upon the judgment of a co-ordinate bench of this Court in the case of VYSYA BANK LTD., VS. JOINT COMMISSIONER OF INCOME TAX AND ANOTHER reported in 2000 (241) ITR 178. 4. Having heard the learned advocates and on perusal of case papers, I am of the considered view that it would be necessary to extract relevant provision of Section 226 of I.T. Act for better appreciation of contention raised by learned advocates and they read as under: Section 222.Other modes of recovery- (1) Where no certificate has been drawn up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t so much of money due from him to the assessee as is sufficient to pay the amount due by the assessee in respect of arrears of tax. This mode of recovery can be resorted in respect of arrears of tax due by the assessee. Before any notice could be issued under 226 (3), it is necessary there should be an order under Section 201 of the Act against the assessee which requires him to pay the tax. It is also necessary that the order should quantify amount of tax to be paid by the assessee. The basis for a notice to be issued under Section 226 (3) is that assessee should be in arrears of tax unless there is an order of assessment against the assessee and a notice of demand, assessee cannot be said to have any tax arrears. The records in the instant case would clearly indicate that after issuing demand notice under Section 156 of the Act to the assessee for the block period 2006-2007 to 2012-13, assessment orders came to be passed on 31.01.2014 and 12.02.2014. Undisputedly, during the course of assessment proceedings, it has been concluded that amounts invested in Shivaganga Multi-purpose Cooperative Society is the undisclosed income of the assessees and said amount invested by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t petitioner - Society would be treated as an assessee in default. Reply was required to be submitted within three days from the date of notice. However, it was not submitted on time and as such garnishee order came to be passed on 10.03.2014. 6. Prior to passing of order on 10.03.2014, notice under Section 226 (3) came to be issued to the petitioner on 12.02.2014 calling upon the petitioner to pay the amount due by the petitioner to the assessees and held by it for and on account of assessee upto the amount of arrears claimed therein which was to the tune of Rs.27.89 crores. The said notice was not replied. Hence, notice was issued on 28.02.2014 to the petitioner to show cause as to why it should not be treated as an assessee in default as per Section 226 (3) (x) of the Act and as to why further proceedings should not be taken against the petitioner-Society for realisation of the amounts as if, it was an arrears of tax due from the petitioner itself by resorting to the provision provided under Sections 222 and 225. Said notice came to be replied by the petitioner on 01.03.2014 admitting that Shivaganga Multi-purpose Co-operative Society Limited has deposited the amounts as specif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sum demanded or in part thereof due to the assessee is not held by the noticee; ii) or ii) no amount is payable by the noticee to the assessee. In such an event, Assessing Officer or the Recovery Officer is required to examine the claim and if the objection or statement is found to be tenable can revoke, amend the notice issued to such noticee i.e., Garnishee. However, if it is found that statement made by the Garnishee is untrue, then Assessing Officer or the Tax Recovery Officer, as the case may be, would be empowered to proceed against such Garnishee by treating the Garnishee as an assessee in default under Section 226 (3) (x). If there is no subsisting relationship between the Garnishee and the Assessee, the Department treating such a Garnishee as an assessee in default does not arise. Thus, the words found in Section 226 (3) "money is due or becomes due or any person who holds or may subsequently hold money" would indicate that there should be an existing relationship between the Garnishee and the assessee. If this ingredient is found then Section 226 (3) (x) would be attracted and Assessing Officer or Tax Recovery Officer would proceed to treat the Garn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. The amount of 65 lacs was secured under the said units with the appellants. It is not in dispute that an application for settlement was filed before the Settlement Commissioner by the respondent. He had deposited a sum of Rs.25 lacs when moving an application for deposit of the amount. Upto October 2000, he had already paid a sum of Rs.92.04 lacs. Only a sum of Rs.48,08,000/- were due from him. He, therefore, in his letter dated 4.2.2002 stated as under : - "Sale of Bonds at present would result in a loss of Rs.3 per unit which will be about 30% loss and it would be difficult to bear such loss while the taxes are pending payment. In the event the Bonds are sought to be acquired by the Department, I shall transfer them at its face value at Rs.10/- per unit against taxes although I am voluntarily making the tax payments as per commitments. In the above facts and circumstances, with a great constraint I had paid tax Rs.25.00 lakhs on 31.1.2002 as committed by me in my petition dated 26.10.2001 although I had sought time for above payment till the end of February 2002. It may also be submitted that I had sold my prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the fixed deposit receipts cannot be found fault with. It has been held as under: "10. Power under section 226 has been given to the Income Tax Officer to recover in the modes provided the amount which is outstanding. Power under section 226 could be exercised by one or more of the methods provided in the section and the certificate of the Tax Recovery Officer has been issued under section 222. Section 226(3) contemplated that the Income Tax Officer may require any person at any time or from time to time (1) from whom money is due, (2) or may become due to the assessee, (3) any person who holds money for an assessee, (4) or may subsequently hold money on account of an assessee, to pay to the assessing officer or Tax Recovery Officer either forthwith upon the money becoming due or being held or at or within the time specified in the notice (not being before the money becomes due or is held). There should be an obligation on the person on whom notice is served to pay money to the assessee i.e., the subsisting relationship of a debtor and creditor is sine qua non for the exercise of the power under the section. The relationship of the petitioner-bank and the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jurisdiction to attach the fixed deposit and the bank is under obligation to make the payment of the amount even before the maturity of the fixed deposit receipt. It may be observed that according to the instructions which are issued by the Reserve Bank from time to time if a depositor wants to encash the fixed deposit receipt before its maturity, the bank is bound to refund the amount with lesser interest as is permissible looking to the time involved. The position of contracts entered into by an assessee with other companies or partners, where there is no such express or implicit contract for payment before the maturity date, the position stands on a different footing since according to the banking norms, the fixed deposit can be encashed before its maturity date." 12. Keeping these principles in mind when the facts on hand are examined, it would clearly indicate that undisputedly the petitioner did not file objection to the Garnishee notice issued under Section 226 (3)(1) by raising an objection as required under Section 226 (3) (vi) and for this precise reason and also for the reason that the petitioner-Bank did not dispute the relationship between it and the assessees includi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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