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TMI Blog1981 (7) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... . Sons Ltd. on account of income-tax, super-tax, penalty, etc., and requiring the petitioners to pay to him forthwith any amount due from the petitioners to B.R. Sons Ltd. or held by the petitioners for or on account of B. R. Sons Ltd. to the extent of the aforesaid arrears of tax due from B. R. Sons Ltd. The petitioners were warned that if they failed to make payment pursuant to this notice, they would be deemed to be assessee in default and proceedings would be taken against them for realisation of the amount as if it were an arrear of tax due from them. This notice was served on the petitioners on 24th May, 1966, and the petitioners replied to it on 1st July, 1966, pointing out that according to the state of the account between the petitioners and B. R. Sons Ltd., there was no credit balance in favour of B. R. Sons Ltd. and that on the contrary B. R. Sons Ltd. owed a large amount to the petitioners and in the circumstances the notice should be discharged. The ITO by his letter dated 11th October, 1966, intimated to the petitioners that they should file a sworn affidavit setting out their contention that they did not owe any amount to B. R. Sons Ltd. This was followed by another ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioners was false in material particulars and since the petitioners had failed to pay up the amount due from them to B. R. Sons Ltd., they were " assessee in default " within the meaning of s. 226(3)(x) and, consequently, appropriate coercive steps were being taken for realising the amount of the tax. A copy of this letter was forwarded to the Tax Recovery Officer, Kanpur, for information and necessary action. The TRO, on the basis of this letter issued an order dated 27th January, 1967, under r. 48 of the Second Schedule to the Act attaching some of the immovable properties belonging to the petitioners and following upon this order of attachment, he issued a notice on 7th February, 1967, for setting the proclamation in respect of the sale of these immovable properties. The petitioners thereupon filed a writ petition in the High court of Allahabad for quashing and setting aside the notice dated 21st May, 1966, and the subsequent proceedings adopted by the ITO and the TRO against the petitioners. The writ petition came up for hearing before a Division Bench of the High Court. One of the contentions advanced on behalf of the petitioners before the High Court was that the notice date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ITO under s. 222 and since in the present case, no such recovery certificate was issued by the ITO, the recovery proceedings adopted by the TRO were invalid and they were accordingly quashed. This was the only limited relief granted by the High Court to the petitioners and the rest of the reliefs claimed were rejected. The petitioners thereupon preferred the present appeal in this court after obtaining a certificate from the High Court. The principal question that arises for determination in this appeal is as to whether, on a true interpretation of s. 226(3)(vi), the ITO was bound to hold an inquiry before he came to the conclusion that the statement contained in the affidavit filed on behalf of the petitioners was false in any material particular. Section 226(3) deals with recovery of arrears of tax from an assessee by requiring " any person from whom money is due or may become due to the assessee or any person who holds or may subsequently hold money for or on account of the assessee " (hereinafter referred to as the garnishee) to pay to the ITO " so much of the money as is sufficient to pay the amount due by the assessee in respect of arrears or the whole of the money when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the, Income-tax Officer, he shall be deemed to be an assessee in default in respect of the amount specified in the notice and further proceedings may be taken against him for the realisation of the amount as if it were an arrear of tax due from him, in the manner provided in sections 222 to 225 and the notice shall have the same effect as an attachment of a debt by the Tax Recovery Officer in exercise of his powers under section 222." It was in exercise of the power conferred under cl. (i) that the notice dated 21st May, 1966, was issued by the ITO to the petitioners. This notice did not mention or even indicate any specific amount alleged to be due from the petitioners to B. R. Sons Ltd. and it was, therefore, observed by the High Court that the notice was not in accordance with the provisions of cl. (i). We are not sure whether, on a true interpretation of cl. (i) in the light of the other clauses of s. 226, sub-s. (3), it is necessary that the notice under cl. (i) should set out a specific amount as due from the garnishee to the assessee or it is enough if the notice merely reproduces the language of cl. (i) and requires the garnishee to pay " at or within the time specified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atement of an accountant of the petitioners. Now, it is true that this affidavit filed on behalf of the petitioners was sworn to by an accountant of the petitioners and not by one of their partners but we do not think that on that account it could be disregarded by the ITO. The accountant of the petitioners would obviously have knowledge of the state of the account between the petitioners and B. R. Sons Ltd. and he would be competent to make a statement on oath in regard to the position of such account. In fact, the accountant of the petitioners stated in para. 1 of the affidavit that he was acquainted with the facts deposed to in the affidavit and he also mentioned in the verification clause that so far as the averments in paras. 2 and 3 of the affidavit were concerned, which related to the position of the account between the petitioners and B. R. Sons Ltd., they were " true to his knowledge and based on the account books " of the petitioners. The state of the account between the petitioners and B. R. Sons Ltd., detailed by the accountant in the affidavit was thus based both on the account books of the petitioners as also on his personal knowledge and he was, therefore, competent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be personally liable to pay such amount to the ITO. The question is whether the ITO could be said to have discovered that the statement on oath made in the affidavit of the accountant of the petitioners that nothing was due from the petitioners to B. R. Sons Ltd. was false in any material particular, as claimed by the revenue in the notices dated 31st December, 1966, and 11th January, 1967. Now, it is obvious that under cl. (vi) the discovery by the ITO that the statement on oath made on behalf of the garnishee is false in any material particular has the consequence of imposing a personal liability for payment on the garnishee and it must, therefore, be a quasi-judicial decision preceded by a quasi-judicial inquiry involving observance of the principles of natural justice. The ITO cannot subjectively reach the conclusion that in his opinion the statement on oath made on behalf of the garnishee is false in any material particular. He would have to give notice and hold an inquiry for the purpose of determining whether the statement on oath made on behalf of the garnishee is false and in which material particular and what amount is in fact due from the garnishee to the assessee and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m them. It will thus be seen that after receipt of the affidavit of the accountant, the ITO did not give any notice or hold any inquiry for the purpose of determining whether or not the statement on oath made by the accountant in the affidavit was false in any material particular and whether any and, if so, what amount was due from the petitioners to B. R. Sons Ltd. but straightaway reached the conclusion that the statement on oath that nothing was due from the petitioners to B. R. Sons Ltd. was false in material particulars and, without even determining what precise amount was due from the petitioners to B. R. Sons Ltd., held that the petitioners were personally liable to the ITO under cl. (vi). The ITO did set out in his notice dated 31st December, 1966, the reasons which prevailed with him in reaching this decision but he did not offer any opportunity to the petitioners to show that the reasons which weighed with him were not correct. The decision reached by the ITO that the statement on oath made in the affidavit of the accountant was false in material particulars as set out in the notices dated 31st December, 1966, and 11th January, 1967, was, therefore, clearly invalid and th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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