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TMI Blog1978 (2) TMI 74X X X X Extracts X X X X X X X X Extracts X X X X ..... he left the employment of the assessee and finally left India permanently. Thereafter, the Income-tax Officer served on the assessee a letter dated the 28th July, 1964, addressed to Woodhouse stating, inter alia, that the tax in respect of his income had been under-charged for the said assessment years inasmuch as the commission received by him should have been included for the determination of the value of rent-free quarters allotted to him. Accordingly, the Income-tax Officer proposed to rectify the said assessments. In spite of objections of the assessee to the proposed rectification the Income-tax Officer passed orders under section 154 of the Income-tax Act, 1961, on the 22nd November, 1964, and amended the assessments of Woodhouse enhancing the tax payable by him. Thereafter, on the 26th June, 1965, the Income-tax Officer issued a letter to the assessee demanding the payment of the enhanced amounts payable by Woodhouse for the said assessment years. It was also recorded in the said letter that the assessee was being treated as a defaulter under section 18(7) of the Indian Income-tax Act, 1922, and/or section 201(1) of the Income-tax Act, 1961. The assessee filed appeals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .. (2) Any person responsible for paying any income chargeable under the head ' Salaries ' shall, at the time of payment, deduct income-tax and super-tax on the amount payable at a rate representing the average of the rates in force for the financial year in which he is required to deduct the tax which are applicable to the estimated total income of the assessee under this head :......... (7) If any person or the principal officer of a company does not deduct tax or after deducting fails to pay the sums deducted as required by or under this section, he, or the company, as the case may be, shall, without prejudice to any other consequences which he or it may incur, be deemed to be an assessee in default in respect of the tax :......... " Section 46 of the 1922 Act, inter alia, provides as follows : " 46. Mode and time of recovery.--......... (7) Save in accordance with the provisions of sub-section (1) of section 42, or of the proviso to section 45, no proceedings for the recovery of any sum payable under this Act shall be commenced after the expiration of one year from the last day of the financial year in which any demand is made under this Act : ...... Explanation.-- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the sum within the period hereinbefore referred to. " Dr. Debi Pal, learned counsel for the assessee, contended at the hearing that in the instant case when the proceedings were sought to be initiated by the letter dated the 26th June, 1965, the earlier Act, that is, the Indian Income-tax Act, 1922, had been repealed and the Income-tax Act, 1961, had come into force. It is the admitted case that no proceeding had been initiated against the assessee under section 18(7) of the earlier Act and, therefore, the proceedings must be deemed to have been taken under the new Act under section 297(2)(j) of the Act which reads as follows : " 297. Repeals and savings. --(1) The Indian Income-tax Act, 1922 (XI of 1922), is hereby repealed. (2) Notwithstanding the repeal of the Indian Income-tax Act, 1922 (XI of 1922) (hereinafter referred to as the repealed Act),--... (j) any sum payable by way of income-tax, super-tax, interest, penalty or otherwise under the repealed Act may be recovered under this Act, but without prejudice to any action already taken for the recovery of such sum under the repealed Act. " Dr. Pal submitted further that following the principle laid down by the Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee to pay tax on the remittances already made and on the value of the shares issued. The petitioner applied under article 226 of the Constitution challenging the said letters dated the 4th January and the 19th January, 1966. On these facts a Constitution Bench of this court consisting of a single judge held that recovery in such a case would be barred under the provisions of section 46(7) of the earlier Act and section 231 of the later Act. Dr. Pal has also drawn our attention to Blackwood Hodge (India) P. Ltd.'s case [1971] 81 ITR 807 (Cal). The facts of this case were that a company in the United Kingdom sublet some land in New Delhi to the assessee and the assessee in consideration therefore paid to the foreign company a sum in the assessment year 1956-57. The Income-tax Officer took the view that the assessee would be an assessee in default under section 18(7) of the Indian Income-tax Act, 1922, inasmuch as the assessee had not deducted income-tax and super-tax at the time of payment of the said sum and accordingly he directed the assessee to pay the amount of tax. The Appellate Assistant Commissioner set aside the order of the Income-tax Officer on the ground that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overy proceedings, the same cannot be held to be barred by limitation as the period of limitation would run from the 26th June, 1965, the date of the letter itself. In our view, the letter dated the 26th June, 1965, records that the assessee is in default under section 18(7) of the Indian Income-tax Act, 1922, or section 201(1) of the Income-tax Act, 1961. The said letter also calls upon the assessee to make payment of the outstanding tax demand. Under Explanation 2 of section 231, this would amount to an initiation of recovery proceedings. In the plain language of the sections an employer is under an obligation to deduct the tax due from the salary which he pays to his employee and if he fails to do so he commits a default. This default occurs when such salary is paid and not when an order is made under section 18(7) of the earlier Act or under section 231 of the later Act. Therefore, the said letter dated the 26th June, 1965, to the extent it can be considered to initiate recovery proceedings by calling upon the assessee to pay the outstanding tax is barred by limitation. To the extent the said letter records that the assessee is in default under sections 18(7) and/or 201(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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