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TMI Blog2024 (10) TMI 545X X X X Extracts X X X X X X X X Extracts X X X X ..... dent no. 1 to Respondent no. 3, on the basis of which impugned communication dated 10.07.2024 (Annexure P-5) was issued to the petitioner, as illegal, arbitrary and beyond jurisdiction A as so mentioned in Section 226 (3) of the Income Tax Act 1961." 3. The petitioner deals in the work of Iron and Steel for which it purchases raw material and thereafter manufactures the final products as per the demand. As per the petitioner, it has the bank accounts in the nature of "Over Cash Credit" (OCC Account)/ "Cash Credit (CC)" with HDFC bank (respondent No.2) and YES bank (respondent No.3) with the huge debit balance. 4. On 31.05.2023, respondent No. 1 served a notice under Section 143 (2) of the Income Tax Act 1961 (for short the 'Act') which was duly replied by it. Later on, on 30.12.2023, a show cause notice was issued to the petitioner proposing a huge addition of Rs 237.53 Crores, which according to the petitioner, was 90.43% of sales of the petitioner and around 2.5 times of its assets. Thereafter, in consequence of the same, an assessment order under Section 143 (3) of the Act was passed on 31.03.2023 along-with a notice of demand under Section 156 of the Act in Form No. 7, in wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l authority and is bound to follow the mandate of law under Section 226 (3) of the Act. It is averred that filing of CWP No. 5321/2024 has nothing to do with the issue in the instant case and the moot question is whether respondent No. 1 can attach the current account? 10. I have heard learned counsel for the parties and have also gone through the records. 11. It would be evident from the pleadings of the parties that the moot issue, in the instant case, is whether the accounts which are in the nature of Cash Credit Accounts can be attached and that there was any money due to the petitioner from the bank which can be recovered in terms of sub section (3) of Section 226 of the Act? 12. In order to appreciate this issue, it shall be apt to reproduce Section 226 (3) of the Act, which reads as under:- "(3) (i) The [Assessing Officer or Tax Recovery Officer] may, at any time or from time to time, by notice in writing require 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, to pay to the [Assessing Officer or Tax Recovery Officer] either forthwith upon the money becoming due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or Tax Recovery Officer] may, at any time or from time to time, amend or revoke any notice issued under this sub-section or extend the time for making any payment in pursuance of such notice. (viii) The [Assessing Officer or Tax Recovery Officer] shall grant a receipt for any amount paid in compliance with a notice issued under this sub-section, and the person so paying shall be fully discharged from his liability to the assessee to the extent of the amount so paid. (ix) Any person discharging any liability to the assessee after receipt of a notice under this sub-section shall be personally liable to the [Assessing Officer or Tax Recovery Officer] to the extent of his own liability to the assessee so discharged or to the extent of the assessee's liability for any sum due under this Act, whichever is less. (x) If the person to whom a notice under this sub-section is sent fails to make payment in pursuance thereof to the [Assessing Officer or Tax Recovery 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hawing, the resultant credit released became immediately payable to the department. Of course, if at any stage the account of the customer is in credit, S. 46(5-A) would come into play and the sum so standing to the credit of the assessee might be directed to be paid over...." 15. Similar issue came up for consideration before the learned Division Bench of the Bombay High Court in Sangram Foods Pvt. Ltd. vs. State of Maharashtra 2010 SCC Online Bom 947. This case had arisen out of Rule 35 of Bombay Provisional Municipal Corporation (Cess on entry of goods) Rules, 1996 and the CC account therein had been attached. Relying upon the judgment of the Madras High Court in K.M. Adam's case (supra) and also the decision of the learned Single Judge of the Karnataka High Court in Karnataka Bank Limited vs. Commissioner of Commercial Taxes, 1999 Sales Tax Cases 19, it was observed that the account in question being a Cash Credit Account, which in other words is a overdraft facility, the unutilized overdraft account does not render the banker the debtor in any sense and the banker is, therefore, not a person from whom money is due to the customer. It was further observed that where the banke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "3. Case of the petitioner is that such accounts were either in the nature of cash credit account or term loan account and that, therefore, it cannot be stated that there was any money due to the petitioner from the bank which can be recovered in terms of sub section (3) of Section 226 of the Act. 4. Having heard learned counsel for the parties and having perused the materials on record we may notice that Section 226 of the Act pertains to other modes of recovery. Under sub section (1) of Section 226, where no certificate, as mentioned in Section 222 of the Act, is drawn up, the Assessing Officer may recover the tax by one or more of the modes provided in this section. The portion of Section 226, which is relevant for our purpose, reads as under: "(3) (i) The [Assessing] Officer [or Tax Recovery Officer] may, at any time or from time to time, by notice in writing require 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 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 specifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly hold for or on account of the assessee any money. 6. In this case, admittedly, all the three bank accounts were in the nature of either the cash credit account or term loan account. In other words, the accounts were opened to enable the assessee to borrow the money from the bank for the purpose of its business. Any money, therefore, that the bank may make available to the assessee would necessarily be in the nature of a loan or a cash credit facility, in either case, would be in the nature of borrowing by the assessee from the bank. The bank and the assessee, therefore, do not have the debtor-creditor relationship. 7. Somewhat similar situation arose before the learned Single Judge of Madras High Court in case of K.M. Adam vs. Income Tax Officer, II Additional II Circle, Madra reported in 33 ITR 26. The Assessing Officer desired to invoke powers analogous to Section 226 (3) of the Act for recovery of the tax dues of the assessee from the overdraft account that the assessee maintained with its bank. In such background, referring to similar provisions contained in Section 46 of the Income Tax Act, 1922, it was observed as under: "It will be seen that this provision is an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied upon by the learned Division Bench of the same High Court in Manish Scrap Traders vs. Principal Comm. 2022 SCC Online Guj 2585. 20. No judgment taking a contrary view has been cited by respondent No. 1 and I myself see no reason to take a different view of the matter. 21. Accordingly, the question, as framed above, is answered that mere providing a facility of an overdraft, it cannot be said that the bank is a debtor to its customers or holds the money for account of its customers, nor any point of time at which it holds any money of his on his account. The Cash Credit limit is a facility provided by the bank to its customers to use and utilize the money and if such facility availed of, it would attract the interest to be charged for the same so utilized and, therefore, the amount cannot be attached in terms of sub Section (3) of Section 226 of the Act. 22. In this view of the matter, this Court does not find that the action on the part of respondent No. 1 in passing the order of attachment of Cash Credit Account would at all be sustainable, in view of the ratio laid down in the above noted judgments; even the meaningful reading of the language employed in Section 226 (3) o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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