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Chanakayagiri & The Art Of Tax Recovery

The author expresses concern over the rampant use of rough-neck techniques by the Department for recovery of tax dues. Despite severe reprimand by Courts, there is no improvement in the Department’s behaviour due to lack of accountability muses the author. The author advises the department to adopt Chanakya’s techniques for recovery and assures that this will benefit the department in the long run

1. Sections 222 to 232 of the Income Tax Act, 1961 and schedules II and III, thereto and the Income Tax (Certificate Proceedings) Rules, 1962, together constitute a self contained code prescribing the various modes for the recovery and arrears of tax under the Act. These provisions are also applicable to Wealth Tax Act.

2. The Tax Practitioners have the duty to advice the assessees to pay the tax what is rightfully due to Government, neither less nor more. The law of recovery is based on Civil Procedure Code, 1908. In Krishna Prasad Singh vs. TRO (1996) 221 ITR 720 (Cal.), it has been held that the provisions of Schedule II to the Income tax Act are analogous and similar to those in Civil procedure Code and therefore, the decisions relating to the CPC would be applicable for interpreting similar provisions in Schedule II to the Act.


One of the important duties of the tax officials is after the assessment is to recover taxes, however, we have seen some of the tax officials try to recover the taxes without following the due process of law. There are instances tax officials have recovered the taxes when the stay application is pending before the Tribunal

3. Assessees may stand surety, partners, directors may give personal guarantee, without fully knowing the implications of recovery provisions. Section 281 of the Income tax Act, deals with circumstances under which certain transfers are held to be void, therefore, when an assessee buys the immovable property, he should make sure that the property is not subject to recovery proceedings.

4. Section 222(1)(c) of the Income tax Act, gives power to tax recovery officer to arrest the assessee and detain in prison when an assessee is default. There are certain orders of Recovery Officer and Commissioner, where no appeal is provided and the only remedy available to the assessee is to file writ petition before the High Court. Therefore, the recovery may include recovery by attachment, auction, arrest and prosecution, hence, the knowledge of General Law, such as Partnership Act, Limitation Act, Companies Act, Civil Procedure Code, etc. and judicial precedents will be very essential to proper advice. It is not always necessary that the assessee must approach the Commissioner of Income Tax before filing an stay application before the Tribunal. In DHL Express (India) P. Ltd. vs. ACIT Stay Application No. 7360/M/2010 Bench ‘D’ dt. 19-11-2010 (Asst. Year 2006-07) (Source: www.itatonline.org) the Tribunal has held that it is not mandatory that the assessee must approach the lower authorities before filing a stay petition before the Tribunal. The Tribunal held that the assessee can approach the ITAT for stay without approaching the commissioner of Income tax.

5. It is heartening to note that the pendency before the Income Tax Appellate Tribunal is only 45,000 appeals and in Mumbai the pendency is only 15,000, even the appeals filed of 2010 have been taken up for hearing this has helped the assessee to know their tax liability within a reasonable time, however, in an appropriate case, it may be desirable for an assessees to make an application for early hearing of appeal before the Tribunal. If an application is made to the Tribunal. The appeal may be taken up for an early hearing. Various circumstances under which the assessees can make an application for an early hearing of appeal and reference to case laws, circulars & Instructions, specimen application, reference to articles is also referred at Page Nos. 10 to 23 of AIFTP Journal December, 2004 and Letter dated 19th May 1992, Tribunal in the next Millennium 16-1-1999 P. 77, (See Guidelines for early fixing of matters) (AIFTP Journal – August, 2005 P. No. 25 to 27) reference to this which according to us will help the tax practitioners in their day to day practice.


How many tax officials will follow the binding precedents of High Courts, Tribunals and spirit of circulars? As there is no accountability provision in the present Income Tax Act and proposed Direct Taxes Code, assessees will be at the mercy of tax officials at least in the recovery proceedings

6. When first appeal is pending the tax official normally stay the recovery, if the assessee pays the tax due in installments, however, when first appeal is decided against the assessee, the tax officials try to recover the entire taxes and interest by attaching the bank accounts of the assessee, if it is Pvt. Ltd. Company even the directors Bank accounts are also attached by initiating proceedings under section 179.

7. One of the important duties of the tax officials is after the assessment is to recover taxes, however, we have seen some of the tax officials try to recover the taxes without following the due process of law. There are instances tax officials have recovered the taxes when the stay application is pending before the Tribunal. Our Jurisdictional High Court in KEC International Ltd. vs. B. R. Balakrishanan (2001) 251 ITR 158 (Bom.), Paramount Health Services vs. ACIT (2010) 37 DTR 377 (Bom.), and Mahindra & Mahindra Ltd. (1992) (59) ELT 505 (Bom.) has laid down the guidelines to dispose the stay applications of the assessees. In Sultan Leather Finishers Pvt. Ltd. vs. ACIT (1991) 191 ITR 179 (All), the Court held that when rectification under section 154 is pending till the disposal of rectification application no recovery will be made. In RPG Enterprises Ltd. vs. Dy. CIT (2001) 251 ITR 20 (ITAT)(AT), the Hon’ble Tribunal has held that the Assessing officer is precluded from taking coercive action for the recovery of the disputed demand until the expiry of the period of limitation allowed for filing of the appeal against the decision of the first appellate authority and also during the pendency of stay application before any revenue authority or the Tribunal.

8. January, February & March is very important for the tax administration as they have to meet the target of tax collection and the assessees have to face the recovery proceedings, whether the additions are justified or not.

How many tax officials will follow the binding precedents of High Courts, Tribunals and spirit of circulars? As there is no accountability provision in the present Income Tax Act and proposed Direct Taxes Code, assessees will be at the mercy of tax officials at least in the recovery proceedings.

We hope the tax officials will follow the circulars of Board, ratio of jurisdictional High Court, Tribunal and advice of Chanakya in the process of tax recovery.

We wish all our readers Merry Christmas and Very Happy and Prosperous New Year.

Jai Hind

Dr. K. Shivaram
ksa_sign
Editor in Chief

Reproduced with permission from the AIFTP Journal, December 2010

One comment on “Chanakayagiri & The Art Of Tax Recovery
  1. Utpal Jalan says:

    I will be surpirsed to know that even one exceptional tax official is even made to exist for the purpose of show casing who follow the law. They are by nature upbringing and learning are made to extort and use nuicence value of rular that is government. Indian Government treat its subjects like slaves. Judiciary help is seen as continuation and delay of justice delivry. Wanna try a contempt over me …… I wish to proove more stern words against them in the public fora.

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