A Treatise On The Law & Practice Of Stay & Recovery Of Tax Arrears
Dr. K. Shivaram
The author, an eminent advocate, has meticulously explained the entire law relating to the stay and recovery of tax arrears. After from a reference to a plethora of judgements to support every proposition, the author has drawn from his rich practical experience to explain the points that should be emphasized in a stay application so as to get a favourable verdict from the assessing and appellate authorities
Recovery is one of the most important subjects in direct taxation, of which all of us are very much concerned in our day to day practice, either as consultants or while dealing with our own taxation matters. I must congratulate the President and his team for selecting a very appropriate subject at a very appropriate time, because maximum recovery proceedings are initiated in the month of January, February and March every year.
In 80% of matters the assessee gives simple reply stating that we have filed an appeal and keep the demand in abeyance. My advice would be, the reply should be with reasons stating how the assessee is entitled for stay of recovery, how addition made was not proper, financial difficulties etc. The assessee must request for stay of recovery till the appeal is disposed, If the issue is covered by Jurisdictional High or Apex Court, refer the case laws. Assessee may also refer the financial difficulties faced by the assessee
The law of recovery is based on Civil Procedure Code, 1908.Therefore, knowledge of Civil Procedure Code relating to recovery will help us to make a better representation and to render correct advice, when an issue comes for consideration.
The subject of recovery and stay proceedings is very vast. To discuss all important issues we might need more than one workshops.
The subject can be into seven parts:
1.Recovery proceedings before assessment.
2.Recovery proceedings after assessment
3. Joint and several liability
4. Remedies against recovery before various authorities
5.Some of general issues
1. Recovery proceedings before assessment- Provisional Attachment to protect revenue in certain cases – S.281B of the Income-tax Act, Civil procedure Code,1908- S. 94(b), Order38 Rule5- Attachment before judgment.
Circular no 179 dated 30-9-1975 (1976) 102 ITR (St.)9(20)
It is stated in the circular that this new provision has been made in order to protect the interests of the revenue in cases where the raising of demand is likely to take time because of investigations and there is apprehension that the assessee, may thwart the ultimate collection of that demand .
§ The provisions of section 281B is akin to the section 94(b) andOrder38, Rules5&6of the Code of Civil Procedure Code (CPC), 1908. Section 281B can be invoked only “During Pendency of any proceedings for assessment or reassessment”.
§ The apex court in, Raman Tech & Process Engg.Co. v. Solanki Traders (2008) 2 SCC 302 held as under “The power under O.38 R.5 of C.P.C. is a drastic and extraordinary power. Such power should not be exercised mechanically or merely for the asking. It should be used sparingly and strictly in accordance with the rule .The purpose of O.38 R.5 is not to convert an unsecured debt into a secured debt. Any attempt by a plaintiff to utilize the provisions of O.38 R.5 as a leverage for coercing, by the defendant to settle the suit claim should be discouraged”
§ The provisional attachment order must be in writing and should have reasons and must be passed with the approval of the higher authority, the mechanical order without any reasons are liable to be quashed.
GauravGoel v. CIT (2000) 245 ITR 169 ( Cal )(High Court)
§ Basis of opinion and past defaults:
In the absence of any material or circumstances on the basis of which requisite opinion could be formed under section 281B and in the absence of any history of past defaults of the petitioner, the impugned order passed under section 281B provisionally attaching the bank accounts of the petitioner and extension thereof by the CIT was wholly illegal and unwarranted.
Raghu Ram Grah P. Ltd. v. ITO &Ors.(2006) 281 ITR 147 (All.)(High Court)
§ The provisional attachment is valid only for a period of six months unless extended. However the provisional attachment cannot exceed two years. Majjo(Smt)v. ACIT (1991) 187 ITR 642(All.)(High Court),
§ However in Tek Chand v.ITO (2001) 252 ITR 799 (P&H)(High Court), it has been held that provisional attachment can be extended for a maximum period of two and half years.
§ Extension of period of attachment without recording reasons would be invalid. Seshasayee Paper & Boards Ltd. v. CIT (2003) 261 ITR 63 (Mad.)(High Court)
-Legislature has provided sufficient safeguard in the section itself so that the honest assessees are not put in to difficulties.
1.1. Properties which can be attached
§ In case of jointly owned property, only undivided share of assessee can be attached provisionally and not entire property.
S. Subramanian v.CIT (2004)186 CTR 286 /136 Taxman 653 (Mad) (High Court)
§ Fixed deposit in the name of HUF, only share of assessee can be attached and not entire fixed deposit. Provisional attachment was held to be invalid.
Satyabir Singh v.CIT (2001) 248 ITR 785 (P&H) (High Court)
§ A property was transferred to transferee and the transferee had paid full consideration and possession was taken by transferee however the Registration was done. The proceedings under section 281B cannot be initiated by attaching the property.Registration is not relevant to Income–tax Act.
Electro Zavod (India) Pvt .Ltd v.CIT (2005) 278 ITR 187 (Cal.)(High Court)
§ Attachment should be made as far as possible of immovable properties and not to attach all the properties. In Gandhi Trading v. ACIT (1999) 239 ITR 337 (Bom) (High Court), besides two immovable properties, assessee’s bank account and fixed deposits were also attached against the estimated tax liability of Rs 2.68 crores. The property value was about 6 crores. The Court held that there would be no justification for allowing the continuation of attachment on the bank account and fixed deposits. In any event the provisional attachment should not be equated with attachment in the course of recovery proceedings.
§ In case where the assessment is completed, and appeal is filed against the order of assessment and the appellate authority has granted conditional stay of recovery of the tax assessed, the power under section 281B cannot be invoked. Such an action is contrary to law.
Shaw Wallace & Co. Ltd v. CTO (1996) 100 STC 270 (AP)(High Court).
Remedy- The only remedy against the provisional attachment is to file a writ petition under Article 226 of the Constitution of India.
2. Recovery proceedings after assessment .
2.1. Who can be declared as “Assessee in default”
§ Provisions applicable: S. 2(7), 140A(3),156, 179,191,200, 220(5), 226(3)(x), 282, 283, 284 of Income Tax Act, 1961 and Order 5 Rules 15, 17, 18 and 19 of CPC.
§ When an assessee is served with notice of demand under section 156, if assessee does not pay the demand within 30 days he is treated as “assessee in default”. If the order is passed under section 179 against Director, the Director of Company can be treated assessee in default under section 220(4), it is not necessary that the assessing Officer has to issue notice under section 156.Similarly under section 140A(3), when anassessee fails to pay the whole or any part of the self assessment tax or interest or both in accordance with section 140A(1), he shall be deemed to be an assessee in default. If the person mentioned in section 200 does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required under this Act, he shall be treated as assessee in default.
§ Recently department has issued notice under section 276C, read with 278B of the Income-tax Act for not paying the admitted self assessment tax under section 140A along with the return of income to the Principal Officer of the Company (Managing Director) for not paying the admitted self Assessment tax along with the return. I advised him to make the payment because, if the department launches prosecution as per section 278E –Presumption of culpable mental state is on the assessee to prove otherwise .Apart from court proceedings it will damage the reputation of the Managing director and his group. They have accepted my advice agreed topay the admitted tax as per return of income.
Valid service of Notice.
§ Mohan Wahiv. CIT (2001) 248 ITR 799(SC), the court held that valid service is mandatory; in case of failure to serve the notice, recovery proceedings are held to be not valid.
§ Demand Notice not received by assessee, recovery proceeding held to be not valid.
§ The court held that on a plain reading of sub-section (4) of sec. 220 of the Income tax Act, 1961, it is apparent that a person can be said to be an assessee in default, (i) if he does not pay the amount specified in a notice u/s. 156 within the time limited under sub section (1), viz., 35 days of the service of notice, or (ii) if he does not pay the amount specified in a notice u/s. 156 within the time extended under sub- section(3) at the place and to the person mentioned in the notice. Thus, before invoking the provisions of section 220 of the Act, a notice is required to be served upon the assessee, specifying the amount as well as the place and the person to whom such amount is to be paid. In the absence of any demand notice u/s. 156 of the Act being served upon the assessee, the time to make payment under sub section (1) would not start running. In fact, no demand notice, as contemplated u/s. 156 of the Act was served upon the petitioner. The petitioner at the earliest point of time, upon receipt of the recovery notice had objected to the initiation of the recovery proceedings as it had not received copies of the assessment order and demand notice. Thus, in the absence of service of a demand notice u/s. 156 of the Act on the petitioner, which was a basic requirement for invoking the provisions of sec. 220 of the Act, the Petitioner could not have been treated to be an assessee in default. The subsequent proceedings u/s. 220 to 226 of the Act were without jurisdiction.(A.Y. 1985-86)
SaraswatiMoulding Works v. CIT &Ors(2012) 347 ITR 161 (Guj.)(High Court)
§ CIT v. Sattandas Mohandas Sidhi (1982) 230 ITR 591 (MP) (High Court) it was held that, it is mandatory that notice must be served only in the manner provided in section 282 of the Income –tax Act, hence notice by telegram could not be said to be a substitute for notice by post.
§ General Clauses Act,1897,Section 27 deals with meaning of service by post. If it is sent by registered post and acknowledgement is produced the presumption is that it is a proper service .CIT v. MalchandSurana (1958) 28 ITR 684 (Cal.)(High Court)
§ In Meghji Kanji Patel v. Kundanmal Chamanlal Mehtani AIR 1968 Bom. 387 (High Court), which was affirmed in Puwada Venkateshwara Rao v. Chidamana Venkata Ramana AIR 1976 SC 869, (871). The Court held that where an affidavit is filed stating that notice is not served; unless otherwise proved, the same has to be accepted.
§ In case of service on person, it has to be served on the adult member to be considered as a proper service.
§ O.5 R.15of CPC: As per explanation-A servant is not a member of family within the meaning of this Rule. Hence, service of notice on servant is not a valid service.
2.2. Shortening the period
§ Assessing Officer cannot curtail the period of 30 days without valid reasons recorded in writing.
M. Redanna v. Revenue Divisional Officer (1980) 46 STC (232) (FB)(AP)(High Court)
§ In Mahindra and Mahindra v. UOI (1992) 59 E.L.T. 505 (Bom.)(High Court) the court held that, no coercive action should be taken till the expiry of the appeal period against the said order is over. Therefore the Assessing Officer is duty bound to wait for the expiry of time period of appeal before proceeding to recover the tax due.
§ In Mahindra and Mahindra Ltd v Assessing Officer (2007) 295 ITR 43(Bom) (High Court), where garnishee proceedings were issued even without affording a fair opportunity to be heard and the bank accounts of the assessee were frozen within one week of passing of order, the High Court took strong note of the case and issued a notice against officer for contempt proceedings and held that such proceedings should not be initiated as the Officer has not followed the principle of Bombay High Court (supra) and also directed the Assessing Officer to deposit the money so coercively collected to the Registrar General of the Court.Show cause was issued to the Assessing Officer as to why contempt action should not be initiated under the provisions of the Contempt Court of Courts Act for prima facie knowingly and willfully disobeying the aforesaid two judgments of Bombay High Court.
§ S. 220(1) proviso to reduce period for payment of tax to be exercised after application of mind and recording reasons.(S.281B )
§ The Assessing Officer has passed an order under section 143(3) on 9.3.2012 raising a demand of Rs. 36.56 crores and directed the assessee to pay the entire demand within 7 days even though the period specified in 220(1) is 30 days. The assessee filed a stay application u/s 220(6) on 12.3.2012 which was rejected on the ground that it did not fall within the guidelines framed in the CBDT’s instruction No.1914 issued by the CBDT. The assessee approached the CIT pointing that there was no justification to demand payment within 7 days, while s. 220(1) granted 30 days and that as there was already a provisional attachment, there was nothing detrimental to the revenue. The CIT rejected the application and the AO attached the assessee’s mutual fund investments s. 226(3). The assessee filed a Writ Petition. The court held that:
The Proviso to s. 220(1) which empowers the AO to demand payment within a period lesser than 30 days with the prior approval of the JCIT cannot be exercised casually and without due application of mind. The AO & JCIT must apply their mind on how it would be detrimental to the interests of the Revenue to allow the full period of 30 days and record reasons. The reasons & approval must be made available to the assessee if he seeks them. On facts, as there was already a provisional attachment u/s 281B attaching the assessee’s mutual funds to the extent of Rs.36.54 crores, there would have been no basis for forming the reason to believe that allowing the period of 30 days would be detrimental to the Revenue. Merely because the end of the financial year is approaching that cannot constitute a detriment to the Revenue. The detriment to the Revenue must be akin to a situation where the demand of the Revenue is liable to be defeated by an abuse of process by the assessee. There is absolutely no justification for the AO to demand payment in 7 days and his action is highhanded and contrary to law.
§ Firoz Tin Factory v. ACIT(2012) 71 DTR 185/209 Taxman 458 (Bom.)(High Court)
2.3. Consequences of being assessee in default.
§ Charge of mandatory interest under section 220(2)
§ Penalty under section 221
§ Attachment /Auction of moveable /Immoveable properties
§ Appointment of receiver for managing of properties
§ Prosecution/arrest / detention
2.4. Reply of assessee to keep the demand in abeyance.
§ An application for stay of disputed demand must be made before the Assessing Officer before the expiry of time prescribed in notice of demand.
§ In 80% of matters the assessee gives simple reply stating that we have filed an appeal and keep the demand in abeyance. My advice would be, the reply should be with reasons stating how the assessee is entitled for stay of recovery, how addition made was not proper, financial difficulties etc. The assessee must request for stay of recovery till the appeal is disposed, If the issue is covered by Jurisdictional High or Apex Court, refer the case laws. Assessee may also refer the financial difficulties faced by the assessee. How the assessee is complying with the guidelines laid down by the Jurisdictional High Court. This will help the assessee, when they approach for stay of recovery before Commissioner or High Court. You may also request that if the Assessing Officer decides to proceed further one more opportunity of persona lhearing may be given .
2.5. How the discretion has to be exercised by the tax authorities.
§ KEC International Limited v. B.R Balakrishnan (2001) 251ITR 158 (Bom)(High Court)
As per the Jurisdictional High Court Certain parameters which are required to be followed by the authorities in cases where a stay application is made by an assessee pending appeal to the first appellate authority.
(a) While considering the stay application, the authority concerned will at least briefly set out the case of the assessee.
(b) In cases where the assessed income under the impugned order far exceeds returned income, the authority will consider whether the assessee has made out a case for unconditional stay. If not, whether looking to the questions involved in appeal, a part of the amount should be ordered to be deposited for which purpose, some short prima facie reasons could be given by the authority in its order.
(c) In cases where the assessee relies upon financial difficulties, the authority concerned can briefly indicate whether the assessee is financially sound and viable to deposit the amount if the authority wants the assessee to so deposit.
(d) The authority concerned will also examine whether the time to prefer an appeal has expired. Generally, coercive measures may not be adopted during the period provided by the statute to go in appeal. However, if the authority concerned comes to the conclusion that the assessee is likely to defeat the demand, it may take recourse to coercive action for which brief reasons may be indicated in the order.
(e) We clarify that if the authority concerned complies with the above parameters while passing orders on the stay application, then the authorities on the administrative side of the Department like respondent No. 2 herein need not once again give reasoned order.
The above parameters arc not exhaustive. They are only recommendatory in nature.
Coca Cola India (2006)285 ITR 419 (Bom) (High Court)
Notice attaching the bank account was quashed.
Attaching the bank accounts even before communicating the order passed on the stay application is totally high handed. Once again stated that the parameters laid down by this Court in case of KEC International Ltd. has to be followed.
§ Stay–Guidelines- Guidelines laid down on how stay applications should be dealt with.
UTI Mutual Fund v. ITO ( 2012)345 ITR 71(Bom.) (High Court)
§ Stay –Reasoned order- Assessing Officer must pass reasoned order to deal with stay applications
Tata Toyo Radiators Pvt Ltd v. UOI(2012) 71 DTR 5/ 250 CTR 11 (Bom.) ( High Court)
§ Guidelines-Assessing Officer and Appellate authorities are not mere tax gatherers; have duty to be fair to the assessee.
Nishith Madanlal Desai v. CIT (2012) 345 ITR 545 (Bom.)(High Court)
§ Guidelines- Assessing Officer reminded that he is not mere “tax gatherer” and cautioned to follow guidelines for recovery of tax.
Rajasthani Sammelan Sarvoday v. ADIT (Bom.) (High Court) www.itatonline.org
§ RPG Enterprises Ltd v. Dy. CIT (2001) 251 ITR 20 (Mum.)(Trib)
The Assessing Officer is precluded from taking coercive action for recovery of the disputed demand until 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 any stay application before any revenue authority or Tribunal.
These guidelines must be followed by the tax authorities while dealing with stay application of the assessee.
§ Extralegal steps- Assessing Officer should not adopt “extra legal steps” of threatening or inducing the assessee for tax recovery.
Lopamudra Misra v. ACIT (2011) 337 ITR 92 (Orissa)(High Court)
§ Instruction no. 96 (F .no 1/6/69 –ITCC dated 210801969) which had clearly indicated that when the income assessed is substantially higher than the returned income of the assessee that is to say if assessed income is twice the returned income or more than of recovery of tax demand, stay should be normally be granted unless there are lapses or non-cooperation on the part of assessee. However department always contend that instruction of 1969 now stands superseded by instruction no 1914 (F.no. 404 /72/93 –ITCC dated 2-12-1993).
However the Tribunal and courts are following the spirit of earlier instruction.
Subsah Chndra Sehgal v .Dy. CIT (2008) 6 DTR 53/173 Taxman 312 ( Delhi ) (High Court)
Maharana Shri Bhagwat Singahiji of Mewar v. ITAT (1997) 223 ITR 192(Raj)(High Court)
Soul v, Dy, CIT ( 2008) 173 Taxman 468 ( Delhi )(High Court)
Valvoline Cummins Ltd v. Dy.CIT (2008) 307 ITR 103 (Delhi) (High Court)
§ Income assessed by the Assessing Officer was 47 times of income declared by assessee. Therefore Instruction No. 95 dated 21st August, 1969 holds the field. Therefore assessee cannot be treated as assessee in default.
§ Maheswari Agro Industries v. UOI (2012)346 ITR 375 (Raj.)(High Court)
§ The Madras High Court in R.P. David vs. Ag. ITO (1972) 86 ITR 699 (Mad) held that, the fact that the assessee is financially sound and in a position to pay is not in itself a ground for refusing to exercise the discretion in granting the stay.
These guidelines must be followed by the tax authorities while dealing with stay application of the assessee. If Assessing Officer does not follow the guidelines/ratio of the Jurisdictional High Court if it is brought to his notice in writing he may be punishable for contempt proceedings.
2.6. Valid appeal must be pending.
§ Admitted tax must be paid before filing an appeal. In case where interest is not paid, it will be a valid appeal because section 249(4) refers only the tax and not the interest under sections 234A, 234B and 234C.
§ Appeal is delayed, it cannot be said the valid appeal is pending, till the delay is condoned. When delay is condoned it relates back to the date of filing. In practice the Commissioner (Appeals) or Tribunal passes the order of condonation of delay and merit together. Legally the Appellate Authorities can pass two orders; one on delay another on merit.
§ It may be noted that mere filing of an appeal does not operate as a stay or suspension of the order appealed against – Collector of Customs vs. Krishna Sales (P) Ltd. AIR 1994 SC 1239, 1241, Application for stay of disputed demand must be made before the Assessing Officer before the expiry of time prescribed in notice of demand. The Madras High Court in Paulsons Litho Works v. ITO (1994) 208 ITR 676(Mad)(690)has observed that mere filing or pendency of an appeal does not constitute an automatic stay of the order under challenge or recovery of the tax or penalty under dispute in such appeal.
Golam Momen vs. DCIT(2002) 256 ITR 754( Cal )(High Court)
2.7. Can there be recovery on the basis of protective assessment.
§ Protective assessment is permissible. But recovery in pursuance of such precautionary assessment is not permitted.
Sunil Kumar v. CIT ( 1983) 139 ITR 880 (Bom) (High Court)
Lalji Haridas v. ITO (1961) 43 ITR 387 (SC)
Jagannath Bawri v. CIT (1998) 234 ITR 464 (471)(Gau) (High Court)
Jagannath Hanumanbux v .ITO (1957) 31 ITR 603 ( Cal )(High Court)
R. Rajbabu v. TRO (2004) 270 ITR 256 (Mad)(High Court)
2.8. Rectification is pending under section 154.
§ Whenever certain patent mistakes are noticed , it is advisable that the assessee must file rectification application as well as take the issue in appeal.
§ In Sultan Leather Finishers Pvt. Ltd v. CIT (1991) 191 ITR 179 (All) (High Court), the court held that when rectification application is pending the Assessing Officer cannot proceed with recovery proceedings.
2.9. Garnishee proceedings –Recovery from third parties –S.226(3)
§ A Garnishee Notice is a prohibitory order directing the debtors of the assessee to refuse the payment of the same, as the same is attached by the department for the recovery of its tax dues payable by the assessee.
§ Under income-tax Act garnishee proceedings can be initiated after the expiry of prescribed time limits i.e. 30 days as provided under section 220(1) provided for paying demand as mentioned in the notice of demand under section 156.
§ If Garnishee fails to comply with the notice under section 226(3), the Assessing Officer/TRO can treat him to be an assessee in default as per section 226(3)(x) in respect of the amount specified in the notice and further proceedings can be taken against him personally, in the manner provided under section 222 to 225 and the notice shall have the same effect as an attachment of a debt by the TRO in exercise of his powers under section 222.
§ Section 226(3) is applicable only when money is due to the assessee-in-default from any person. Section 226(3)(vi) in categorical terms creates a legal fiction to the effect that when an amount is not payable, such person is not required to pay any such amount or part thereof. Units held by UTI monthly Income plan.
Administrator, UTI v. B.M. Malani (2008) 296 ITR 31(SC) affirmed 270 ITR 515 (AP).
§ Search and seizure- Fixed deposit of third parties attachment is held not to be not valid.
§ Assessee was searched and articles were seized. Articles were released on bank guarantee on basis of fixed deposits receipts of third parties. Department issued garnishee proceedings against bank and attached the fixed deposits under section 226(3).Department passed the provisional attachment under section 281B.Department invoking the bank guarantee en cashed the fixed deposit. The Assessee challenged the order by way of the Writ, the Court held that the encashment of the fixed deposit was unjustified. The Court held that the fixed deposits did not belong to assessee hence attachment of fixed deposit receipts were not valid.
Gopal Das Khandewal & others v. UOI (2012) 340 ITR 235 (All.)(High Court)
§ Assessee can approach the Assessing Officer against garnishee proceedings and request for withdrawal, writ is not the remedy.
§ Against the garnishee proceedings the assessee filed a writ petition on the ground that once the money is recovered under garnishee order the revocation of the notice will be of no consequences. The court held that such a presumption is without any legal base because of the reasons that with the withdrawal of the notice of garnishee, the action taken in furtherance of garnishee order falls down and possession of the property is required to be restored to the assessee and if the Assessing Officer by exercising power under sub –clause (vii) of sub section (3) of section 226 of the said Act obtains money from the payee of the assessee, he has been given power to withdraw the notice and it cannot be interpreted to mean that notice can be withdrawn only before giving effect to the garnishing order and receiving the money by the Assessing Officer. Otherwise the words at any time or from time to time will be of no consequence in sub clause (vii) of sub-section (3) of the said Act. The Court held that the assessee is free to challenge the order of non–revocation of the garnishee order under sub clause (vii) of sub section (3) of section 226. Commissioner was directed to hear the appeal expeditiously.
Central Coal Fields Ltd v. CIT (2012) 249 CTR 523 (Jharkhand)(High Court)
§ Prohibitory order-Assessee has shown bona fides; the court stayed the prohibitory order.
§ The appeal of the assessee is pending before the Commissioner (Appeals). The Recovery Officer issued the prohibitory order against the creditors. The assessee filed writ petition. The High Court stayed the prohibitory order considering the bonafide of assessee on the condition of paying the tax on installment s.(A.Ys 2007-08 & 2008-09)
Nickunj Eximp Enterprises P. Ltd v. Addl. CIT ( 2012) 346 ITR 78 (Bom.) (High Court)
In one of the instance we have made an oral application before the Bench stating that the Officer is likely to attach the Bank accounts and recover the amount we will be filing the stay application to day please give direction to the Assessing Officer not to proceed further. Bench was kind enough to tell the Departmental representative instruct the concerned officer on phone not to proceed further till the hearing of Stay application . Departmental representative acted upon the oral order of the Hon’ble members
§ In Bank of Rajasthan Ltd. v. UOI (2003) 259 ITR 586, 588 589 (Bom), a garnishee notice was issued to petitioners, who were the lessees of the defaulter HUF in respect of certain premises and were to pay rent of Rs. 20500 p.m., by the revenue authorities. It was pleaded by the petitioners that the rent was to be adjusted towards the repayment of loan of Rs. 15 lakhs granted by the petitioners to the defaulter HUF. It has been held that the transaction granting loan was totally different from the transactions of leasing out the premises to the petitioners and the loan amount was secured by an equitable mortgage of a different property. Therefore, the garnishee notice to the lessee-petitioners was valid.
2.10. Properties which can be attached. (Garnishee proceedings)
§ Fixed deposit with bank yet to mature can be covered under section 226(3).
Vysya Bank Ltd v. JCIT (2000) 241 ITR 178 (Kar)(High Court) and Global Trust Bank Ltd. JCIT (2000) 241 ITR 178 (Kar)(High Court), the Court held that the department can enforce premature encashment of the fixed deposit belonging to the assessee in terms of section 226(3).
§ Attachment of rent
Rent payable by a tenant is a debt and can be subject matter of attachment under section 226(3)(S.46(5A) of 1922 Act)
V. N. Vasudev v. Kiroi Mal Luhariwala AIR 1965 SC 440
§ Where the tenant paid the rent to Income-tax authorities instead of paying it to the land lord believing that the prohibitory order issued by TRO and the notice under section 226 of the Income–tax Act restrained from making payments to landlord, there is no willful default and the non-payment of rent did not give any cause of action to landlord to file eviction petition.
J. Jermons v. Aliammal & Ors (1999) 156 CTR 31 (SC)
§ Tax due can be recovered by attachment of rents accruing after the death of deceased from property inherited by his legal representatives.
Sri Ram Lakhan v. CIT (1962) 46 ITR 613 (All.)(High Court)
§ Time barred debt cannot be subject matter of section 226(3), because limitation Act, 1963 does not provide for any exception to recover a time barred debt in favour of the revenue.
2.11. Properties which cannot be attached
§ As per Rule 10(1) of the second Schedule of the Income-tax Act, all such property as is by the Code of Civil Procedure, 1908 exempted from attachment and sale in execution of a decree of a Civil Court shall be exempt from attachment and sale under the said schedule. Section 60 of the Civil Procedure Code provides the list of assets which cannot be attached, even with the consent of the assessee. Few examples.
– The necessary wearing apparel
– Personal ornaments, accordance with religious usage cannot be parted with any woman,
– Tools of artisans,
– House occupied by agriculturist,
– Deposit in Public provident fund
– Money payable under policy of Insurance on the judgment debtor
– The interest of lessee of a residential building which the provisions of law for the time being in force relating to control of rents and accommodation apply,
– Sale proceed of nomination rights of defaulter members of Stock Exchange cannot be attached – Stock Exchange, Mumbai v. V.S. Kandalgaonkar (2003) 261 ITR 577 (Bom)(High Court).
– It was held in Stock Exchange v. ACIT (2001) 248 ITR 209 (SC) &VinayBubna v Stock Exchange (1999) 97(Comp)(Cas) 874 (SC), that on plain and combined reading of rules relating to membership of the Ahmedabad Stock Exchange, it is clear that the right of membership is merely a personal privilege granted to a member, it is not transferrable and incapable of being alienation by the member or his legal representatives and heirs except to the limited extent as provided in the rules on the fulfillment of conditions provided therein. Hence, the garnishee notice against stock exchange was set aside.
§ Property of sons not be attached in case of liability of father –
Properties belonging to the joint family was attached by TRO for realization of tax arrears of firm in which the assessee karta was a partner. Father was a partner of the firm in his individual capacity investing his monies and not on behalf of HUF though he was a joint family manager. It was held that only share belonging to father was liable to be attached and not the rest of belonging to the sons.
ITO v. Tippala China AppaRao&Ors. (2011) 331 ITR 248 (AP)(High Court)
§ Commercial property which is covered under Rent Control Act is exempt from attachment.
Belrex India Ltd v.Singhal Electric Co and Others AIR 1983 (Delhi) 430 (High Court)
§ “Interest of a lessee of a residential building” – Clause(kc) appended to the proviso of section 60(1), CPC prohibits the attachment and sale of interest of a lessee of a residential building to which the Rent Control Act applies but the said prohibition is not applicable to the interest of a tenant of a non-residential premises to which Maharashtra Rent Control Act applies and therefore, it can safely be held that the interest of the tenant in the non-residential premises to which Maharashtra Rent Control Act, 1999 (20 of 2000) applies is attachable and saleable in execution of the decree against the tenant.
Tangerine Electronic Systems Pvt. Ltd. v. Indian Chemicals AIR (2000) Bom (198, 210) (FB)
§ Salary of debtor cannot be attached –TejalR.Amin (Smt) v.Asst. CIT( 1994) 208 ITR 103 (Guj.)(High Court)
§ Overdraft bank accounts having certain limit cannot be attached. K.M.Adam v. ITO (1958) 33 ITR 26 (Mad.)(High Court) (31, 32)
3. Joint and several liability – Assessee in default.
3.1. Recovery from Directors –Joint and several-S.179.
§ Provision can be made applicable only when the Assessing Officer cannot recover the tax from the Company .The Assessing Officer has to give a finding that he is not in a position to recover the tax from the Company. In the absence of such finding the Assessing Officer does not get jurisdiction to invoke section 179 of the Act.
K.V. Reddy v. Asst CIT (1998) 232 ITR 306 (AP) (High Court)
Bhagwandas J. Patel v.Dy. CIT (1999) 238 ITR 127 (Guj.)(High Court)
C. Rajendranand another v. ITO (2000) 253 ITR 139 ( Mad. ) (High Court)
Dipik Dutta & Anr v. UOI( 2004) 268 ITR 302 ( Cal ) (High Court)
Indubhai T. Vasa (HUF) v. ITO (2006) 282 ITR 120 (Guj)(High Court)
§ Before recovery from Directors, the revenue must prove that the said directors were responsible for the conduct of the business in the said previous year in relation to which liability exists.
Amit Suresh Bhatnagar v. ITO (2009) 15 DTR 29 (Guj)(High Court)
§ The Assessing Officer has to hear the director before passing an order under section 179.
Jagdish Jagmohandas Kapadia v. CIT (1990) 183 ITR 143 (Bom.)(High Court).
§ Recovery is possible from the Director if the director is unable to prove that non-recovery is not attributable to the director’s gross neglect, misfeasance and breach of duty.
Khaders International Construction v. CIT (1998 ) 229 ITR 450 (Ker) (High Court)
Jatinder Bhalla and another v. ITO (2004) 268 ITR 266 ( Delhi ) (High Court)
§ Where company was agitating against the assessment order and disputing the liability to pay the amount assessed , it could not be held that the non recovery of tax was not due to negligence or breach of duty on the part of the directors
When the Assessment for the relevant years of the company was complete and final and it was not open to a director to challenge those proceedings in a proceeding under section 179.
UOI and Others v. Manik Dattatreya Lotlikar (1998) 172 ITR 1 (Bom.) (High Court)
§ Liability of the Director can be only in respect of the arrears of tax during the period in which the person was director.
Darshan Kumar v.CIT (1996) 222 ITR 608((P& H ) (High Court)
§ Salary earned by the Director from another company can also be attached.
§ When a Private company converted in to Public limited company, the Directors cannot be held liable from the date of conversion.
M. Rajamoni Amma & Anr. v. Dy. CIT(1992) 195 ITR 873 (SC)
3.2. Remedy against 179 order.
§ The Assessee can file a revision application under section 264 against said order.
§ If commissioner rejects the assessee has to file the writ petition under 226 of the Constitution of India against the said order.
Bhupatlal J. Shah v. ITO( 2012) 210 Taxman 481 (Bom.)(High Court)
The assessee was non-executive director of company. He resigned from the Board on 29th April 1994.On 27 the September, 2006 the assessee was issued notice to recover the tax due of the company for the assessment years 1986-87 to 1993-94 under section 179 of the income tax Act. The assessee informed to the assessing Officer that the Company is a partnership form having 80% share hence the assessing Officer must proceed against the firm for recovery dues of the Company. The Assessing Officer rejected the application of assessee. Assessee moved petition under section 264 which was rejected by the Commissioner without giving an opportunity of hearing. On writ petition the court set aside the order of Commissioner and Assessing Officer, and directed the Assessing Officer to pass an order after following principle of natural justice and including granting a personal hearing .
3.3. Direct taxes code-(2010) 326 ITR (ST) 41(220)
§ S. 224 . liability of a manger of a company
(1) Every person being a manger at any time during the financial year shall be jointly and severally liable at any time during the financial year shall be jointly and severally liable for the payment of any amount due under this Code in respect of the company for the financial year , if the amount cannot be recovered from the company
(2) The provisions of sub–section(1) shall not apply, if the manager proves that non-recovery cannot be attributable to any neglect, misfeasance or breach of duty on his part in relation to affairs of the company.
(3) The provisions of this section shall prevail over anything to the contrary contained in the Companies Act , 1956
(4) In this section term ‘manager’ shall include a managing director and both shall have the meaning respectively assigned to them in section clause (24) and clause (26) of section 2 of the Companies Act , 1956 (1 of 1956)
3.4. Firm and partners-Partners liability to pay the firm tax.
§ Section 25 of the Partnership Act and section 188A of the Income–tax Act. All partners including legal heirs of the deceased partners are jointly and severally liable for the dues of partnership, if they were partners of firm at the relevant time.
ITO v. Arunagiri Chettiar( 1996) 220 ITR 232 (SC)
Iqtida Khan v ITO ( 1941) 41 ITR 165 (All)(High Court)
§ Arrears of tax of firm can be recovered from erstwhile partner.
Kethmal Parekh v. TRO (1973) 87 ITR 101 (AP)(High Court)
3.5. Limited liability partnership.
§ Section 167C of the Income tax act, where the tax is due from the limited liability partnership, such tax cannot be recovered then every partner of the LLP at any time during relevant previous year shall be jointly and severally liable unless he proves that non–recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of LLP
3.6. Hindu undivided family –Members of HUF.S.171 (6)
§ As per section 171, the liability of the members of HUF is joint and several, however, if the demand pertains to the period after partition of the HUF, then the liability of the members is restricted to the portion of the joint family property allotted to each of them.
4. Remedies against recovery before various authorities
§ Circular no 96 (F.NO 1/6/69 –ITC ) DATED 21-8-1969
§ Circular dated 11-12-1970 – Regd –Assurance Given by the Minister for Revenue and Expenditure on the floor of Loksabha on 11-12-1970. (Reproduced in Vikrambhai Punjabhai Plakhiwala v. S.M Ajbanji Recovery Officer and others (1990) 182 ITR 413 (Guj)(High Court) (at 420 , 421)
§ Circular no 334 dated 3-4-1982 ( 1982) 135 ITR 10 (st)
§ Circular no 530 dated 6-3-1989 (1989 ) 176 ITR 240 (st)
§ Circular no 589 dated 16-1-1991 (1991 ) 187 ITR 79 (st)
§ Instruction no 1914 –F No 404 /72/93 –ITCC dated 2-12-1993(Feb-04) Income tax Review P.78
§ Instruction no 1944 – dated 27-8-1997 Feb 04 I. Tax Review Feb -04. P 78.
4.1. Power of the CIT(A)-
§ Power to Stay the Recovery Proceedings.
§ The CIT(A) is empowered to stay the recovery of tax against an application filed by the assessee. The assessee aggrieved against the order has to first file the appeal before filing the stay application. It is his discretion either to stay the recovery proceedings or to reject the same, depending upon the facts and circumstances of each case. The power of the appellate authority to stay the recovery of the demand of dues which are the subject matter of appeal pending before him is independent of the provisions of sub-section (6) of Section 220 of the Act and it is not necessary that before invoking the power of the first appellate authority, an assessee should approach the Assessing Officer under the aforesaid provision or that the Assessing Officer must reject the assessee’s prayer for stay of the demand. However, in practice, it is advisable to make application to the Assessing Officer &CIT(A) simultaneously to stay the recovery proceedings. In following cases it has been held that the CIT(A) has the power to Stay the Recovery Proceedings.
§ Prem Prakash Tripathi v. CIT (1994) 208 ITR 461 (All)(High Court)
§ Tin Mfg. Co. India Ltd. v. CIT( 1995) 212 ITR 451 (All)(High Court). Paulsons Litho Works v. ITO(1994 ) 208 ITR 676 (Mad)(High Court)
§ Agricultural Produce Market Committee vs. CIT (2005) 279 ITR 371 (Pat.)(High Court)
§ Debasish Moulik vs. Dy. CIT( 1998 ) 231 ITR 737 (Cal.)(High Court)
§ Smita Agrawal (Ind.) vs. CIT (2009)184 Taxman 59(All)(High Court)
§ LG Electronics India Pvt. Ltd v. CIT (2012) 209 Taxman 536(All)(High Court)
§ CITY and Industrial Development Corporation of Maharashtra Ltd v. ACIT (2012) 343 ITR 102 (Bom.) (High Court)
§ Idea Cellular Ltd v. CIT ( 2012) 75 DTR 105 (MP) (High Court)
§ Balaji Universal Tradelink (P) Ltd. v. UOI (2012) 76 DTR 132 (Bom.)(High Court)
4.2. Tribunal -Power of Stay – Rule 35 (Income-tax Appellate Tribunal) Rules 1963:
§ Broswel Pharmaceutical Inc. vs. ITO (2004) 83 TTJ 126 (All.) (Trib.)
In this case, the Tribunal has held that the form is not prescribed by the Act or the Rule 35A(2) of the Appellate Tribunal Rules and the same is only for guidance of the office of the Tribunal.
§ Administrative purpose form is prescribed Appendix-X(E)
§ Separate procedure is followed in Stay granted matter as per direction issued by the President U.O. No. F. 29-Cent.Jd./2007 dt. 19th July, 2007.
§ Assessee can approach to stay the recovery only when an valid appeal is pending before the Tribunal.
As per Order no of 1973 dated 1-10-1973, in case of last date the appeal can be presented at the residence of Registrar or at the Residence of Members. The same principle will apply to presentation of Stay petition.
In one of the instance we have made an oral application before the Bench stating that the Officer is likely to attach the Bank accounts and recover the amount we will be filing the stay application to day please give direction to the Assessing Officer not to proceed further. Bench was kind enough to tell the Departmental representative instruct the concerned officer on phone not to proceed further till the hearing of Stay application . Departmental representative acted upon the oral order of the Hon’ble members.
§ Fees for Stay Petition, a fee of Rs.500/- is payable. However, if single application for stay of recovery is made to ITAT for number of assessment years, then the filing fees payable u/s.253(7) would be Rs.500/- only and not Rs.500/- per assessment year – Shri Chiranjilal S. Goenka (Deceased) by his sole Executrix Mrs.Sushila N. Rungta, Mumbai Vs. WTO, S.A. No.30/Mum/1999 [arising out of W.T.A. No.105, 106 and 107/M/97 for Assessment Years 1989-90, 1992-93 & 1993-94] Mumbai, Bench ‘A’, order dated 27/9/1999 .
§ Power of the Tribunal to grant stay of recovery is toward tax, interest and even penalty.
Bhoja Reddy vs. CIT (1998) 231 ITR 47 (AP)(48)(High Court)
Shiv Shakti Rubber & Chemcial Works vs. ITAT(1995 ) 213 ITR 299 (All)(High Court)
§ Stay Application maintainable despite non filing of stay application before lower authorities – DHL Express (India) Pvt. Ltd. vs. ACIT(2011) 140 TTJ 38 (Mum)(Trib)
§ Stay is effective for 180 days and further extension of 180 days.
B. Sudhadra vs. ITO (2005) 272 ITR 100 (AT)(Hyd.)(Trib.)
Assessee can make fresh application for extension.
4.3. Tribunal – power to extend period of stay.
§ Narang Overseas P. Ltd. vs. ITO (2007) 295 ITR 22 (Bom) (High Court)
§ CIT v. Ranuk Industries Ltd. (2011) 333 ITR 99 (Bom)(High Court)
Tribunal has no power to extend stay beyond 365 days even if assessee not at fault.
CIT v. Ecom Gill Coffee Trading Pvt. Ltd(2012) 74 DTR 241/209 Taxman 190/252 CTR 281(Karn.)( High Court)
CIT v B. Fouress (P) Ltd (2012) 74 DTR 241/209 Taxman 190/252 CTR 281 (Karn.) (High Court)
§ Power-Stay-Judicial conflict whether Tribunal has power to extend stay beyond 365 days has to be resolved in favour of the assessee
The Third Proviso to s. 254(2A), as amended w.e.f. 1.10.2008, provides that if the appeal filed by the assessee is not disposed off within the period of stay granted by the Tribunal (which cannot exceed 365 days), the order of stay shall stand vacated even if the delay in disposing of the appeal is not attributable to the assessee. In Tata Communications Ltd vs. ACIT (2011) 138 TTJ 257 (SB)(Mum), the Special Bench held, following CIT v Ronuk Industries Ltd. (2011) 333 ITR 99 (Bom), that even after the amendment to the Third proviso to s. 254(2A) w.e.f. 1.10.2008, the Tribunal had jurisdiction to extend stay beyond 365 days. However, the Karnataka High Court took the view in CIT vs. Ecom Gill Coffee Trading Pvt. Ltd. (2012) 74 DTR 241(Kar) that after the aforesaid amendment, the Tribunal had no power to extend stay beyond 365 days even if the delay was not attributable to the assessee. The Tribunal had to now consider whether the view of the Bombay High Court & Special Bench had to be followed or that of the Karnataka High Court.
In Narang Overseas (P) Ltd vs. ACIT (2008) 114 TTJ 433 (SB), it was held by the Special Bench that if there is a cleavage of opinion amongst different High Courts and there is no decision of the jurisdictional High Court on the issue, then the view favourable to the assessee has to be followed. As the view of the Bombay High Court in CIT v Ronuk Industries Ltd. (2011) 333 ITR 99 (Bom)& that of the Special Bench in Tata Communications Ltd vs. ACIT (2011)138 TTJ 257 (SB)(Mum) is favourable to the assessee, that has to be followed and it has to be held that the assessee is entitled to a stay of the demand even after the expiry of the period of 365 days if the delay in disposal of the appeal is not exclusively attributable to it.(A.Y.2000-2001 to 2006-2007)
Qualcomm Incorporated v. ADIT (Delhi)(Trib.) www.itatonline.org
Tribunal should dispose-off stay granted appeal within time limit prescribed u/s. 254(4). Shri Jethmal Faujimal Soni (Mum)(Trib) (www.itatonline.org)
S.220: Collection and recovery – Assessee deemed in default-Stay of recovery – Adjustment of refund against current demand – ITAT has power to stay recovery and not permit adjustment of refund . (S. 245 )
Maruti Suzuki India Ltd v. Dy. CIT ( 2012) 347 ITR 43 ( Delhi )(High Court)
4.4. Stay of proceedings-Tribunal has the power to stay the assessment proceedings
§ If the appeal before the Tribunal is against order of the Commissioner under section 263 is pending and the Assessing Officer is proposing to pass an order in pursuance of an order under section 263, the Tribunal can stay the assessment proceedings. ITO v. Khalid Khan (1997) 110 ITR 79(AP)(High Court), Puranmal v. ITO (1975) 98 ITR 39 (Pat)(High Court), Ritz Ltd v. Vyas (1990) 185 ITR 311 (Bom.)(High Court) . CIT v. Income-tax Appellate Tribunal WPNO 4684 /2010 dated 3-8-2012 (NIIT Ltd )( Delhi )(High Court) www.itatonline.org
4.5. Failure to Fulfill Conditions
§ Attached to a stay order, the stay automatically gets vacated. This is because in such a case, what is granted is only a conditional stay, that is, subject to fulfillment of the conditions. The Tribunal, in such a case, may refuse to stay, or extend the stay of, the recovery proceedings upon non fulfillment of the conditions imposed by it.
Sachdeva& Sons vs. UOI – (2003) 264 ITR 695 (P&H) (High Court)
Endeavour Investments Ltd. vs. Dy. CIT – (1999) 70 ITD 17 (Chennai) (TM)].
§ As per Instruction: No. 12/2004, dated 18/10/2004 the Board has issued instructions to safeguard the interest of revenue when stay is granted by Tribunal and High Court.
§ The condition of stay not complied with department will bring to the notice to the Tribunal or Court and Stay will be vacated.
4.6. Early hearing of appeals by the Tribunal
§ As per the minutes with President, ITAT Mumbai on 18-4-2012 www.itatonline.org, the registry will not reject any stay applications, letters etc. for being entertained except when appeal itself is defective.
The following appeals will be taken up for hearing if an application is made by an assessee.
(2)Appeals against orders under section 263,
(3) Appeals of senior Citizens aged above 70 years
(4) Appeals against orders passed ex-parte by CIT (A) etc
§ In most of the places the matters are taken up for hearing within one year of filing of appeal which has helped the assessee to get justice from the final fact finding authority within reasonable time.
The Income-tax Tribunal has set up E-Tribunal with effect from 10th December 2012, wherein the matters of Nagpur will be heard at Mumbai the detailed guidelines are published www.itatonline.org . This has helped the assessees to file a stay petition at Nagpur and matter will be heard at Mumbai. Where the benches are not functioning the assessee can request the Honourable President/Vice –President to fix his matter at nearby places so that the stay petition can be heard at the earliest.
5. Other issues .
5.1. Sick industrial Company.
§ Section 22(1) of the Sick Industrial Companies (Special Provisions)Act, 1985.
§ Tax dues cannot be recovered in the case of sick companies without obtaining consent of BIFR
Ezy Slide Fastners Ltd v. Jt CIT (2004) 269 ITR 548 (Guj)(High Court)
Dy CTO v. Coromandel Pharmaceutical &Ors (1997) 105 STC 327 (SC)
The Gram Panchyat and another v. Shree Vallabh Glass Works Ltd and another AIR 1990 SC 1017
Maharashtra Tube Ltd v. State Industrial &Investment Corporation of Maharashtra Ltd (1993) 2 SC C 144
§ Power of Company court Section 446(2)(b) of the Companies Court overrides all other Acts .Claim of tax authorities for interest under section 220(2) was rejected .
Catholic Centre v. Pilot Pen Co ( India ) (P) Ltd (In liquidation) (2003) 259 ITR 252 (Mad) (High Court)
5.2. Property Located outside India.
§ As per section 228A (2), if India has an agreement with the country, where the assets are located with the Country, the same can be attached through CBDT, if the tax is due in India from non-resident.
5.3. Direct taxes code
§ S. 222: Recovery of tax arrears in respect of non-resident from his assts –The amounts of tax arrears due from a non-resident may be recovered from-
(a) any asset of the non-resident , wherever located ; or
(b) any amount payable by any person to non-resident.
5.4. S. 281 :Certain transfers to be void
§ Circular no 179 dated September, 30 1975 ( 1976) 102 ITR (ST) 9 (19)
§ Under section 281 of the Act , transfer effected by an assessee during pendency of any proceeding under the Act with the intention to defraud the revenue are regarded as void as against any claim in respect of any tax or other sum payable by the assessee as a result of the completion of such proceedings, with certain exceptions.
§ S.281:No demand of tax pending against transferor at the time of transfer of property -Subsequent assessment of transferor -Recovery from a property already sold to a third person prior to raising of demand against transferee is not possible.
P. Kumar & Co v. UOI (1991) 190 ITR 672 (Bom)(High Court)
§ Property transferred by the assessee during pendency of recovery proceedings, can be attached and sold without filing suit. Notice to transferee is invariably not necessary before taking such action.
Karnail Singh v. UOI (2011) 63 DTR 336 (P&H) (High Court)
§ S.281: In respect of tax arrears of tax of husband no recovery proceedings can be taken against property purchased by the wife from the husband after obtaining I.T. Clearance certificate.
Ahuja Chaudhury v.UOI (1995) 214 ITR 326 ( Cal )(High Court)
§ IT authority do not have power to declare a transfer null and void. Suit be filed to have the transfer declared void.
Shamim Bano G. Rathi & Anr v. OBC Ltd. (2011) 306 ITR 34 (Bom)(High Court)
The question of validity of transfer arises only when a specific demands are made against properties and proceedings are taken to recover the same by proceedings against properties. Where the assessments made for the relevant assessment year had been set aside and as yet there was no demand outstanding for those years , it was held that properties in question could not be sold for recovery of any tax for said two assessment years .B.A. Basith v. ITO (1981) 128 ITR 434 (Kar) (High Court)
Priority of dues to Government –Secured creditor- Income-tax department by way of attachment of assets cannot claim for priority over secured creditor for realization of Income-tax due. (S.13, 35, Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (54 of 2002).
Asset Reconstruction Co (India) Ltd. v. CIT AIR 2012 (NOC) 196 (Guj.)(High Court)
Pendency of income tax proceedings- Transfer can be held void only if transferee had notice of pendency of income tax proceedings.
Tax Recovery Officer v. Industrial Finance Corporation of India and another (2012) 346 ITR 11 (Guj.)(High Court)
Direct taxes code – Fifth schedule- Mode of recovery : Rule 3(2)
(2) The defaulter’s moveable or immoveable property , referred to in sub-paragraphs (1) shall include any property transferred directly , or indirectly , otherwise than for adequate consideration by the defaulter to-
(a) his spouse ; or
(b) minor child
(3) In respect of any arrears due from the defaulter for the period to the date of attainment of majority by the minor child , the property shall continue to be included in the defaulter’s moveable or immoveable property even after the date
-No such provision under the present Schedule 2 Rule 4
As there is no time limit the gift to spouse or minor child may be challenged by the tax recovery Officer.
5.5. Priority for tax revenue over secured creditors.
Bank of India v. Johan Bowman AIR 1955 Bom. 305 (High Court)
Dena Bank v Bhiabhai Prabhudas Parekh (2001)247 ITR 165 (SC)
5.6. Power of arrest: Rule 73-Second schedule
§ Revenue can resort to attachment as well as arrest-Simultaneous execution both against the property and person of judgment debtor is allowed.
Padrauna Raj Krishna Sugar works Ltd v. Land Reforms Commissioner, UP and others (1970) 75 ITR 358(SC)
K.T.Thomas v. CIT (1990) 185 ITR 292 (Ker)(High Court)(SLP dismissed (1988) 173 ITR (ST)1(SC).
§ For tax arrears of HUF , arrest and detention of members of HUF cannot be made; however, Karta of HUF deemed to be defaulter .
Kapurchand Shrimal v. TRO (1969) 72 ITR 623 (SC)
§ When a firm is in default, if partner of firm is treated as assessee in default, he can be arrested. Partner is not immune from arrest in the proceedings for recovery of income tax due.
S. M. Ibrahim v. Dy Collector Sales tax (1978) CTR 356 (All) (High Court)
§ Legal representatives cannot be arrested for tax arrears of deceased.
Prohibition against arrest of women or minor etc.
Rule 81 –Schedule 11 of Income-tax Act.
The Tax recovery Officer shall not order the arrest and detention in the civil prison of-
a) A woman or
b) Any person who is opinion of minor or of un sound mind .
Defaulter attending the Tribunal in connection with the matter cannot be arrested –Section 135 of CPC.
As per section 135 of CPC no person who is going to or attending such tribunal for the purpose of such matter and while returning from such Tribunal in connection with any litigation in which such person is connected ,pending before such Tribunal shall not be arrested .
§ The object of Rule 73 is not to punish the defaulter but to recover the arrears of tax.
§ On payment of due amount by defaulter, he can be entitled to be released from custody.
Collector of Malbar and another v. Erimmal Ebrahim Hajee (1957) 32 ITR 124(132) (SC)
6. Accountability provision.
Dr Raja Chelliah in his report( 1992) 197 ITR 177(st) para. 5.9 P. 257 ,has stated that there has to be accountability provision in the provision. Unless some accountability provision is introduced honest assessees will suffer. Professional organization like BCAS, can play a proactive role by making representation to the Government to introduce accountability provision in the statute itself. As per the Article 265 of the Constitution of India “no tax shall be levied or collected except by authority of law”. It is the duty of tax professional to advice the assessees to pay the tax what is rightfully due to the Government and it is the responsibility of the tax officials to collect the revenue what is rightfully due to the Government by following due process of law.
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Very useful information to all tax consultants . It is desired that the learned author may be requested to up date the article with latest case laws
The suggestions/advices provided are in simple language which any body can understand and act accordingly. It is very useful to the Professionals, individual assessee as well as to the departmental authorities. Thanks a lot for providing valuable details.
Very valuable article for professionals & deptt personnel
It is superb issue and it would help a lot to the young practitioner who is to defend the issue before appropriate forum
A very good compilation on a burning issue which is a bone of contention between the department, assessees and the consultants. It will help the consultants as well as assessees to represent their case properly with a detailed application vis-a-vis their facts. Thanks Sir.
Dr Shivram is both a scholar and good Advocate, who take trouble to explain the law through this site. He is also a wonderful human being and has devoted time to explain in detail the intricaciies of the law. May he continue his good work
good article. Mr. Shivram corectly high lighted article 265 per Chelliah committee report. Besides time barred debt cannot be subject to sec 226(3) as Limitation Act 1963 does not provide for any exceptions to recover, time bared debt in favor of revenue too.
When Notice u/s 144 r/w 143(2) or 142(1) when issued by oversight by AO after 12 months of filing return also clearly falls under this limitation, as rule of law has to be honored by every public servant, else IPC 166 will definitely apply on public servant for misuse of his power. that aspect is also be noted.
But of late Notices beyond 12 months limitation surface for ulterior reasons every where.
public officers need to be careful lest they cross Lakshman Rekha prescribed for them,as there are several SC judgements are there. Over all Dr. shivram approach is fine and every CIT(A) OR ITAT need to appreciate well and apply.
Thanx a lot for sharing valuable information
Sir The Article/views/case laws are good one and will help the professional.Thanks
Excellant one.. Thank you for sharing it…
Very good article, and very useful in today’s practice when department is aggressive in recovering the assessed Tax.