# THIRD INCOME-TAX OFFICER, MANGALORE v. M. DAMODAR BHAT

- **Citation:** [1969] 2 S.C.R. 29
- **Court:** Supreme Court of India
- **Decided:** 1968-09-06
- **Case number:** Civil Appeal No. 1654 of 1967
- **Bench:** J. C. Shah, V. Ramaswami, A. N. Grover
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/third-income-tax-officer-mangalore-v-m-damodar-bhat-4499
- **Pages:** 12

## Headnote

Income-tax Act, 1961, ss. 226(3), 297(2) (j)-Scope of.-Whether
provisions of s. 226( 3) available for recovery of tax assessed under the
Income-tax Act, 1922.-If assessee must be "in default" before a notice
under s. 226(3)
can
issue.-Effect of s. 297(2)(j)-After notice of
demand under s. 156 whether tax "due from the assessee'' to enable notice
under s. 226(3) to be issued.
By a writ petition under Article 226 of the Constitution the respondent
challenged the validity of a notice under s. 226(3) of the Income-tax Act,
1961, in respect of tax due from him 'for the four assessment years from
1960-61 to 1963-64 and penalty for the assessment year 1962-63.
For the assessment year 1961-62 the assessment proceedings against
the respondent were taken and concluded under the Income-tax
Act,
1922, and as a result of an appeal filed by the respondent, the tax liability
was reduced by the Appellate Assistant Commissioner. The I.T.O. thereafter issued a notice to the respondent on December 11, 1963, under
s. 156 of the 1961 Act requiring him to make payment within 35 days.
This period expired on January 22, 1964.
The impugned notice under
s. 226(3) was issued much later on April 23, 1965. It was contended
on behalf of the ·respondent that both the assessment order as well as the
appellate order having been made under the 1922 Act, the provisions of
s. 226 o'f the 1961 Act were not
applicable.
As regards the penalty
sought to be recovered under the impugned notice for the assessment year
1962-63 and tax for 1963-64, it was contended by the respondent that as
notices of demand had been served on him for payment of the two sunm
and the time given in the notice was due to expire on May 21, 1965, the
impugned notice dated April 23, 1965 issued prior to the expiry of the
time given to him was illegally issued; furthermore,
the amount of tax
must be "due to be· paid'' by the assessee before a notice can be issued
under s. 226(3) of the 1961 Act.
In respect of the assessment for
1960-61, it was contended before the High Court that the I.T.O. did not
proper! y exercise the statutory discretion vested on him in issuing
the
impugned notice when there was an appeal pending a2ainst the order of
assessment before the Appellate Assistant Commissioner.
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The High Court allowed the petition and accepted all the respondent's
contentions. It also held that action under s. 226 of the 1961 Act was
possible only in the case of an assessee' who was "in default" and that in
the case of an assessment under the 1922 Act, no notice under s. 156 of
the new Act was possible and there was no way of taking advantage df
the provisions for the recovery and collection of tax contained in ss. 220
to 234 of the new Act.
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On appeal to this Court,
HELD : The impugned notice under s. 226(3)
was
valid and the
writ petition must be dismissed.
30
SUPREME COURT REPORTS
[1969] 2 S.C.R.
(i) The Income-tax Officer had authority to issue the notices under
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s. 156 and s. 226(3) of the new Act with respect to the liability of the
respondent under the old Act. The High Court was therefore in error
in holding that the impugned notice was inoperative in regard to the
amount to be recovered for the assessment year 1961-62. [37 DJ
The High Court had wrongly based its opinion on the premise that all
recoveries are possible "only when the stage mentioned in s. 220( 4) was
reached, namely, that the assessee had become or deemed to have been an
assessee "in default" and the action under s. 226 could be taken only
when an assessee was in default. The effect of the reasoning adopted by
the High Court on this point is that the provisions of s. 297(2) of the
new Act are nullified and an interpretation of s. 226(3) of the new Act
which leads to such a startling result should be avoided as it is opposed
to all sound canons of interpretation. [37 E-G]
In a case falling withins. 297(2) (j) of the new Act, for example in a
proceeding for recovery df tax and penalty imposed under the old Act, it
is no

## Text

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THIRD INCOME-TAX OFFICER, MANGALORE
v.
M. DAMODAR BHAT
September 6, 1968
(J. C. SHAH, V. RAMASWAMI AND A. N. GROVER, JJ.]
Income-tax Act, 1961, ss. 226(3), 297(2) (j)-Scope of.-Whether
provisions of s. 226( 3) available for recovery of tax assessed under the
Income-tax Act, 1922.-If assessee must be "in default" before a notice
under s. 226(3)
can
issue.-Effect of s. 297(2)(j)-After notice of
demand under s. 156 whether tax "due from the assessee'' to enable notice
under s. 226(3) to be issued.
By a writ petition under Article 226 of the Constitution the respondent
challenged the validity of a notice under s. 226(3) of the Income-tax Act,
1961, in respect of tax due from him 'for the four assessment years from
1960-61 to 1963-64 and penalty for the assessment year 1962-63.
For the assessment year 1961-62 the assessment proceedings against
the respondent were taken and concluded under the Income-tax
Act,
1922, and as a result of an appeal filed by the respondent, the tax liability
was reduced by the Appellate Assistant Commissioner. The I.T.O. thereafter issued a notice to the respondent on December 11, 1963, under
s. 156 of the 1961 Act requiring him to make payment within 35 days.
This period expired on January 22, 1964.
The impugned notice under
s. 226(3) was issued much later on April 23, 1965. It was contended
on behalf of the ·respondent that both the assessment order as well as the
appellate order having been made under the 1922 Act, the provisions of
s. 226 o'f the 1961 Act were not
applicable.
As regards the penalty
sought to be recovered under the impugned notice for the assessment year
1962-63 and tax for 1963-64, it was contended by the respondent that as
notices of demand had been served on him for payment of the two sunm
and the time given in the notice was due to expire on May 21, 1965, the
impugned notice dated April 23, 1965 issued prior to the expiry of the
time given to him was illegally issued; furthermore,
the amount of tax
must be "due to be· paid'' by the assessee before a notice can be issued
under s. 226(3) of the 1961 Act.
In respect of the assessment for
1960-61, it was contended before the High Court that the I.T.O. did not
proper! y exercise the statutory discretion vested on him in issuing
the
impugned notice when there was an appeal pending a2ainst the order of
assessment before the Appellate Assistant Commissioner.
G
The High Court allowed the petition and accepted all the respondent's
contentions. It also held that action under s. 226 of the 1961 Act was
possible only in the case of an assessee' who was "in default" and that in
the case of an assessment under the 1922 Act, no notice under s. 156 of
the new Act was possible and there was no way of taking advantage df
the provisions for the recovery and collection of tax contained in ss. 220
to 234 of the new Act.
H
On appeal to this Court,
HELD : The impugned notice under s. 226(3)
was
valid and the
writ petition must be dismissed.
30
SUPREME COURT REPORTS
[1969] 2 S.C.R.
(i) The Income-tax Officer had authority to issue the notices under
A
s. 156 and s. 226(3) of the new Act with respect to the liability of the
respondent under the old Act. The High Court was therefore in error
in holding that the impugned notice was inoperative in regard to the
amount to be recovered for the assessment year 1961-62. [37 DJ
The High Court had wrongly based its opinion on the premise that all
recoveries are possible "only when the stage mentioned in s. 220( 4) was
reached, namely, that the assessee had become or deemed to have been an
assessee "in default" and the action under s. 226 could be taken only
when an assessee was in default. The effect of the reasoning adopted by
the High Court on this point is that the provisions of s. 297(2) of the
new Act are nullified and an interpretation of s. 226(3) of the new Act
which leads to such a startling result should be avoided as it is opposed
to all sound canons of interpretation. [37 E-G]
In a case falling withins. 297(2) (j) of the new Act, for example in a
proceeding for recovery df tax and penalty imposed under the old Act, it
is not required that all the sections of the new Act relating to recovery
and collection should be literally applied but only such of the sections will
apPly as are appropriate in the particular case and subject, if necessary,
to suitable modifications.
In other words, the procedure of the new Act
will apply to the cases
contemplated by s. 297(2) (j)
of the new Act
mutatis mutandis. [37 H-38 A]
Kalawati Devi Harlalka v. C.J.T., West Bengal, 66 I.T.R. 680; referred
to.
(ii) The assessments of tax and penalty for 1962-63 and 1963-64 had
been made against the respondent and the demand notices had also been
issued under s. 156 df the new Act. It was not therefore possible to contend that the amount of tax and penalty we·re not "due from the assessee"
on April 23, 1965 when the impugned notice under s. 226(3) was issued.
(38 H, 39 B-C]
Kesoram Industries & Cotton Mills Ltd. v. Commissioner of Wealthtlix (Central), Calcutta, (1966] 2 S.C.R. 688, referred to ..
(iii) The finding of the High Court that the Income-tax Officer was
not shown to have applied his mind to any of the facts
relevant to the
proper exercise of his discretion in relation to the assessment for the
year 1960-61 could not be upheld as the respondent had not alleged any
specific particulars in his writ petition in support df his case that the
I.T.0. had exercised his discretion in an arbitrary manner. [39 FJ
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1654 of
1967.
Appeal from the judgment and order dated February 1, 1967
~f the Mysore High Court in Writ Petition No. 846 of 1965.
B. Sen, R. Gopalakrishnan, R. N, Sachthey and B. D. Bharma
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for the appellant.
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K. Srinivasan, M. K. Ramamurthi, Vineet Kumar and Shyamala Pappu, for the respondent.
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I.T.O. v. DAMODAR (Ramaswami, J.)
31
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The Judgment of the Court was delivered by
Ramaswami, J. This appeal is brought by certificate on behalf
of the ill Income Tax Officer, Mangalore from the judgment of
the Mysore High Court dated February l, 1967 in Writ Petition
No. 846 of 1965 holding that the notice under s. 226 ( 3) of the
B
Income Tax Act, 1961, hereinafter called the 'new Act', bearing
No. 770-d/60-61, 61-62, 62-63 and 63-64 issued by the ill
Income Tax Officer to M/s. Rajarajeswari Motor Service, Mangalore, prodluced as Ex. VIII with the writ petition was invalid and
inoperative in respect of the following item:s of tax and penalty
included therein :-
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1. T·ax for the assessment year 1960-61, Rs. 7,056.50
2. Tax for the assessment year 1961-62, Rs.
485.55
3. Penalty for 1962-63
Rs. 1,890.00
4. Tax for the assessment year 1963-64 Rs. 64,307.00
and quashing the notice to that extent.
The impugned notice was issued under s. 226 ( 3) of the new
Act.
The respondent, Sri M. Damodar Bhat was in arrears in
respect of income-tax and penalty levied on him in respect of three
or four assessment years. The total amount shown as due in the
notice was Rs. 74,086.02 and was made up as follows :
1. Tax for the assessment year
1960-61;
2. Tax for the assessment year
1961-62;
3. Balance of tax for the assessment year 1962-63;
4. Penalty for assessment year
1962-63
5. Tax for the assessment year
1963-64
Rs.
7,056.15
Rs.
485.55
Rs.
346.42
Rs.
1,890.00
Rs. 64,307.90
Rs. 74,086.02
It is necessary at this stage to set out the relevant provisions
of the Income Tax Act, 1961 (Act 43of1961) and of the Income
Tax Act, 1922 (Act 11 of 1922), hereinafter referred to as the
'old Act'.
Section 156 of the new Act is to the following effect:
"Notice of
demand.-When any tax,
interest,
penalty, fine or any other sum is payable in consequence
32
SUPREME COURT REPORTS
[1969] 2 S.C.R.
of any order passed under this Act,
the Income-tax
Officer shall serve upon the assessee a notice of demand
in the prescribed form specifying the sum so payable."
Sections 220, 221 and 222 of the new Act provide :
"220. When tax payable and when assessee deemed
in default.-( 1) Any amount, otherwise than by way
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of advance tax specified as payable in a notice of
demand under Section 15 6 shall be paid within thirtyfive days of the service of the notice at the place and to
the person mentioned in the notice :
(2) · If the amount specified in any notice of demand
under Section 156 is not paid within the period limited
under sub-section ( 1), the assessee shall be liable to
pay simple interest at nine per cent per annum from
the day commencing after the end of the period mentioned in sub-section ( 1) :
( 4) If the amount is not paid within the time
limited under sub-section ( 1) or extended under subsection ( 3), as the case may be, at the place and to
the person mentioned in the said notice the assessee shall
be deemed to be in default.
( 6) Where an assessee has presented an
appeal
under Section 246 the Income-tax Officer may, in his
discretion, and >ubject to such conditions as he may
think fit to impose in the circumstances . of the case,
treat the assessee as not being in default in respect of
the amount in dispute in the appeal, even though the
time for payment has expired, as long as such appeal
remains undisposed of.
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221. Penalty payable when tax in default.-( 1)
When an assessee is in default or is deemed to be in
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default in making a payment of tax, he shall, in addition to the amount of the arrears and the amount of
interest payable under sub-section ( 2) of Section 220,
be liable to pay by way of penalty, an amount which, in
the case of a continuing default, may be increased from
time to time, so, however, that the total amount of
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penalty does not exceed the amount of tax in arrears :
Provided' that before levying any such penalty the
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1,T.O. v. DAMODAR (Ramaswami, !.)
assessee shall
be given a reasonable opportunity of
being heard.
( 2) Where as a result of any final order the amount
of tax, with respect to the default in the payment · of
which the panalty was levied, has been wholly reduced,
the penalty levied shal! be cancelled and the amount of
penalty paid shall be refunded.
222. Certificate
to Tax Recovery Officer.-(1)
When an assessee is in default or is deemed to be in
default in making a payment of tax, the Income-tax
Officer may forward to the Tax Recovery Officer a
certificate under his signature specifying the amount of
arrears due from the assessee, and the Tax Recovery
Officer on receipt of such certificate, shall proceed to
recover from such assessee the amount specified therein
by one or more of the modes mentioned below,
in
accordance with the rules laid
down in the Second
Schedule-
(a) attachment and sale of the assessee's movable·
property;
(b) attachment and sale of the assessee's immovable·
property;
( c) arrest of the assessee and his
detention
in
prison;
( d) appointing
a receiver for the management of
the assessee's movable and immovable properties.
( 2) The Income-tax Officer may issue a certificate
under sub-section ( 1), notwithstanding that proceedings for recovery of the arrears by any other mode have·
been taken."
Section 226 states as follows :
"226. Other modes of recovery.-(1) Notwithstanding the issue of a certificate to the Tax Recovery
Officer under Section 222, the Income-tax Officer may
recover the tax by any one or more of the modes provided in this section.
(3) (i) The Income-tax 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 Income-tax Officer either forthwith upon the
34
SUPREME COURT REPORTS
[1969] 2 s.c.R.
money becoming due or being held or at or within the
time specified in the notice (not being before the money
becomes due or is held), 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 it is
equal to or less than that amount.
(ii) A notice under this sub-section may be issued
to any person who holds or may subsequently hold any
money for
OT on account of the assessee jointly with
any other person and for the purposes of this sub-section, the shares of the joint-holders in such account
shall be presumed, until the cogtrary is proved to be
equal.
(iii) A copy of the notice shall we forwarded to
the assessee at his last address known to the Incometax Officer, and in the case of a joint account to all the
joint-holders at their last addresses known to the Incometax Officer.
(iv) Save as otherwise provided in this sub-section,
every person to whom a notice is issued under this subsection shall be bound to comply with such notice, and,
in particular, where any such notice is issued to a post
office, banking company or an insurer, it shall not be
necessary for any pass book deposit receipt, policy or
any other document to be produced for the purpose of
any entry, endorsement or the like being made before
payment is made withstanding any rule, practice or
requirement to the contrary.
( v) Any claim respecting any property- in relation
to which a notice under this sub-section has beoo issued
arising after the date of the notice shall be void as
against any demand contained in the notice.
( x) If the person to whom a notice under this subsection is sent fails to make payment in pursuance
thereof to 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
it were an arrear of tax due from him, in the manner
provided in Sections 222 to 225 and the notice shall
nave the same effect as an attachment of a debt by the
Tax Recovery Officer in exercise of his powers under
'Section 222.
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I,T.O. v. DAMODAR (Ramaswami, J,}
Section 297 provides as follows :
"297. Repeals and
savings.-(1)
The Indian
Income-tax Act, 1922 ( 11 of 1922), is hereby repealed.
( 2) Notwithstanding the repeal of the Indian
Income-tax Act, 1922 ( 11 of 1922), (hereinafter referred to as the repealed Act) ,-
(g) any proceeding for the imposition of a pe;nltlty
in respect of any assessment for the year ending on the
31st day of March, 1962, or any earlier year, which
is completed on or after the 1st day of April, 1962,
may be initiated and any such penalty may be imposed
under this Act;
(j) any sum payable by way of income-tax, supertax, interest, penalty or otherwise under the repealed
Act may be recovered under this Act, but without prejudice to any action already ta.ken for the recovery of
such sum under the repealed Act;
Section 29 of the old Act reads :
"When any tax, penalty or interest is due in consequence of any order passed under or in pursuance of
this Act, the Income-tax Officer sha]] serve upon the
assessee or other person liable to pay such tax, penalty
or interest a notice of demand in the prescribed form
specifying the sum so payable."
Section 6 of the General Clauses Act, (Act 10 of 1897) states:
"Effect of repeal.-Where this Act, or any
Central
Act or Regulation made after the commencement of
this Act, repeals any enactment hitherto made or hereafter to be made, then, unless a different intention appears, the repeal shall not-
( a) revive anything not in force or existing at the
time at which the repeal takes effect; or
(b) affect the previous operation of any enactment
so repealed or anything duly done or suffered
thereunder; or
36
SUPREME COURT REPORTS
[l969J 2 S.C.R.
( c) affect any right, privilege, obligation or liability
acquired, accrued or incurred under any enactment so repealed; or
( d) affect any penalty, forfeiture
or
punislunent
incurred in respect of any offence committed
against any enactment so repealed; or
( e) affect any investigation, legal
proceeding
or
remedy in respect of any such right, privilege,
obligation,
liability,
penalty,
forfeiture,
or
punishment as aforesaid;
and any such investigation, legal proceeding or remedy
may be instituted, continued or enforced, and any such
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penalty, forfeiture or punislunent may be imposed as
if the repealing Act or Regulation had not been passed."
As regards the second item in the impugned notice, viz., tax
in respect of assessment year 1961-62 to the extent of Rs. 485.55
the material facts are as follows : The assessment proceedings
were taken and concluded under the old Act and tax of Rs.
2,947.56 was imposed and demanded.
Thereafter, the respondent preferred an appeal to the Appellate Assistant Commissioner.
In appeal the tax liability was reduced to Rs. 485.55.
Thereupon
the Income Tax Officer issued a notice to the respondent dated
December 11, 1963 purporting to be under s. 156 of the new
Act.
The limit of 35 days for payment of the amount expired
on January 22, 1964.
The impugned notice under s. 226(3)
was issued nearly two years thereafter on April 23, 1965.
The
argument on behalf of the respondent was that both the assessment order as well as the appellate order having been made under
the old Act, the provisions of s. 226 of the new Act were not
applicable.
The High Court has accepted this contention of the
respondent and has held that the notice was invalid to the extent
it included the tax of Rs. 485.55 for the assessment year 1961-62.
The contention of the appellant is that the High Court was in error
in holding that ~ction under s. 226 of the new Act was possible
only in the case of an assessee who was "in default" and that in
the case of an assessment under the .old Act, no notice under
s. 156 of the new Act was possible and there was no way of taking advantage of the provisions for recovery and collection of tax
contained in ss. 220 to 234 of the new Act. In our opinion, the
argument on behalf of the appellant is well-founded and must be
accepted as correct.
In the first place, it is necessary to notice
that s. 220 ( 4) of the new Act mentions in what circumstances
the assessee shall be deemed to be in default and s. 222 provides
that when an assessee is in default or is deemed to be in default
in making payment of tax, the Income Tax Officer may forward
to the Tax Recovery Officer a certificate under his signature
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I,T.O. v. DAMODAR (Ramaswami, J.)
37
specifying the amount of arrears due from the assessee, and the
Tax Recovery Officer on receipt of such certificate, shall proceed
to recover from the assessee the amount specified therein by one
or more of the modes mentioned in the section.
Section 226,
however, provides for other methods of recovery and there is no
reference ins. 226(3) to any default on the part of the assessee.
Section 226 ( 3) merely states that the Income Tax 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 Income Tax
Officer either forthwith 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 it is equal to or less than that amount.
In a proceeding under s. 226 ( 3) of the new Act therefore it is
not necessary that the assessee should be in default or should be
deemed to be in default and no such condition or linritation is
inrposed by the language of that sub-section.
We are accordingly
of the opinion that the Income Tax Officer had authority to issue
the notice dated December 11, 1963 under s. 156 of the new Act
with respect to the tax liability of Rs. 485.55 incurred by the respondent under the old Act.
The High Court has expressed the
view that "iu the case of an assessment under the old Act no
notice under s. 156 of the new Act was possible", and "there was
no way of taking advantage of the provisions for recovery and
collection of tax contained in ss. 220 to 234 of the new Act".
The High Court has .based its opinion on the premise that all
recoveries are possible "only when the stage mentioned in
s. 220( 4) was reached, namely, that the assessee had become or
deemed to have been an assessee in default" and the action under
s. 226 could be taken only when an assessee was in default. In
our opinion, the reasoning adopted by the High Court and the
conclusion reached by it is not correct in law.
The effect of the
judgment of the High Court on this point is that the provisions of
s. 297(2) (j) of the new Act are nullified and declared to be of no
consequence.
An interpretation of s. 226 ( 3) of the new Act
which leads to such a startling result should be avoided as it is
opposed to all sound canons of interpretation.
As
we have
already stated, there is nothing in the language of s. 226 ( 3) of
the new Act to warrant the conclusion that the assessee should
be in default or should be deemed to be in default before the
issue of the notice under that sub-section. It is true that the
group of sections from s. 220 to s. 232 of the new Act are placed
under the heading "Collection and recovery''. But in a case fallH . ing withins. 297(2) (j) of the new Act, for example in a proce.eding for recovery of tax and penalty inrposed under the old Act,
it is not required that a]J the sections of the new Act relating to
recovery and collection should be literally applied but only such
38
SUPREME COURT REPORTS
[1969] 2 S.C.R.
of the sections will apply as are appropriate in the particular case
and subject, if necessary,
to suitable modifications.
In other
words, the procedure of the new Act will apply to the cases contemplated bys. 297(2)(j) of the new Act mutatis mutandis. In
this connection it is relevant to refer to the decision of this Court
in Kalawati Devi Harlalka v. C.l.T., West Bengal('), in which
it was pointed out that s. 6 of the General Clauses Act will not
apply in respect of those matters where Parliament had clearly
expressed its intention to the contrary by making detailed provisions for similar matters mentioned in that section.
For these
reasons we are of opinion that the Income Tax Officer had authority to issue the notices under s. 156 and s. 226(3) of the new
Act with respect to the liability of the respondent under the old
Act. The High Court was therefore in error in holding that the impugned notice was inoperative in regard to the amount of
Rs. 485.55 for the assessment year 1961-62.
As regards items 4 and 5 for the assessment years 1962-63
and 1963-64 the argument of the respondent is that the impugned
notice issued on April 23, 1965 was not legally valid as notices
of demand were served on the respondent for payment of these
sums and time given in this notice was due to exprre on May 21,
1965.
The impugned notice was issued on April 23, 1965, nearly
a month before that date.
As the tax and penalty covered by
the notice were not due till May 21, 1965 it was said that notice
of attachment under s. 226 ( 3) of the new Act could not legally
be issued on April 23, 1965. In our opinion, there is no warrant
for this argument.
As we have already observed, th;ere is noth~
ing in· the language of s. 226 ( 3) of the new Act to suggest that
the assessee must be in default before a notice under that subsection could be issued.
It is t11Ue that s. 220 of the new Act
deals with the question as to when the tax is payable and when
the assessee is deemed to be in default but so far as s. 226(3) of
the new Act is concerned, the question of any default of the
assessee is irrelevant.
It was argued by Mr. Srinivasan on behalf
of the respondent that the amount of tax must be "due to be paid"
by the assessee before a notice can be issued under s. 226(3) of
the new Act. It is not disputed in this case that the notices of
demand under s. 156 of the new Act were served on the respondent before the issue of the notice under s. 226 ( 3) of the new
Act. As pointed out by this Court in Kesoram Industries & Cotton
Mills Ltd. v. Commissioner of Wealth-Tax (Central), Calcutta (2),
the liability to pay income-tax is a present liability though the tax
becomes payable after it is quantified in accordance with ascertainable data and therefore the amount of the provision for payment of income-tax and super-tax in respect of the year of account
ending March 31, 1957 in that case, was a "debt owed" within the
(I) 66 !.T.R. 680.
(2) (1966) 2 S.C.R. 688.
A
B
c
•
I)
F
•
G
H
.,
A
B
c
D
E
F
G
H
I.T.O. v. DAMODAR (Ramaswami, /.)
meaning of s. 2(m) of the Wealth Tax Act and was as such
deductible in computing the net wealth. It was further observed
in that case that there was a perfected debt at any rak on the
last date of the accounting year and not a contingent liability. In
the present case, there is the additional circumstance that the
assessments of tax and penalty have been made against the respondent and demand notices have also been issued under s. 156 of
the new Act. It is therefore not possible to argue that the amount
of tax and penalty for the assessment years 1962-63 and 1963-64
were not "due by the assessee" on April 23, 1965 when the notice
under s. 226(3) of the new Act was issued.
We are accordingly
of the opinion that Mr. Srinivasan is unable to make good his
argument on this aspect of the case. It follows therefore that the
impugned notice dated April 23, 1965 was validly issued as regards items 4 & 5, viz., Penalty for assessment year 1962-63 i.e.,
Rs. 1,890/- and tax for the assessment year 1963-64 i.e.,
Rs. 64,307.90.
We proceed to consider the next question arising in this appeal,
viz., whether the High Court was right in taking the view that the
Income Tax Officer did not properly exercise the statutory discretion in issuing the impugned notice with regard to the first item,
viz., tax for the assessment year
1960-61 amounting to Rs.
7,056.15.
It was argued on behalf of the respondent that there
was an appeal pending with the Appellate Assistant Commissioner
against the order of assessment and therefore it was incumbent
upon the Income Tax Officer to exercise the statutory discretion
properly under s. 220(6) of the new Act in treating the assessee
as being in default.
The finding of the High Court is that the
Income Tax Officer "was not shown to have applied his mind to
any of the facts relevant to the proper exercise of his discretion'':
In our opinion, the finding of the High Court cannot be upheld,
because the respondent has not alleged in his writ petition any
specific particulars in support of his case that ·the Income Tax
Officer has exercised his discretion in an arbitrary manner. In
paragraph 12 (b) of the writ petition the respondent had merely
said that "the order of the Income Tax Officer made under s. 220
was arbitrary and capricious". No other particulars were given by
the respondent in his writ petition to show in what way the order
was arbitrary or capricious.
In the counter-affidavit the allegations of the respondent have been denied in this respect. We are
of opinion that in the absence of specific particulars by the respondent in his writ petition it is not open to the High Court to go
into the question whether the Income Tax Officer has arbitrarily
exercised his discretion. In the result we hold that the respondent
is unable to substantiate his case that the impugned notice is in
any way defective with regard to item no. 1 i.e., tax for the assessment year 1960-61 amounting to Rs. 7,056.15.
-40
SUPREME COURT REPORTS
[1969] 2 S.C.R.
For the reasons expressed we set aside the judgment of the
A
Mysore High Court dated February 1, 1967 and order that the
writ petition no. 846 of 1965 filed by the respondent should be
·dismissed.
We accordingly allow this appeal with costs.
iR.K.P.S.
Appeal al/owed.
l-;·