Wp/23025/2002 Of Sri.b.m.malani v. Commissioner Incometax Dept Hyd And 2 Othe

IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD (Special Original Jurisdiction) FRIDAY, THE TWENTY SEVENTH DAY OF AUGUSTTWO THOUSAND AND FOUR PRESENT THE HON'BLE MR JUSTICE BILAL NAZKI and THE HON'BLE MR JUSTICE P.S.NARAYANA WRIT PETITION NO : 23025 of 2002 Between:B.M. Malani s/o Mohanlal Malani, aged 65 years, occ: business r/o 1-11-219, Begumpet,Hyderabad ..... PETITIONER AND 1. The Income Tax Department, represented by its Commissioner,Bashirbagh, Hyderabad;Bashirbagh, Hyderabad; 2. The Income Tax Officer, Ward No. 10 (1), Government of India, Hyderabad; 3. Unit Trust of India, represented by the Branch Manager, Chennai. .....RESPONDENTS Petition under Article 226 of the constitution of India praying that in thecircumstances stated in the Affidavit filed herein the High Court will be pleased toissue a writ, order or direction in the nature of Mandamus or otherwise declaring thatthe action of the 2[nd] respondent in invoking the powers under Section 226 (3) of theIncome Tax Act and attaching the petitioner’s units and the further action of the 3[rd]respondent in resorting to distress sale of the petitioner’s units which were attachedby the 2[nd] respondent under his proceedings dt. 8.3.2002 is illegal, arbitrary andultra vires the powers of the respondent and consequently direct the respondents,particularly the 3[rd] respondent to restore the petitioner’s units by its face value and/ordeposit the difference of value of Rs.21.31 lakhs to the petitioner’s account withinterest at such rate as this Hon’ble Court deems fit and proper together with dividends from the date of attachment including costs of this writ petition. Counsel for the Petitioner: MR.VILAS V.AFZULPURKARCounsel for the Respondent No.1 and 2: MR.J.V.PRASADCounsel for the respondent No.3: Mr. Ch. Ramesh Babu, The Court made the following : HON’BLE MR. JUSTICE BILAL NAZKI AND HON’BLE MR. JUSTICE P.S. NARAYANA W.P.NO. 23025 OF 2002 ORDER: (Per Hon’ble Mr. Justice Bilal Nazki) A short question is involved in this writ petition. The petitioner isan assessee of the Income Tax Department. For the assessmentyears 1988-89 and 1990-91 to 1995-96 pursuant to the orders dated2.12.1999 the 2[nd] respondent determined the tax at Rs.1,76,80,735/-payable by the petitioner to the department. A demand notice wasissued on 11.2.2000 to the petitioner asking him to pay the tax by12.4.2000. The demand notice contained certain mistakes and on anapplication filed by the petitioner, the notice was rectified by the 2[nd]respondent on 8.3.2002 and the tax was revised to Rs. 157.77 lakhs.The petitioner contended that he had disposed of some properties in1998 and invested sale proceeds in a sum of Rs.65.00 lakhs with the3[rd] respondent in the units of Monthly Income Plan 1998-III underCapital Gains Scheme and had sought exemption under Section 54EA of the Income Tax Act (for short “IT Act”). The said units weretransferable after three years of deposit i.e., in September, 2001 onface value of Rs.10/- per unit. The said units could also be redeemedby the 3[rd] respondent at Rs.10/- per unit after five years i.e., inSeptember, 2003. The said amount of Rs.65.00 lakhs was, therefore, fully secured under the said units with the 3[rd] respondent. Since therewas some time for maturity of the units, the petitioner had sought timefor payment of tax till September, 2001 from Income Tax SettlementCommissioner, Chennai. Once again he moved an application on4.2.2002 before the Settlement Commissioner seeking extension oftime till 31.5.2002. Along with the application he deposited an amountof Rs.25.00 lakhs on 31.1.2002 to prove his bonafides. As such thetotal deposits made by the petitioner was Rs. 92.04 lakhs uptoOctober, 2000. On 31.1.2002 he made further deposit of Rs.25.00lakhs. The total amount deposited by him was Rs.117.04 lakhs. Onlya balance of Rs.40.73 lakhs was due and the petitioner had the unitsin the face value of over Rs.65.00 lakhs. He was waiting for theorders of the Settlement Commissioner on the application made byhim on 4.2.2002. In the meantime, it appears, the 2[nd] respondentissued attachment proceedings under Section 226 (3) of the IncomeTax Act on 8.2.2002 and the units of the petitioner with the 3[rd]respondent were attached. The petitioner was neither aware of thesame nor was given any notice. It was only on 15.2.2002 that the 2[nd]respondent addressed a separate notice to the petitioner informinghim of the attachment of the units. The said notice and theattachment of the petitioner’s units was in the nature of garnisheeorder to the 3[rd] respondent. It is further contended that even if it isassumed that the attachment made by the 2[nd] respondent was valid,the 3[rd] respondent was merely obliged to hold the money that wouldbecome due to the petitioner on the said units and since the saidunits were under the lock-in period under the Capital Gains Schemeand were within the hold and control of the 3[rd] respondent, he couldnot have sold them. It is further contended that it was a matter ofrecord that on account of mismanagement and change in policy ofUnit Trust of India, the face value per unit had fallen to Rs.7.00 perunit in September, 2001 as against Rs.10.00 and the said marketvalue of the units was not improved thereafter. The petitioner was,therefore, hoping to redeem the said units at the face value of Rs.10.00 and he requested the Settlement Commissioner to extendthe time for payment of balance amount till 31.5.2002. It is contendedthat the petitioner’s units in the hands of 3[rd] respondent were onlyattached by the 2[nd] respondent under Section 226 (3) of the IncomeTax Act. The 3[rd] respondent on his own resorted to unauthorizeddistress sale of the units of the petitioner and thereby the petitionerincurred loss of Rs.3.07 ps. per unit. The action of the 3[rd] respondentin resorting to sale of the units was wholly unwarranted, unauthorizedand without notice and consent of the petitioner. The original recordspertaining to the units remained with the petitioner. The proceedingsissued by the 2[nd] respondent seeking attachment under Section 226(3) of the Income Tax Act did not warrant the 3[rd] respondent to resortto distress sale of the petitioner’s units in such a hasty manner. Thepetitioner had invested Rs.65.00 lakhs with the 3[rd] respondent. Thepetitioner was also receiving the dividends on the units annually atRs.8,12,500/- being 12.5% free from income tax and as such besideshaving loss of Rs.21.31 lakhs because of the sale of his units, thepetitioner has also suffered loss of income at Rs.8.12 lakh per annumby way of dividends. The petitioner also challenged the order bywhich some interest was levied on him. Section 226 (3) (i) of the Income Tax Act lays down, Section 226 (3) (i) of the Income Tax Act lays down, “(i) The (Assessing) Officer (or Tax RecoveryOfficer) may, at any time or from time to time, by notice inwriting require any person from whom money is due ormay become due to the assessee or any person whoholds or may subsequently hold money for or on accountof the assessee, to pay to the (Assessing) Officer (or TaxRecovery Officer) either forthwith upon the moneybecoming due or being held or at or within the timespecified in the notice (not being before the moneybecomes due or is held) so much of the money as issufficient to pay the amount due by the assessee inrespect of arrears or the whole of the money when it isequal to or less than that amount.” A perusal of Section 226 (3) (i) of the IT Act shows that theproceedings under this provision are in the nature of garnisheeproceedings. Attachment of a debt would mean that a creditor wouldreach money due from a third party to the debtor. The money shouldbe either due or it should become due to the assessee or any personwho holds or may subsequently hold money for or on account of theassessee. So the prerequisite for exercise of power under Section226 (3) of the IT Act is that the person to whom the notice under thissection is issued should be holding money on behalf of assessee orit should become due to him some time in future. What was attachedunder the impugned notice by the Income Tax Officer was notmoney, but were the units held by the assessee with the 3[rd]respondent. These units were transferable units and their value hadnot become due to the assessee on the day the notice was given.Thus, in our opinion, no money was due to the assessee from 3[rd]respondent at the time of the impugned notice, it would have becomedue on maturity of the units. Therefore, the whole exercise wasillegal. The 3[rd] respondent purchased the units held by the assesseeprematurely without his permission, transferred the units to himself ona value decided by him and submitted some money to the IncomeTax Department. That is not the purport of Section 226 (3) of the Act.Even the Income Tax Department in its counter-affidavit stated thatthough the units have been attached, the UTI ought to have obtainedthe consent of the petitioner before sale and as such the loss, if any,on account of sale cannot be attributed to the 2[nd] respondent. In the counter-affidavit filed by the 3[rd] respondent-UTI it hasbeen stated in para 5 (ii), “In reply to Para-4, I submit that the investmentmade by the petitioner in the Monthly Income Scheme(98) (III) under Capital gain exemption and the unit holdercan transfer the units purchased after 3 years and therepurchase price will be based on the Net Asset Value(NAV) of the scheme on the units. Hence the contentionof the petitioner that the units held by him will betransferable after 3 years of deposit at par on face value of Rs.10/- per unit is not correct and is hereby denied. Asa matter of fact the units held by the petitioner under thescheme can be redeemed at par @ 10/- per unit aftercompletion of 5 years but not otherwise. Hence all theadverse allegations made in Para-4 are hereby denied.” In any case the redemption value of the units was Rs.10/- perunit after five years, therefore the petitioner is entitled to face value ofRs.10/- per unit as admittedly five years have passed from the date ofinvestment. In the result, the transfer of units of the petitioner to UTI by the3[rd] respondent is quashed. Since the tax has already been paid,therefore in the interest of justice, we direct the 3[rd] respondent tocalculate the face value of the units of the petitioner at Rs.10/- perunit and pay the difference to the petitioner. The writ petition isaccordingly disposed of. No costs. _______ BN J. Dt. 27.8.2004 KR _______PSN J. Sd/-Asst. Registrar Section Officer One Fair copy to the Hon’ble Mr. Justice Bilal Nazki (for his Lordship’s kindperusal) One Fair copy to the Hon’ble Mr. Justice P.S. Narayana (for his Lordship’skind perusal) To In the result, the transfer of units of the petitioner to UTI by the3[rd] respondent is quashed. Since the tax has already been paid,therefore in the interest of justice, we direct the 3[rd] respondent tocalculate the face value of the units of the petitioner at Rs.10/- perunit and pay the difference to the petitioner. The writ petition isaccordingly disposed of. No costs. _______ BN J. Dt. 27.8.2004 KR _______PSN J. Sd/-Asst. Registrar Section Officer One Fair copy to the Hon’ble Mr. Justice Bilal Nazki (for his Lordship’s kindperusal) One Fair copy to the Hon’ble Mr. Justice P.S. Narayana (for his Lordship’skind perusal) To 1. The Income Tax Department, represented by its Commissioner,Bashirbagh, Hyderabad;Bashirbagh, Hyderabad; 2. The Income Tax Officer, Ward No. 10 (1), Government of India, Hyderabad; 3. Unit Trust of India, represented by the Branch Manager, Chennai. 4. (8) L.R. Copies 5. The Under Secretary, Union of India, Ministry of Law, Justice and CompanyAffairs, New Delhi.Affairs, New Delhi. 6. The Secretary, A.P. Advocates’ Association Library, High Court Buildings,Hyderabad.Hyderabad. 7. 2 CCs to J. V. Prasad, Standing Counsel for Income Tax Department, HighCourt buildings, Hyderabad.Court buildings, Hyderabad. 8. 2 CD copies