Income-Tax Officer, Madras Vs. Budha
Pictures, Madras  INSC 91 (5 April 1967)
05/04/1967 SIKRI, S.M.
CITATION: 1967 AIR 1547 1967 SCR (3) 425
Indian Income-tax Act, 1922, s. 46(5A)-Notice
under section to whom can be given-There must be subsisting relationship
between assessee and person to whom notice is given.
The respondent a film producing company was
served a notice under s. 46(5A) by the Income-tax Officer on June 18, 1957,
asking it to pay to the Income-tax Officer any amount due from the company or
held by it for or on account of 'B' an actor. On June 26, 1959 the company
replied that it had not engaged 'B' for its current production and there was no
contract with him and consequently it could not comply with the notice. On
March 28, 1960 the company signed a contract with 'B' agreeing to pay him Rs.
20,000 for a role in its current production. The amount was paid to him in
three installments on March 28, 1960, February 9, 1961 and March 18, 1961. On
March 22, 1961 the Income-tax Officer sent to the company another notice under
s. 46(5A) to which the company replied that there were no payment due and
payable to 'B' on the date of receipt of the notice. The Income-tax Officer
held that the payment of Rs. 20,000 to 'B' was in violation, of the notice
under S. 46(5A) issued on June 18, 1959 and requested the company to pay the
said amount to the Income-tax department. The company filed a writ petition in
the High Court which decided in its favour holding that the section required
the subsistence of a similar relationship as between a garnishee and the
assessee. The department appealed to this Court.
HELD : In s. 46(5A) the legislature
contemplates a subsisting relationship of which the Income-tax Officer gets
information and which can reasonably lead to the recovery of arrears. t429C]
The expression "may become due" or "may subsequently hold
money" suggest in the context a subsisting relationship between the person
served with a notice and the assessee;
e.g. assessee's employer or banker or debtor,
or a person paying an annuity to him; they do not suggest a bank which he has
never dealt with, a person he has never lent money to or dealt with, or all
persons who may possibly in the future employ an assessee out of job or work.
The section cannot apply to all possible employers or traders, [429F] Since
there was no subsisting relationship between the company and 'B' at the time
when the notice was issued the recovery of Rs. 20,000 from the company was not
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 401 of 1966.
Appeal by special leave from the judgment and
order dated October 10, 1963 of the Madras High Court in Writ Petition No. 71
T.V. Viswanatha Iyer, S. K. Aiyar, S. P.
Nayvar for R. N. Sachthey, for the appellants.
K. Srinivasan and R. Gopalakrishnan, for the
426 The Judgment of the Court was delivered
by Sikri, J. This appeal by special leave is directed against the judgment of
the Madras High Court allowing the petition filed under art. 226 of the
Constitution by Budha Pictures, Madras, respondent before us. The respondent
had, inter alia, prayed for a writ of mandamus or such other appropriate writ,
order or direction in the nature of a writ directing the 4th Income-tax
Officer, City Circle V, Madras, to forbear from collecting from the respondent
the sum of Rs. 20,000/- in pursuance of his notices dated June 18, 1959, and
March 21, 1961, issued under s. 46(5A) of the Indian Income-tax Act, 1922. These
notices came to be issued in the following circumstances :
One, T. S. Balaiah, a cine artist, was
apparently in arrears of income-tax. The III Additional Income-tax Officer sent
a letter dated June 18, 1959 to the respondent saying :
"I understand that you have engaged the
services of Shri T. S. Balaiah for a film being produced by you. As the above
gentleman is in arrears of income-tax, I herewith enclose a notice under
Section 46(5A) of the I.T. Act, attaching the remuneration payable by you to
Shri Balaiah. Please credit to the Government account all amount that is and
will become payable to him." The first paragraph of the notice reads as
"A sum of Rs. 46819-15 is due from Shri
T. S. Baliah on account of Income-tax and/or penalty, I am to request you,
under Section 46(5A) of the Income-tax Act. 1922, to pay to me forthwith any
amount due from you to, or held by you for or on account of the said Shri T. S.
Baliah of 4, Arulammal St. Madras-17 upto the amount of arrears shown above,
and also request you to pay any money which may subsequently become due from
you to him or which you may subsequently hold for or one account of him up to
the amount of arrears still remaining unpaid, forthwith on the money becoming
due or being held by you as aforesaid as such payment is required to meet the
amount due by the tax-payer in respect of arrears of Income-tax and penalty. I
am to say that any payment made by you in compliance with this Notice is in law
deemed to have been made under the authority of the tax-payer and my receipt
will constitute a good and sufficient discharge of your liability to the person
to the extent of the amount referred to in the receipt." The respondent
replied on June 26, 1959, as follows "We have not engaged Sri T. S. Baliah
for acting in our production No. 2. Hence there is no contract with 427 said
Shri T. S. Baliah, and consequently we are unable to comply with your
request." On March 22, 1961, another communication was sent enclosing a
notice under s. 46(5A) of the Indian Income Tax Act. The notice is in the same
form except that the sum to be recovered had increased to Rs. 86111/12. The
respondent replied on March 25, 1961, saying that "there are no payments
due and payable to Shri T. S. Baliah, cine-artist, as on the date of receipt of
your letter." The respondent enclosed a statement of account which showed
that on March 28, 1960, a cheque for Rs. 7,000/- was given to T. S.
Baliah; on February 9, 1961, cash amounting
to Rs. 6,000/- was paid to him, and again on March 18, 1961, cash amounting to
Rs. 7,000/- was paid to him. The respondent also enclosed a copy of the
contract with T. S. Baliah. The contract shows that there was an agreement
between T. S.
Baliah and the respondent, signed on March
28, 1960, whereby T. S. Baliah agreed to a role in production No. 2 (Tamil) for
a consolidated remuneration of Rs. 20,000/-. On April 26, 1961, the Income Tax
Officer wrote to the respondent stating that payment of Rs. 20,000/made to T.
S. Baliah was in violation of the notice under s. 46(5A) issued on June 18,
1959, and requested the respondent to pay the sum of Rs. 20,000/- to the Income
Tax Department within three days from the receipt of the letter. On June 26,
1961, the respondent wrote to the Income Tax Officer protesting that the respondent
was not liable to pay the sum of Rs. 20,000/- giving various reasons, which
need not be mentioned at this stage. On August 29, 1961, the Income Tax Officer
declined to accept the contention of the respondent and requested him to pay to
the Department Rs. 20,000/- on or before September 7, 1961. On January 18,
1962, the respondent filed the petition under art. 226. After giving the above
facts and the grounds the petitioner, in brief, alleged that according to law
the demand made by the Income Tax Officer for the sum of Rs. 20,000/- was
illegal and without jurisdiction.
The High Court, as we have already mentioned,
held that the Department was not entitled to call upon Budha Pictures Ltd., the
respondent, to make good the sum of Rs. 20,000/- already paid to Baliah as such
payments did not contravene the notice under s. 46(5A) dated June 18, 1959.
Section 46(5A) reads as follows "(5A)
The Income-tax Officer may at any time or from time to time, by notice in
writing (a copy of which shall be forwarded to the assessee at his last address
known to the Income-tax Officer) require any person from whom money is due or
may become due to the assessee or any person who holds or may subsequently hold
428 money for or on account of the assessee to pay to the Income-tax Officer,
either forthwith upon the 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
tax-payer in respect of arrears of income-tax and penalty or the whole of the
money when it is equal to or less than that amount.
The Income-tax Officer may at any time or
from time to time amend or revoke any such notice or extend the time for making
any payment in pursuance of the notice.
Any person making any payment in compliance
with a notice under this sub-section shall be deemed to have made the payment
under the authority of the assessee and the receipt of the Income-tax Officer
shall constitute a good and sufficient discharge of the liability of such
person to the assessee to the extent of the amount referred to in the receipt.
Any person discharging any liability to the
assessee after receipt of the notice referred to in this sub-section shall be
personally liable to the Income-tax Officer to the extent of the liability
discharged or to the extent of the liability of the assessee for tax and
penalties, whichever is less.
If the person to whom a notice under this
sub- section is sent fails to make payment in pursuance thereof to the
Income-tax Officer, further proceedings may be taken by an d before the
Collector on the footing that the Income- tax Officer's notice has the same
effect as an attachment by the Collector in exercise of his powers under the
proviso to sub-section (2) of section 46.
Where a person to whom a notice under this
sub section is sent objects to it on the ground that the sum demanded or any
part thereof is not due to the assessee or that he does not hold any money for
or on account of the assessee, then, nothing contained in this section shall be
deemed to require such person to pay any such sum or part thereof, as the case
may be, to the Incom-tax Officer." The learned counsel for the appellant
contends that s. 46(5A) applies in four sets of circumstances :
(1) when money is due from a person to the
(2) when money may become due to the
429 (3) when a person holds money for an
assessee; and (4) when a person may hold money on account of the assessee.
He says that there is no reason for cutting
down the words in categories (2) and (4); the words are plain and they do not
suggest that at the time of notice a relationship, which may result in money
being owed or being held on account of the assessee, should subsist. In our
view, if the assessee has no subsisting relationship with a person it would be
speculative to think that that person may get into relationship with the
assessee and start owing money to him or start holding money for him. We can
hardly believe that the Legislature framed this sub-section on speculative
considerations. It seems to us that the Legislature contemplated a subsisting
relationship of which the Income- tax Officer gets information and which could
reasonably lead to recovery of arrears. Theoretically it would be possible for
an assessee to enter into relationship with almost anybody, say in the town in
which he resides. We can hardly imagine that it was expected that the Income
Tax Officer would issue notices to all the residents of a locality or a town to
pay money in case they begin to hold or owe money to the assessee.
It seems to us that the High Court was right
in holding that what was contemplated was the subsistence of a similar
relationship as between a garnishee and the assessee. This construction of the
sub-section is strengthened by the last para in S. 46(5A). A person to whom the
notice has issued has only to object that the sum demanded or part thereof is
not due to the assessee or that he does not hold any money on account of the assessee.
He has not to say that he is not likely to owe or to hold money. It seems to us
that the expressions "may become due" or "may subsequently hold
money" suggest, in the context, a subsisting relationship between the
person served with a notice and the assessee;
e.g. assessee's employer, or banker, or
debtor, or a person paying annuity to him; they do not suggest a bank with
which he has never dealt with, a person he has never lent money to or dealt
with, or all persons who may possibly in the future employ an assessee out of
job or work. If the contention of the Department were to be accepted, the
Income Tax Officer could send a circular letter under s. 46(5A) in respect of
all defaulters to all possible employers of traders. This would cast enormous burden
on persons receiving such notices. We cannot sustain a construction which could
lead to such results. We agree with the conclusion arrived at by the High
In the result the appeal fails and is
dismissed with costs.
G.C. Appeal dismissed.