Beharilal Ramcharan Vs. Income-Tax
Officer, Special Circle 'B' Ward, Kanpur & ANR [1981] INSC 117 (21 July
1981)
BHAGWATI, P.N.
BHAGWATI, P.N.
SEN, A.P. (J) VENKATARAMIAH, E.S. (J)
CITATION: 1981 AIR 1585 1982 SCR (1) 1 1981
SCC (3) 473 1981 SCALE (3)1059
ACT:
Income-Tax Act 1961-Section 226(3) (i)-Scope
of-Notice issued to assessee in default did not specify amount of tax payable
by him-Amount payable was within knowledge of assessee in default-Notice if
invalid.
Clause (x) of section 226(3)-Sworn affidavit
filed by accountant of assessee in default-if valid-Income Tax Officer-Whether
bound to give opportunity of being heard before rejecting affidavit and
declaring him responsible for tax.
HEADNOTE:
On May 21, 1966 the Income Tax Officer issued
a notice to the petitioners under section 226 (3) (i) of Income Tax Act, 1961,
stating that according to the books of accounts of B.R. Sons Ltd. (the
assessee) the petitioners owed them Rs. 76 thousand odd and that this amount
should be paid by them to the Department against arrears of tax due from the
assessee. In reply the petitioners stated that it was not they who owed the
assessee but it was the assessee who owed them a large amount. The Income Tax
Officer directed the petitioners to file a sworn affidavit setting out their
pleas.
In the sworn affidavit filed on their behalf
by the accountant of the petitioners the above contentions were reiterated. But
the Income Tax Officer stating that an examination of the assessee's books of
account showed that the facts stated in the affidavit were false in material
particulars held the petitioners personally liable to make payment to the
extent of their liability to the assessee. On January 11, 1967 the Income Tax
Officer wrote to the petitioners that since they had not furnished any
particulars to rebut his conclusion that the affidavit was false and also
because they had failed to pay up the amount due from them to the assessee they
were held to be an "assessee in default" within the meaning of
section 226 (3) (x) of the Act.
In the petitioner's writ petition seeking to
quash the action of the Department to attach their immovable property the High
Court held that although it was necessary for the Income Tax Officer to have
mentioned the amount due from the petitioners to the assessee, since the
petitioners knew what the amount referred to by the Income Tax Officer was, no
prejudice could be said to have been caused to them and that the notice issued
to them was not invalid on that account;
and (ii) the Income Tax Officer was justified
in treating the petitioners as "assessee in default" for non-payment
of the amount due and owing 2 from them to the assesse, (iii) but since no
recovery certificate as required under section 222 of the Act had been issued
by the Income Tax Officer the recovery proceedings were invalid.
In the appeal to this Court,
HELD: 1. The view of the High Court that by
reason of non-specification in the notice dated May 21, 1966 of the amount due
from the petitioners to the assessee no prejudice had been caused to the
petitioners was correct. At no time did the petitioners complain that the
notice did not specify the amount alleged to be due from them to the assessee
or that it was vague and indefinite. In fact they replied to the notice on merits
and filed a sworn affidavit. Secondly in his letter dated December 31, 1966 the
Income Tax Officer pointed out to the petitioners that the assessee had a
credit balance of over Rs. 8 lakhs as on May 24, 1966.
Therefore the petitioners had clear notice of
what the amount alleged to be due from them to the assessee was. [8 G-9C]
2. (a) It is not necessary under clause (vi)
that the statement on oath contemplated in that provision should be made only
by the person to whom the notice under clause (i) is issued. It is sufficient
if the objection to the requisition contained in the notice is made by the
person to whom the notice is sent and such objection is supported on oath by a
person competent to make such statement. [10 B] (b) Merely because the affidavit
was sworn by the accountant of the petitioners it was not open to the Income
Tax Officer to disregard the affidavit. The accountant had obviously knowledge
of the state of account between the petitioners and the assessee and was
competent to make a statement on oath in regard to the position of such
account.
[9 E] (c) If the Income Tax Officer discovers
that a statement made on oath is false in any material particulars the
garnishee is made personally liable to the Income Tax Officer to the extent of
his own liability to the assessee on the date of the notice or to the extent of
the assessee's liability for arrears of tax, whichever is less. [10E-F]
3. (a) For reaching an objective conclusion
that in his opinion the statement on oath made on behalf of the garnishee is
false in any material particulars the Income Tax Officer would have to give
notice to the party concerned, hold an enquiry for determining whether the
statement on oath is false and if so in which material particulars and what
amount is in fact due from the garnishee to the assessee. In such an enquiry he
would have to follow the principles of natural justice and reach an objective
conclusion. [11 B-C] (b) Once a statement on oath is made on behalf of the
garnishee that the sum demanded is not due from him to the assessee the burden
of showing that the statement is false is on the Revenue which would be bound
to disclose to the garnishee all such evidence or material on which it proposes
to rely. The Revenue should also show on the basis of relevant evidence that
the statement 3 on oath is false. It is only then that personal liability for
payment can be imposed on the garnishee under clause (vi). [11 D-E] In the
instant case, after receiving the affidavit of the accountant, the Income Tax
Officer, without giving any notice and without holding any enquiry,
straightaway reached the conclusion that the statement in the affidavit was
false and held the petitioners personally liable under clause (vi). [11 F,12 A]
Although the Income Tax Officer did set out in the notice dated December 31,
1966 the reasons for reaching this conclusion he did not offer any opportunity
to the petitioners to show that the reasons that weighed with him were not
correct. His decision was therefore invalid. Notice dated December 31, 1966 and
January 11, 1967 must therefore be set aside. [12 E-F]
CIVIL APPELLATE JURISDICTION : Civil Appeal
No.
2367(NT) of 1976.
From the judgment and order dated the 20th
May, 1971 of the Allahabad High Court in Civil Miscellaneous Writ No. 636 of
1967.
S.T. Desai, J.P. Goyal and S.K. Jain for the
Appellant.
D.V. Patel and Miss A. Subhashini for the
Respondent.
The Judgment of the Court was delivered by
BHAGWATI, J. This appeal by certificate raises a short question of law relating
to the interpretation of section 226 (3) of the Income Tax Act 1961. The
petitioners were at all material times a partnership firm carrying on business
as bankers and dealers in cloth and over the years, they had dealing with a
limited company called B.R. Sons Limited which at one time acted as the sole
selling agent of Laxmi Ratan Cotton Mills Company Limited. There was a running
account between the petitioners and B.R. Sons Limited in respect of these
dealings and according to the petitioners, there was a debit balance of Rs.
76,436.23 against B.R. Sons Limited in this account as on 24th May 1966. On
21st May 1966 the Income Tax Officer, Central Circle, Kanpur issued a notice to
the petitioners under section 226 (3) (i) stating that a sum of Rs.
22,89,281.97 was due from B.R. Sons Limited on account of income tax, super
tax, penalty etc.
and requiring the petitioners to pay to him
forthwith any amount due from the petitioners to B.R. Sons Limited or held by
the petitioners for or on account of B.R. Sons Limited to the extent of the
aforesaid arrears of tax due from B.R. Sons Limited. The petitioners were
warned that if they failed to make payment pursuant to this notice, they would
be deemed to be assessee in default and proceedings would be taken against them
for realisation of the amount as if it were an arrear of tax due from them.
This notice was served on the petitioners on 24th May, 1966 and the petitioners
replied to it on 1st July 1966 pointing out that according to the state of the
account between the petitioners and B.R. Sons Limited, there was no credit
balance in favour of B.R. Sons Limited, and that on the contrary B.R. Sons
Limited owed a large amount to the petitioners and in the circumstances the
notice should be discharged. The Income Tax Officer by his letter dated 11th
October 1966 intimated to the petitioners that they should file a sworn
affidavit setting out their contention that they did not owe any amount to B.R.
Sons Limited. This was followed by another letter dated 14th December 1966 addressed
by the Income Tax Officer to the petitioners in which the Income Tax Officer
pointed out that he had in his possession evidence to show that the petitioners
still owed money to B.R. Sons Limited to a substantial extent and requesting
the petitioners to pay up the amount due to B.R. Sons Limited on or before 21st
December 1966. The petitioners thereupon filed an affidavit sworn by their
accountant Shiv Kumar Arora on 22nd December, 1966 setting out the position of
the account of B.R. Sons Limited and stating that far from any amount being due
from the petitioners to B.R. Sons Limited, there was a debit balance of Rs.
76,436.23 against B.R. Sons Limited as on 24th May 1966 and the notice issued
against the petitioners under section 226 (3) (i) was therefore unjustified.
The affidavit was forwarded to the Income Tax Officer along with a letter
addressed by the petitioners. The Income Tax Officer replied to the petitioners
by his letter dated 31st December 1966 in which he pointed out that during the
course of search of Bihari Niwas, the Income Tax Authorities have seized
account books in Hindi, Muriya and English pertaining to the year commencing
from 1st July 1965 and that the account of B.R. Sons Limited in the Muriya and
English cash books showed that payments aggregating to Rs. 8,69,000.00 had been
made to B.R. Sons Limited prior to 24th May 1966 but the original cash book in
Hindi did not show any such payments having been made and he had therefore
reason to believe that the affidavit filed on behalf of the petitioners showing
that B.R. Sons Limited had a debit balance against them in the books of the
petitioners as on 24th May 1966 was false in material particulars. The Income
Tax Officer accordingly held the petitioners to be personally liable to make
payment to the extent of their liability to B.R. Sons Limited as on 24th May
1966 and intimated to the petitioners that if they failed to make such payment
on or before 10th January 1967, the Income Tax Officer would treat them as
assessee in default under section 26 (3) 5 (x) and proceed to take recovery
proceedings against them.
The petitioners however, reiterated their
stand and reaffirmed the correctness of their affidavit by their letter dated
10th January 1967. The Income Tax Officer thereupon addressed a letter dated
11th January 1967 stating that the petitioners had not furnished any material
or evidence to rebut his conclusion that the affidavit filed on behalf of the
petitioners was false in material particulars and since the petitioners had failed
to pay up the amount due from them to B.R. Sons Limited, they were 'assessee in
default' within the meaning of section 226 (3) (x) and consequently appropriate
coercive steps were being taken for realising the amount of the tax. A copy of
this letter was forwarded to the Tax Recovery Officer, Kanpur for information
and necessary action. The Tax Recovery Officer, on the basis of this letter
issued an order dated 27th January 1967 under Rule 48 of the second Schedule to
the Act attaching some of the immovable properties belonging to the petitioners
and following upon this order of attachment, he issued a notice on 7th February
1967 for setting the proclamation in respect of the sale of these immovable
properties. The petitioners thereupon filed a writ petition in the High Court
of Allahabad for quashing and setting aside the notice dated 21st May 1966 and
the subsequent proceedings adopted by the Income Tax Officer and the Tax
Recovery Officer against the petitioners.
The writ petition came up for hearing before
a Division Bench of the High Court. One of the contentions advanced on behalf
of the petitioners before the High Court was that the notice dated 21st May
1966 issued against the petitioners under section 226 (3) (i) was invalid,
since it did not specify the amount alleged to be due from the petitioners to
B.R. Sons Limited. The High Court accepted the contention of the petitioners
that the notice issued by the Income Tax Officer under section 226 (3) (i)
"should mention or give some specific indication of the amount which he
believes is due or may fall due from such person to the assessee or which he
holds or may subsequently hold for or on account of the assessee" but held
that since the petitioners knew what was the amount which was being referred to
by the Income Tax Officer in his notice and no prejudice was caused to the
petitioners by the reason of non-specification of the amount in the notice
issued by the Income Tax Officer, the notice could not be said to be invalid on
that ground. The petitioners also contended before the High Court that if the
Income Tax Officer was not inclined to accept the statement contained in 6 the
affidavit filed on behalf of the petitioners and he was disposed to take the
view that the affidavit was false in material particulars, he should have
summoned the deponent of the affidavit for cross-examination and held an
inquiry before coming to the conclusion that the statement contained in the
affidavit was false. This contention was quite clearly a formidable one, based
as it was on the language of section 226 (3) (vi) but the High Court negatived
it on the ground that the affidavit filed on behalf of the petitioners was not
in compliance with the terms of section 226 (3) (vi) since it was not sworn by
any of the partners of the petitioners but was made only by an accountant of
the petitioners and when the accountant stated in the affidavit that a sum of
Rs. 76,436.23 was due and owing to the petitioners from B.R. Sons Limited on
24th May 1966, there was nothing to indicate as to which part of this averment
was true to his personal knowledge and which, on the basis of the account
books. The High Court accordingly repelled the challenge against the validity
of the notice dated 21st May 1966 and held that the Income Tax Officer was
justified in treating the petitioners as 'assessee in default' on ground of
non-payment of the amount due and owing from them to B.R. Sons Limited. But so
far as the recovery proceedings adopted by the Tax Recovery Officer were
concerned, the High Court took the view that no recovery proceedings could be
adopted without issue of a recovery certificate by the Income Tax Officer under
section 222 and since in the present case, no such recovery certificate was
issued by the Income Tax Officer, the recovery proceedings adopted by the Tax
Recovery Officer were invalid and they were accordingly quashed. This was the
only limited relief granted by the High Court to the petitioners and the rest
of the reliefs claimed were rejected. The petitioners thereupon preferred the
present appeal in this Court after obtaining certificate from the High Court.
The principal question that arises for
determination in this appeal is as to whether, on a true interpretation of
section 226 (3) (vi), the Income-tax Officer was bound to hold an inquiry
before he came to the conclusion that the statement contained in the affidavit
filed on behalf of the petitioners was false in any material particular.
Section 226 (3) deals with recovery of arrears of tax from an assessee by requiring
"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" (hereinafter referred to as the garnishee) to pay to the
Income-tax Officer "so much of 7 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." There are ten clauses in which
section 226 (3) is divided and these clauses, in so far as material provide
inter alia as follows:
(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 an any person who hold or may
subsequently hold 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 assessee in respect of arrears or the whole of the money when it is
equal to or less than that amount.
(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 notwithstanding any rule, practice or requirement to the
contrary.
(vi) Where a person to whom a notice under
this subsection is sent objects to it by a statement on oath 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 sub-section shall be deemed to require such person to pay any such sum or
part thereof, as the case may be, but if it is discovered that such statement
was false in any material particular, such person shall be personally liable to
the Income-tax Officer to the extent of his own liability to the assessee on
the date of the notice, or to the extent of assessee's liability for any sum
due under this Act, whichever is less.
8 (viii)The Income-tax Officer shall grant a
receipt for any amount paid in compliance with a notice issued under this
sub-section, and the person so paying shall be fully discharged from his
liability to the assessee to the extent of the amount so paid.
(x) 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, he shall be deemed to be an assessee in default in respect
of the amount specified in the notice and further proceeding may be taken
against him for the realisation of the amount as if it were an arrear of tax
due from him, in the manner provided in sections 222 to 225 and the notice
shall have the same effect as an attachment of a debt by the Tax Recovery
Officer in exercise of his powers under section 222.
It was in exercise of the power conferred
under clause (i) that the notice dated 21st May 1966 was issued by the
Income-tax Officer to the petitioners. This notice did not mention or even
indicate any specific amount alleged to be due from the petitioners to B.R.
Sons Limited and it was therefore observed by the High Court that the notice
was not in accordance with the provisions of clause (i). We are not sure
whether, on a true interpretation of clause (i) in the light of the other
clauses of section 226 sub-section (3), it is necessary that the notice under
clause (i) should set out a specific amount as due from the garnishee to the assessee
or it is enough if the notice merely reproduces the language of clause (i) and
requires the garnishee to pay "at or within the time specified in the
notice" so much of the money as is sufficient to pay the amount due from
the assessee in respect of arrears of tax. It is a debatable question on which
we do not wish to express any opinion, since the High Court has taken the view
that even though the notice dated 21st May 1966 issued to the petitioners did
not mention or give indication of any specific amount alleged to be due from
the petitioners to B.R. Sons Limited, it was not invalid, since no prejudice
was caused to the petitioners by reason of non-specification of such amount and
this view taken by the High Court was plainly correct, because the petitioners
at no time complained that the notice did not specify the amount alleged to be
due from the petitioners to B.R. Sons Limited or that it was vague and
indefinite and in fact replied to the notice on merits by raising an objection
that, according to the statement 9 of account between the petitioners and B.R.
Sons Limited, there was no credit balance in favour of B.R. Sons Limited and on
the contrary B.R. Sons Limited owed a large amount to the petitioners and also
filed an affidavit sworn by their accountant Shiv Kumar Arora stating that on
24th May 1966 when they received the notice dated 21st May 1966 there was
nothing due from the petitioners to B.R. Sons Ltd. but on the contrary B.R.
Sons Limited owed a sum of Rs. 76,436.23 to the petitioners. The view taken by
the High Court could also be sustained additionally on the ground that, in any
event, by his letter dated 31st December, 1966 the Income- tax Officer pointed
out to the petitioners that, according to him, B.R Sons Limited had a credit
balance of over Rs. 8 lacs as on 24th May 1966 and the petitioners had
therefore clear notice of what was the amount alleged to be due from the
petitioners to B.R. Sons Limited. So far as the affidavit of the accountant
filed on behalf of the petitioners was concerned, it was disputed before us on
behalf of the Revenue whether this affidavit could be regarded as a
"statement on oath" within the meaning of clause (vi) so as to
attract applicability of that clause.
The argument of the Revenue was and this
argument was accepted by the High Court, that though this affidavit was
undoubtedly made on oath, it was not a "statement on oath" within the
contemplation of clause (vi), because it was not a statement of any of the
partners of the petitioners but was merely a statement of an accountant of the
petitioners.
Now it is true that this affidavit filed on
behalf of the petitioners was sworn by an accountant of the petitioners and not
by one of their partners but we do not think that on that account it could be
disregarded by the Income-tax Officer. The accountant of the petitioners would
obviously have knowledge of the state of the account between the petitioners
and B.R. Sons Limited and he would be competent to make statement on oath in
regard to the position of such account. In fact, the accountant of the
petitioners stated in paragraph 1 of the affidavit that he was acquainted with
the facts deposed to in the affidavit and he also mentioned in the verification
clause that so far as the averments in paragraphs 2 and 3 of the affidavit were
concerned which related to the position of the account between the petitioners
and B.R. Sons Limited, they were "true to his knowledge and based on the
account books" of the petitioners. The state of the account between the
petitioners and B.R. Sons Limited detailed by the accountant in the affidavit
was thus based both on the account books of the petitioners as also on his
personal knowledge and he was therefore competent to state on oath what was the
position of that account. Moreover, the affidavit containing the statement of
10 the accountant on oath was filed by the petitioners in support of their
objection that far from there being any money due from them to B.R. Sons
Limited, a sum of Rs. 76,436.23 was, in fact, due from B.R. Sons Limited to
them.
There was therefore sufficient compliance
with the requirement of clause (vi). It is not necessary under clause (vi) that
the statement on oath contemplated in that provision should be made only by the
person to whom the notice under clause (i) is sent by the Income-tax Officer.
It is in our opinion sufficient if the
objection to the requisition contained in the notice is made by the person to
whom the notice is sent and such objection is supported by a statement on oath
made by a person competent to make such statement. Here, as we have pointed out
above, the accountant of the petitioners was competent to state on oath as to
what was the true state of the account between the petitioners and B.R. Sons
Limited and since an affidavit containing this statement on oath made by the
accountant was filed on behalf of the petitioners in support of their
objection, the requirement of clause (vi) was satisfied and its provisions were
attracted.
Now under clause (vi), where a garnishee to
whom a notice under clause (i) is sent objects to it by a statement on oath
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, he is not required
to pay such sum or any part thereof to the Income-tax Officer in compliance
with the requisition contained in the notice. But if it is discovered by the
Income-tax Officer that such statement on oath was false in any material
particular, the garnishee is made personally liable to the Income-tax Officer
to the extent of his own liability to the assessee on the date of the notice or
to the extent of the assessee's liability for arrears of tax, whichever is
less. The petitioners having objected to the requisition contained in the
notice dated 21st May 1966 by filing an affidavit of their accountant that
nothing was due from the petitioners to B.R. Sons Limited, were not bound to
comply with the requisition contained in such notice, but if the Income-tax
Officer discovered that such statement on oath was false in material particular
and that some amount was due from the petitioners to B.R. Sons Ltd. the
petitioners would be personally liable to pay such amount to the Income-tax
Officer. The question is whether the Income-tax Officer could be said to have
discovered that the statement on oath made in the affidavit of the accountant
of the petitioners that nothing was due from the petitioners to B.R. Sons
Limited was false in any material particular, as claimed by the 11 Revenue in
the notices dated 31st December 1966 and 11th January 1967. Now it is obvious
that under clause (vi) the discovery by the Income-tax Officer that the
statement on oath made on behalf of the garnishee is false in any material
particular has the consequence of imposing personal liability for payment on
the garnishee and it must therefore be a quasi-judicial decision preceded by a
quasi-judicial inquiry involving observance of the principles of natural
justice. The Income-tax Officer cannot subjectively reach the conclusion that
in his opinion the statement on oath made on behalf of the garnishee is false
in any material particular. He would have to give notice and hold an inquiry
for the purpose of determining whether the statement on oath made on behalf of
the garnishee is false and in which material particular and what amount is in
fact due from the garnishee to the assessee and in this inquiry he would have
to follow the principles of natural justice and reach an objective decision.
Once a statement on oath is made on behalf of the garnishee that the sum
demanded or any part thereof is not due from the garnishee to the assessee, the
burden of showing that the statement on oath is false in any material
particular would be on the Revenue and the Revenue would be bound to disclose
to the garnishee all such evidence or material on which it proposes to rely and
it would have to be shown by the Revenue on the basis of relevant evidence or
material that the statement on oath is false in any material particular and
that a certain definite amount is due from the garnishee to the assessee. Then
only can personal liability for payment be imposed on the garnishee under
clause (vi).
Here what happened was that an affidavit of
the accountant containing a statement on oath that on 24th May 1966 nothing was
due from the petitioners to B.R. Sons Limited but on the contrary a sum of Rs.
76,436.23 was due from B.R. Sons Limited to the petitioners was filed on behalf
of the petitioners sometime after 22nd December 1966 and on receipt of this affidavit,
the Income-tax Officer pointed out to the petitioners by his notice dated 31st
December, 1966 that this statement on oath contained in the affidavit was false
in material particulars, because on 24th May 1966, B.R. Sons Limited had a
credit balance of over Rs. 8 lacs in the books of the petitioners and concluded
that the petitioners were therefore personally liable to the Income-tax Officer
to the extent of their liability to B.R. Sons Limited. This notice clearly
embodied the decision of the Income-tax Officer that the statement on oath made
by the accountant in the affidavit filed on behalf of the petitioners was 12
false in material particulars and that the petitioners were personally liable
to make payment under clause (vi). The petitioners by their letter dated 10th
January 1967 disputed the conclusion reached by the Income-tax Officer in his
notice dated 31st December, 1966 and reiterated that nothing was due from the
petitioners to B.R. Sons Limited as on 24th May, 1966. The Income-tax Officer
however adhered to the decision reached by him and by his notice dated 11th
January, 1967 intimated to the petitioners that he was treating them as
assessee in default within the meaning of clause (x) and proceeding to take
appropriate coercive steps for realising the amount of tax due from them. It
will thus be seen that after receipt of the affidavit of the accountant, the
Income-tax Officer did not give any notice or hold any inquiry for the purpose
of determining whether or not the statement on oath made by the accountant in
the affidavit was false in any material particular and whether any and if so,
what amount was due from the petitioners to B.R. Sons Limited, but
straight-away reached the conclusion that the statement on oath that nothing
was due from the petitioners to B.R. Sons Limited was false in material
particulars and without even determining what precise amount was due from the
petitioners to B.R. Sons Limited, held that the petitioners were personally
liable to the Income-tax Officer under clause (vi). The Income-tax Officer did
set out in his notice dated 31st December, 1966 the reasons which prevailed
with him in reaching this decision but he did not offer any opportunity to the
petitioners to show that the reasons which weighed with him were not correct.
The decision reached by the Income-tax
Officer that the statement on oath made in the affidavit of the accountant was
false in material particulars as set out in the notices dated 31st December,
1966 and 11th January, 1967 was therefore clearly invalid and the notice dated
31st December, 1966 and 11th January, 1967 must consequently be set aside.
We accordingly dismiss the appeal in so far
as it is directed against the validity of the notice dated 21st May 1966 but so
far as the notices dated 31st December, 1966 and 11th January, 1967 are
concerned, we allow the appeal and issue a writ quashing and setting aside the
said two notices. We may make it clear that it will be open to the Income-tax
Officer to proceed to hold an inquiry for the purpose of determining whether
the statement on oath contained in the affidavit of the accountant of the
petitioners that nothing was due from the petitioners to B.R. Sons Ltd. as on
24th May 1966, was false in material particulars, and if as a result 13 of such
inquiry carried out in accordance with the principles of natural justice, the
Revenue is able to show, the burden being upon it, that the statement on oath
made by the accountant was false in material particulars and that a certain
definite amount was due from the petitioners to B.R. Sons Limited on 24th May,
1966, the petitioners would be personally liable to pay such amount to the
Income-tax Officer and in case of default, the Income-tax Officer would be
entitled to treat the petitioners as 'assessee in default' under clause (x) of
section 226 sub-section (3).
Since the petitioners have partly succeeded
and partly failed, the fair order of costs would be that each party should bear
and pay its own costs throughout.
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