TISSAN JOSEPH VS COMMISSIONER OF INCOME-TAX, 2000 PTD-KERALA-HIGH-COURT-INDIA 2281 (1997)

Income-tax---

----Recovery of tax---Writ---Garnishee proceedings---Alleged creditor contending that no amount was due from him to defaulter---Petitioner had to be given opportunity to be heard---Indian Income Tax Act, 1961, S.226(3)-- Constitution of India; Art.226.

Held, that the petitioner had been proceeded against, under section 226(3) of the Income-tax Act, on the assumption that the petitioner owed money to the defaulter and the assumption was on the basis of the balance-sheet of the defaulter submitted along-with the returns. But the case of the petitioner was that the said amount was adjusted towards grant and that no amount was due from the petitioner to the defaulter. When there was a dispute with regard to the liability, the petitioner should have been afforded an opportunity to establish that the noting in the balance-sheet that the. said sum was given as loan was not correct. In the instant case, admittedly, an opportunity had not been given to the petitioner and he had not been heard personally. The certificate under section 226(3) directing the petitioner to pay the sum of Rs.11,73,085 was not valid and was liable to be quashed.

M. P. M. Aslam and Thomas M. Jacob for Petitioner

N. R. K. Nair for Respondents

JUDGMENT

G. SIVARAJAN, J.---The petitioner is aggrieved by Exhs.P-1, P-2 and P-4 proceedings of the second respondent for realisation of income-tax due from Centre for Science and Technological Studies, Trivandrum. Proceedings were initiated against the petitioner under section 226(3) of the Income Tax Act, 1961, on the ground that a sum of Rs.11,73,085 is seen from the balance-sheet of the said defaulter as advance given to the school of engineering of which the petitioner is the proprietor.. In reply to Exhs. P-1 and P-2, the petitioner submitted Exh. P-3 reply stating that the amount of Rs.11,73,085 shown in the balance-sheet of Centre for Science and Technological Studies as on March 31, 1996, was given by the Center as a grant and adjusted in the financial year 1996-97 and as such no amount is outstanding ' as advance on March 31, 1997. Along-with the said communication, the petitioner had filed an affidavit also to the said effect. The second respondent without affording any further opportunity issued Exh.P-4 certificate under sections 222 and 223 of the Act directing the petitioner to pay the sum of Rs.11,73,085. According to the authority, the said sum has become due from the petitioner on November 10, 1997, in the status of individual. It is against these orders, the petitioner has come up in writ petition.

A statement is filed on behalf of the respondents. It is stated, that from the statement of accounts for the years 1991-92 to 1995-96 submitted by the Centre for Science and Technological Studies along-with the returns claiming exemption from payment of income-tax under sections 11 to 13 of the Income Tax Act, 1961. it was noticed that the trustee had given periodical advances of Rs.11,73,085 up to March 31, 1995, apart from grants. It is further stated that since the assessee had violated the provisions of sections 13(1)(c) and 13(2)(a) of the Act the claim for exemption was rejected and a sum of Rs.12,59,083 by way of income-tax and interest was raised for the said years. It is also stated that the petitioner is the President of the said assessee. It is also stated that the contention of the petitioner in Exh.P-3 objection was not accepted and he was treated as an assessee in default as per provisions of section 226(3)(x) of the Act and a recovery certi ficate was accordingly issued. It is further stated that the petitioner's request for reconsideration of the same was also rejected on November 26, 1997. It is stated that in the said communication, it was specifically pointed out that the advance given to the school of engineering has been accounted under the head loans and advances on the liabilities side of the balance-sheet filed by the school of engineering as per the balance-sheet as on March 31, 1995.

I have heard learned counsel appearing for the petitioner and Shri N. R. K. Nair, learned standing counsel appearing for the respondents. The petitioner has been proceeded against under section 226(3) of the Income Tax Act, 1961, on the assumption that the petitioner owes money to the defaulter assessee and that the said assumption was on the basis of the balance-sheet of the defaulter submitted along-with the returns. It is noted in the said balance-sheet that a total sum of Rs.11,73,085 is loans and advances to the petitioner. But the case of the petitioner is that the said amount was adjusted towards grant and that no amount is due from the petitioner to the defaulter. When there is a dispute with regard to the liability, according to me, the respondent should have afforded an opportunity to the petitioner to establish that the noting in the balance sheet that the said sum is given as loan is not correct. in the instant case, admittedly, an opportunity has not been given to the petitioner and he has not been heard personally in support of the contention that the amount shown as loan is given by way of grant or that specifically it was directed to be adjusted towards grant. Since no such opportunity has been given to the petitioner, I am of the view that Exh. P-4 order has to be quashed. I accordingly quash Exh. P-4, I direct the second respondent to afford the petitioner an opportunity of being heard and to adduce evidence in support of his claim that no such amount is due to the defaulter. The second respondent will take a decision in the matter as directed above within a period of three months from the date of receipt of a copy of this judgment.

The original petition is disposed of as above.

M.B.A./4108/FC .Order accordingly.