Income Tax---

----Recovery of tax---A mortgaging property to petitioner---Petitioner constructing sh6s on property and letting it out to a company---Tax Recovery Officer issuing notice to company for recovery of arrears of tax due from a firm in which mortgagor was a partner, and asking company to pay rent, 'due to petitioner from company, to Tax Recovery Officer---Partner of firm had no right or, title to property---Petitioner did not owe any money to firm or to any of its partners---Company not being tenant of firm or any of its partners not required to pay rent to them---Neither petitioner nor company was holding rent on behalf of firm or its partners---Recovery proceedings invalid---Amount recovered by Tax Recovery Officer from company to be refunded to petitioner---Indian Income Tax Act, 1961. Ss. 220(2) & 226(3).

A (mortgagor) mortgaged his property with possession with all rights attached to it, in favour. of the petitioner (mortgagee) by way of a registered mortgage deed. Under the mortgage deed, the mortgagee was given the right to make construction on the plot of land. The petitioner constructed two shops and both the shops were let out to respondent No.2, a company. The Tax Recovery Officer (respondent No.l) issued a notice under section 226(3) of the Income Tax Act, 1961, to respondent No.2, the company, for recovery of a sum of Rs.1,10,043 plus interest under section 220(2) due from K, a partner of a firm, in which A was also a partner, on account of arrears of income-tax and the notice stated that respondent No.2 should pay to the Tax Recovery Officer any sum due from it or held by it, for and on account of K. The petitioner coming to know of the fact that her rent had been attached for recovery of arrears of tax from K, wrote to the Tax Recovery Officer bringing to his notice that the property was duly mortgaged by A to the petitioner through a registered mortgage deed and that K, the partner of the firm, had no right or title to the property, from Which the Tax Recovery Officer was recovering income-tax. The petitioner requested the Tax Recovery Officer that the tax recovered from respondent No.2 (the tenant of the petitioner) be refunded to the petitioner. There was no response from the Tax Recovery Officer to his request from the petitioner. On a writ petition challenging the action of the Tax Recovery Officer:

Held, (i) that A, the mortgagor, had no possessory rights over the land or the shops till the mortgage was redeemed by him. A had no right to receive the rent of the leased premises.

(ii) That the petitioner, did not owe any money to the firm or any of its partners including A. Similarly, respondent No.2, not being a tenant of the firm or any of its partners, was not required to pay the rent to them. Rent was payable by respondent No.2, the company, to the petitioner. Neither the petitioner nor respondent No.2 was holding the money on behalf of the firm or its partners. Under section .226(3) of the Act, the money payable by respondent No.2 could not be garnished for adjustment of arrears of tax of the firm or its partners. The recovery proceedings were invalid.

The Tax Recovery Officer was directed to refund the amount recovered from respondent No.2 to the petitioner.

A. K. Mittal for Petitioner.

R. P. Sawhney, Senior Advocate with S.K. Sharma for Respondents.

JUDGMENT

ASHOK BHAN, J.---This petition has been filed for issuance of a writ of certiorari quashing orders, Annexures P-2 and P-3, directing Amrik Singh & Company-respondent No.2, the tenant of the petitioner to deposit the rent payable by it to the petitioner towards arrears of tax due from the firm Om Parkash Harbans Lal, and for a writ of mandamus directing respondent No.l to refund, the amount illegally collected by him from respondent No.2.

One Anil Kumar was the owner in possession of a vacant plot with an area of 147 square yards situated at Mehlan Road, Sangrur. He mortgaged the same with possession with all rights attached to it with the petitioner for a consideration of Rs.10,000 vide registered mortgage deed, dated September 30, 1986 (Annexure P-1). One of the rights conferred in the mortgage deed on the mortgagee-petitioner is that she has the right to make the construction on the plot, and, when the mortgage is to be got redeemed, the mortgagee shall remove the material, or if agreed to shall be entitled to get the price of the material from the mortgagor. In the year 1991, the petitioner started construction of two shops which were completed in December, 1994. The said shops remained vacant for about 1-1/4 years orso and thereafter in the year 1996, both the shops were let out to respondent No.2 at a monthly rent of Rs.6,500.

The Tax Recovery Officer, Ludhiana, issued a notice under section 226(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act), dated June 13, 1996 to Amrik Singh and Co., stating therein that a sum of Rs.1,10,043 plus interest under section 220(2) of the Act is due from Krishan Kumar, a partner of Om Parkash Harbans Lal, Sangrur, on account of arrears of income-tax and that respondent No.2 should pay to the Tax Recovery Officer, Ludhiana, any amount due from it or held by it, for or on account of the said krishan. Kumar. A copy of the said notice is Annexure P-2. The jurisdiction over Om Parkash Harbans Lal, Sangrur, changed on August 2, 1996, from the tax Recovery Officer (Central), Ludhiana, to the Tax Recovery Officer, Leela Bhawan, Patiala, Respondent No. 1 thereafter addressed a communication, dated August 7, 1996, asking respondent No.2 to send a draft of Rs,5,000 on account of rent to respondent No. 1 for adjusting the same against outstanding income-tax liability against Om Parkash Harbans Lal. A copy of the said letter is Annexure P-3. It is averred that respondent No.2 thereafter in pursuance of the letter, Annexure P-3, has been paying the rent of Rs.6,500 per- month with effect from July, 1996 to respondent No. 1.

The petitioner coming to know of the fact that her rent has been attached for recovery of arrears of tax of Om Parkasb Harbans Lal, Sangrur, addressed a letter, dated September 14, 1996, to respondent No. 1 bringing to his notice that the property in question was duly mortgaged through a registered mortgage deed, dated September 30, 1986, by Anil Kumar in her favour and that Krishan Kumar, a partner of Om Parkash Harbans Lal, has no right or title of any kind in the property from which he was recovering the income-tax. It was further requested that tax recovered from the tenant of the petitioner be refunded to the petitioner and that he should not collect any kind of tax from the abovementioned property in future. Failing to get a favourable response from respondent No l, the present writ petition has been filed challenging the action of respondent No. 1 seeking to recover the arrears of tax from the rent due and payable to the petitioner by respondent No.2.

In the written statement filed the stand taken by the respondents is that the answering respondent did not have any knowledge regarding the alleged mortgage except the information contained in the mortgage deed, Annexure P-1, of this petitioner. As Anil Kumar was the owner of the land in dispute, the respondents were justified in recovering the arrears of tax due from the firm, Om Parkash Harbans Lal, from any of the partners. Anil Kumar being partner of the firm is the owner of the property in question, therefore, the tax liability of the firm is recoverable from him under section 188A of the Act and the recovery of the tax has been justified being made from the tenants of Shri Anil Kumar.

Counsel for the parties have been heard.

The property in question was mortgaged to the petitioner through registered mortgage deed, dated September 30, 1986, by Anil Kumar with permission to raise construction. The petitioner after raising the construction of two shops let out the same to respondent No.2. Anil Kumar, mortgagor, had no possessory rights over the land or the shops at present. As and when the mortgage is redeemed, Anil Kumar could get possessory rights over the land and in case he purchases the material used for construction of shops then the shops as well. Till that day, the only right which he possesses is to redeem the property. Anil Kumar has no right to receive the rent of the leased-premises.

Under section 226(3) of the Act, the Income-tax Officer, can 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 upon the money becoming due or being held within the time specified in the notice so much of the money as is sufficient to pay the amount due by the assessee in respect of arrears of income-tax. The petitioner did not owe any money to Om Parkash Harbans Lal or any of its partners. Similarly, respondent No.2 not being a tenant of Om Parkash Harbans Lal or any of its partners was not required to pay the rent to them. The rent was payable by respondent No.2 to the petitioner. Neither the petitioner nor respondent No.2 was holding the money on behalf of Om Parkash Harbans Lai or its partners. Under section 226(3) of the Act, the money payable by respondent No.2 to the petitioner as rent of the shops could not be garnished for 'adjustment of arrears of income-tax of Om Parkash Harbans Lal or its partners. The rent payable on account of the leased shops by respondent No.2 to the petitioner could not be attached/recovered` and adjusted against the arrears of tax due against Om Parkash Harbans Lal or any of its partners. The action taken by respondent No. 1 is, thus, illegal and unjustified.

For the reasons stated above this petition is accepted and the impugned orders, Annexures P-2 and P-3, being invalid are quashed. Respondent No.l is directed to refund the amount recovered from Amrik Singh and Company, respondent No.2, to the petitioner within two months of the receipt/production of a certified copy of this order. In case the amount is not refunded within two months, respondent No.l shall be liable to pay interest at the rate of 12, percent. per annum on the amount due from the date it was recovered till its payment.

Respondent No. 1, however, shall be at liberty to recover the arrears of tax from Om Parkash Harbans LAI or any of its partners under the Income tax Act in accordance with law.

M.B.A./4115/FC Order accordingly.