BEHARILAL RAMCHARAN vs. INCOME-TAX OFFICER, SPECIAL CIRCLE B WARD, KANPUR AND ANR.

CIVIL APPEAL No. 2367/1976Supreme Court[1982] 1 S.C.R. 121 July 1981Bench: 3 JudgesAuthor: P.N. BHAGWATI, A.P. SEN, E.S. VENKATARAMIAH13 pages
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What did the Supreme Court hold?

The Supreme Court held that the High Court's view that the non-specification of the amount in the notice dated May 21, 1966, did not cause prejudice was correct, as the petitioners had replied on merits and were aware of the amount. Regarding the affidavit, the Court stated that it was not necessary for the person to whom the notice was issued to swear the affidavit; it could be sworn by a competent person like the accountant. However, the ITO could not disregard the affidavit without holding an inquiry. If the ITO believed the statement on oath was false, he was required to give notice to the party, hold an inquiry, and follow the principles of natural justice to reach an objective conclusion. The burden of proving the statement false lay with the Revenue, which had to disclose its evidence. In this case, the ITO failed to provide an opportunity for inquiry after receiving the accountant's affidavit, making his decision to hold the petitioners personally liable and issue notices dated December 31, 1966, and January 11, 1967, invalid. These notices were set aside. The appeal was dismissed regarding the validity of the initial notice but allowed concerning the subsequent notices.

What were the facts?

The Income Tax Officer (ITO) issued a notice under Section 226(3)(i) of the Income Tax Act, 1961, to the petitioners (Beharilal Ramcharan), stating they owed Rs. 76 thousand odd to B.R. Sons Ltd. (the assessee) and should pay this amount towards the assessee's tax arrears. The petitioners, however, claimed the assessee owed them a large sum. The ITO directed them to file a sworn affidavit. The petitioners' accountant filed an affidavit reiterating their claim. The ITO, examining the assessee's books, concluded the affidavit was false and held the petitioners personally liable. Subsequently, the ITO declared the petitioners 'assessee in default' under Section 226(3)(x) for failing to pay and not rebutting his conclusion. The petitioners challenged this in a writ petition, and the High Court upheld the ITO's actions regarding the notice's validity and deeming them in default, but found recovery proceedings invalid due to the absence of a recovery certificate under Section 222.

What were the issues?

1. Whether the notice issued under Section 226(3)(i) of the Income Tax Act, 1961, is invalid for not specifying the exact amount due from the petitioners to the assessee, and if so, whether prejudice was caused to the petitioners. Assessee's contention: The notice was invalid due to the non-specification of the amount due. Revenue's contention: The petitioners were aware of the amount, and no prejudice was caused. 2. Whether the sworn affidavit filed by the accountant of the petitioners was valid, and if the ITO could disregard it without holding an inquiry. Assessee's contention: The affidavit was valid and should not have been disregarded. The accountant was competent to make the statement. Revenue's contention: The affidavit was false, and the ITO was justified in disregarding it and holding the petitioners liable. 3. Whether the ITO was bound to give the petitioners an opportunity of being heard before rejecting the affidavit and declaring them personally liable for the tax. Assessee's contention: The principles of natural justice required an opportunity to be heard and an inquiry before imposing personal liability. Revenue's contention: The ITO acted within his powers by rejecting the affidavit and holding the petitioners liable.

Which sections of the Income-tax Act were involved?

Section 226(3),Section 226(3)(i),Section 226(3)(x),Section 222

AI-generated summary — verify with the full judgment below

' • • BEHARILAL RAMCHARAN v. INCOME-TAX OFFICER, SPECIAL CIRCLE 'B' WARD, KANPUR AND ANR.

July 21, 1981 [P.N. BHAGWATI, A.P. SEN AND E.S. VENKATARAMIAH JJ.J Income· Tax Act 1961-Seclion 226(3) (i)-Scope of-Notice issued to osse- ssee in default did not specify amount of tax payable by hbn-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-·z'f valid-Income TCix Officer-Whether bollhd to give opportunity of A B c being heard before rejecting aifidavit and declaring him responsible for tax. D 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 Depart· ment 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 E them a large amount. The Income Tax Officer directed the petitioners to file a sworn affida

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