INCOME-TAX OFFICER, MADRAS vs. BUDHA PICTURES, MADRAS

CIVIL APPEAL No. 401/1966Supreme Court[1967] 3 S.C.R. 42505 April 1967Bench: 3 JudgesAuthor: J.C. SHAH, S.M. SIKRI, V. RAMASWAMI B5 pages
AI SummaryDismissed

What did the Supreme Court hold?

The Supreme Court held that Section 46(5A) of the Indian Income-tax Act, 1922, contemplates a subsisting relationship between the person served with the notice and the assessee. The expressions "may become due" or "may subsequently hold money" suggest a current or ongoing relationship, such as an employer-employee, banker-customer, or debtor-creditor relationship. The Court reasoned that it would be speculative and place an enormous burden on individuals if notices could be issued to all possible future employers or traders without any existing connection. The Court agreed with the High Court's interpretation that the section requires a relationship similar to that between a garnishee and an assessee. Therefore, since there was no subsisting relationship between Budha Pictures and T.S. Balaiah at the time the notice dated June 18, 1959, was issued, the recovery of Rs. 20,000 from Budha Pictures was not justified. The appeal was dismissed.

What were the facts?

The Income-tax Officer (ITO) issued a notice under Section 46(5A) of the Indian Income-tax Act, 1922, to Budha Pictures (the respondent) on June 18, 1959, directing them to pay any amount due or that might become due to an actor, T.S. Balaiah, who was in arrears of income-tax. Budha Pictures replied that they had not engaged Balaiah and had no contract with him. On March 28, 1960, Budha Pictures entered into a contract with Balaiah for a role, agreeing to pay him Rs. 20,000, which was paid in installments. A subsequent notice was issued on March 22, 1961. The ITO held that the payment of Rs. 20,000 to Balaiah violated the June 18, 1959 notice and demanded the amount from Budha Pictures. Budha Pictures filed a writ petition, which the High Court allowed, holding the demand illegal. The department appealed to the Supreme Court.

What were the issues?

1. Whether a notice issued under Section 46(5A) of the Indian Income-tax Act, 1922, requires a subsisting relationship between the person served with the notice and the assessee at the time of issuance, or if it can apply to potential future relationships. This issue turns on the interpretation of "money is due or may become due" and "holds or may subsequently hold money" in Section 46(5A). Assessee's Contention (Implicit in High Court's ruling and Supreme Court's agreement): The notice under Section 46(5A) is only effective if there is a subsisting relationship between the respondent (Budha Pictures) and the assessee (T.S. Balaiah) at the time the notice is issued. The payments made after the contract was signed did not contravene the notice issued when no such relationship existed. Revenue's Contention (Implicit in ITO's actions and appeal): Section 46(5A) applies even if the money "may become due" or the person "may subsequently hold money," without requiring a subsisting relationship at the time of the notice. The words are plain and do not suggest a requirement for a pre-existing relationship.

Which sections of the Income-tax Act were involved?

Section 46(5A)

AI-generated summary — verify with the full judgment below

A B c D E F G INCOME-TAX OFFICER, ID.ORAS v. BUDHA PICTURES, MADRAS April 5, 1967 [J. C. SHAH, S. M. S!KRI AND V. RAMASWAMI, JJ.] . Indian Income-tax Act, 1922, s. 46(5A )-Notice under section to who1n can be given-There must be subsisting relationship between asJtssee and person to whom notice is gi-.,·en.

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 re- plied that it bad not engaged 'B' foc 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. Tho amount was paid to him in three instalments on March 28, 1960, Februa·ry ~. 1961 and March 18, 1961. On March 22, 1961 the Income-tax Offl· cec 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

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