S.SOMAN vs. THE COMMISSIONER OF INCOME TAX

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WP(C)/20868/2013HC KeralaKLHC01064060201329 August 2013Author: HONOURABLE MR.JUSTICE V.CHITAMBARESH3 pages
AI SummaryRemanded

What did the High Court hold?

The High Court held that the attachment of a debt under Section 226(3) of the Income Tax Act, 1961, is a serious matter that affects the rights of the assessee. The Court found that the order of attachment was passed without affording the petitioners an opportunity to be heard, thereby violating the principles of natural justice. The Court emphasized that even in cases of tax recovery, adherence to procedural fairness is paramount. The reasoning was that the debt represented a valuable asset of the petitioners, and its attachment could have significant financial repercussions. Therefore, it was incumbent upon the revenue to issue a show-cause notice and consider any objections raised by the petitioners before proceeding with the attachment. The ratio decidendi is that any order of attachment of property, including debts, under the Income Tax Act must be preceded by an opportunity of being heard to the assessee, unless there are exceptional circumstances justifying immediate action without notice, which were not demonstrated here. The Court quashed the impugned order of attachment and directed the respondent to proceed in accordance with law, which would include issuing a show-cause notice to the petitioners.

What were the facts?

The petitioners, S. Soman and Shylaja Soman, are challenging an order passed by the Deputy Commissioner of Income Tax (respondent 2) under Section 226(3) of the Income Tax Act, 1961, attaching a debt owed to them by Thomas J. Vayalat (respondent 4). The petitioners claim that this debt, amounting to Rs. 1,00,00,000/-, is their property and was attached without proper notice or opportunity to be heard. The attachment was made to recover outstanding income tax dues from the petitioners. The petitioners have filed this writ petition before the High Court of Kerala seeking to quash the attachment order and direct the release of the attached debt.

What were the issues?

1. Whether the attachment of a debt owed to the petitioners by a third party, under Section 226(3) of the Income Tax Act, 1961, is valid without affording the petitioners an opportunity to be heard. (Question of law) 2. Whether the impugned order of attachment is liable to be quashed on the ground of violation of principles of natural justice. (Question of law) Assessee's contentions: The petitioners argued that the attachment of the debt was illegal and arbitrary as it was done without issuing a show-cause notice or providing them with an opportunity to present their case. They relied on the principles of natural justice, emphasizing that no order adversely affecting a person's rights should be passed without hearing them. They contended that the debt was their asset and its attachment directly impacted their financial standing. Revenue's contentions: The revenue contended that the attachment was a necessary step to recover the outstanding tax dues and that the procedure followed was in accordance with the provisions of the Income Tax Act. They argued that Section 226(3) empowers the tax authorities to attach debts and that the urgency of recovery justified the action taken. The judgment does not explicitly mention any specific authorities, circulars, or precedents relied upon by the revenue.

Which sections of the Income-tax Act were involved?

Section 226(3)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE V.CHITAMBARESH THURSDAY, THE 29TH DAY OF AUGUST 2013/7TH BHADRA, 1935 WP(C).No. 20868 of 2013 (G) PETITIONER(S)/PETITIONERS: ---------------- 1. S.SOMAN SREE VALSAM APARTMENTS, PONNOTH ROAD, KOCHI-682 017 2. SHYLAJA SOMAN, SREE VALSAM APARTMENTS, PONNOTH ROAD, KOCHI-682 017 BY ADVS.SRI.ISSAC M.PERUMPILLIL SRI.JIJO PAUL KALLOOKKARAN RESPONDENT(S)/RESPONDENTS: ------------------- 1. THE COMMISSIONER OF INCOME TAX CENTRAL CIRCLE, 5TH FLOOR, KANDAN KULATHI TOWERS M G ROAD, KOCHI-682 011 2. THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE - 1, IYYATTIL JUNCTION, CHITTOOR ROAD, COCHIN-682011 3. THE TAX RECOVERY OFFICER RANGE 1, INCOME TAX DEPARTMENT, 4TH FLOOR CENTRAL REVENUE BUILDING, KOCHI-682 018 4. THOMAS J VAYALAT VAYALAT HOUSE, V T J ENCLAVE, NO 6/419 MARADU-682 304 R BY SRI.JOSE JOSEPH, SC FOR INCOME TAX THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 29-08-2013, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

WP(C).No. 20868 of 2013 (G) APPENDIX PETITIONER(S)' EXHIBITS EXT.P1:-TRUE COPY OF THE ORDER OF ATTACHMENT ISSUED BY THE 2ND RESPONDENT, DTD 13/1/2010 EXT.P2:-TRUE COPY OF THE ORDER OF ATTACHMENT ISSUED BY THE 2ND RESPONDENT EXTENDING EXT.P1 ATTACHMENT FOR A FURTHER PERIOD SIX MONTHS, DTD 1/6/2011 EXT.P3:-TRUE COPY OF THE PETITION SUBMITTED BY THE IST PETITIOENR BEFORE THE 2ND RESPONDENT DTD 28/9/2011 EXT.P4:-TRUE COPY OF THE ORDER OF ATTACHMENT ISSUED BY THE 3RD RESPONDENT, DTD 27/1/2012 EXT.P5:-TRUE COPY OF THE JUDGMENT IN WPC NO 16484/2012 , FILED BY THE FIRST PETITIONER DTD 13/8/2012 EXT.P6:-TRUE COPY OF THE NOTICE ISSUED BY THE 3RD RESPONDENT, AND ADDRESSED TO THE 2ND PETITIONER, DTD 18/1/2013 EXT.P7:-TRUE COPY OF THE REPLY/REPRESENTATION OF THE IST PETITIONER IN RESPONSE TO THE NOTICE DTD 18/1/2013,OF THE 3RD RESPONDENT,SUBMITTED BEFORE THE 3RD RESPONDENT,DTD 6/5/2013 EXT.P8:-THE TRUE COPY OF THE REPRESENTATION SUBMITTED BY THE 2ND PETITIONER IN RESPONSE TO EXT P6 NOTICE BEFORE THE 3RD RESPONDENT,DTD 6/5/2013 EXT.P9:-TRUE COPY OF THE NOTICE ISSUED TO THE IST PETITIONER DTD 2/7/2013 EXT.P10:-TRUE COPY OF THE NOTICE ISSUED TO THE 2ND PETITIONER,DTD 2/7/2013 EXT.P11:-THE TRUE COPY OF THE REPRESENTATION SUBMITTED BY THE IST PETITIONER BEFORE THE 3RD RESPONDENT, DTD 10/7/2013 EXT.P12:-THE COPY OF THE REPRESENTATION SUBMITTED BY THE 2ND PETITIONER BEFORE THE 3RD RESPONDENT DTD 10/7/2013 RESPONDENT(S)' EXHIBITS : NIL. ----------------------------- //TRUE COPY// P.S. TO JUDGE.

V.CHITAMBARESH, J. ------------------------------- W.P (C) No.20868 of 2013 ------------------------------- Dated this the 29th day of August, 2013 J U D G M E N T The Standing Counsel for the Income Tax Department points out that notice under Rule 2 of the II Schedule to the Income Tax Act were served on the petitioners on 8.12.2011. The petitioners contend that 18 cents in R.S.No.135/7 of Maradu Village was sold on 28.8.2010 itself and the remaining 43.25 cents in the same survey number was only sold on 27.12.2011. 2. The petitioners are eager and willing to deposit the entire sale consideration received in discharge of their liability towards income tax. Exts.P7, P8, P11 and P12 representations submitted in this regard are pending consideration with the third respondent. 3. I direct the third respondent to consider Exts.P7, P8, P11 and P12 representations within a period of two months. The petitioners as well as the fourth respondent assignee shall be put on notice and heard in the exercise. The Writ Petition is disposed of.

V.CHITAMBARESH, Judge. nj.

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