08.10.13

W.P. 22849 (W) of 2013

Jugal Kishore Das. Vs. Union of India & Ors.

Mr. Raja Basu Chowdhury,
Mr. Sayantan Bose,
Mr. Basudeb Biswas.
… for the petitioner

Ms. Asha G. Gutgutia,
Mr. S. N. Bhattacharjee.
… for the Union of India

The petitioner has challenged the order of attachment dated 7th June, 2013 issued by the respondent no. 2 of the Cash Credit Account held with the respondent no. 4. Apropos the main prayer as indicated above the petitioner has further prayed for a direction upon the respondent no. 3 to dispose of the appeal pending before the CIT (Appeals), XXXVI, Kolkata, respondent no. 3 herein, on expeditious basis.

The sheet anchor of the arguments advanced on behalf of the petitioner is that the authorities while invoking the provisions contained under Section 226(3) of the Income Tax Act, 1961 cannot pass an order of attachment of the Cash Credit Account, which has not been utilized and/or availed of as yet. In support of the aforesaid contention the reliance is placed upon a judgement of Madras High Court in case of K. M. Adam vs. The Income-tax Officer,2nd Addl. II Circle, Madras reported in AIR 1958 Madras 181.

The learned advocate appearing for the respondent authorities, however, submits that the petitioner is not co-operating with the Appellate Authority for early disposal of the appeal and has not paid the amount assessed by the Assessing Officer. It is further submitted that the petitioner himself has prayed for payment of the tax assessed by the Assessing Officer in instalments and, in fact, paid the first instalment, but thereafter failed to liquidate the balance. Lastly it is contended that Section 226(3) of the said Act permits the Assessing Officer to pass an order of attachment of money held by any person other than the Assessee and, therefore, the action of the Assessing Officer in attaching the Cash Credit Account is well within the purview of the aforesaid provisions.

Upon hearing the submissions made by the respective counsel, the point which evolved in this writ petition is whether the authority can pass an order of attachment of a Cash Credit Account upon invocation of the provisions contained under Section 226 (3) of the said Act.

Before proceeding to decide the aforesaid question as framed hereinabove, it is relevant to point out that this Court has proceeded to dispose of the writ petition, as it appears from the submissions of the respective counsel that it involves the only question of law.

It is undisputed that the Assessing Officer passed an order of assessment and held the petitioner liable to pay the tax to the tune of Rs.36,74,000/-. The petitioner availed of the statutory remedy by filing an appeal. It is an admitted position that the petitioner has not taken out any application before the Appellate Authority for stay of the demand nor has approached the Assessing Authority under Section 220 (6) of the said Act to treat him as non-defaulter.

Amidst pendency of the appeal, the authority in absence of an order of stay has initiated the recovery proceeding and has proceeded to pass an order of attachment of the Cash Credit Account.

It has been brought to the notice of this Court that the petitioner proposed to pay the amount so assessed by the Assessing Officer in instalments without prejudice to his rights under the statutory appeal and paid the first instalment in July, 2013. The petitioner did not pay thereafter any instalment. The authorities have proceeded to pass an order of attachment of the Cash Credit Account which according to the petitioner should not have been passed when the petitioner has shown the intention to liquidate and/or pay off the said amount.

The Madras High Court in case of K. M. Adam (supra) held that the provisions contained under Section 226 (3) of the said Act are in the nature of garnishee proceedings and can be invoked against two classes of persons; firstly a person from whom the money is due or may become due to the assessee and secondly the person, who holds or subsequently holds money for or on account of the assessee.

What can be deciphered from the aforesaid report that unless there exists a relationship of ‘debtor and creditor’, the order of attachment by an authority under the provisions contained under Section 226 (3) of the said Act cannot be passed. In the said report the authority passed an order of attachment of the overdraft amount and in the backdrop of the aforesaid perspective it is held:

“That question apart, there must be a debt to be attached. Unless the Bank were a debtor there could be no attachment and an unutilised overdraft account does not render the bank a debtor in any sense and, therefore, the bank is not a person from whom money is due to the customer. Nor does the Bank in such a case fall within the expression ‘person from whom money may become due’”

The Court further held that mere providing a facility of an overdraft, it cannot be said that the bank is a debtor to its customer or holds the money for account of its customer in these words:

“I do not think it is worthwhile pursuing this theory any further. In my judgment when a Bank lends money on overdraft and the customer is always in debit there is no stage at which the Bank is a debtor to its customer, nor any point of time at which it holds any money of his on his account. S. 46 (5-A) of the Act cannot on any construction be intended as a credit freeze, with this feature superadded, that if there was any thawing, the resultant credit released became immediately payable to the department.”

The Cash Credit limit is a facility provided by the Bank to its customers to use and utilize the money; and if such facility availed of, it would attract the interest to be charged for the same so utilized.

In view of the above, this Court does not find that the action on the part of the respondents in passing the order of attachment of Cash Credit Account would at all be sustainable in view of the ratio laid down in the above noted report; even the meaningful reading of the language employed in Section 226 (3) of the said Act does not suggest that the account like the Cash Credit or the Overdraft is capable of being attached as the bank does not become a debtor.

This Court, therefore, finds that the impugned order of attachment passed by the authorities is clearly beyond the powers conferred under Section 226 (3) of the said Act and is, therefore, quashed and set aside.

The respondent no. 3 before whom the appeal is pending is directed to take utmost care to dispose of the same as expeditiously as possible without granting unnecessary adjournment and preferably within three weeks from the date of communication of this order.

Since the petitioner has shown his eagerness to pay the amount so assessed by the Assessing Authority in instalments, it would be open to the petitioner to pay the same in instalments, which shall be without prejudice and subject to the result of the said appeal.

In view of above, the writ petition is disposed of.

There will be no order as to costs.

(HARISH TANDON, J.)