Sections 226(3), 276B and 276BB – Recovery of tax – Garnishee proceedings – Assessee holding lease for settlement of sand ghats – Surrender of lease accepted by Government – Attachment of bank account of assessee thereafter for failure by Mining Office to collect tax from other settlees – No determination that settlement amount to Mines Department due against assessee – Liability was that of Mines Department – Attachment of assessee’s bank account not sustainable and revoked

18. Sainik Food Pvt. Ltd. vs.
Principal CCIT; 406 ITR 596 (Patna);

Date of order: 8^th
February, 2018

Sections 226(3), 276B and 276BB – Recovery of tax – Garnishee
proceedings – Assessee holding lease for settlement of sand ghats – Surrender
of lease accepted by Government – Attachment of bank account of assessee
thereafter for failure by Mining Office to collect tax from other settlees – No
determination that settlement amount to Mines Department due against assessee –
Liability was that of Mines Department – Attachment of assessee’s bank account
not sustainable and revoked

The assessee was the highest bidder
of the tender for settlement of sand ghats located in different districts in
the State of Bihar for the period of 2015-19. According to the notice inviting
tender the assessee was required to pay settlement amount in three instalments
with simultaneous payment of the required amount of tax to the Sales Tax
Department of the State, Income Tax Department and other statutory charges. The
assessee deposited the entire settlement amount with the Department of Mines
and Geology for the years 2015 and 2016. The assessee was required to deposit
the third and the last instalment of settlement amount in the month of
September, 2017.

In the mean while, the assessee
received a notice of demand dated 26/07/2017, issued by the ITO in purported
exercise of power u/s. 226(3) of the Income-tax Act, 1961 calling upon the
assessee to deposit the tax liability of the District Mining Office, Bhagalpur.
The assessee requested for grant of time so that the third instalment was paid
to the Department instead of to the District Mining Officer with settlement of
sand ghat. On 19/12/2017 the amount was deducted from the bank account of the
assessee by the Department which treated it to be an assesee u/s. 226(3)(x) and
dues payable by the District Mining Officer, Bhagalpur on account of default in
deducting tax collected at source from various brick kiln owners. The assessee
surrendered the lease on 14/10/2017 and was accepted by the State Government on
20/10/2017. The ITO (TDS) passed the order of recovery u/s. 226(3)(x) on
23/10/2017.

The assessee filed a writ petition
contending that the assessee was not a debtor of the Mines and Geology
Department after surrender of lease and its acceptance, that the action of the
Department in releasing the bank account of the Mining Department and
thereafter attaching the bank account of the assessee and recovery of tax
liability of the Mining Department from the bank account of the assessee was
not justified, and that not taking action against the Mining Department u/s.
276B and 276BB and attaching and recovering from the bank account of the
assessee was arbitrary exercise of power. The Patna High Court allowed the writ
petition and held as under:

“i)    The
Department had not carried out any factual enquiry to examine whether or not
there was any liability to be paid by the assessee in connection with the
settlement of sand ghat. In the absence of factual enquiry, proceeding against
the assessee and treating it as debtor was not justified. The action of the
Department in treating the assesse as debtor and attaching its bank account and
recovering the tax liability of the Mines and the Geology Department from the
bank account of the assessee, without noticing the surrender of lease and its
acceptance by the State Government, was not proper.

ii)    For
the lapse of the Mines Department the assessee could not be fastened with any
liability if no tax was due to be payable by the assessee against any head to
the Mines Department. In the absence of exclusive determination that the
settlement amount to the Mines Department was only due against the assessee, it
could not have been declared exclusive debtor. The counter-affidavit filed by
the Mines Department acknowledged the lapse of its officers. There was no
statement that the settlement or tax liability was exclusively due against the assessee
and not other settlees which was noticed from the fact that the assessee kept
on requesting the authorities in the matter of payment of tax u/s. 226(3)(x).

iii)    The provisions of section 226(3)(x) did not confer such arbitrary
power to the Department to recover the amount from an innocent assessee after
surrender of settlement. The tax was the liability of the Mines and Geology
Department and instead of taking coercive action and adopting the means
available under the provisions of sections 276B and 276BB for recovery of the
liability from the Mines Department, attaching the bank account and directing
the tax due to be recovered from the account of the assessee was unreasonable
and unjustified. The attachment of the bank account was revoked.”