ANITA RANI vs TAX RECOVERY OFFICER

Ashok Bhan, J.

This petition has been filed for issuance of a writ of certiorari quashing orders Annexures P2 and P3 directing Amrik Singh and company-respondent No. 2, the tenant of the petitioner to deposit the rent payable by it to the petitioner towards arrears of tax due from the firm Om Parkash Harbans Lal, and for a writ of mandamus directing respondent No. 1 to refund the amount illegally collected by him from respondent No. 2.

One Anil Kumar was the owner in possession of vacant plot with an area of 147 square yards situated at Mehlan Road, Sangrur. He mortgaged the same with possession with all rights attached to it with the petitioner for a consideration of Rs. 10,000 vide registered mortgage deed dated 30-9-1986 (Annexure P1). One of the rights conferred in the mortgage deed on the mortgagee-petitioner is that she has the right to make the construction on the plot, and, when the mortgage is to be got redeemed, the mortgagee shall remove the material, or if agreed to, shall be entitled to get the price of the material from the mortgagor. In the year 1991, the petitioner started construction of two shops which were completed in December, 1994. The said shops remained vacant for about 1/4 years or so and thereafter in the year 1996, both the shops were let out to respondent No. 2 at monthly rent of Rs. 6,500.

The Tax Recovery Officer (TRO), Ludhiana issued a notice u/s 226(3) of the Income Tax Act, 1961, (hereinafter referred to as `the Act'') dated 13-6-1996 to Amrik Singh & Co. stating therein that a sum of Rs. 1,10,043 plus interest u/s 220(2) of the Act is due from Krishan Kumar, a partner of Om Parkash Harbans Lal, Sangrur, on account of arrears of Income Tax and that respondent No. 2 should pay to the TRO, Ludhiana, any amount due from him or held by him, for or on account of said Krishan Kumar. Copy of the said notice is Annexure P2. Jurisdiction over Om Parkash Harbans Lal, Sangrur, changed on 2-8-1996 from the TRO (Central) Ludhiana, to the TRO, Leela Bhawan, Patiala, Respondent No. 1 thereafter, addressed communication dated 7-8-1996 asking respondent No. 2 to send a draft of Rs. 5,000 on account of rent to respondent No. 1 for adjusting the same against outstanding Income Tax liability against Om Parkash Harbans Lal. Copy of the said letter is Annexure P3. It is averred that respondent No. 2 thereafter, in pursuance to the letter has been paying the rent of Rs. 6,500 per month with effect from July, 1996 to respondent No. 1.

The petitioner coming to know the fact that her rent has been attached for recovery of arrears of Om Parkash Harbans Lal, Sangrur, addressed a letter dated 14-9-1996 to respondent No. 1 bringing to his notice that the property in question was duly mortgaged through registered mortgage deed dated 30-9-1986 by Anil Kumar in her favour and that Krishan Kumar, partner of Om Parkash Harbans Lal, has no right to title of any kind in the property from which he was recovering the Income Tax. It was further requested that tax recovered from the tenant of the petitioner be refunded to the petitioner and that he should not collect any kind of tax from the above-mentioned property in future. Failing to get a favourable response from respondent No. 1, the present writ petition has been filed challenging the action of respondent No. 1 seeking to recover the arrears of tax from the rent due and payable to the petitioner by respondent No. 2.

In the written statement filed, stand taken by the respondent is that the answering respondent did not have any knowledge regarding the alleged mortgage except the information contained in the mortgage deed Annexure P1 of this petition. As Anil Kumar was the owner of the land in dispute, the respondents were justified to recover the arrears of tax due from the firm Om Parkash Harbans Lal from any of the partners. Anil Kumar being partner of the firm is the owner of the property in question, therefore, the tax liability of the firm is recoverable from him u/s 188A of the Act and the recovery of the tax has been justified being made from the tenants of Shri Anil Kumar.

The counsel for the parties have been heard.

Property in question was mortgaged to the petitioner through registered mortgage deed dated 30-9-1986 by Anil Kumar with permission to raise construction. The petitioner after raising the construction of two shops let out the same to respondent No. 2. Anil Kumar mortgagor had no possessory rights over the land or the shops at present. As and when mortgage is redeemed, Anil Kumar could get possessory rights over the land and in case he purchases the material used for construction of shops, then the shops as well. Till that day, the only right which he possesses is to redeem the property. Anil Kumar has no right to receive the rent of the leased premises.

Under section 226(3) of the Act, the Income Tax Officer, can by notice in writing, require any person from whom money is due or may become due to the assessee or any person who holds or may subsequently hold money for or on account of the assessee to pay to the Income Tax Officer upon the money becoming due or being held within the time specified in the notice so much of the money as is sufficient to pay the amount due by the assessee in respect of arrears of Income Tax. Petitioner did not owe any money to Om Parkash Harbans Lal or any of its partners. Similarly of respondent No. 2 not being a tenant to Om Parkash Harbans Lal or any of its partners was not required to pay the rent to them. Rent was payable by respondent No. 2 to the petitioner. Neither the petitioner nor respondent No. 2 was holding the money on behalf of Om Parkash Harbans Lal or its partners. u/s 226(3), the money payable by respondent No. 2 to the petitioner as rent of the shops could not be garnished for adjustment of arrears of Income Tax of Om Parkash Harbans Lal or its partners. Rent payable on account of the leased shops by respondent No. 2 to the petitioner could not be attached/recovered and adjusted against the arrears of tax due against Om Parkash Harbans Lal or any of its partners. Action taken by respondent No. 1 is, thus, illegal and unjustified.

For the reasons stated above, this petition is accepted and the impugned orders Annexures P2 and P3, being invalid, are quashed. Respondent No. 1 is directed to refund the amount recovered from Amrik Singh and company-respondent No. 2 to the petitioner within two months of the receipt/production of a certified copy of this order. In case, the amount is not refunded within two months, respondent No. 1 shall be liable to pay interest at the rate of 12 per cent per annum on the amount due from the date it was recovered till its payment.

Respondent No. 1, however, shall be at liberty to recover the arrears of tax from Om Parkash Harbans Lal or any of its partners under the Income Tax Act in accordance with law.