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Judgment
Veeraswami, J.—These petitions under article 226 of the Constitution, one for prohibition and the other for mandamus, are by the same
firm, Mohamedaly Sarafaly & Co. The first respondent, pursuant to a notice dated May 17, 1966, u/s 226(3) of the Income Tax Act, 1961, took
coercive proceedings. The petitioner says that the first respondent acted without jurisdiction in issuing the notice. This is on the ground that, though
the petitioner admitted the debt to the second respondent, he disputed that the principle was payable on demand and before the expiry of 10 years
from the date of borrowing and that, in any case, without issuing a certificate in the first instance against the assessee for recovery u/s 222, he has
no power to proceed against the petitioner straightaway. The second ground has not been actually taken in the affidavits in support of the petitions.
Nevertheless, we heard arguments on that too.
The first ground turns purely on a factual matter, whether the debt admittedly owing to the second respondent by the petitioner was payable on
demand or only after an alleged stipulated date. The petitioner himself stated that the second respondent had unaccounted money out of which the
latter advanced to him a sum of Rs. 2,70,000 during 1960-61. According to the petitioner, however, the loan was taken on the basis of an oral
agreement for repayment whenever it was convenient to do so for the petitioner and that no demand for repayment would be made for a period of
10 years, but interest would be paid on the loan outstanding at the agreed rate before the end of each year. The second respondent u/s 24 of the
Finance (No. 2) Act, 1965, filed, however, a voluntary declaration disclosing a substantial amount of undisclosed income. This declaration was
accepted by the Commissioner of Income Tax on February 24, 1966, and the second respondent was charged to Rs. 1,93,230 as Income Tax. A
demand for the same was sent to him by a notice dated February 26, 1966, which was actually received by him on March 2, 1966. The second
respondent paid certain amounts towards the demand on several dates subsequently and the arrears of tax as a result were brought down to Rs.
1,73,907. Even at the time of the voluntary declaration the second respondent had disclosed to the department that the petitioner owed him a sum
of Rs. 2,45,000. By a letter dated March 4, 1966, the second respondent called upon the petitioner to repay at least a sum of Rs. 2,00,000 to
enable him to discharge his Income Tax arrears. The petitioner in reply on April 5, 1966, acknowledged its liability to pay and expressed its
readiness to pay over the money to the Income Tax department in discharge of the second respondents tax arrears. But at the same time, the
petitioner regretted that its funds having been locked up in business, it was not just then in a position to make the payment forthwith. It, however,
indicated its willingness to offer its properties charged for its own tax arrears as security for the second respondents arrears as well. On May 18,
1966, relying on the disclosure by the second respondent. the Income Tax Officer, first respondent, issued a notice to the petitioner u/s 226(3)
telling him about the second respondents arrears of tax in a sum of Rs. 1,73,907 and requiring the petitioner to pay the same forthwith out of the
amounts due from him to the second respondent. The notice was served on the petitioner on May 19, 1966. The petitioner on receipt of the
notice, acknowledged its liability to the second respondent and undertook to pay the amount to the Income Tax department, but pleaded for easy
instalmental payments. As no part payments at least was made in the meantime, on July 1, 1966, the Income Tax Officer required the second
respondent to pay the entire arrears on pain of coercive proceedings being taken. The petitioner then came forward on July 8, 1966, with an
undertaking to pay Rs. 10,000 initially and requested permission to pay the balance in monthly instalments of Rs. 5,000, each. The petitioner
having defaulted, the Income Tax Officer wrote to him on July 19, 1966, asking why penalty should not be levied on the ground of non-payment,
and July 28, 1966, was fixed for hearing on the matter, but the petitioner failed to appear. He, however, on July 28, 1966, paid a sum of Rs.
10,000 as first instalment. On August 11, 1966, the Income Tax Officer issued a certificate for recovery of the tax arrears from the petitioner
treating him as in default of payment. Pending the proceedings on the certificate the petitioner would appear to have moved the Commissioner on
August 25, 1966, for withdrawing the certificate and for permission to pay the arrears by monthly instalments of Rs. 5,000, and subsequently the
question of payment of the arrears by the petitioner was discussed by its representative with the Inspecting Assistant Commissioner of Income Tax
(Central Range), Madras. The Income Tax Officer in his counter-affidavit says that on September 6, 1966, the petitioner agreed in writing to pay a
sum of Rs. 25,000 on or before September 25, 1966, and also gave an undertaking to pay the balance in monthly instalments of Rs. 25,000 each,
in every succeeding month till the arrears were cleared in full. We ourselves looked into the original and the averment of the Income Tax Officer in
this regard appears to be correct. Following this undertaking, the Income Tax Officer asked the Collector on September 6, 1966, to stay his
hands. A chalan was issued for payment of Rs. 25,000 being the first instalment on or before September 25, 1966, but no payment was made.
Instead, it would appear, the petitioner, on September 20, 1966, produced through an advocate a sworn statement by one of its partners raising
the plea that the petitioner was not under a present obligation to pay the second respondent, Rs. 2,70,000 or any amount by way of principal. On
that ground it was represented to the Income Tax Officer that he should drop the proceedings u/s 226(3). As the department did not accede to the
stand taken up by it, the petitioner has then moved this court under article 226 of the Constitution.
It will be obvious from the facts narrated by us that at no time before September 20, 1966, did not petitioner deny its liability to repay the entire
debt. It never said that the principal of the debt was repayable only after 10 years. In fact, as it will be obvious from the facts mentioned by us, the
petitioner more than once admitted its liability to pay the debt including the principal and undertook to pay the same directly to the department in
discharge of the Income Tax arrears owned by the second respondent. Pursuant to the undertaking, the petitioner also paid a sum of Rs. 10,000,
but defaulted to pay further sums as undertaken. As the Income Tax Officer says in his counter-affidavit, for the first time the petitioner took up the
plea on September 20, 1966, that thought there was an obligation to pay the principal, the actual payment would be due only after the expiry of 10
years. u/s 226(3) of the Income Tax Act, it is open to the Income Tax Officer to proceed against a third party for recovery of his creditors tax
arrears from moneys which are admittedly due to such assessee from him. Where the third party does not admit or denies that the debt is owing to
the assessee, the Income Tax Officer will be powerless to proceed u/s 226(3). It will not then be open to him to sit in judgment over the denial and
come to his own conclusion. But, to start with, he may assume that the debt is owing and initiate proceedings u/s 226(3). With respect, we are
inclined to accept the statement of the law to that effect by Bhimasankaran J. in Rajeswaramma v. Income Tax Officer. But this is a case in which
the petitioner before us admitted that the debt was repayable, and as we said, undertook to pay it to the department in discharge of the arrears of
Income Tax due from the second respondent and actually paid at least Rs. 10,000. It appears that the sums advanced to the petitioner are covered
by promissory notes which show that the entire debt was payable on demand. It is, in the circumstances, impossible to accept the belated sworn
statement of one of the partners of the petitioner that the principal of the debt was not payable until after expiry of 10 years. The Income Tax
Officer, it should follow, is entitled to proceed u/s 226(3).
On the second ground, the contention is that the Income Tax Officer cannot proceed u/s 226 unless he has first issued a certificate against the
assessee u/s 222. We are unable to accept this contention, There is nothing in section 222 or section 226 which justifies the contention. The non-
obstante opening words in section 226(1) only mean that the other modes of recovery are but concurrent. This is made perfectly clear by sub-
section (2) of section 222. We find not substance in this ground too.
The writ petitions are dismissed with costs. Counsels fee Rs. 250.