PETITIONER:
MADAN LAL LOHIA
Vs.
RESPONDENT:
ASSISTANT CONTROLLER & ORS.
DATE OF JUDGMENT11/04/1977
BENCH:
BHAGWATI, P.N.
FAZALALI, SYED MURTAZA
CITATION:
1977 AIR 1871 1977 SCR (3) 489
1977 SCC (3) 189
ACT
Garnishee Proceedings--Estate Duty Act, 1953 (Act 34 of
1953), S. 73(5) r/w. s. 46(5A) of the Income Tax Act,
1922--Scope of.
HEADNOTE
The appellant, a tenant in the building situate at No.
13 India Exchange Place, Calcutta and belonging to one Rai
Bhupathi Nath Deb Bahadur who died on September 23, 1959,
was inducted in as a tenant through a registered lease deed
dated 5th March 1960 for a period of thirty one years effec-
tive from 18th March 1960 and on a monthly rent of Rs.
1,400/- by nine persons who claimed to be the nephews and
nieces of the ’said Bhupathi Nath Deb.
Respondents Nos. 3 and 4 claiming respectively to be the
son and daughter of the deceased Bhupathi Nath, in their
capacity as executors of the will dated 20th November 1957
said to have been made by the deceased prior to his death
filed an account in form No. ED-1, of the properties includ-
ing the building at 13 India Exchange Place, in respect of
which, according to them estate duty was payable on the
death of the deceased. The Assistant Controller of Estate
Duty, after assessing the principal value of the estate
under s. 58 of the Act determined a sum of Rs. 1,40,090/28
as the amount of duty payable by the accountable persons.
Being unable to recover the amount, the Assistant Controller
of Estate Duty, in. view of the fact that the rent payable
by the appellant was a fortiorari an amount which in law
belonged to the estate issued a notice to the appellant u/s.
73(5) of the Act r/w section 46(5A) of the Income Tax Act,
1922, pointing out that "a sum of Rs. 1,40,090/20 is due
from Tulsi Charan Deb and others on account of estate duty
as accountable persons to the estate of late Rai Bhupathi
Nath Deb" and requiring him to pay forthwith "any amount due
from you to or, held by you. for. or on account of the said
estate of Bhupathi Nath Deb Bahadur" upto the amount of Rs.
1,40,090/20. The appellant on receipt of the notice paid a
sum of Rs. 2800/- being the rent for the months of December
1961 and January 1962. From February 1962 to May 1962, the
appellant paid the rent to his lessors on the strength of a
notice dated 24th February 1962 from the lessor’s attorney
to the effect that the Assistant Controller had no jurisdic-
tion to demand from the appellant the rent, ’since the
lessors were not the accountable persons as they were not
assessed to estate duty. No further payment of rent, there-
fore was made either to the lessors or to Revenue; but
instead the appellant preferred a claim for refund of Rs.
2800/- on the ground that this payment had been made by him
under a bonafide mistake of law. By his order dated 25th
March 1964, the Assistant Controller, holding that the
appellant had acted in contravention of the notice dated 9th
January 1962 issued against him, imposed a penalty of Rs.
3000/- under s. 73(5) of the Estate Duty Act, 1953 r/w. s.
46(1) and required the appellant to pay up the amounts of
Rs. 35,000/- and Rs. 3,000/- on or before 6th April 1964.
The writ petition filed by the appellant challenging the
said order was rejected by the Calcutta High Court.
AlloWing the appeal by special leave in part, the Court,
HELD: (1) Two conditions must be fulfilled before penalty
Can be imposed 46(1) of the Income Tax Act, 1922: one is
that the person on whom penalty is sought to be impoSed must
be an assessee and the other is that the assessee must be in
default within the meaning of s. 45. Where a garnishee is
required by notice issued under sub-section (5A) of section
46 to pay to the Income Tax Officer so much of the money due
or which may become due from the garnishee to the assessee
or held or which may subsequentiy be held by the garnishee
for or on account of the assessee, as. ’is sufficient to pay
the amount due by the tax-payer in respect of the arrears of
income tax, he does not become an assessee as defined in
section 2, sub-seCtion (2). The garnishee merely pays the
amount which is due from him to the assessee and such pay-
ment is in discharge of the debt owed by him to the as
assessee. It is not a payment the liability for which is
created under any provision of the Act.--There is no provi-
sion
490
in the Act which by a legal fiction makes him an assessee.
Unlike s. 226 (3 )(x) of 1961 Act, there is no provision in
the 1922 Act that the garnishee who fails to comply with the
notice issued under sub-s. (SA) of s. 46 shall be deemed to
be an assessee in default. No penalty, therefore, can be
imposed on a garnishee under sub-s. (1) of s. 46, even if he
fails tO comply with the notice issued to him under sub-s.
5A of s. 46. [496 G-H, 497 A]
(2) Section 73, sub-sections (1) and (2) of the Estate
Duty Act correspond to s. 45(1) of the 1922 Act deeming the
accountable person to be in default only on his failure tO
pay in accordance with the requisition contained in the
notice. Since s. 73, sub-section (5) by incorporating the
provisions of sub7 sections (1), (IA), (2), (3), (4), (5),
(5A), (6) and (7) of s. 46 of the 1922 Act makes them ap-
plicable for the purpose of collection and recovery of
estate duty, it must follow a fortiori that penalty can be
imposed on a garnishee, under section 73, sub-section (5)
of the Estate Duty Act, 1953 read with section 46, sub-
section (1) of the ACt of 1922 only, if the garnishee can be
said to be an accountable person in default. The garnishee
cannot be regarded as an accountable person, since section
2, sub-section (12A) defines ’accountable person’ to mean
the person accountable for estate duty within the meaning of
the Act and the garnishee does not come within the category
of persons specified in sections 53 and 54 as persons ac-
countable for estate duty. There is also no provision in
the Estate Duty Act, 1953, deeming a defaulting garnishee as
an accountable person in default by a legal fiction. In the
instant case the order .dated 25th March, 1964, imposing
penalty of RS. 3,000/- On the appellant is outside the power
of the Assistant Controller under the Estate Duty Act, 1953.
[497 B, D-H]
(3) The plain effect of section 53, sub-s. (1) read with
s. 73, sub-sec. (1) is that .when an order of assessment is
made not only the accountable person in respect of whom
proceeding for assessment has been taken, but also every
other accountable person as defined in s. 2(2) and (12A)
would be liable to pay the amount of estate duty, limited of
course to the assets of the deceased which he’ actually
received or which, But for his own negligence or default, he
might have received. [501 C.H, 502 A]
(4) The words "the property passing on the death",
appearing in the expression "the whole of the estate duty
on the property passing on the death" in subsection (1) of
s. 53, according to their plain grammatical construction,
indicate that every accountable person would be accountable
for the estate duty on the entire property passing or deemed
to pass on the death of the deceased. [502 C-D]
(5) The argument that having regard to the words "where any
property passes" appearing in the opening part of the sub-
section, coupled with the words "such property so passes
and "the property so passing’, appearing in the respective
sub-clauses, the word the" appearing before the words
"property passing on the death" must again refer to the same
property which is referred to in the respective sub-clauses
(a), (b) or (c), as the case may be is not well founded, for
it ignores one very important circumstance namely, that each
of the persons mentioned in sub clauses (a), (,b) and (c) is
rendered accountable for the whole of the estate duty not,
merely "on the property so passing", but on "the property
passing on the death ". [502 D-F]
(6) Where the legislature wanted to refer to the specif-
ic property passing on the death of the deceased described
in the opening,part of the sub-section, the legislature used
the words "such property so passes" and ’the property so
passing" in the sub-clauses (a), (b) and (c), but while
imposing accountability for the estate duty, the legislature
,made a deliberate departure and instead of the words the
property so passing", which were familiar coinage, it used
the words "the property passing on the death". This highly
significant departure in phraseology Clearly indicates that
the legislative intent was that each of the persons men-
tioned in sub-clauses (a), (,b) and (c) should be account-
able for the estate duty on the entire property passing on
the death. It was for this reason that the
liability of each of these persons had to be limited to the
assets of the deceased Which he actually received or which,
but for his own neglect or default he might have received".
If the liability. of each of these persons was only to the
extent of the estate duty On the particular property falling
within the respective sub; clause, there Was need for limit-
ing it to the assets of the deceased which such person
received or ought to have received. [502 F-H, 503 A]
491
(7) The possibility that an anomaly may arise is only a
factor to be taken into account by the court where two
interpretations are possible, but where the meaning of a
statutory provision is plain, it cannot alter such meaning.
Though the trustee of an insurance policy taken out by the
deceased under the Married Women’s Property Act, 1874 would
fall within sub-clause (b) and hence become accountable for
the estate .duty on the entire property passing on the
death, he would not be liable to pay the estate duty out Of
the policy monies, since the estate of the deceased would
have no interest in the policy monies and the policy monies
would not form part Of.the estate of the deceased and his
liability as an accountable person would be limited only to
the assets of the deceased which he has actually received or
which he ought to have received. [503 C-D]
(8). Sub-section (5) of s. 53 merely emphasises the
principle of joint and several liability where two or more
persons are accountable for estate duty. in respect of any
property passing on the death of the deceased, regardless
whether they are so accountable in the same capacity or in
different capacities. It would be reading much more in sub-
section (5) than what its language warrants to say that this
sub-section is consistent only with an accountable..person
mentioned in sub-clause (a), (b) or (c) of sub-section (1)
being accountable only in respect of estate duty on the.
particular property passing to him on the death of the
deceased.
(9) The object of sub-section (5) of s. 53 is to provide
that every accountable person shall be liable not only
jointly with other accountable persons, but also severally
for estate duty in respect of any and every property passing
on the death of the deceased. On a proper construction of
sub-section (1) of s. 53, read in the context of the other
provisions Of the Act, each of the persons mentioned in
sub-clauses (a), (b) and (c) would be accountable for the
estate duty on the entire property, passing on the death and
his accountability qua the Revenue would_not be limited only
to the estate duty on the particular property passing to
him. [503 F, 503 C-D]
(10) In the instant case, the lessors were clearly
accountable persons since they admittedly took possession
of and intermeddled with the leased premises which formed
part of the estate of the deceased. The order of assessment
made by the Assistant Controller of Estate Duty was not
challenged by the appellant in the writ petition, nor was it
decared invalid by a superior authority at the instance of
the lessors. Not even any steps appear to have been taken
by the lessors for the purpose of challenging the order of
assessment. The lessors were in the circumstances, account-
able for the whole of the estate duty on the entire property
passing on the death of the deceased and hence they were
liable to pay the estate duty of Rs. 1,40,0920/20 limited of
course to the extent of the leased premises which consti-
tuted the asset of the deceased received by them. [504
H, 505 A-B]
(11 ) Since the rent of the leased premises was payable
by the appellant to the lessors under the lease deed and the
lessors were liable to pay the estate duty of Rs.
1,40,090/20 it was competent tO the Assistant Controller to
issue a notice under section 73. sub-section (5) read with
section 46, sub-section (SA) of the Act of 1922 requiring
the appellant to pay the amount of rent due and to become
due in respect of the leased premises. [505 C-D]
(12) The notice dated 9th January 1962 was a valid
notice and the appellant was bound to comply with it .and to
pay to the Assistant Controller the amount of rent due or to
become due in respect of the leased premises. Non-mentioning
of the lessors in the notice as the persons to whom the
amount of rent .was due from the appellant in respect of the
leased premises does not render the notice invalid or inef-
fective. What the notice dated 9th January 1962, in sub-
stance and effect required the appellant to do was to pay to
the Assistant Controller, the amount due or to become due
from the appellant to the lessors in respect of the leased
premises; that amount could rightly and legitimately be
described as amount due to the estate of the deceased so as
to be covered by the terms of the notice. [505 H, 507 D]
(13) Questions of fact not raised in the writ petition nor
argued before the High Court, cannot be allowed to be agi-
tated for the first time before this Court. [506 B]
492
(14) In order that proceeding may be validly taken
against a garnishee under section 73, sub-section (5) read
with section 46, sub-section (5A), it is not necessary that
the accountable person must be deemed to be in default and
hence such garnishee proceeding need not be preceded by a
notice of demand on the accountable person under sub-section
(1) of section 73. [506 G-H]
Third Income Tax Officer, Mangalore v.M. Damadar Bhat,
71 ITR 806, followed.
[Their Lordships expressed their opinion that the view
taken in this decision was not correct for three reasons
given by them.]
JUDGMENT
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 783 of
1972).
(Appeal by Special Leave from the Judgment and Order
dated the 1st December 1969 of the Calcutta High Court in
Civil Rule No. 1274 of 1974).
S.C. Majumdar and Mrs. Laxmi Arvind, for the appellant.
G.C. Sharma and P.L. Juneja, for the respondent.
The Judgment of the Court was delivered by
BHAGWATI, J.--This appeal by special leave raises a
short question of law as to the scope of granishee proceed-
ing under section 73, sub-section (5) of the Estate Duty
Act, 1953 read with section 46(5A) of the Indian
Income-Tax Act, 1922. A brief narration of the facts giving
rise to the appeal would be sufficient to explain the back-
ground against which the question arises for determination
in the appeal.
One Raj Bhupati Nath Dev Bahadur died on 23rd September,
1959 leaving considerable movable and immovable properties
which included inter alia a building situate at No. 13,
India Exchange Place, Calcutta. Respondents Nos. 3 and 4
Claiming respectively to be the son and daughter of the
deceased delivered to the Assistant Controller of Estate
Duty an account in form ED-1 of the properties in respect of
which, according to them, estate duty was payable on the
death of the deceased. The account was filed by respond-
ents Nos. 3 and 4 in their capacity as executors of the Will
dated 20th December, 1957 said to have been made by the
deceased prior to his death. The Assistant Controller
issued notice under section 58,. sub-section (2) to respond-
ents Nos. 3 and 4 as accountable persons and after hearing
them, made:an order dated 23rd September, 1960 assessing the
principal value of the estate of the deceased and determin-
ing a sum of Rs. 1,40,090.20 as the-amount payable as
estate duty. It appears that the Assistant Controller was
not able to recover the amount of estate duty from re-
spondents Nos. 3 and 4, since most of the estate of the
deceased consisted of immovable’ properties which wore let
out to different tenants’ and according to respondents Nos.
3 and 4, rent was not being paid to them by the tenants.
One of the immovable properties left by the deceased,
namely, the building situate at No. 13, India Exchange Place
CalcUtta was in the possession of the appellant. According
to the
493
appellant, it had been let out to him by nine persons who
were the nephews and nieces of the deceased and who claimed
to be the heirs of the deceased on the basis that the de-
ceased died without making any Will and did not leave any
widow or son or daughter surviving him. The lease given to
the appellant by these nine persons, who may for the sake of
convenience be hereinafter referred to as the lessors, was
under a registered deed dated 5th March, 1960 and it was a
lease for a period of thirty-one years with effect from 1st
March, 1960 carrying rent at the rate of Rs. 1,400/- per
month. Since the leased premises--that is how we propose to
describe the building leased to the appellant by the les-
sors--admittedly belonged to the estate of the deceased, the
rent payable by the appellant was a fortjori an amount which
in law belonged to the estate and hence the Assistant Con-
troller issued a notice dated 9th January, 1962 to the
appellant under section 73, sub-section (5) of the Estate
Duty Act, 1953 read with section 46, sub-section (5A) of
the Indian Income-Tax Act, 1922 (hereinafter referred to as
the Act of 1922) pointing out that "a sum of Rs. 1,40,090.20
is due from Shri Tulsi Charan Deb and others on account of
estate duty as account. able persons to the estate of late
Rai Bhupati Nath Deb" and requiring him to pay forth-
with "any amount due from you to or, held by you, for, or on
account of the said estate of Bhupati Nath Deb Bahadur" upto
the amount of Rs. 1,40,090.20 as also "to pay money which
may subsequently become due from you to them or which you
may subsequently hold for or on account of them upto the
amount of arrears still remaining unpaid, forthwith on the
money becoming due or being held by you as aforesaid, as
such payment is required to meet the amount duo by the
accountable person in respect of arrears of estate duty".
It was stated in the notice that any payment made by the
appellant in compliance with the request contained in the
notice would in law be "deemed to have been made under the
authority of the accountable person" and the receipt of the
Assistant Controller "will constitute a good and sufficient
discharge of his liability to the person to the extent of
the amount referred to in the receipt". The appellant, on
receipt of the notice, paid the rent for the months of
December, 1961 and January 1962 aggregating to Rs. 2,800/-
to the Assistant Controller and informed the lessors about
the same. The lessors, by their attorney’s letter dated 24th
February, 1962, however, contended that the notice issued by
the Assistant Controller against the appellant was ineffec-
tual, since the lessors had not been assessed to estate duty
by the Assistant Controller as accountable persons and the
Assistant Controller was, therefore, not competent to
require the appellant to pay to him the amount of rent which
was due from the appellant to the lessors and moreover, the
notice required the appellant to pay only such amount as was
due from the appellant to respondents Nos. 3 and 4 as ac-
countable persons and since the amount of rent was due from
the appellant to the lessors and not to respondents Nos. 3
and 4, the appellant was not liable to pay the amount of
rent in respect of the leased premises to the Assistant
Controller. The appellant acting on this letter of the
lessors’ attorneys. did not pay any further rent to the
Assistant Controller but paid rent for the months from
February to May 1962 to the lessors. No further payment of
5--502 SCI/77
494
rent was thereafter made by the appellant either to the
Assistant Controller or to the lessors. Since the appellant
did not pay any rent to the Assistant Controller for the
period subsequent to January 1962 in defiance of the
notice dated 9th January, 1962, the Assistant Controller
issued a notice dated 5th March, 1964 to the appellant
requiring him to show cause why penalty in the sum of Rs.
10,000/- should not be levied for the default committed by
him. The appellant addressed a letter dated 13th March,
1964 pointing out that the accountable persons mentioned in
the notice dated 9th January, 1962 were "Shri TuIsi Chandra
and others", that is, respondents Nos. 3 and 4 and the
appellant had no concern or connection with these account-
able persons nor was any amount due from him to them and
hence the notice dated 9th January 1962 was misconceived.
The appellant also called upon the Assistant Controller
to refund the sum of Rs. 2,800/- paid by him in respect of
rent for the months of December 1961 and January 1962 on the
ground that this payment had been made by him under a bona
fide mistake of law. This explanation furnished by the
appellant was found unacceptable and the Assistant Control-
ler passed an order dated 25th March, 1964 holding that
rent for the months commencing from March 1962 and ending
with March 1964 aggregating to Rs. 35,000/- had been paid by
the appellant to the lessors in contravention of the notice
dated 9th January, 1962 issued against him and imposing a
penalty of Rs. 3,000/- under section 73, subsection (5) of
the Estate Duty Act, 1953 read with section 46(1) of the Act
of 1922 and requiring the appellant to pay up the amounts of
Rs. 35,000/- and Rs. 3,000/- on or before 6th April, 1964.
The appellant thereupon filed a writ petition in the High
Court challenging the validity of the proceedings adopted by
the Assistant Controller under section 73(5) or the Estate
Duty Act, 1953 read with s. 46(5A) of the Act’ of 1922 for
recovery of the amount of estate duty from the appellant as
also the legality of the Order dated 25th March 1964 impos-
ing penalty of Rs. 3,000/- on the appellant. The High Court,
by a judgment dated 1st December, 1969, rejected the writ
petition and hence the present appeal by special leave
obtained from this Court.
There are two questions which arise for determination
in this appeal: first, whether the notice dated 9th January,
1962 issued by the Assistant Controller to the appellant
was a valid notice under which the appellant was bound to
pay the amount of rent in respect of the leased premises to
the Assistant Controller, and secondly, even if the notice
dated 9th January, 1962 was a valid notice and it obligated
the appellant to DaY the amount of rent to the Assistant
ControlLer, whether any penalty could be levied on the
appellant for contravention of the terms of the notice. The
first question is not free from difficulty but the second is
relatively simple and hence it would be convenient to begin
first with a discussion of the second question. Now, at the
date when the notice dated 9th January. 1962 was issued by
the Assistant Controller the Act of 1922 was in force and
hence the notice was issued under section 73, sub-section
(5) of the Estate Duty Act, 1953 read with section
495
46(5A) of the Act of 1922. Section 73, sub-section (5). of
the Estate Duty Act, 1953 provides inter alia that the
provisions of sub-sections (1), (1A), (2), (3), (4), (5),
(5A), (6) and (7) of section 46 of the Act of 1922 shall
apply as if the said provisions were provisions of Estate
Duty Act, 1953 and referred to estate duty and sums im-
posed by way of penalty or interest under the Estate Duty
Act, 1953 instead of to income-tax and sums imposed by way
of penalty or interest under the Act of 1922 and to Control-
ler of Estate Duty instead of to Income Tax Officer. Sec-
tion 46 of the Act of 1922 lays down the mode and time of
recovery of incometax and two sub-sections of this section
are material, namely, subsections (1) and (5A) which read as
follows:
"(1) When an assessee is in default in
making a payment of income-tax, the Income-tax
Officer may in his discretion direct that, in
addition to the amount of the arrears, a sum
not exceeding that amount shall be recovered
from the assessee by way of penalty." and
"(5A) The Income-tax Officer may at any
time or from time to time, by notice in writ-
ing (a copy of which shall be forwarded to the
assessee at his last address known to the
Income-tax Officer) require any person from
whom money is due or may become due to the
assessee or any person who holds or may subse-
quentiy hold money for or on account of the
assessee to pay to the Income-tax Officer,
either forthwith upon the money becoming due
or being held or at or within the time speci-
fied in the notice (not being before the money
becomes due or is held) so much of the money
as is sufficient to pay the amount due by the
taxpayer in respect of arrears of income-tax
and penalty or the whole of the money when it
is equal to or less than that amount.
The Income-tax Officer may at any time
or from time to time amend or revoke any such
notice or extend the time for making any
payment in pursuance of the notice.
Any person making any payment in compli-
ance with a notice under this sub-section
shall be deemed to have made the payment under
the authority of the assessee and the receipt
of the Income-tax Officer shall constitute a
good and sufficient discharge of the liability
of such person to the assessee to the
extent of the amount referred to in the re-
ceipt.
Any person discharging any liability to
the assessee after receipt of the notice
referred to in this sub-section shall be
personally liable to the Income-tax Officer to
the extent of the liability discharged or to
the extent of the ability of the assessee for
tax and penalties, whichever is less.
496
If the person to whom a notice under
this sub-section is sent fails to make payment
in pursuance thereof to the Income-tax Offi-
cer, further proceeding may be taken by and
before the Collector on the footing that the
Income-tax Officer’s notice has the same
effect as an attachment by the Collector in
exercise of his powers under the proviso to
sub-section (2) of section 46.
Where a person to whom a notice under
this subsection is sent objects to it on
the ground that the sum demanded or any part
thereof is not due to the assessee or that he
does not hold any money for or on account of
the assessee, then, nothing contained in this
section shall be deemed to require such
person to pay any such sum or part thereof, as
the case may be, to the Income-tax Offi-
cer."
The penalty under sub-section (1) of section 46 can obvious-
ly be imposed on an assessee only when the assessee is in
default in making payment of income tax and under section
45, the assessee would be deemed to be in default when he
fails to pay the amount of income tax specified as payable
in a notice of demand served, inter alia, under section 29
within the time mentioned in the notice of demand or if no
time is so mentioned, then on or before the first day of
the second month following the date of service of the
notice of demand. Thus, two conditions must be fulfilled
before penalty can be imposed under section 46, sub-section
(1): one is that the person on whom penalty is sought to
be imposed must be an assessee and the other is that the
assessee must be in default within the meaning of section
45. Where a garnishee is required by notice issued under
sub-section (5A) of section 46 to pay to the Income-tax
Officer so much of the money due or which may become due
from the garnishee to the assessee or held or which may
subsequently be held by the garnishee for or on account of
the assessee, as is sufficient to pay the amount due by the
tax payer in respect of the arrears of income tax, he does
not become an assessee as defined in section 2, sub-section
(2). That sub-section defines an assessee to mean a person
by whom income tax or any other sum of money is payable
under the Act and the amount which the garnishee is required
to pay to. the Income Tax Officer in virtue of a notice
under sub-section (5A) of section 46 is not "income tax or
any other sum of money-payable under this Act". The garni-
shee merely pays the amount which is due from him to the
assessee and such payment is in discharge of the debt owned
by him to the assessee. It is not a payment the liability
for which is created under any provision of the Act. The
garnishee is thus not an assessee within the meaning of the
definition of that term in section 2, sub-section (2) nor is
there any provision in the Act which by a legal fiction
makes him an assessee. The Act also does not contain any
provision that the garnishee who fails to comply with the
notice issued under sub-section (5A) of section 46 shall be
deemed to be an assessee in default. It is interesting to
compare the provisions of the Act of 1922 with the corre-
sponding provisions of the Income-tax Act, 1961 (hereinafter
referred to as the Act of 1961). Clause (x) of sub-section
(3) of section
497
226 of the Act of 1961 provides in clear and explicit terms
that if the garnishee, to whom a notice under sub-section
(3) is sent, fails to make payment in pursuance thereof to
the Income Tax Officer, he shall be deemed to be an asses-
see in default in respect of the amount specified in the
notice. But no such provision is to be found in the Act of
1922. It is, therefore, obvious that no penalty can be
imposed on a garnishee under sub-section (1) of section 46,
even if he fails to comply with the notice issued to him
under subsection (5A) of section 46. Now the scheme of
collection and recovery of estate duty under the Estate Duty
Act, 1953 is substantially the same as that under the in-
come-tax law. Section 73, sub-sections (1) and (2) of the
Estate Duty Act, 1953 correspond to section 45, sub-section
(1) of the Act of 1922. These two sub-sections provide that
where any estate duty, penalty or interest is due in conse-
quence of any order passed under the Act, the Controller
shall serve upon the person accountable or other person
liable to pay such estate duty, penalty on interest, a
notice of demand in the prescribed form specifying the sum
and the time within which it shall be payable and any amount
specified as payable in the notice of demand shall be paid
within the time, at the place and to the person mentioned in
the notice, or if no time is so mentioned, then on or before
the first day of the second month following the date of
service of the notice and any person accountable failing so
to pay shall be deemed to be in default. The Estate Duty
Act, 1953 also, therefore, contemplates issue of a notice of
demand to the accountable person after an order of assess-
ment is made under the Act and it is only when the account-
able person fails to pay in accordance with the requisition
contained in the notice of demand that he is to be deemed to
be in default. Section 73, subsection (5) then incorporates
the provisions of sub-sections (1), (1A) (2), (3), (4), (5),
(5A), (6) and (7) of section 46 and makes them applicable
for the purpose of collection and recovery of estate duty.
It must follow a fortiori that penalty can be imposed on a
garnishee under section 73, sub-section (5) of the Estate
Duty Act, 1953 read with section 46, sub-section (1) of the
Act of 1922 only if the garnishee can be said to be an
accountable person in default. But, for like reason as
those discussed while dealing with the provisions of the Act
of 1922, the garnishee cannot be regarded as an accountable
person, since section 2, sub-section (12A) defines ’account-
able person to mean the person accountable for estate duty
within the meaning of the Act and the garnishee does not
come within the category of persons specified in sections 53
and 54 as persons accountable for estate duty. There is
also no provision in the Estate Duty Act, 1953 deeming a
defaulting garnishee as an accountable person in default by
a legal fiction. It is. therefore, difficult to see how an
order imposing penalty could be passed against the appel-
lant. even if the notice dated 9th January, 1962 was a valid
notice under which the appellant was bound to pay the amount
of rent in respect of the leased premises to the Assistant
Controller and be failed to do so. The order dated 25th
March. 1964 imposing penalty of Rs. 3000/- on the appellant
must therefore. be held to be outside the Dower of the
Assistant Controller under the Estate Duty Act, 1953 and it
must be quashed and set aside.
498
That takes us to the consideration of the first question
as to the validity of the notice dated 9th January, 1962. We
have already referred to the relevant provisions of this
notice, but it would be desirable to recapitulate them here.
The notice starts with the recital of the fact that a sum of
Rs. 1,40,090.20 is due from respondents Nos. 3 and 4 on
account of estate duty "as accountable persons to the estate
of late Bhupati Nath Deb Bahadur". This recital states very
clearly that the amount of Rs. 1,40,090.20 is due on account
of estate duty payable on the death of the deceased. Then
it goes on to require the appellant to pay to the Assistant
Controller the amount which is due or may become due from
him to the estate of the deceased or which is held or may
subsequently be held by him for or on account of the estate
of the deceased upto the amount of Rs. 1,40,090.20. Here the
amount which the appellant is called upon to pay to the
Assistant Controller is the amount due or to become due to
the estate of the deceased. The purpose for which such
amount is required to be paid is to meet "the amount due by
the accountable person in respect of the arrears of estate
duty" and the appellant is intimated that any payment made
by him in compliance with the notice would in law be "deemed
to have been made under the authority of the accountable
person" and the receipt of the Assistant Controller would
constitute good and sufficient discharge of the liability of
the appellant "to the accountable person." The argument of
the appellant was that the words "accountable person" here
in the context meant respondents Nos. 3 and 4 and since the
amount of rent was payable by him to the lessors and not to
respondents Nos. 3 and 4, the notice was inoperative and did
not obligate him to pay the amount of rent to the Assistant
Controller. This argument may, at first blush, appear a
little attractive, but a close look at the scheme and rele-
vant provisions of the Estate Duty Act, 1953 would be suffi-
cient to repel it.
The Estate Duty Act, 1953 has been enacted in exercise
of the legislative power conferred under Entry 87 of List 1
of Seventh Schedule to the Constitution and it provides for
levy and collection of estate duty in respect of property.
The charge of estate duty is imposed by section 5 which
provides that in the case of every person dying after the
commencement of the Act, there shall be levied and paid
upon the principal value of property, settled or not set-
tled which passes on the death of such person, a duty called
"estate duty" at the rate fixed in accordance with sect;on
35. What property shall be deemed to pass on the death of a
person is laid down in sections 6 to 16 which occur under
the heading "Property which is deemed to pass". Sections 17
to 20A enacts special provisions relating to transfers to
controlled companies and there are certain exceptions to the
charge of estate duty enumerated in sections 21 to 33. The
aggregation of property and rates of estate duty are provid-
ed in sections 34 and 35. The node of determination of the
principal value of the property passing on the death of a
person is dealt with in sections 36 to 43 and certain deduc-
tions and allowances to be made in determining the principal
value of the estate are to be found in sections 44 to 50-B.
Then follow a catena of sections providing for collection
of estate duty. Section 53 lays down as to who shall be
accountable for estate duty and what
499
shall be the duties and liabilities of such person and it
reads as follows:
"53 (1) Where any property passes on
the death of the. deceased-
(a) every legal representative to whom
such property so passes for any beneficial
interest in possession or in whom any interest
in the property so passing is at any time
vested,
(b) every trustee, quardian, committee or
other person in whom any interest in the
property so passing or the management thereof
is at any time vested, and
(c) every person in whom any interest in
the property ’so passing is vested in posses-
sion by alienation or other derivative title,
shall be accountable for the whole of
the estate duty on the property passing on the
death but shall not be liable for any duty in
excess of the as sets of the deceased which he
actually received or which, but for his own
neglect or default, he might have received:
x x x x
(3) Every person accountable for estate
duty under this section shall, within six
months of the death of the deceased, deliver
to the Controller an account in the prescribed
form and verified in the prescribed manner of
all the properties in respect of which estate
duty is payable:
Provided that the Controller may extend
the period of six months aforesaid on such
terms which may include payment of interest as
may be prescribed.
(4) Where the person accountable knows
of any property which he has not included in
his account because he does not know its
amount or value, he may state that such
property exists, but he does not know the
amount or value thereof and that he under-
takes, as soon as the amount and value are
ascertained to bring a supplementary account
thereof and to pay both the duty for which he
may be liable in respect of such property and
any further duty payable by reason thereof for
which he may be liable in respect of the
property mentioned in the original account.
(5) Where two or more persons are
accountable, whether in the same capacity or
in different capacities, for estate duty in
respect of any, property passing on the death
of the deceased they shall be liable jointly
and severally for the whole of the estate duty
on the property of passing.
500
The words ’legal representative’ occurring in clause (a) of
sub-section (1) of section 53 are defined in section 2,
sub,section (12) to mean:
"a person who in law represents the
estate of a deceased person, and includes--
(i) an-executor,
(ii) as regards any obligation under this
Act, any person who takes possession of, or
intermeddles with, the estate of a deceased
person or any part thereof, and
(iii) where the deceased was a coparcener of
a Hindu family, the manager for the
time being of the family;"
Another expression which occurs in section 53 and other
provisions of the Act is ’person accountable’ or ’account-
able person’ and that is defined under section 2, sub,sec-
tion (12A) to mean:
"the person accountable for estate duty within
the meaning of this Act, and includes every
person in respect of whom any proceeding under
this Act has been taken for the assessment of
the principal value of the estate of the
deceased :"
The power to make provisional assessment in advance of
regular aSsessment is conferred under section 57 which reads
as follows:
"57( 1 ) Estate duty shah be due from
the date of the death of the deceased, and the
Controller may, at any time after the receipt
of account delivered under section 53 or
section 56, proceed to make in a summary
manner a provisional assessment of the estate
duty payable by the person delivering the
account on the basis of the account so deliv-
ered.
(2) Upon a provisional assessment being
made under sub,section (1), the person so
assessed shall pay to the Controller, or
furnish security to the satisfaction of the
Controller for the payment of, the estate
duty, if any, payable on the provisional
assessment, and the Controller shall thereupon
grant him a certificate that such duty has
been or will be paid or that none is due, as
the case may be, in respect of the property
mentioned in the certificate.
(3) After regular assessment has been
made under section 58 any amount paid towards
the provisional assessment made under sub-
section (1) shall be deemed to have been paid
towards the regular assessment.
X X X X"
Section 58 provides for the making of regular assessment and
confers power on the Controller to assess the principal
value of the estate of the deceased and to determine the
amount payable as estate duty. Then there are provisions
relating to reopening of assessment, penalty for default or
concealment and rectification of mistakes in the assess-
501
ment. Section 62 provides inter alia that any person ob-
jecting to any valuation made by the Controller, or to any
order made by the Controller determining the estate duty
payable under section 58 or section 59 or denying his li-
ability to the amount of estate duty payable in respect of
any property, may within thirty days of the date of receipt
of the notice of demand under section 73, appeal to the
Appellate Controller and the Appellate Controller is given
the power to dispose of the appeal. Then a further appeal
is provided to the Appellate Tribunal under section 63
followed by a reference to the High Court under section 64
and an appeal to the Supreme Court under section 65. There
are certain other provisions following on these sections
which are not material for our purpose until we come to
section 73 to which we have already referred. The last
section which is material is section 74 which provides that,
subject to the provision of section 19, the estate duty
payable in respect of property, movable or immovable, pass-
ing on the death of the deceased shall be a first charge on
the immovable property so passing, in whomsoever it may vest
on his death, after the debts and encumbrances allowable
under Part VI of the Act. This is broadly the scheme of the
Estate Duty Act, 1953 and it is in the light of this scheme
that we have to determine the question which arises’ for
consideration in this appeal.
It is clear from the resume of the provisions of the
Estate Duty Act, 1953 which we have given above that under
sub-section (3) of section 53 every person accountable for
estate duty under sub-section (1) of that section is liable
to deliver to the Controller within six months of the death
of the deceased an account of all properties in respect of
which estate .duty is payable on the death of the deceased.
There may be and in many cases there would be more than one
person accountable for estate duty under sub-section (1) of
section 53 and the obligation to deliver an account of all
the properties in respect of which estate duty is payable
would be on each of the persons so accountable. But one out
of several accountable persons may deliver an account to the
Controller under sub-section (3) of section 53 and that
would be sufficient to empower the Controller to proceed
under section 57, sub-section (1) to make a provisional
assessment of the estate duty payable by such accountable
person on the basis of the account so delivered and when
such provisional assessment is made, the accountable person
"so assessed" would be liable under subsection (2) of sec-
tion 57 to pay to the Controller" the estate duty, if any,
payable on such provisional assessment. The amount of
estate duty provisionally assessed would be payable only by
the accountable person on whom the provisional assessment is
made. The Controller would thereafter be entitled under
section 58 to make an order of regular assessment assessing
the principal value of the estate of the deceased and deter-
mining the amount payable as estate duty. When an order of
assessment is made, not only the accountable person in
respect of whom proceeding for assessment has been taken,
but also every other accountable person would be liable to
pay the amount of estate duty, limited of course to "the
assets of the deceased which he actually received or which,
but for his own negligence or default, he
502
might have received". That is the plain effect of section
53, subsection (1) read with section 73, sub-section (1).
It may be noticed that So far as the estate duty payable on
provisional assessment is concerned, sub-section (2) of
section 57 provides that "the person so assessed" shall pay
the amount of such estate duty to the Controller, but when
we turn to sub-section (1) of section 53 and section 73,
sub-section (1), we find that the words "the person so
assessed" are absent in both these provisions and the li-
ability to pay the amount of estate duty due in consequence
of an order of assessment made under the Act is on every
"person accountable", irrespective whether assessment is
made on him or not. But here a question of some difficulty
arises, namely, whether each of the accountable persons in
subclauses (a), (b) and (c) in section 53, sub-section (1)
is accountable for estate duty on the entire property pass-
ing on the death of the deceased or only for the estate duty
on the particular property falling within the respective
sub-clauses which passes on the death. The difficulty is
created on account of the words "the property passing on the
death" appearing in the expression "the whole" of the estate
duty on the property passing on the death" in sub-section
(1) of section 53 These words, according to their plain
grammatical construction, would seem to indicate that every
accountable person would be accountable for the estate duty
on the entire property passing or deemed to pass on death of
the deceased. But it was argued on behalf of the appellant
that having regard to the words "where any property passes"
appearing in the opening part of the sub-section
coupled with the words "such property so passes" and
"the property so passing" appearing in the respective
sub-clauses, the word ’the’ appearing before the words
"property passing on the death" must again refer to the
same property which is referred to in the respective sub-
clause (’a), (b) or (c), as the case may be. This argu-
ment, plausible though it may seem, is not well
founded, for it ignores one very important circumstance.
namely that each of the persons mentioned in sub-clauses
(a), (b) and (c) is rendered accountable for the whole of
the estate duty not mereIy "on the property so passing" but
on "the property passing on the death". Where the legisla-
ture wanted to refer to the specific property passing on the
death of the deceased, described in the opening part of the
sub-section, the legislature used the words "such property
so passed" and "the property so passing" in sub-clauses (a),
(b) and (c), but while imposing accountability for the
estate duty, the legislature made a deliberate departure
and instead of the words "the property so passing", which
were familiar coinage, it used the words "the property
passing on the death". This departure in phraseology is
highly significant and clearly indicates that the legisla-
tive intent was that each of the persons mentioned in sub-
clauses (a), (b) and (c) should be accountable for the
estate duty on the entire property passing On the death. It
was for this reason that the liability of each of these
persons had to be limited to "the assets of the deceased
which he actually received or which. but for his own neglect
or default, he might have received". If the liability of
each of these persons was only to the extent of the estate
duty on the particular property falling within the respec-
tive sub-clauses, there was no need for limiting it to the
assets of the deceased which such per-
503
son received or ought to have received. The appellant,
however, contended that if this construction of sub-section
(1) of section 53 were accepted, it would lead to conse-
quences which could hardly have been intended by the legis-
lature. He pointed out by way of an example that a trustee
of an insurance policy taken out by the deceased under the
Married Women’s Property Act, 1874, which policy is exempt
from payment of estate duty by reason of the total amount
payable thereunder being Rs. 50,000/- or less, would become
accountable and consequently liable to pay, out of the
policy monies, the estate duty payable in respect of the
free estate of the deceased--to the extent of the whole of
the policy monies in the hand of the trustee--even though
the Married Women’s Property Act expressly provides that the
estate of the husband is not to have any interest in the
policy monies. It is not necessary for us to decide wheth-
er such an anomaly would arise or not, because the possibil-
ity that an anomaly may arise on a particular construction
is only a factor to’ be taken into account by the court
where two interpretations are possible, but where the mean-
ing of a statutory provision is plain, it cannot alter such
meaning. Moreover, it appears to us prima facie that no
such anomaly would arise on the interpretation which we are
inclined to accept, because it seems that though the trustee
of the insurance policy would fall within sub, clause (b)
and hence become accountable for the estate duty on the
entire property passing on the death, he would not be li-
able. to pay the estate duty out of the policy monies,
since the estate of the deceased would have no interest in
the policy monies and the policy monies would not from part
of the estate of the deceased and his liability as an ac-
countable person would be limited only to the assets of the
deceased which he has actually received or which he ought to
have received.’ The appellant then relied on the language of
subsection (53 of section 53 and pointed out that even that
sub-section refers to the point and several liability of an
accountable person "in respect of any property passing on
the death of the deceased", only to be extent of "whole of
the estate duty on the property so passing" and urged that
if under sub-section (1) of section 53 every accountable
person were to be accountable for the whole of the estate
duty on the entire property passing or deemed to pass on the
death of the deceased, sub section (5) would be rendered
superfluous. But we do not think this is a correct way of
looking at sub-section (5) because what this section does
is merely to emphasise the principle of joint and several
liability where two or more persons are accountable for
estate duty in respect of any property passing on the death
of the deceased, regardless whether they are so accountable
in the same capacity or in different capacities. It would
be reading much more in sub,section (5) than what its lan-
guage warrants to say that this sub-section is consistent
only with an accountable person mentioned in sub-clause (a),
(b) or (c) of sub-section (1) being accountable only in
respect of estate duty on the particular property passing to
him on the death of the deceased. The object of sub-
section (5) is to provided that every accountable person
shall be liable not only jointly with other accountable
persons, but also severally, for estate duty in respect of
any and every property passing on the death of the deceased.
Sub-section (5) does not, therefore, in our opinion, mili-
tate against the construction which we are inclined
504
to place upon sub-section (1). In fact section 76 clearly
postulates that an accountable person may have to pay estate
duty in respect of a property not passing to him and pro-
vides for his indemnification in such a contingency by
saying that if a person accountable under section 53 pays
any part of the estate duty in respect of any property not
passing to him, it shall, where occasion requires, be repaid
to him by the trustees or owners of that property. If an
accountable person mentioned in sub-clauses (a), (b) or (c)
of sub-section (1) were liable for estate duty only in
respect of the. particular property passing to him, there
would be no need for such a provision as section 76, because
in such an even there would be no question of payment by an
accountable person of estate duty in respect of any property
not passing to him. The provision for indemnification
enacted in section 76 clearly suggests that an accountable
person being liable for estate duty on the entire property
passing on ’the death may have to pay estate duty even in
respect of a property not passing to him, but in such a case
he would be entitled to be reimbursed by the trustees or
owners of that property in respect of the amount of estate
duty paid by him. We are, therefore, of the view that on a
proper construction of sub-section (1) of section 53, read
in the context of the other provisions of the Act, each of
the persons mentioned in sub-clauses (a), (b) and (c) would
be accountable for the e.state duty on the entire property
passing_ on the death and his accountability qua the Revenue
would not be limited only to the estate duty on the particu-
lar property passing to him. Though we are taking his
view as a matter of construction, we must point out that it
would be very harsh indeed if the Revenue were to proceed
only against one accountable person for recovery of the
whole of the estate duty, leaving out others to whom some
property or the other may have passed, because that would
drive the accountable person who is required to pay the
estate duty in respect of the property not passing to him,
to adopt proceedings against the owner of that property for
recovery of the amount of estate duty so paid by him and
that would unnecessarily foster litigation, apart from
causing hardship to the accountable person and involving him
in considerable waste of time and money. We think it would
be desirable if the Estate Duty Officer himself apportions
the estate duty amongst different accountable persons in
accordance with their respective interests in the property
and seeks to recover from each accountable person only that
part of the estate duty which is payable in respect of the
property passing to him. We are told that this is the
practice which is at present being followed by the Estate
Duty Office and we hope and trust that the Estate Duty
Officer will continue to follow the same practice even
under the law as interpreted by us.
Now let us consider the position of the lessors in the
light of the aforesaid discussion of the law. The lessors
are clearly-accountable persons since they admittedly took
possession of and intermeddled with the leased premises
which formed part of the estate of the deceased and if their
contention is correct--and we must assume it to be so since
that was the case of the appellant the leased premises
passed to them
505
for beneficial interest in possession and in any event
interest in the leased premises. became vested in them on
the death of the deceased. The order of assessment made by
the Assistant Controller was not challenged by the appellant
in the writ petition nor was it at any time declared invalid
by a superior authority at the’ instance of the lessons. Not
even any steps appear to have been taken by the lessors for
the purpose of challenging the order of assessment. The
order of assessment must. therefore, be taken to be valid
for the purpose of the present proceedings. The lessors
were in the circumstances accountable for the whole of the
estate duty on the entire property passing on the death of
the deceased and hence they were liable to pay the estate
duty of Rs. 1,40,090.20 limited of course to the extent of
the leased premises which constituted the asset of the
deceased received by them. Since the rent of the leased
premises was payable by the appellant to the lessons under
the lease deed and the lessors were liable to pay the estate
duty of Rs. 1,40,090.20, it was competent to the Assistant
Controller to issue a notice under section 73, sub-section
(5) read with section 46, sub-section (5A) of the. Act of
1922 requiring the appellant to pay the amount of rent due
and to become due in respect of the leased premises. Now it
is true that in the notice dated 9th January, 1962, the
lessors were not mentioned as. the persons to whom the
amount of rent was due from the appellant in respect of the
leased promises but that does not render the notice invalid
or ineffective. What the notice dated 9th January, 1962
in substance and effect required the appellant to do was
to pay to the Assistant Controller the amount due or to
become due from the appellant to the lessors in respect of
the leased premises; that amount could rightly and legiti-
mately be described as amount due to the estate of the
deceased so as to be covered by the terms of the notice and
hence under the notice the appellant was liable to Pay the
arrears of rent and the amount of future rent in respect of
the leased premises to the Assistant Controller to the
extent of Rs. 1,40,090.20. The appellant in fact rightly
understood his obligation under the notice dated 9th Janu-
ary. 1962 and paid 2 months rent aggregating to Rs. 2,800/-
to the Assistant Controller and it is only thereafter that
he refused to make further payment of rent, presumably with
a view to obliging the lessors. This was clearly in breach
of the requisition contained in the notice dated 9th Janu-
ary, 1962.
Before we Close, we must refer to .one other contention
urged on behalf of the appellant, namely, that no notice of
demand having been issued under section 73, sub-section (1).
to the lessors, the amount of estate duty, though due in
consequence of the order of assessment made by the Assistant
Controller, was not payable by the leasors and consequently
no notice under section 73. sub-section (5) read with sec-
tion 46, sub-section (5A) of the Act of 1922 could be issued
against the appellant requiring him to pay the amount of
rent due from him to the lessors and the notice dated 9th
January. 1962 was accordingly invalid. The Revenue put.
forward a two-fold argument in reply to tiffs contention.
The first answer made by the Revenue was. that this conten-
tion was at no time raised in ,he writ petition nor was it
urged before the High Court and since it rested on a ques-
tion of fact as to
506
whether notice of demand under section 73, sub-section (1)
was served on the lessors before issuing the notice dated
9th January, 1962, it could not be allowed to be raised for
the first time at the meaning of the appeal before us.
This answer, in our opinion, affords complete refutation to
the contention of the appellant. The question whether
notice of demand was served on the lessors under section 73,
subsection (1) before issue of the notice dated 9th January,
1962 is essentially a question of fact and if it has not
been raised in the writ petition, nor argued before the High
Court, it cannot be allowed to be agitated for the first
time before this Court. Secondly it was urged that in any
event, notice under section 73, sub-section (5) read with
section 46, sub-section (5A) of the Act of 1922 could be
validly issued against a garnishee without service of notice
of demand-on the accountable person under sub-section (1) of
section 73 and hence the notice dated 9th January, 1962
could not be assailed as invalid of the ground that it was
not preceded by a notice of demand on the lessors under
section 73, sub-section (1). Suppose for this contention
was sought to be drawn from the decision of this Court in
Third Income-Tax Officer, Mangalore v.M. Damodar Bhat.(1)
Now, this was a decision given with reference to sub,section
(3) of section 226 of the Act of 1961 which corresponds to
section 46, sub-section (5A) of the Act of 1922 The question
which arose for determination was whether action under
section (3) could be taken only where the assessee was in
default and this Court held that in a proceeding under
section 226, sub-section (3) it was not necessary that the
assessee should be in default or should be deemed to be in
default. This Court, speaking through Shah, J., pointed
out: "Section 226, however, provides other methods of
recovery and there is no reference in section 226 (3) to,
any default on ,the part of the assessee. Section 226(3)
merely states that the Income-tax Officer may, at any time
or from time to time’, by notice in writing require any
person who holds or may subsequently hold money for or on
account of the assessee, to pay to the Income-tax Officer
either forthwith so much of the money as iS sufficient to
pay the amount due by the assessee in respect of arrears or
the whole of the money when it is equal to or less than that
amount. In a proceeding under section 226(3) of the new
Act, therefore, it is not necessary that the assessee
should be in default or should be deemed to be in default
and no such condition or limitation is imposed by the lan-
guage of that sub-section." If this decision lays down the
correct law on the subject--and since this is a decision
given by a Bench of three judges of this Court, it must be
regarded as binding upon us--it must be held, while inter-
preting the corresponding provisions of sub-sections (1),
(2) and (5) of section 73 of the Estate Duty Act, 1953 read
with section 46, sub-section (5A) of the Act of 1922 that,
in order that proceeding may be validly taken against a
garnishee under section 73 sub-section (5) read with section
46, sub-section (5A), it is not necessary that the account-
able person must be deemed to be in default and hence such
garnishee proceeding need not be preceded by a notice of
demand on the accountable person under sub-section (13 of
section 73. We must, however, point out that we are
taking this view because the decision in Third Income-Tax
Officer, Mangalore. v.
(1) 71 I.T.R. 806.
507
Damodar Bhat (supra) binds us, though we do feel that the
view taken in this decision is not correct. In the first
place, the decision seems to have overlooked the fact that
it is only when a notice of demand is served on the asses-
see under section 156 and the period for payment of tax
mentioned in it expires that the tax becomes payable by the
assessee and it is only then the Income-tax Officer can
proceed to recover it from the assessee. The garnishee
proceeding under section 226, subsection (3) is merely one
of the modes of recovery prescribed by law. and it is diffi-
cult to see how it can be resorted to before the tax has
become payable by the assessee. Secondly, sub-section (3)
of section 226 permits garnishee proceeding to be taken for
recovery only of ’arrears’ and no tax be said to be in
arrears until the expiry of the period for payment of tax
specified in. the notice of demand, and thirdly, the concept
of recovery by any mode whatever before the expiry of the
time allowed for payment of tax is foreign to the whole
scheme of recovery both under the Act of 1961 and the Act of
1962 But, as we have pointed out, the decision in Third
Income Tax Officer, Mangalore v.M. Damodar Bhat (supra) is
binding upon us and it affords a complete answer to the
contention of the appellant.
We must, in the circumstances, hold that the notice
dated 9th January, 1962 was a valid notice and the appellant
was bound to comply with it and to pay to the Assistant
Controller the amount of rent due or to become due in
respect of the leased premises.
We accordingly allow the appeal in part and issue a writ
quashing and setting aside the order dated 25th March, 1964
in so far as it imposes penalty of Rs. 3,000/- on the appel-
lant, but so far as the notice dated 9th January, 1962 is
concerned, we uphold its validity and reject the appeal.
There will be no order as to costs throughout.
S.R. Appeal partly allowed.
508