ADMINISTRATOR TRUST OF INDIA versus B.M. MALANI AND ORS.

Citation: [2007] 10 S.C.R. 1138 · Decided: 11-10-2007 · Supreme Court of India · Bench: S.B. SINHA · Disposal: Disposed off

Judgment (excerpt)

. --l 
A 
ADMINISTRATOR, UNIT TRUST OF INDIA 
v. 
B.M. MALAN! AND ORS. 
OCTOBER 11, 2007 
B 
[S.B. SINHA AND H.S. BEDI, JJ.] 
Income Tax Act, 1961-s. 226(3)-lnterpretation of-Assessee 
defaulter of payment of income tax-UT! holding units under the 
c Scheme on assessee 's behalf-Income Tax Department issuing notice 
to UT! raising demand on account of income tax penalty by assessee-
UT! selling units below par without assessee ~<;consent and making part 
payment-High Court holding units to be redeemed at par-
Correctness of-Held: UT! could not have tran4erred the amount, in 
D absence of any right of option of repurchase of units having been 
exercised by assessee-s. 226(3)(vi) cannot be interpreted to mean that 
UT! was fully authorised to dispose of the units on its own-UT! could 
hold the amount only ·when assessee had exercised his option-More 
so, assessee made sincere efforts to pay tax-Thus, assessee to be 
E restituted with the dividend declared on the amount. 
Respondent-assessee invested Rs. 65 lakhs in Monthly Income 
Plan of Unit Trust oflndia under Capital Gains Scheme in 1998 to 
seek exemption under section 54AE of the Income Tax Act, 1961. 
~ 
F The capital invested in the scheme was protected on maturity. The 
face value of the units was Rs 10/- and the units were not to be 
redeemed below par. Respondent defaulted in payment ofincome 
tax. Income Tax Officer issued notice to the appellant-Unit Trust of 
India under section 226(3) of the Act raising a demand of Rs. 
G 
48,08,000/- from the amount held by UTI for or on ac'count of 
assessee, regarding the income tax penalty imposed on the 
y 
respondent. Appellant calculated the unit price at the rate of Rs. 6.93 
per unit and paid Rs. 43, 69,083.30 to the Department. Though the 
units were transferred, their value had not become due to the 
assessee on the date on which such notice was given. Respondent 
H 
1138 
ADMINISTRATOR, UNIT TRUST OF INDIA v. 
1139 
B.M.MALANI 
filed writ petition challenging the action of the appellant in resorting A 
to sale of the units without his consent. High Court held that the 
respondent was entitled to the redemption value of the units at the 
rate of Rs. 10/- per unit after five years. Hence the present appeals. 
Appellant-UTI contended that the respondent being a defaulter 
and the appellant having been holding the units on its behalf, the B 
High Court erred in passing the impugned judgment; that the units 
were transferable on the day on which the payments were made and 
keeping in view the purported tenor of the notice in terms whereof 
the appellant was to be treated as assessee-in-default, it had no other 
option but to make payment. 
C 
Dismissing the UTl's appeal and allowing assessee's appeal, 
the Court 
HELD: 1.1 Section 226(3) of the Income Tax Act, 1961 would 
) 
be applicable only when a money is due to the assessee from any D 
person. Clause (vi) of sub-section (3) of Section 226 of the Act in 
categorical terms created a legal fiction to the effect that when an 
amount is not payable, the assessee is not required to pay any such 
amount or part thereof. [Paras 13 and 16] [1147-A; 1148-E] 
E 
2.1. Appellant is a statutory authority. It had floated the Capital 
Gains Scheme. The scheme constituted a contract between the 
parties. Under the Scheme the lock-in period was for five years. The 
repurchase was allowed only from 1st September, 2001. 
Indisputably, the respondent did not opt therefor. In absence of any F 
right of option having been exercised by the respondent, the 
appellant, could not have transferred the amount in question. It is 
wholly incorrect to contend that the scheme itself provided that 
repurchase was allowed from 1.9.2001 even without the consent of 
the respondent. It was for the respondent to give his option.The G 
Income Tax Officer could not have exercised the said option on 
behalf of the assessee. The stand of the Income Tax Department 
also was that it sought to attach the units and did not opt for the 
repurchase value at that point of time. 
[Paras 15] [1147-B, C, D; 1148-B] H 
1140 
SUPREME COURT REPORTS 
· [2007] I 0 S.C.R. 
A 
2.2. Respondent was a defaulter to the extent ofRs.157. 77 lacs~ 
He sold some of the properties. A portion of sale proceeds, Rs. 65 
lakhs had been invested with the appellants under the units. He filed 
an application for settlement before the Settlement Commissioner. 
He had deposited a sum of Rs.25 lacs when moving an application 
B for depo

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