THIRD INCOME-TAX OFFICER, MANGALORE versus M. DAMODAR BHAT

Citation: [1969] 2 S.C.R. 29 · Decided: 06-09-1968 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Appeal(s) allowed

Judgment (excerpt)

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THIRD INCOME-TAX OFFICER, MANGALORE 
v. 
M. DAMODAR BHAT 
September 6, 1968 
(J. C. SHAH, V. RAMASWAMI AND A. N. GROVER, JJ.] 
Income-tax Act, 1961, ss. 226(3), 297(2) (j)-Scope of.-Whether 
provisions of s. 226( 3) available for recovery of tax assessed under the 
Income-tax Act, 1922.-If assessee must be "in default" before a notice 
under s. 226(3) 
can 
issue.-Effect of s. 297(2)(j)-After notice of 
demand under s. 156 whether tax "due from the assessee'' to enable notice 
under s. 226(3) to be issued. 
By a writ petition under Article 226 of the Constitution the respondent 
challenged the validity of a notice under s. 226(3) of the Income-tax Act, 
1961, in respect of tax due from him 'for the four assessment years from 
1960-61 to 1963-64 and penalty for the assessment year 1962-63. 
For the assessment year 1961-62 the assessment proceedings against 
the respondent were taken and concluded under the Income-tax 
Act, 
1922, and as a result of an appeal filed by the respondent, the tax liability 
was reduced by the Appellate Assistant Commissioner. The I.T.O. there-
after issued a notice to the respondent on December 11, 1963, under 
s. 156 of the 1961 Act requiring him to make payment within 35 days. 
This period expired on January 22, 1964. 
The impugned notice under 
s. 226(3) was issued much later on April 23, 1965. It was contended 
on behalf of the ·respondent that both the assessment order as well as the 
appellate order having been made under the 1922 Act, the provisions of 
s. 226 o'f the 1961 Act were not 
applicable. 
As regards the penalty 
sought to be recovered under the impugned notice for the assessment year 
1962-63 and tax for 1963-64, it was contended by the respondent that as 
notices of demand had been served on him for payment of the two sunm 
and the time given in the notice was due to expire on May 21, 1965, the 
impugned notice dated April 23, 1965 issued prior to the expiry of the 
time given to him was illegally issued; furthermore, 
the amount of tax 
must be "due to be· paid'' by the assessee before a notice can be issued 
under s. 226(3) of the 1961 Act. 
In respect of the assessment for 
1960-61, it was contended before the High Court that the I.T.O. did not 
proper! y exercise the statutory discretion vested on him in issuing 
the 
impugned notice when there was an appeal pending a2ainst the order of 
assessment before the Appellate Assistant Commissioner. 
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The High Court allowed the petition and accepted all the respondent's 
contentions. It also held that action under s. 226 of the 1961 Act was 
possible only in the case of an assessee' who was "in default" and that in 
the case of an assessment under the 1922 Act, no notice under s. 156 of 
the new Act was possible and there was no way of taking advantage df 
the provisions for the recovery and collection of tax contained in ss. 220 
to 234 of the new Act. 
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On appeal to this Court, 
HELD : The impugned notice under s. 226(3) 
was 
valid and the 
writ petition must be dismissed. 
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SUPREME COURT REPORTS 
[1969] 2 S.C.R. 
(i) The Income-tax Officer had authority to issue the notices under 
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s. 156 and s. 226(3) of the new Act with respect to the liability of the 
respondent under the old Act. The High Court was therefore in error 
in holding that the impugned notice was inoperative in regard to the 
amount to be recovered for the assessment year 1961-62. [37 DJ 
The High Court had wrongly based its opinion on the premise that all 
recoveries are possible "only when the stage mentioned in s. 220( 4) was 
reached, namely, that the assessee had become or deemed to have been an 
assessee "in default" and the action under s. 226 could be taken only 
when an assessee was in default. The effect of the reasoning adopted by 
the High Court on this point is that the provisions of s. 297(2) of the 
new Act are nullified and an interpretation of s. 226(3) of the new Act 
which leads to such a startling result should be avoided as it is opposed 
to all sound canons of interpretation. [37 E-G] 
In a case falling withins. 297(2) (j) of the new Act, for example in a 
proceeding for recovery df tax and penalty imposed under the old Act, it 
is not required that all the sections of the new Act relating to recovery 
and collection should be literally applied but only such of the sections will 
apPly as are appropriate in the particular case and subject, if necessary, 
to suitable modifications. 
In other word

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