http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 10  

PETITIONER: BEHARILAL RAMCHARAN

       Vs.

RESPONDENT: INCOME-TAX OFFICER, SPECIAL CIRCLE ’B’ WARD, KANPUR AND ANR.

DATE OF JUDGMENT21/07/1981

BENCH: BHAGWATI, P.N. BENCH: BHAGWATI, P.N. SEN, A.P. (J) VENKATARAMIAH, E.S. (J)

CITATION:  1981 AIR 1585            1982 SCR  (1)   1  1981 SCC  (3) 473        1981 SCALE  (3)1059

ACT:      Income-Tax Act  1961-Section 226(3) (i)-Scope of-Notice issued to  assessee in default did not specify amount of tax payable  by  him-Amount  payable  was  within  knowledge  of assessee in default-Notice if invalid.      Clause (x)  of section  226(3)-Sworn affidavit filed by accountant  of   assessee  in  default-if  valid-Income  Tax Officer-Whether bound  to give  opportunity of  being  heard before rejecting affidavit and declaring him responsible for tax.

HEADNOTE:      On May  21, 1966 the Income Tax Officer issued a notice to the  petitioners under  section 226 (3) (i) of Income Tax Act, 1961,  stating that  according to the books of accounts of B.R.  Sons Ltd.  (the assessee) the petitioners owed them Rs. 76  thousand odd  and that this amount should be paid by them to  the Department  against arrears of tax due from the assessee. In  reply the  petitioners stated  that it was not they who  owed the assessee but it was the assessee who owed them a  large amount.  The Income  Tax Officer  directed the petitioners to  file a  sworn affidavit  setting  out  their pleas.      In the  sworn affidavit  filed on  their behalf  by the accountant of  the petitioners  the above  contentions  were reiterated. But  the Income  Tax  Officer  stating  that  an examination of  the assessee’s  books of account showed that the facts  stated in  the affidavit  were false  in material particulars held  the petitioners  personally liable to make payment to the extent of their liability to the assessee. On January 11,  1967  the  Income  Tax  Officer  wrote  to  the petitioners  that   since  they   had  not   furnished   any particulars to  rebut his  conclusion that the affidavit was false and  also because they had failed to pay up the amount due from  them to  the assessee  they were  held  to  be  an "assessee in  default" within the meaning of section 226 (3) (x) of the Act.      In the  petitioner’s writ petition seeking to quash the action of  the Department to attach their immovable property the High  Court held  that although it was necessary for the Income Tax Officer to have mentioned the amount due from the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 10  

petitioners to the assessee, since the petitioners knew what the amount  referred to  by the  Income Tax  Officer was, no prejudice could be said to have been caused to them and that the notice  issued to  them was not invalid on that account; and (ii)  the Income  Tax Officer  was justified in treating the petitioners  as "assessee in default" for non-payment of the amount due and owing 2 from them  to the  assesse,  (iii)  but  since  no  recovery certificate as  required under  section 222  of the  Act had been  issued   by  the   Income  Tax  Officer  the  recovery proceedings were invalid.      In the appeal to this Court, ^      HELD: 1.  The view  of the High Court that by reason of non-specification in  the notice  dated May  21, 1966 of the amount due from the petitioners to the assessee no prejudice had been  caused to  the petitioners was correct. At no time did the petitioners complain that the notice did not specify the amount  alleged to  be due  from them to the assessee or that it  was vague  and indefinite.  In fact they replied to the notice  on merits  and filed a sworn affidavit. Secondly in his letter dated December 31, 1966 the Income Tax Officer pointed out  to the  petitioners that  the  assessee  had  a credit balance  of over  Rs. 8  lakhs as  on May  24,  1966. Therefore the  petitioners had  clear  notice  of  what  the amount alleged  to be  due from them to the assessee was. [8 G-9C]      2. (a)  It is  not necessary under clause (vi) that the statement on  oath contemplated  in that provision should be made only  by the person to whom the notice under clause (i) is  issued.  It  is  sufficient  if  the  objection  to  the requisition contained in the notice is made by the person to whom the  notice is  sent and such objection is supported on oath by a person competent to make such statement. [10 B]      (b) Merely  because the  affidavit  was  sworn  by  the accountant of  the petitioners it was not open to the Income Tax Officer  to disregard  the affidavit. The accountant had obviously knowledge  of the  state of  account  between  the petitioners and  the assessee  and was  competent to  make a statement on oath in regard to the position of such account. [9 E]      (c)  If   the  Income  Tax  Officer  discovers  that  a statement made  on oath is false in any material particulars the garnishee  is made  personally liable  to the Income Tax Officer to  the extent  of his own liability to the assessee on the date of the notice or to the extent of the assessee’s liability for arrears of tax, whichever is less. [10E-F]      3. (a) For reaching an objective conclusion that in his opinion  the  statement  on  oath  made  on  behalf  of  the garnishee is  false in  any material  particulars the Income Tax  Officer   would  have  to  give  notice  to  the  party concerned, hold  an  enquiry  for  determining  whether  the statement on  oath is  false and  if so  in  which  material particulars  and  what  amount  is  in  fact  due  from  the garnishee to  the assessee. In such an enquiry he would have to follow  the principles  of natural  justice and  reach an objective conclusion. [11 B-C]      (b) Once  a statement  on oath is made on behalf of the garnishee that  the sum  demanded is not due from him to the assessee the  burden of  showing that the statement is false is on  the Revenue  which would  be bound to disclose to the garnishee all such evidence or material on which it proposes to rely.  The Revenue  should also  show  on  the  basis  of relevant evidence that the statement

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 10  

3 on oath  is false.  It is  only then that personal liability for payment  can be  imposed on  the garnishee  under clause (vi). [11 D-E]      In the  instant case,  after receiving the affidavit of the accountant,  the Income  Tax Officer, without giving any notice and without holding any enquiry, straightaway reached the conclusion that the statement in the affidavit was false and held  the petitioners  personally  liable  under  clause (vi). [11 F,12 A]      Although the  Income Tax  Officer did  set out  in  the notice dated December 31, 1966 the reasons for reaching this conclusion  he   did  not   offer  any  opportunity  to  the petitioners to  show that  the reasons that weighed with him were not correct. His decision was therefore invalid. Notice dated December  31, 1966 and January 11, 1967 must therefore be set aside. [12 E-F]

JUDGMENT:      CIVIL  APPELLATE   JURISDICTION  :   Civil  Appeal  No. 2367(NT) of 1976.      From the judgment and order dated the 20th May, 1971 of the Allahabad High Court in Civil Miscellaneous Writ No. 636 of 1967.      S.T. Desai, J.P. Goyal and S.K. Jain for the Appellant.      D.V. Patel and Miss A. Subhashini for the Respondent.      The Judgment of the Court was delivered by      BHAGWATI, J.  This appeal by certificate raises a short question of  law relating  to the  interpretation of section 226 (3)  of the Income Tax Act 1961. The petitioners were at all material  times a  partnership firm carrying on business as bankers and dealers in cloth and over the years, they had dealing with  a limited  company called  B.R.  Sons  Limited which at  one time  acted as the sole selling agent of Laxmi Ratan Cotton  Mills Company  Limited. There  was  a  running account between  the petitioners  and B.R.  Sons Limited  in respect of  these dealings and according to the petitioners, there was a debit balance of Rs. 76,436.23 against B.R. Sons Limited in  this account  as on  24th May  1966. On 21st May 1966 the Income Tax Officer, Central Circle, Kanpur issued a notice to  the petitioners under section 226 (3) (i) stating that a  sum of  Rs. 22,89,281.97  was  due  from  B.R.  Sons Limited on  account of  income tax,  super tax, penalty etc. and requiring  the petitioners  to pay  to him forthwith any amount due from the petitioners to B.R. Sons Limited or held by the petitioners for or on account of B.R. Sons Limited to the extent  of the  aforesaid arrears  of tax  due from B.R. Sons Limited.  The petitioners  were  warned  that  if  they failed to  make payment  pursuant to this notice, they would be deemed to be assessee in default and proceedings would be taken against them for realisa- 4 tion of  the amount  as if it were an arrear of tax due from them. This notice was served on the petitioners on 24th May, 1966 and  the petitioners  replied to  it on  1st July  1966 pointing out  that according  to the  state of  the  account between the  petitioners and B.R. Sons Limited, there was no credit balance  in favour  of B.R. Sons Limited, and that on the contrary  B.R. Sons  Limited owed  a large amount to the petitioners and  in the  circumstances the  notice should be discharged. The  Income Tax Officer by his letter dated 11th October 1966  intimated to  the petitioners that they should file a  sworn affidavit  setting out  their contention  that

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 10  

they did  not owe  any amount to B.R. Sons Limited. This was followed  by   another  letter   dated  14th  December  1966 addressed by  the Income  Tax Officer  to the petitioners in which the  Income Tax Officer pointed out that he had in his possession evidence  to show that the petitioners still owed money to  B.R. Sons  Limited to  a  substantial  extent  and requesting the  petitioners to pay up the amount due to B.R. Sons  Limited   on  or   before  21st   December  1966.  The petitioners thereupon  filed an  affidavit  sworn  by  their accountant Shiv  Kumar Arora  on 22nd December, 1966 setting out the  position of  the account  of B.R.  Sons Limited and stating  that  far  from  any  amount  being  due  from  the petitioners to  B.R. Sons Limited, there was a debit balance of Rs.  76,436.23 against  B.R. Sons  Limited as on 24th May 1966 and  the notice  issued against  the petitioners  under section 226 (3) (i) was therefore unjustified. The affidavit was forwarded  to the Income Tax Officer along with a letter addressed by the petitioners. The Income Tax Officer replied to the petitioners by his letter dated 31st December 1966 in which he  pointed out  that during  the course  of search of Bihari Niwas, the Income Tax Authorities have seized account books in  Hindi, Muriya  and English  pertaining to the year commencing from  1st July  1965 and that the account of B.R. Sons Limited  in the  Muriya and  English cash  books showed that payments  aggregating to  Rs. 8,69,000.00 had been made to B.R. Sons Limited prior to 24th May 1966 but the original cash book  in Hindi  did not  show any  such payments having been made  and he  had therefore  reason to believe that the affidavit filed  on behalf  of the  petitioners showing that B.R. Sons  Limited had  a debit  balance against them in the books of  the petitioners  as on  24th May 1966 was false in material particulars.  The Income  Tax  Officer  accordingly held the petitioners to be personally liable to make payment to the  extent of their liability to B.R. Sons Limited as on 24th May  1966 and intimated to the petitioners that if they failed to  make such payment on or before 10th January 1967, the Income  Tax Officer  would treat  them  as  assessee  in default under section 26 (3) 5 (x) and  proceed to  take recovery proceedings against them. The  petitioners   however,  reiterated   their  stand   and reaffirmed the  correctness  of  their  affidavit  by  their letter dated  10th January  1967.  The  Income  Tax  Officer thereupon addressed a letter dated 11th January 1967 stating that the  petitioners had  not  furnished  any  material  or evidence to rebut his conclusion that the affidavit filed on behalf of  the petitioners was false in material particulars and since  the petitioners  had failed  to pay up the amount due from  them to  B.R. Sons Limited, they were ’assessee in default’ within  the meaning  of section  226  (3)  (x)  and consequently appropriate coercive steps were being taken for realising the  amount of  the tax. A copy of this letter was forwarded  to   the  Tax   Recovery  Officer,   Kanpur   for information and  necessary action. The Tax Recovery Officer, on the  basis of  this letter  issued an  order  dated  27th January 1967 under Rule 48 of the second Schedule to the Act attaching some  of the immovable properties belonging to the petitioners and  following upon this order of attachment, he issued a  notice  on  7th  February  1967  for  setting  the proclamation in  respect of  the  sale  of  these  immovable properties. The  petitioners thereupon filed a writ petition in the  High Court  of Allahabad  for quashing  and  setting aside the  notice dated  21st May  1966 and  the  subsequent proceedings adopted  by the  Income Tax  Officer and the Tax Recovery Officer against the petitioners.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 10  

    The writ petition came up for hearing before a Division Bench of  the High Court. One of the contentions advanced on behalf of the petitioners before the High Court was that the notice dated  21st May  1966 issued  against the petitioners under section  226 (3)  (i) was  invalid, since  it did  not specify the amount alleged to be due from the petitioners to B.R. Sons Limited. The High Court accepted the contention of the petitioners  that the  notice issued  by the  Income Tax Officer under  section 226  (3) (i)  "should mention or give some specific  indication of the amount which he believes is due or  may fall  due from  such person  to the  assessee or which he holds or may subsequently hold for or on account of the assessee"  but held that since the petitioners knew what was the amount which was being referred to by the Income Tax Officer in  his notice  and no  prejudice was  caused to the petitioners by the reason of non-specification of the amount in the  notice issued  by the Income Tax Officer, the notice could not  be  said  to  be  invalid  on  that  ground.  The petitioners also contended before the High Court that if the Income Tax  Officer was not inclined to accept the statement contained in 6 the affidavit  filed on behalf of the petitioners and he was disposed to  take the  view that  the affidavit was false in material particulars,  he should  have summoned the deponent of the  affidavit for  cross-examination and held an inquiry before coming to the conclusion that the statement contained in the  affidavit  was  false.  This  contention  was  quite clearly a formidable one, based as it was on the language of section 226  (3) (vi) but the High Court negatived it on the ground that the affidavit filed on behalf of the petitioners was not in compliance with the terms of section 226 (3) (vi) since it  was not  sworn by  any  of  the  partners  of  the petitioners but  was made  only  by  an  accountant  of  the petitioners and  when the accountant stated in the affidavit that a  sum of  Rs. 76,436.23  was  due  and  owing  to  the petitioners from  B.R. Sons  Limited on 24th May 1966, there was nothing  to indicate  as to  which part of this averment was true  to his  personal knowledge and which, on the basis of the  account books.  The High  Court accordingly repelled the challenge  against the validity of the notice dated 21st May 1966  and held that the Income Tax Officer was justified in treating  the petitioners  as ’assessee  in  default’  on ground of  non-payment of the amount due and owing from them to B.R. Sons Limited. But so far as the recovery proceedings adopted by the Tax Recovery Officer were concerned, the High Court took  the view  that no  recovery proceedings could be adopted without  issue of  a  recovery  certificate  by  the Income Tax  Officer under  section  222  and  since  in  the present case, no such recovery certificate was issued by the Income Tax  Officer, the recovery proceedings adopted by the Tax Recovery  Officer were invalid and they were accordingly quashed. This  was the  only limited  relief granted  by the High Court  to the  petitioners and  the rest of the reliefs claimed were  rejected. The  petitioners thereupon preferred the present appeal in this Court after obtaining certificate from the High Court.      The principal question that arises for determination in this appeal  is as  to whether,  on a true interpretation of section 226  (3) (vi),  the Income-tax  Officer was bound to hold an  inquiry before  he came  to the conclusion that the statement contained  in the affidavit filed on behalf of the petitioners was  false in  any material  particular. Section 226 (3)  deals with  recovery of  arrears  of  tax  from  an assessee by  requiring "any person from whom money is due or

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 10  

may become  due to  the assessee  or any person who holds or may subsequently  hold  money  for  or  on  account  of  the assessee" (hereinafter  referred to as the garnishee) to pay to the Income-tax Officer "so much of 7 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." There are ten clauses in  which section  226  (3)  is  divided  and  these clauses, in  so  far  as  material  provide  inter  alia  as follows:      (i)  The Income-tax  Officer may,  at any  time or from           time to  time, by  notice in  writing require  any           person from whom money is due or may become due to           the assessee  or an  any person  who hold  or  may           subsequently 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 specified  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 assessee in respect of           arrears or the whole of the money when it is equal           to or less than that amount.      (iv) Save as  otherwise provided  in this  sub-section,           every person to whom a notice is issued under this           subsection shall  be bound  to  comply  with  such           notice, and,  in particular, where any such notice           is issued  to a post office, banking company or an           insurer, it  shall not  be necessary  for any pass           book,  deposit   receipt,  policy,  or  any  other           document to  be produced  for the  purpose of  any           entry, endorsement  or the  like being made before           payment is made notwithstanding any rule, practice           or requirement to the contrary.      (vi) Where  a  person  to  whom  a  notice  under  this           subsection is sent objects to it by a statement on           oath 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  sub-section  shall  be           deemed to  require such person to pay any such sum           or part  thereof, as the case may be, but if it is           discovered that  such statement  was false  in any           material  particular,   such   person   shall   be           personally liable to the Income-tax Officer to the           extent of his own liability to the assessee on the           date of the notice, or to the extent of assessee’s           liability  for   any  sum   due  under  this  Act,           whichever is less. 8      (viii)The Income-tax  Officer shall grant a receipt for           any amount paid in compliance with a notice issued           under this  sub-section, and  the person so paying           shall be  fully discharged  from his  liability to           the assessee to the extent of the amount so paid.      (x)  If the  person to  whom a  notice under  this sub-           section is sent fails to make payment in pursuance           thereof to  the Income-tax  Officer, he  shall  be           deemed to  be an assessee in default in respect of           the amount  specified in  the notice  and  further           proceeding  may  be  taken  against  him  for  the           realisation of  the amount as if it were an arrear           of tax  due from  him, in  the manner  provided in           sections 222  to 225 and the notice shall have the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 10  

         same effect  as an attachment of a debt by the Tax           Recovery Officer  in exercise  of his powers under           section 222. It was  in exercise  of the power conferred under clause (i) that the  notice dated  21st May  1966  was  issued  by  the Income-tax Officer  to the  petitioners. This notice did not mention or  even indicate  any specific amount alleged to be due from  the petitioners  to B.R.  Sons Limited  and it was therefore observed by the High Court that the notice was not in accordance  with the provisions of clause (i). We are not sure whether,  on a true interpretation of clause (i) in the light of  the other  clauses of section 226 sub-section (3), it is  necessary that the notice under clause (i) should set out a  specific amount  as due  from the  garnishee  to  the assessee or it is enough if the notice merely reproduces the language of clause (i) and requires the garnishee to pay "at or within  the time  specified in the notice" so much of the money as  is sufficient  to pay  the  amount  due  from  the assessee in  respect of  arrears of  tax. It  is a debatable question on  which we  do not  wish to  express any opinion, since the High Court has taken the view that even though the notice dated 21st May 1966 issued to the petitioners did not mention or give indication of any specific amount alleged to be due from the petitioners to B.R. Sons Limited, it was not invalid, since no prejudice was caused to the petitioners by reason of  non-specification of  such amount  and this  view taken by  the High  Court was  plainly correct,  because the petitioners at  no time  complained that  the notice did not specify the amount alleged to be due from the petitioners to B.R. Sons Limited or that it was vague and indefinite and in fact replied to the notice on merits by raising an objection that, according to the statement 9 of account  between the  petitioners and  B.R. Sons Limited, there was  no credit  balance in favour of B.R. Sons Limited and on the contrary B.R. Sons Limited owed a large amount to the petitioners  and also  filed an affidavit sworn by their accountant Shiv  Kumar Arora  stating that  on 24th May 1966 when they  received the notice dated 21st May 1966 there was nothing due  from the  petitioners to  B.R. Sons Ltd. but on the contrary  B.R. Sons  Limited owed a sum of Rs. 76,436.23 to the  petitioners. The  view taken by the High Court could also be  sustained additionally  on the  ground that, in any event, by  his letter  dated 31st December, 1966 the Income- tax Officer  pointed out  to the petitioners that, according to him,  B.R Sons Limited had a credit balance of over Rs. 8 lacs as  on 24th  May 1966 and the petitioners had therefore clear notice  of what  was the amount alleged to be due from the  petitioners  to  B.R.  Sons  Limited.  So  far  as  the affidavit  of   the  accountant   filed  on  behalf  of  the petitioners was  concerned, it  was disputed  before  us  on behalf of  the  Revenue  whether  this  affidavit  could  be regarded as  a "statement  on oath"  within the  meaning  of clause (vi)  so as  to attract applicability of that clause. The argument  of the  Revenue  was  and  this  argument  was accepted by  the High  Court, that though this affidavit was undoubtedly made  on oath,  it was not a "statement on oath" within the  contemplation of clause (vi), because it was not a statement  of any  of the  partners of the petitioners but was merely  a statement of an accountant of the petitioners. Now it  is true  that this  affidavit filed on behalf of the petitioners was  sworn by  an accountant  of the petitioners and not by one of their partners but we do not think that on that account  it could  be  disregarded  by  the  Income-tax Officer. The  accountant of  the petitioners would obviously

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 10  

have knowledge  of the  state of  the  account  between  the petitioners and  B.R. Sons Limited and he would be competent to make  statement on oath in regard to the position of such account. In  fact, the  accountant of the petitioners stated in paragraph  1 of the affidavit that he was acquainted with the facts  deposed to in the affidavit and he also mentioned in the  verification clause  that so far as the averments in paragraphs 2  and 3  of the  affidavit were  concerned which related  to   the  position   of  the  account  between  the petitioners and  B.R. Sons  Limited, they  were "true to his knowledge  and   based  on   the  account   books"  of   the petitioners.  The   state  of   the  account   between   the petitioners and B.R. Sons Limited detailed by the accountant in the affidavit was thus based both on the account books of the petitioners as also on his personal knowledge and he was therefore competent  to state  on oath what was the position of that  account. Moreover,  the  affidavit  containing  the statement of 10 the accountant  on oath  was filed  by  the  petitioners  in support of  their objection  that far  from there  being any money due  from them  to B.R.  Sons Limited,  a sum  of  Rs. 76,436.23 was,  in fact, due from B.R. Sons Limited to them. There  was   therefore  sufficient   compliance   with   the requirement of clause (vi). It is not necessary under clause (vi)  that  the  statement  on  oath  contemplated  in  that provision should  be made  only by  the person  to whom  the notice under  clause (i)  is sent by the Income-tax Officer. It is  in our  opinion sufficient  if the  objection to  the requisition contained in the notice is made by the person to whom the notice is sent and such objection is supported by a statement on  oath made  by a  person competent to make such statement.  Here,   as  we   have  pointed  out  above,  the accountant of the petitioners was competent to state on oath as to  what was  the true  state of  the account between the petitioners and  B.R. Sons  Limited and  since an  affidavit containing this statement on oath made by the accountant was filed on  behalf of  the petitioners  in  support  of  their objection, the  requirement of clause (vi) was satisfied and its provisions were attracted.      Now under  clause (vi),  where a  garnishee to  whom  a notice under clause (i) is sent objects to it by a statement on oath 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, he is not required to pay such sum or any  part thereof to the Income-tax Officer in compliance with the  requisition contained  in the notice. But if it is discovered by  the Income-tax Officer that such statement on oath was  false in any material particular, the garnishee is made personally  liable to  the Income-tax  Officer  to  the extent of  his own  liability to the assessee on the date of the notice  or to the extent of the assessee’s liability for arrears of  tax, whichever  is less.  The petitioners having objected to  the requisition  contained in  the notice dated 21st May  1966 by  filing an  affidavit of  their accountant that nothing  was due  from the  petitioners  to  B.R.  Sons Limited, were  not bound  to  comply  with  the  requisition contained in  such notice,  but if  the  Income-tax  Officer discovered that such statement on oath was false in material particular and that some amount was due from the petitioners to B.R. Sons Ltd. the petitioners would be personally liable to pay  such amount  to the Income-tax Officer. The question is whether  the Income-tax  Officer could  be said  to  have discovered that  the statement on oath made in the affidavit of the  accountant of  the petitioners  that nothing was due

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 10  

from the  petitioners to  B.R. Sons Limited was false in any material particular, as claimed by the 11 Revenue in  the notices  dated 31st  December 1966  and 11th January 1967.  Now it  is obvious that under clause (vi) the discovery by  the Income-tax  Officer that  the statement on oath made  on behalf  of  the  garnishee  is  false  in  any material particular has the consequence of imposing personal liability for payment on the garnishee and it must therefore be a  quasi-judicial decision  preceded by  a quasi-judicial inquiry involving  observance of  the principles  of natural justice. The  Income-tax Officer  cannot subjectively  reach the conclusion  that in  his opinion  the statement  on oath made on  behalf of  the garnishee  is false  in any material particular. He would have to give notice and hold an inquiry for the purpose of determining whether the statement on oath made on  behalf of  the garnishee  is  false  and  in  which material particular  and what amount is in fact due from the garnishee to  the assessee and in this inquiry he would have to follow  the principles  of natural  justice and  reach an objective decision.  Once a  statement on  oath is  made  on behalf of  the garnishee  that the  sum demanded or any part thereof is  not due  from the garnishee to the assessee, the burden of showing that the statement on oath is false in any material particular  would be on the Revenue and the Revenue would be  bound  to  disclose  to  the  garnishee  all  such evidence or  material on  which it  proposes to  rely and it would have  to be  shown by  the Revenue  on  the  basis  of relevant evidence  or material that the statement on oath is false in any material particular and that a certain definite amount is  due from the garnishee to the assessee. Then only can  personal  liability  for  payment  be  imposed  on  the garnishee under clause (vi).      Here  what  happened  was  that  an  affidavit  of  the accountant containing  a statement  on oath that on 24th May 1966 nothing  was due  from the  petitioners  to  B.R.  Sons Limited but  on the  contrary a sum of Rs. 76,436.23 was due from B.R.  Sons Limited  to the  petitioners  was  filed  on behalf of  the petitioners sometime after 22nd December 1966 and on  receipt of  this affidavit,  the Income-tax  Officer pointed out  to the  petitioners by  his notice  dated  31st December, 1966  that this statement on oath contained in the affidavit was false in material particulars, because on 24th May 1966, B.R. Sons Limited had a credit balance of over Rs. 8 lacs  in the  books of  the petitioners and concluded that the petitioners  were therefore  personally  liable  to  the Income-tax Officer  to the extent of their liability to B.R. Sons Limited.  This notice  clearly embodied the decision of the Income-tax  Officer that  the statement  on oath made by the accountant  in the  affidavit filed  on  behalf  of  the petitioners was 12 false in  material particulars and that the petitioners were personally liable  to make  payment under  clause (vi).  The petitioners by their letter dated 10th January 1967 disputed the conclusion  reached by  the Income-tax  Officer  in  his notice dated 31st December, 1966 and reiterated that nothing was due from the petitioners to B.R. Sons Limited as on 24th May, 1966.  The Income-tax  Officer however  adhered to  the decision reached  by  him  and  by  his  notice  dated  11th January, 1967  intimated to  the  petitioners  that  he  was treating them  as assessee  in default within the meaning of clause (x) and proceeding to take appropriate coercive steps for realising  the amount of tax due from them. It will thus be  seen   that  after  receipt  of  the  affidavit  of  the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 10  

accountant, the  Income-tax Officer  did not give any notice or hold  any inquiry  for the purpose of determining whether or not  the statement  on oath made by the accountant in the affidavit was  false in  any material particular and whether any and  if so,  what amount was due from the petitioners to B.R. Sons  Limited, but straight-away reached the conclusion that the  statement on  oath that  nothing was  due from the petitioners to  B.R. Sons  Limited  was  false  in  material particulars and without even determining what precise amount was due from the petitioners to B.R. Sons Limited, held that the petitioners  were personally  liable to  the  Income-tax Officer under  clause (vi).  The Income-tax  Officer did set out in  his notice  dated 31st  December, 1966  the  reasons which prevailed  with him  in reaching  this decision but he did not  offer any  opportunity to  the petitioners  to show that the  reasons which  weighed with  him were not correct. The decision  reached by  the Income-tax  Officer  that  the statement on  oath made  in the  affidavit of the accountant was false  in material particulars as set out in the notices dated  31st  December,  1966  and  11th  January,  1967  was therefore  clearly   invalid  and   the  notice  dated  31st December, 1966  and 11th  January, 1967 must consequently be set aside.      We accordingly  dismiss the  appeal in  so far as it is directed against  the validity  of the notice dated 21st May 1966 but so far as the notices dated 31st December, 1966 and 11th January,  1967 are  concerned, we  allow the appeal and issue a  writ  quashing  and  setting  aside  the  said  two notices. We  may make  it clear  that it will be open to the Income-tax Officer  to proceed  to hold  an inquiry  for the purpose  of   determining  whether  the  statement  on  oath contained  in   the  affidavit  of  the  accountant  of  the petitioners that  nothing was  due from  the petitioners  to B.R. Sons  Ltd. as  on 24th  May 1966, was false in material particulars, and if as a result 13 of  such   inquiry  carried   out  in  accordance  with  the principles of  natural justice, the Revenue is able to show, the burden being upon it, that the statement on oath made by the accountant  was false in material particulars and that a certain definite amount was due from the petitioners to B.R. Sons Limited  on 24th  May, 1966,  the petitioners  would be personally liable  to pay  such  amount  to  the  Income-tax Officer and in case of default, the Income-tax Officer would be  entitled  to  treat  the  petitioners  as  ’assessee  in default’ under clause (x) of section 226 sub-section (3).      Since the  petitioners have partly succeeded and partly failed, the  fair order  of costs  would be  that each party should bear and pay its own costs throughout. P.B.R.                            Appeal partly allowed 14