You are on page 1of 24

ATreatiseOnTheLaw&PracticeOfStay&RecoveryOfTaxArrears Dr.K.

Shivaram,Advocate Recoveryisoneofthemostimportantsubjectsindirecttaxation,ofwhichallofusarevery much concerned in our day to day practice, either as consultants or while dealing with our own taxation matters. I must congratulate the President and his team for selecting a very appropriate subject at a very appropriate time, because maximum recovery proceedings are initiatedinthemonthofJanuary,FebruaryandMarcheveryyear. The law of recovery is based on Civil Procedure Code, 1908. Therefore, knowledge of Civil Procedure Code relating to recovery will help us to make a better representation and to rendercorrectadvice,whenanissuecomesforconsideration. The subject of recovery and stay proceedings is very vast. To discuss all important issues we mightneedmorethanoneworkshops. Within limited time of one hour fifteen minutes, I will discuss only the few important issues whichmayberelevantinourdaytodaypractice. FortodaysdiscussionIhavedividedthesubjectintosevenparts: 1.Recoveryproceedingsbeforeassessment. 2.Recoveryproceedingsafterassessment 3.Jointandseveralliability 4.Remediesagainstrecoverybeforevariousauthorities 5.Someofgeneralissues 6.Suggestions 7.Interactivesession 1. Recovery proceedings before assessment Provisional Attachment to protect revenue in certain cases S.281B of the Incometax Act, Civil procedure Code,1908 S. 94(b), Order38 Rule5Attachmentbeforejudgment. Circularno179dated3091975(1976)102ITR(St.)9(20) It is stated in the circular that this new provision has been made in order to protect the interests of the revenue in cases where the raising of demand is likely to take time because of investigations and there is apprehension that the assessee, may thwart the ultimate collection ofthatdemand.

1 ATreatiseOnTheLaw&PracticeOfStay&RecoveryOfTaxArrearshttp://www.itatonline.org

ATreatiseOnTheLaw&PracticeOfStay&RecoveryOfTaxArrearshttp://www.itatonline.org

Theprovisionsofsection281Bisakintothesection94(b)andOrder38,Rules5&6oftheCode of Civil Procedure Code (CPC), 1908. Section 281B can be invoked only During Pendency of anyproceedingsforassessmentorreassessment. Theapexcourtin,RamanTech& ProcessEngg.Co.v.SolankiTraders(2008) 2SCC302held as under The power under O.38 R.5 of C.P.C. is a drastic and extraordinary power. Such power should not be exercised mechanically or merely for the asking. It should be used sparingly and strictly in accordance with the rule .The purpose of O.38 R.5 is not to convert an unsecured debt into a secured debt. Any attempt by a plaintiff to utilize the provisions of O.38 R.5 as a leverage for coercing, by the defendant to settle the suit claim should be discouraged The provisional attachment order must be in writing and should have reasons and must be passed with the approval of the higher authority, the mechanical order without any reasons areliabletobequashed. GauravGoelv.CIT(2000)245ITR169(Cal)(HighCourt) Basisofopinionandpastdefaults: In the absence of any material or circumstances on the basis of which requisite opinion could be formed under section 281B and in the absence of any history of past defaults of the petitioner, the impugned order passed under section 281B provisionally attaching the bank accountsofthepetitionerandextensionthereofbytheCITwaswhollyillegalandunwarranted. RaghuRamGrahP.Ltd.v.ITO&Ors.(2006)281ITR147(All.)(HighCourt) Theprovisionalattachmentisvalidonlyforaperiodofsixmonthsunlessextended.However the provisional attachment cannot exceed two years.Majjo(Smt)v. ACIT (1991) 187 ITR 642(All.)(HighCourt), However in Tek Chand v.ITO (2001) 252 ITR 799 (P&H)(High Court), it has been held that provisionalattachmentcanbeextendedforamaximumperiodoftwoandhalfyears. Extension of period of attachment without recording reasons would be invalid. Seshasayee Paper&BoardsLtd.v.CIT(2003)261ITR63(Mad.)(HighCourt) Legislature has provided sufficient safeguard in the section itself so that the honest assesseesarenotputintodifficulties. 1.1. Propertieswhichcanbeattached In case of jointly owned property, only undivided share of assessee can be attached provisionallyandnotentireproperty. 2

S.Subramanianv.CIT(2004)186CTR286/136Taxman653(Mad)(HighCourt) Fixed deposit in the name of HUF, only share of assessee can be attached and not entire fixeddeposit.Provisionalattachmentwasheldtobeinvalid. SatyabirSinghv.CIT(2001)248ITR785(P&H)(HighCourt) A property was transferred to transferee and the transferee had paid full consideration and possession was taken by transferee however the Registration was done. The proceedings undersection281Bcannotbeinitiatedbyattachingtheproperty.Registrationisnotrelevant toIncometaxAct. ElectroZavod(India)Pvt.Ltdv.CIT(2005)278ITR187(Cal.)(HighCourt) Attachment should be made as far as possible of immovable properties and not to attach all the properties. In Gandhi Trading v. ACIT (1999) 239 ITR 337 (Bom) (High Court), besides two immovable properties, assessees bank account and fixed deposits were also attached against the estimated tax liability of Rs 2.68 crores. The property value was about 6 crores. The Court held that there would be no justification for allowing the continuation of attachmentonthebankaccountandfixeddeposits.Inanyeventtheprovisionalattachment shouldnotbeequatedwithattachmentinthecourseofrecoveryproceedings. In case where the assessment is completed, and appeal is filed against the order of assessment and the appellate authority has granted conditional stay of recovery of the tax assessed, the power under section 281B cannot be invoked. Such an action is contrary to law. ShawWallace&Co.Ltdv.CTO(1996)100STC270(AP)(HighCourt). Remedy The only remedy against the provisional attachment is to file a writ petition under Article226oftheConstitutionofIndia. 2. Recoveryproceedingsafterassessment. 2.1. WhocanbedeclaredasAssesseeindefault Provisions applicable: S. 2(7), 140A(3),156, 179,191,200, 220(5), 226(3)(x), 282, 283, 284 of IncomeTaxAct,1961andOrder5Rules15,17,18and19ofCPC. When an assessee is served with notice of demand under section 156, if assessee does not pay the demand within 30 days he is treated as assessee in default. If the order is passed under section 179 against Director, the Director of Company can be treated assessee in defaultundersection220(4),itisnotnecessarythattheassessingOfficerhastoissuenotice undersection156.Similarlyundersection140A(3),whenanassesseefailstopaythewholeor anypartoftheselfassessmenttaxorinterestorbothinaccordancewithsection140A(1),he
3 ATreatiseOnTheLaw&PracticeOfStay&RecoveryOfTaxArrearshttp://www.itatonline.org

ATreatiseOnTheLaw&PracticeOfStay&RecoveryOfTaxArrearshttp://www.itatonline.org

shall be deemed to be an assessee in default. If the person mentioned in section 200 does notdeductthewholeoranypartofthetaxorafterdeductingfailstopaythetaxasrequired underthisAct,heshallbetreatedasassesseeindefault. Recently department has issued notice under section 276C, read with 278B of the Income tax Act for not paying the admitted self assessment tax under section 140A along with the return of income to the Principal Officer of the Company (Managing Director) for not paying the admitted self Assessment tax along with the return. I advised him to make the payment because, if the department launches prosecution as per section 278E Presumption of culpablementalstateisontheassesseetoproveotherwise.Apartfromcourtproceedingsit will damage the reputation of the Managing director and hisgroup. They haveaccepted my adviceagreedtopaytheadmittedtaxasperreturnofincome. ValidserviceofNotice. Mohan Wahiv. CIT (2001) 248 ITR 799(SC), the court held that valid service is mandatory; incaseoffailuretoservethenotice,recoveryproceedingsareheldtobenotvalid. DemandNoticenotreceivedbyassessee,recoveryproceedingheldtobenotvalid. The court held that on a plain reading of subsection (4) of sec. 220 of the Income tax Act, 1961, it is apparent that a person can be said to be an assessee in default, (i) if he does not pay the amount specified in a notice u/s. 156 within the time limited under sub section (1), viz., 35 days of the service of notice, or (ii) if he does not pay the amount specified in a notice u/s. 156 within the time extended under sub section(3) at the place and to the person mentioned in the notice. Thus, before invoking the provisions of section 220 of the Act, a notice is required to be served upon the assessee, specifying the amount as well as theplaceandthepersontowhomsuchamountistobepaid.Intheabsenceofanydemand noticeu/s.156oftheActbeingservedupontheassessee,thetimetomakepaymentunder subsection(1)wouldnotstartrunning.Infact,nodemandnotice,ascontemplatedu/s.156 oftheActwasserveduponthepetitioner.Thepetitionerattheearliestpointoftime,upon receipt of the recovery notice had objected to the initiation of the recovery proceedings as ithadnotreceivedcopiesoftheassessmentorderanddemandnotice.Thus,intheabsence of service of a demand notice u/s. 156 of the Act on the petitioner, which was a basic requirementforinvokingtheprovisionsofsec.220oftheAct,thePetitionercouldnothave been treated to be an assessee in default. The subsequent proceedings u/s. 220 to 226 of theActwerewithoutjurisdiction.(A.Y.198586) SaraswatiMouldingWorksv.CIT&Ors(2012)347ITR161(Guj.)(HighCourt) CITv.SattandasMohandasSidhi(1982)230ITR591(MP)(HighCourt)itwasheldthat,itis mandatory that notice must be served only in the manner provided in section 282 of the 4

IncometaxAct,hencenoticebytelegramcouldnotbesaidtobeasubstitutefornoticeby post. General Clauses Act,1897,Section 27 deals with meaning of service by post. If it is sent by registered post and acknowledgement is produced the presumption is that it is a proper service.CITv.MalchandSurana(1958)28ITR684(Cal.)(HighCourt) In Meghji Kanji Patel v. Kundanmal Chamanlal Mehtani AIR 1968 Bom. 387 (High Court), which was affirmed in Puwada Venkateshwara Rao v. Chidamana Venkata Ramana AIR 1976 SC 869, (871). The Court held that where an affidavit is filed stating that notice is not served;unlessotherwiseproved,thesamehastobeaccepted. In case of service on person, it has to be served on the adult member to be considered as a properservice. O.5 R.15of CPC: As per explanationA servant is not a member of family within the meaning ofthisRule.Hence,serviceofnoticeonservantisnotavalidservice. 2.2. Shorteningtheperiod Assessing Officer cannot curtail the period of 30 days without valid reasons recorded in writing. M.Redannav.RevenueDivisionalOfficer(1980)46STC(232)(FB)(AP)(HighCourt) In Mahindra and Mahindra v. UOI (1992) 59 E.L.T. 505 (Bom.)(High Court) the court held that, no coercive action should be taken till the expiry of the appeal period against the said order is over. Therefore the Assessing Officer is duty bound to wait for the expiry of time periodofappealbeforeproceedingtorecoverthetaxdue. In Mahindra and Mahindra Ltd v Assessing Officer (2007) 295 ITR 43(Bom) (High Court), where garnishee proceedings were issued even without affording a fair opportunity to be heard and the bank accounts of the assessee were frozen within one week of passing of order, the High Court took strong note of the case and issued a notice against officer for contempt proceedings and held that such proceedings should not be initiated as the Officer has not followed the principle of Bombay High Court (supra) and also directed the Assessing Officer to deposit the money so coercively collected to the Registrar General of the Court.Show cause was issued to the Assessing Officer as to why contempt action should not be initiated under the provisions of the Contempt Court of Courts Act for prima facie knowinglyandwillfullydisobeyingtheaforesaidtwojudgmentsofBombayHighCourt. S. 220(1) proviso to reduce period for payment of tax to be exercised after application of mindandrecordingreasons.(S.281B)
5 ATreatiseOnTheLaw&PracticeOfStay&RecoveryOfTaxArrearshttp://www.itatonline.org

The Assessing Officer has passed an order under section 143(3) on 9.3.2012 raising a demand of Rs. 36.56 crores and directed the assessee to pay the entire demand within 7 days even though the period specified in 220(1) is 30 days. The assessee filed a stay application u/s 220(6) on 12.3.2012 which was rejected on the ground that it did not fall within the guidelines framed in the CBDTs instruction No.1914 issued by the CBDT. The assessee approached the CIT pointing that there was no justification to demand payment within 7 days, while s. 220(1) granted 30 days and that as there was already a provisional attachment,therewasnothingdetrimentaltotherevenue.TheCITrejectedtheapplication and the AO attached the assessees mutual fund investments s. 226(3). The assessee filed a WritPetition.Thecourtheldthat: The Proviso to s. 220(1) which empowers the AO to demand payment within a period lesser than 30 days with the prior approval of the JCIT cannot be exercised casually and without due application of mind. The AO & JCIT must apply their mind on how it would be detrimental to the interests of the Revenue to allow the full period of 30 days and record reasons. The reasons & approval must be made available to the assessee if he seeks them. On facts, as there was already a provisional attachment u/s 281B attaching theassesseesmutualfundstotheextentofRs.36.54crores,therewouldhavebeenno basis for forming the reason to believe that allowing the period of 30 days would be detrimentaltotheRevenue.Merelybecausetheendofthefinancialyearisapproaching that cannot constitute a detriment to the Revenue. The detriment to the Revenuemust be akin to a situation where the demand of the Revenue is liable to be defeated by an abuse of process by the assessee. There is absolutely no justification for the AO to demandpaymentin7daysandhisactionishighhandedandcontrarytolaw. FirozTinFactoryv.ACIT(2012)71DTR185/209Taxman458(Bom.)(HighCourt)

2.3. Consequencesofbeingassesseeindefault. Chargeofmandatoryinterestundersection220(2) Penaltyundersection221 Attachment/Auctionofmoveable/Immoveableproperties Appointmentofreceiverformanagingofproperties Prosecution/arrest/detention 2.4. Replyofassesseetokeepthedemandinabeyance. An application for stay of disputed demand must be made before the Assessing Officer beforetheexpiryoftimeprescribedinnoticeofdemand. In 80% of matters the assessee gives simple reply stating that we have filed an appeal and keep the demand in abeyance. My advice would be, the reply should be with reasons stating how the assessee is entitled for stay of recovery, how addition made was not
6 ATreatiseOnTheLaw&PracticeOfStay&RecoveryOfTaxArrearshttp://www.itatonline.org

proper, financial difficulties etc. The assessee must request for stay of recovery till the appealisdisposed,IftheissueiscoveredbyJurisdictionalHighorApexCourt,referthecase laws. Assessee may also refer the financial difficulties faced by the assessee. How the assessee is complying with the guidelines laid down by the Jurisdictional High Court. This will help the assessee, when they approach for stay of recovery before Commissioner or High Court. You may also request that if the Assessing Officer decides to proceed further onemoreopportunityofpersonalhearingmaybegiven. 2.5. Howthediscretionhastobeexercisedbythetaxauthorities. KECInternationalLimitedv.B.RBalakrishnan(2001)251ITR158(Bom)(HighCourt) As per the Jurisdictional High Court Certain parameters which are required to be followed by the authorities in cases where a stay application is made by an assessee pending appeal to the firstappellateauthority. Parameters: (a) While considering the stay application, the authority concerned will at least briefly set out thecaseoftheassessee. (b) In cases where the assessed income under the impugned order far exceeds returned income,theauthoritywillconsiderwhethertheassesseehasmadeoutacaseforunconditional stay.Ifnot,whetherlookingtothequestionsinvolvedinappeal,apartoftheamountshouldbe ordered to be deposited for which purpose, some short prima facie reasons could be given by theauthorityinitsorder. (c) In cases where the assessee relies upon financial difficulties, the authority concerned can briefly indicate whether the assessee is financially sound and viable to deposit the amount iftheauthoritywantstheassesseetosodeposit. (d) The authority concerned will also examine whether the time to prefer an appeal has expired. Generally, coercive measures may not be adopted during the period provided by the statute to go in appeal. However, if the authority concerned comes to the conclusion that the assessee is likely to defeat the demand, it may take recourse to coercive action for which brief reasonsmaybeindicatedintheorder. (e) We clarify that if the authority concerned complies with the above parameters while passing orders on the stay application, then the authorities on the administrative side of the DepartmentlikerespondentNo.2hereinneednotonceagaingivereasonedorder. Theaboveparametersarcnotexhaustive.Theyareonlyrecommendatoryinnature.
7 ATreatiseOnTheLaw&PracticeOfStay&RecoveryOfTaxArrearshttp://www.itatonline.org

CocaColaIndia(2006)285ITR419(Bom)(HighCourt) Noticeattachingthebankaccountwasquashed. Attaching the bank accounts even before communicating the order passed on the stay application is totally high handed. Once again stated that the parameters laid down by this CourtincaseofKECInternationalLtd.hastobefollowed. StayGuidelinesGuidelineslaiddownonhowstayapplicationsshouldbedealtwith. UTIMutualFundv.ITO(2012)345ITR71(Bom.)(HighCourt) Stay Reasoned order Assessing Officer must pass reasoned order to deal with stay applications TataToyoRadiatorsPvtLtdv.UOI(2012)71DTR5/250CTR11(Bom.)(HighCourt) GuidelinesAssessing Officer and Appellate authorities are not mere tax gatherers; have dutytobefairtotheassessee. NishithMadanlalDesaiv.CIT(2012)345ITR545(Bom.)(HighCourt) GuidelinesAssessingOfficerremindedthatheisnotmeretaxgathererandcautionedto followguidelinesforrecoveryoftax. RajasthaniSammelanSarvodayv.ADIT(Bom.)(HighCourt)www.itatonline.org RPGEnterprisesLtdv.Dy.CIT(2001)251ITR20(Mum.)(Trib) The Assessing Officer is precluded from taking coercive action for recovery of the disputed demand until of the period of limitation allowed for filing of the appeal against the decision of the first appellate authority and also during the pendency of any stay application before any revenueauthorityorTribunal. These guidelines must be followed by the tax authorities while dealing with stay application of theassessee. Extralegal steps Assessing Officer should not adopt extra legal steps of threatening or inducingtheassesseefortaxrecovery. LopamudraMisrav.ACIT(2011)337ITR92(Orissa)(HighCourt) Instruction no. 96 (F .no 1/6/69 ITCC dated 210801969) which had clearly indicated that when the income assessed is substantially higher than the returned income of the assessee that is to say if assessed income is twice the returned income or more than of recovery of taxdemand,stayshouldbenormallybegrantedunlesstherearelapsesornoncooperation
8 ATreatiseOnTheLaw&PracticeOfStay&RecoveryOfTaxArrearshttp://www.itatonline.org

on the part of assessee. However department always contend that instruction of 1969 now standssupersededbyinstructionno1914(F.no.404/72/93ITCCdated2121993). HowevertheTribunalandcourtsarefollowingthespiritofearlierinstruction. SubsahChndraSehgalv.Dy.CIT(2008)6DTR53/173Taxman312(Delhi)(HighCourt) MaharanaShriBhagwatSingahijiofMewarv.ITAT(1997)223ITR192(Raj)(HighCourt) Soulv,Dy,CIT(2008)173Taxman468(Delhi)(HighCourt) ValvolineCumminsLtdv.Dy.CIT(2008)307ITR103(Delhi)(HighCourt) Income assessed by the Assessing Officer was 47 times of income declared by assessee. Therefore Instruction No. 95 dated 21st August, 1969 holds the field. Therefore assessee cannotbetreatedasassesseeindefault. MaheswariAgroIndustriesv.UOI(2012)346ITR375(Raj.)(HighCourt) TheMadrasHighCourtinR.P.Davidvs.Ag.ITO(1972)86ITR699(Mad)heldthat,thefact that the assessee is financially sound and in a position to pay is not in itself a ground for refusingtoexercisethediscretioningrantingthestay. These guidelines must be followed by the tax authorities while dealing with stay application of the assessee. If Assessing Officer does not follow the guidelines/ratio of the Jurisdictional High Courtifitisbroughttohisnoticeinwritinghemaybepunishableforcontemptproceedings. 2.6. Validappealmustbepending. Admitted tax must be paid before filing an appeal. In case where interest is not paid, it will be a valid appeal because section 249(4) refers only the tax and not the interest under sections234A,234Band234C. Appeal is delayed, it cannot be said the valid appeal is pending, till the delay is condoned. When delay is condoned it relates back to the date of filing. In practice the Commissioner (Appeals) or Tribunal passes the order of condonation of delay and merit together. Legally theAppellateAuthoritiescanpasstwoorders;oneondelayanotheronmerit. It may be noted that mere filing of an appeal does not operate as a stay or suspension of the order appealed against Collector of Customs vs. Krishna Sales (P) Ltd. AIR 1994 SC 1239, 1241, Application for stay of disputed demand must be made before the Assessing Officer before the expiry of time prescribed in notice of demand. The Madras High Court in PaulsonsLithoWorksv.ITO (1994) 208ITR676(Mad)(690)hasobservedthatmerefilingor
9 ATreatiseOnTheLaw&PracticeOfStay&RecoveryOfTaxArrearshttp://www.itatonline.org

pendency of an appeal does not constitute an automatic stay of the order under challenge orrecoveryofthetaxorpenaltyunderdisputeinsuchappeal. GolamMomenvs.DCIT(2002)256ITR754(Cal)(HighCourt) 2.7. Canthereberecoveryonthebasisofprotectiveassessment. Protective assessment is permissible. But recovery in pursuance of such precautionary assessmentisnotpermitted. SunilKumarv.CIT(1983)139ITR880(Bom)(HighCourt) LaljiHaridasv.ITO(1961)43ITR387(SC) JagannathBawriv.CIT(1998)234ITR464(471)(Gau)(HighCourt) JagannathHanumanbuxv.ITO(1957)31ITR603(Cal)(HighCourt) R.Rajbabuv.TRO(2004)270ITR256(Mad)(HighCourt) 2.8. Rectificationispendingundersection154. Whenever certain patent mistakes are noticed , it is advisable that the assessee must file rectificationapplicationaswellastaketheissueinappeal. In Sultan Leather Finishers Pvt. Ltd v. CIT (1991) 191 ITR 179 (All) (High Court), the court held that when rectification application is pending the Assessing Officer cannot proceed withrecoveryproceedings. 2.9. GarnisheeproceedingsRecoveryfromthirdpartiesS.226(3) AGarnisheeNoticeisaprohibitoryorderdirectingthedebtorsoftheassesseetorefusethe paymentofthesame,asthesameisattachedbythedepartmentfortherecoveryofitstax duespayablebytheassessee. Under incometax Act garnishee proceedings can be initiated after the expiry of prescribed time limits i.e. 30 days as provided under section 220(1) provided for paying demand as mentionedinthenoticeofdemandundersection156. If Garnishee fails to comply with the notice under section 226(3), the Assessing Officer/TRO can treat him to be an assessee in default as per section 226(3)(x) in respect of the amount specified in the notice and further proceedings can be taken against him personally, in the manner provided under section 222 to 225 and the notice shall have the same effect as an attachmentofadebtbytheTROinexerciseofhispowersundersection222. Section 226(3) is applicable only when money is due to the assesseeindefault from any person.Section226(3)(vi)incategoricaltermscreatesalegalfictiontotheeffectthatwhen an amount is not payable, such person is not required to pay any such amount or part thereof.UnitsheldbyUTImonthlyIncomeplan.
10 ATreatiseOnTheLaw&PracticeOfStay&RecoveryOfTaxArrearshttp://www.itatonline.org

Administrator,UTIv.B.M.Malani(2008)296ITR31(SC)affirmed270ITR515(AP). SearchandseizureFixeddepositofthirdpartiesattachmentisheldnottobenotvalid. Assessee was searched and articles were seized. Articles were released on bank guarantee on basis of fixed deposits receipts of third parties. Department issued garnishee proceedingsagainstbankandattachedthefixeddepositsundersection226(3).Department passed the provisional attachment under section 281B.Department invoking the bank guarantee en cashed the fixed deposit. The Assessee challenged the order by way of the Writ, the Court held that the encashment of the fixed deposit was unjustified. The Court held that the fixed deposits did not belong to assessee hence attachment of fixed deposit receiptswerenotvalid. GopalDasKhandewal&othersv.UOI(2012)340ITR235(All.)(HighCourt) Assessee can approach the Assessing Officer against garnishee proceedings and request for withdrawal,writisnottheremedy. Againstthegarnisheeproceedingstheassesseefiledawritpetitiononthegroundthatonce the money is recovered under garnishee order the revocation of the notice will be of no consequences.Thecourtheldthatsuchapresumptioniswithoutanylegalbasebecauseof the reasons that with the withdrawal of the notice of garnishee, the action taken in furtherance of garnishee order falls down and possession of the property is required to be restored to the assessee and if the Assessing Officer by exercising power under sub clause (vii) of sub section (3) of section 226 of the said Act obtains money from the payee of the assessee, he has been given power to withdraw the notice and it cannot be interpreted to mean that notice can be withdrawn only before giving effect to the garnishing order and receiving the money by the Assessing Officer. Otherwise the words at any time or from time to time will be of no consequence in sub clause (vii) of subsection (3) of the said Act. The Court held that the assessee is free to challenge the order of nonrevocation of the garnishee order under sub clause (vii) of sub section (3) of section 226. Commissioner was directedtoheartheappealexpeditiously. CentralCoalFieldsLtdv.CIT(2012)249CTR523(Jharkhand)(HighCourt) ProhibitoryorderAssesseehasshownbonafides;thecourtstayedtheprohibitoryorder. The appeal of the assessee is pending before the Commissioner (Appeals). The Recovery Officer issued the prohibitory order against the creditors. The assessee filed writ petition. The High Court stayed the prohibitory order considering the bonafide of assessee on the conditionofpayingthetaxoninstallments.(A.Ys200708&200809) NickunjEximpEnterprisesP.Ltdv.Addl.CIT(2012)346ITR78(Bom.)(HighCourt)
11 ATreatiseOnTheLaw&PracticeOfStay&RecoveryOfTaxArrearshttp://www.itatonline.org

InBankofRajasthanLtd.v.UOI(2003)259ITR586,588589(Bom),agarnisheenoticewas issued to petitioners, who were the lessees of the defaulter HUF in respect of certain premisesandweretopayrentofRs.20500p.m.,bytherevenueauthorities.Itwaspleaded bythepetitionersthattherentwastobeadjustedtowardstherepaymentofloanofRs.15 lakhs granted by the petitioners to the defaulter HUF. It has been held that the transaction granting loan was totally different from the transactions of leasing out the premises to the petitioners and the loan amount was secured by an equitable mortgage of a different property.Therefore,thegarnisheenoticetothelesseepetitionerswasvalid.

2.10. Propertieswhichcanbeattached.(Garnisheeproceedings) Fixeddepositwithbankyettomaturecanbecoveredundersection226(3). Vysya Bank Ltd v. JCIT (2000) 241 ITR 178 (Kar)(High Court) and Global Trust Bank Ltd. JCIT (2000) 241 ITR 178 (Kar)(High Court), the Court held that the department can enforce premature encashment of the fixed deposit belonging to the assessee in terms of section 226(3). Attachmentofrent Rent payable by a tenant is a debt and can be subject matter of attachment under section 226(3)(S.46(5A)of1922Act) V.N.Vasudevv.KiroiMalLuhariwalaAIR1965SC440 Where the tenant paid the rent to Incometax authorities instead of paying it to the land lord believing that the prohibitory order issued by TRO and the notice under section 226 of theIncometaxActrestrainedfrommakingpaymentstolandlord,thereisnowillfuldefault and the nonpayment of rent did not give any cause of action to landlord to file eviction petition. J.Jermonsv.Aliammal&Ors(1999)156CTR31(SC) Taxduecanberecoveredbyattachmentofrentsaccruingafterthedeathofdeceasedfrom propertyinheritedbyhislegalrepresentatives. SriRamLakhanv.CIT(1962)46ITR613(All.)(HighCourt) Time barred debt cannot be subject matter of section 226(3), because limitation Act, 1963 doesnotprovideforanyexceptiontorecoveratimebarreddebtinfavouroftherevenue. 2.11. Propertieswhichcannotbeattached As per Rule 10(1) of the second Schedule of the Incometax Act, all such property as is by the Code of Civil Procedure, 1908 exempted from attachment and sale in execution of a decree of a Civil Court shall be exempt from attachment and sale under the said schedule.
12 ATreatiseOnTheLaw&PracticeOfStay&RecoveryOfTaxArrearshttp://www.itatonline.org

Section 60 of theCivil ProcedureCode providesthe list of assets whichcannot be attached, evenwiththeconsentoftheassessee.Fewexamples. Thenecessarywearingapparel Personalornaments,accordancewithreligioususagecannotbepartedwithanywoman, Toolsofartisans, Houseoccupiedbyagriculturist, DepositinPublicprovidentfund MoneypayableunderpolicyofInsuranceonthejudgmentdebtor Theinterestoflesseeofaresidentialbuildingwhichtheprovisionsoflawforthetimebeing inforcerelatingtocontrolofrentsandaccommodationapply, Sale proceed of nomination rights of defaulter members of Stock Exchange cannot be attached Stock Exchange, Mumbai v. V.S. Kandalgaonkar (2003) 261 ITR 577 (Bom)(High Court). It was held in Stock Exchange v. ACIT (2001) 248 ITR 209 (SC) & Vinay Bubna v Stock Exchange (1999) 97(Comp)(Cas) 874 (SC), that on plain and combined reading of rules relating to membership of the Ahmedabad Stock Exchange, it is clear that the right of membership is merely a personal privilege granted to a member, it is not transferable and incapableofbeingalienationbythememberorhislegalrepresentativesandheirsexceptto thelimitedextentasprovidedintherulesonthefulfillmentofconditionsprovidedtherein. Hence,thegarnisheenoticeagainststockexchangewassetaside.

Propertyofsonsnotbeattachedincaseofliabilityoffather Properties belonging to the joint family was attached by TRO for realization of tax arrears of firminwhichtheassesseekartawasapartner.Fatherwasapartnerofthefirminhisindividual capacityinvestinghismoniesandnotonbehalfofHUFthoughhewasajointfamilymanager.It was held that only share belonging to father was liable to be attached and not the rest of belongingtothesons. ITOv.TippalaChinaAppaRao&Ors.(2011)331ITR248(AP)(HighCourt) CommercialpropertywhichiscoveredunderRentControlActisexemptfromattachment. BelrexIndiaLtdv.SinghalElectricCoandOthersAIR1983(Delhi)430(HighCourt) Interest of a lessee of a residential building Clause(kc) appended to the proviso of section 60(1), CPC prohibits the attachment and sale of interest of a lessee of a residential building to which the Rent Control Act applies but the said prohibition is not applicable to the interest of a tenant of a nonresidential premises to which Maharashtra Rent Control Act applies and therefore, it can safely be held that the interest of the tenant in the non residential premises to which Maharashtra Rent Control Act, 1999 (20 of 2000) applies is attachableandsaleableinexecutionofthedecreeagainstthetenant.
13 ATreatiseOnTheLaw&PracticeOfStay&RecoveryOfTaxArrearshttp://www.itatonline.org

TangerineElectronicSystemsPvt.Ltd.v.IndianChemicalsAIR(2000)Bom(198,210)(FB) Salary of debtor cannot be attachedTejal R. Amin (Smt) v.Asst. CIT( 1994) 208 ITR 103 (Guj.)(HighCourt) Overdraft bank accounts having certain limit cannot be attached. K. M. Adam v. ITO (1958) 33ITR26(Mad.)(HighCourt)(31,32) 3. JointandseveralliabilityAssesseeindefault. 3.1. RecoveryfromDirectorsJointandseveralS.179. Provision can be made applicable only when the Assessing Officer cannot recover the tax fromtheCompany.The AssessingOfficerhasto giveafindingthatheis notinapositionto recoverthetaxfromtheCompany.IntheabsenceofsuchfindingtheAssessingOfficerdoes notgetjurisdictiontoinvokesection179oftheAct. K.V.Reddyv.AsstCIT(1998)232ITR306(AP)(HighCourt) BhagwandasJ.Patelv.Dy.CIT(1999)238ITR127(Guj.)(HighCourt) C.Rajendranandanotherv.ITO(2000)253ITR139(Mad.)(HighCourt) DipikDutta&Anrv.UOI(2004)268ITR302(Cal)(HighCourt) IndubhaiT.Vasa(HUF)v.ITO(2006)282ITR120(Guj)(HighCourt) Before recovery from Directors, the revenue must prove that the said directors were responsible for the conduct of the business in the said previous year in relation to which liabilityexists. AmitSureshBhatnagarv.ITO(2009)15DTR29(Guj)(HighCourt) TheAssessingOfficerhastohearthedirectorbeforepassinganorderundersection179. JagdishJagmohandasKapadiav.CIT(1990)183ITR143(Bom.)(HighCourt). Recovery is possible from the Director if the director is unable to prove that nonrecovery is notattributabletothedirectorsgrossneglect,misfeasanceandbreachofduty. KhadersInternationalConstructionv.CIT(1998)229ITR450(Ker)(HighCourt) JatinderBhallaandanotherv.ITO(2004)268ITR266(Delhi)(HighCourt) Wherecompanywasagitatingagainsttheassessmentorderanddisputingtheliabilitytopay the amount assessed , it could not be held that the non recovery of tax was not due to negligenceorbreachofdutyonthepartofthedirectors WhentheAssessmentfortherelevantyearsofthecompanywascompleteandfinalanditwas notopentoadirectortochallengethoseproceedingsinaproceedingundersection179. UOIandOthersv.ManikDattatreyaLotlikar(1998)172ITR1(Bom.)(HighCourt)
14 ATreatiseOnTheLaw&PracticeOfStay&RecoveryOfTaxArrearshttp://www.itatonline.org

LiabilityoftheDirectorcanbeonlyinrespectofthearrearsoftaxduringtheperiodinwhich thepersonwasdirector. DarshanKumarv.CIT(1996)222ITR608((P&H)(HighCourt) SalaryearnedbytheDirectorfromanothercompanycanalsobeattached. When a Private company converted in to Public limited company, the Directors cannot be heldliablefromthedateofconversion. M.RajamoniAmma&Anr.v.Dy.CIT(1992)195ITR873(SC) 3.2. Remedyagainst179order. TheAssesseecanfilearevisionapplicationundersection264againstsaidorder. If commissioner rejects the assessee has to file the writ petition under 226 of the ConstitutionofIndiaagainstthesaidorder. BhupatlalJ.Shahv.ITO(2012)210Taxman481(Bom.)(HighCourt) The assessee was nonexecutive director of company. He resigned from the Board on 29th April 1994.On 27 the September, 2006 the assessee was issued notice to recover the tax due of the companyfortheassessmentyears198687to199394undersection179oftheincometaxAct. The assessee informed to the assessing Officer that the Company is a partnership form having 80%sharehencetheassessingOfficermustproceedagainstthefirmforrecoveryduesofthe Company. The Assessing Officer rejected the application of assessee. Assessee moved petition under section 264 which was rejected by the Commissioner without giving an opportunity of hearing. On writ petition the court set aside the order of Commissioner and Assessing Officer, and directed the Assessing Officer to pass an order after following principle of natural justice andincludinggrantingapersonalhearing. 3.3. Directtaxescode(2010)326ITR(ST)41(220) S.224.liabilityofamangerofacompany (1) Every person being a manger at any time during the financial year shall be jointly and severally liable at any time during the financial year shall be jointly and severally liable for the paymentofanyamountdueunderthisCodeinrespectofthecompanyforthefinancialyear,if theamountcannotberecoveredfromthecompany (2) The provisions of subsection(1) shall not apply, if the manager proves that nonrecovery cannot be attributable to any neglect, misfeasance or breach of duty on his part in relation to affairsofthecompany.
15 ATreatiseOnTheLaw&PracticeOfStay&RecoveryOfTaxArrearshttp://www.itatonline.org

(3) The provisions of this section shall prevail over anything to the contrary contained in the CompaniesAct,1956 (4) In this section term manager shall include a managing director and both shall have the meaning respectively assigned to them in section clause (24) and clause (26) of section 2 of theCompaniesAct,1956(1of1956) 3.4. FirmandpartnersPartnersliabilitytopaythefirmtax. Section 25 of the Partnership Act and section 188A of the Incometax Act. All partners including legal heirs of the deceased partners are jointly and severally liable for the dues of partnership,iftheywerepartnersoffirmattherelevanttime. ITOv.ArunagiriChettiar(1996)220ITR232(SC) IqtidaKhanvITO(1941)41ITR165(All)(HighCourt) Arrearsoftaxoffirmcanberecoveredfromerstwhilepartner. KethmalParekhv.TRO(1973)87ITR101(AP)(HighCourt) 3.5. Limitedliabilitypartnership. Section 167C of the Income tax act, where the tax is due from the limited liability partnership, such tax cannot be recovered then every partner of the LLP at any time during relevant previous year shall be jointly and severally liable unless he proves that non recoverycannotbeattributedtoanygrossneglect,misfeasanceorbreachofdutyonhispart inrelationtotheaffairsofLLP 3.6. HinduundividedfamilyMembersofHUF.S.171(6) As per section 171, the liability of the members of HUF is joint and several, however, if the demandpertainstotheperiodafterpartitionoftheHUF,thentheliabilityofthemembersis restrictedtotheportionofthejointfamilypropertyallottedtoeachofthem. 4. Remediesagainstrecoverybeforevariousauthorities Circularno96(F.NO1/6/69ITC)DATED2181969 Circular dated 11121970 Regd Assurance Given by the Minister for Revenue and Expenditure on the floor of Loksabha on 11121970. (Reproduced in Vikrambhai Punjabhai Plakhiwalav.S.MAjbanjiRecoveryOfficerandothers(1990)182ITR413(Guj)(HighCourt) (at420,421) Circularno334dated341982(1982)135ITR10(st) Circularno530dated631989(1989)176ITR240(st) Circularno589dated1611991(1991)187ITR79(st) Instruction no 1914 F No 404 /72/93 ITCC dated 2121993(Feb04) Income tax Review P.78 Instructionno1944dated2781997Feb04I.TaxReviewFeb04.P78.
16 ATreatiseOnTheLaw&PracticeOfStay&RecoveryOfTaxArrearshttp://www.itatonline.org

4.1. PoweroftheCIT(A) PowertoStaytheRecoveryProceedings. The CIT(A) is empowered to stay the recovery of tax against an application filed by the assessee. The assessee aggrieved against the order has to first file the appeal before filing the stay application. It is his discretion either to stay the recovery proceedings or to reject the same, depending upon the facts and circumstances of each case. The power of the appellate authority to stay the recovery of the demand of dues which are the subject matter of appeal pending before him is independent of the provisions of subsection (6) of Section 220 of the Act and it is not necessary that before invoking the power of the first appellate authority, an assessee should approach the Assessing Officer under the aforesaid provision or that the Assessing Officer must reject the assessee's prayer for stay of the demand. However, in practice, it is advisable to make application to the Assessing Officer &CIT(A) simultaneously to stay the recovery proceedings. In following cases it has beenheldthattheCIT(A)hasthepowertoStaytheRecoveryProceedings. PremPrakashTripathiv.CIT(1994)208ITR461(All)(HighCourt) Tin Mfg. Co. India Ltd. v. CIT( 1995) 212 ITR 451 (All)(High Court). Paulsons Litho Works v. ITO(1994)208ITR676(Mad)(HighCourt) AgriculturalProduceMarketCommitteevs.CIT(2005)279ITR371(Pat.)(HighCourt) DebasishMoulikvs.Dy.CIT(1998)231ITR737(Cal.)(HighCourt) SmitaAgrawal(Ind.)vs.CIT(2009)184Taxman59(All)(HighCourt) LGElectronicsIndiaPvt.Ltdv.CIT(2012)209Taxman536(All)(HighCourt) CITY and Industrial Development Corporation of Maharashtra Ltd v. ACIT (2012) 343 ITR 102(Bom.)(HighCourt) IdeaCellularLtdv.CIT(2012)75DTR105(MP)(HighCourt) BalajiUniversalTradelink(P)Ltd.v.UOI(2012)76DTR132(Bom.)(HighCourt) 4.2. TribunalPowerofStayRule35(IncometaxAppellateTribunal)Rules1963: BroswelPharmaceuticalInc.vs.ITO(2004)83TTJ126(All.)(Trib.) In this case, the Tribunal has held that the form is not prescribed by the Act or the Rule 35A(2) oftheAppellateTribunalRulesandthesameisonlyforguidanceoftheofficeoftheTribunal.
17 ATreatiseOnTheLaw&PracticeOfStay&RecoveryOfTaxArrearshttp://www.itatonline.org

AdministrativepurposeformisprescribedAppendixX(E) Separate procedure is followed in Stay granted matter as per direction issued by the PresidentU.O.No.F.29Cent.Jd./2007dt.19thJuly,2007. Assessee can approach to stay the recovery only when an valid appeal is pending before the Tribunal. As per Order no of 1973 dated 1101973, in case of last date the appeal can be presented at the residence of Registrar or at the Residence of Members. The same principle will apply to presentationofStaypetition. In one of the instance we have made an oral application before the Bench stating that the Officer is likely to attach the Bank accounts and recover the amount we will be filing the stay application to day please give direction to the Assessing Officer not to proceed further. Bench was kind enough to tell the Departmental representative instruct the concerned officer on phonenottoproceedfurthertillthehearingofStayapplication.Departmentalrepresentative actedupontheoralorderoftheHon'blemembers. Fees for Stay Petition, a fee of Rs.500/ is payable. However, if single application for stay of recovery is made to ITAT for number of assessment years, then the filing fees payable u/s.253(7) would be Rs.500/ only and not Rs.500/ per assessment year Shri Chiranjilal S. Goenka (Deceased) by his sole Executrix Mrs.Sushila N. Rungta, Mumbai Vs. WTO, S.A. No.30/Mum/1999 [arising out of W.T.A. No.105, 106 and 107/M/97 for Assessment Years 198990,199293&199394]Mumbai,BenchA,orderdated27/9/1999. PoweroftheTribunaltograntstayofrecoveryistowardtax,interestandevenpenalty. BhojaReddyvs.CIT(1998)231ITR47(AP)(48)(HighCourt) ShivShaktiRubber&ChemcialWorksvs.ITAT(1995)213ITR299(All)(HighCourt) StayApplicationmaintainabledespitenonfilingofstayapplicationbeforelowerauthorities DHLExpress(India)Pvt.Ltd.vs.ACIT(2011)140TTJ38(Mum)(Trib) Stayiseffectivefor180daysandfurtherextensionof180days. B.Sudhadravs.ITO(2005)272ITR100(AT)(Hyd.)(Trib.) Assesseecanmakefreshapplicationforextension. 4.3. Tribunalpowertoextendperiodofstay. NarangOverseasP.Ltd.vs.ITO(2007)295ITR22(Bom)(HighCourt)
18 ATreatiseOnTheLaw&PracticeOfStay&RecoveryOfTaxArrearshttp://www.itatonline.org

CITv.RanukIndustriesLtd.(2011)333ITR99(Bom)(HighCourt) Tribunalhasnopowertoextendstaybeyond365daysevenifassesseenotatfault. CIT v. Ecom Gill Coffee Trading Pvt. Ltd(2012) 74 DTR 241/209 Taxman 190/252 CTR 281(Karn.)(HighCourt) CITvB.Fouress(P)Ltd(2012)74DTR241/209Taxman190/252CTR281(Karn.)(HighCourt) PowerStayJudicial conflict whether Tribunal has power to extend stay beyond 365 days hastoberesolvedinfavouroftheassessee The Third Proviso to s. 254(2A), as amended w.e.f. 1.10.2008, provides that if the appeal filed by the assessee is not disposed off within the period of stay granted by the Tribunal (which cannot exceed 365 days), the order of stay shall stand vacated even if the delay in disposing of the appeal is not attributable to the assessee. In Tata Communications Ltd vs. ACIT (2011) 138 TTJ 257 (SB)(Mum), the Special Bench held, following CIT v Ronuk Industries Ltd. (2011) 333 ITR 99 (Bom), that even after the amendment to the Third proviso to s. 254(2A) w.e.f. 1.10.2008, the Tribunal had jurisdiction to extend stay beyond 365 days. However, the Karnataka High Court took the view in CIT vs. Ecom Gill Coffee Trading Pvt. Ltd. (2012) 74 DTR 241(Kar)thataftertheaforesaidamendment,theTribunalhadnopowertoextendstaybeyond 365 days even if the delay was not attributable to the assessee. The Tribunal had to now consider whether the view of the Bombay High Court & Special Bench had to be followed or thatoftheKarnatakaHighCourt. In Narang Overseas (P) Ltd vs. ACIT (2008) 114 TTJ 433 (SB), it was held by the Special Bench that if there is a cleavage of opinion amongst different High Courts and there is no decision of the jurisdictional High Court on the issue, then the view favourable to the assessee has to be followed. As the view of the Bombay High Court in CIT v Ronuk Industries Ltd. (2011) 333 ITR 99 (Bom)& that of the Special Bench in Tata Communications Ltd vs. ACIT (2011)138 TTJ 257 (SB)(Mum) is favourable to the assessee, that has to be followed and it has to be held that the assessee is entitled to a stay of the demand even after the expiry of the period of 365 days if the delay in disposal of the appeal is not exclusively attributable to it.(A.Y.20002001 to 2006 2007) QualcommIncorporatedv.ADIT(Delhi)(Trib.)www.itatonline.org Tribunal should disposeoff stay granted appeal within time limit prescribed u/s. 254(4). Shri JethmalFaujimalSoni(Mum)(Trib)(www.itatonline.org) S.220:CollectionandrecoveryAssesseedeemedindefaultStayofrecoveryAdjustmentof refundagainstcurrentdemandITAThaspowertostayrecoveryandnotpermitadjustment ofrefund.(S.245)
19 ATreatiseOnTheLaw&PracticeOfStay&RecoveryOfTaxArrearshttp://www.itatonline.org

ATreatiseOnTheLaw&PracticeOfStay&RecoveryOfTaxArrearshttp://www.itatonline.org

MarutiSuzukiIndiaLtdv.Dy.CIT(2012)347ITR43(Delhi)(HighCourt) 4.4. StayofproceedingsTribunalhasthepowertostaytheassessmentproceedings If the appeal before the Tribunal is against order of the Commissioner under section 263 is pending and the Assessing Officer is proposing to pass an order in pursuance of an order under section 263, the Tribunal can stay the assessment proceedings. ITO v. Khalid Khan (1997) 110 ITR 79(AP)(High Court), Puranmal v. ITO (1975) 98 ITR 39 (Pat)(High Court), Ritz Ltd v. Vyas (1990) 185 ITR 311 (Bom.)(High Court) . CIT v. Incometax Appellate Tribunal WPNO4684/2010dated382012(NIITLtd)(Delhi)(HighCourt)www.itatonline.org 4.5. FailuretoFulfillConditions Attached to a stay order, the stay automatically gets vacated. This is because in such a case, whatisgrantedisonlyaconditionalstay,thatis,subjecttofulfillmentoftheconditions.The Tribunal, in such a case, may refuse to stay, or extend the stay of, the recovery proceedings uponnonfulfillmentoftheconditionsimposedbyit. Sachdeva&Sonsvs.UOI(2003)264ITR695(P&H)(HighCourt) EndeavourInvestmentsLtd.vs.Dy.CIT(1999)70ITD17(Chennai)(TM)]. As per Instruction: No. 12/2004, dated 18/10/2004 the Board has issued instructions to safeguardtheinterestofrevenuewhenstayisgrantedbyTribunalandHighCourt. The condition of stay not complied with department will bring to the notice to the Tribunal orCourtandStaywillbevacated. 4.6. EarlyhearingofappealsbytheTribunal As per the minutes with President, ITAT Mumbai on 1842012 www.itatonline.org, the registry will not reject any stay applications, letters etc. for being entertained except when appealitselfisdefective. Thefollowingappealswillbetakenupforhearingifanapplicationismadebyanassessee. (1)Coveredmatters (2)Appealsagainstordersundersection263, (3)AppealsofseniorCitizensagedabove70years (4)AppealsagainstorderspassedexpartebyCIT(A)etc Inmostoftheplacesthemattersaretakenupforhearingwithinoneyearoffilingofappeal which has helped the assessee to get justice from the final fact finding authority within reasonabletime. 4.7. ETribunal: 20

The Incometax Tribunal has set up ETribunal with effect from 10th December 2012, wherein the matters of Nagpur will be heard at Mumbai the detailed guidelines are published www.itatonline.org . This has helped the assessees to file a stay petition at Nagpur and matter will be heard at Mumbai. Where the benches are not functioning the assessee can request the Honourable President/Vice President to fix his matter at nearby placessothatthestaypetitioncanbeheardattheearliest. 5. Otherissues. 5.1. SickindustrialCompany. Section22(1)oftheSickIndustrialCompanies(SpecialProvisions)Act,1985. Tax dues cannot be recovered in the case of sick companies without obtaining consent of BIFR EzySlideFastnersLtdv.JtCIT(2004)269ITR548(Guj)(HighCourt) DyCTOv.CoromandelPharmaceutical&Ors(1997)105STC327(SC) TheGramPanchyatandanotherv.ShreeVallabhGlassWorksLtdandanotherAIR1990SC 1017 Maharashtra Tube Ltd v. State Industrial &Investment Corporation of Maharashtra Ltd (1993)2SCC144 Power of Company court Section 446(2)(b) of the Companies Court overrides all other Acts .Claimoftaxauthoritiesforinterestundersection220(2)wasrejected. Catholic Centre v. Pilot Pen Co (India) (P) Ltd (In liquidation) (2003) 259 ITR 252 (Mad) (High Court) 5.2. PropertyLocatedoutsideIndia. As per section 228A (2), if India has an agreement with the country, where the assets are located with the Country, the same can be attached through CBDT, if the tax is due in India fromnonresident. 5.3. Directtaxescode S.222:RecoveryoftaxarrearsinrespectofnonresidentfromhisasstsTheamountsoftax arrearsduefromanonresidentmayberecoveredfrom (a)anyassetofthenonresident,whereverlocated;or (b)anyamountpayablebyanypersontononresident. 5.4. S.281:Certaintransferstobevoid Circularno179datedSeptember,301975(1976)102ITR(ST)9(19)
21 ATreatiseOnTheLaw&PracticeOfStay&RecoveryOfTaxArrearshttp://www.itatonline.org

Under section 281 of the Act , transfer effected by an assessee during pendency of any proceeding under the Act with the intention to defraud the revenue are regarded as void as against any claim in respect of any tax or other sum payable by the assessee as a result of thecompletionofsuchproceedings,withcertainexceptions. S.281:No demand of tax pending against transferor at the time of transfer of property Subsequent assessment of transferor Recovery from a property already sold to a third personpriortoraisingofdemandagainsttransfereeisnotpossible. P.Kumar&Cov.UOI(1991)190ITR672(Bom)(HighCourt) Property transferred by the assessee during pendency of recovery proceedings, can be attached and sold without filing suit. Notice to transferee is invariably not necessary before takingsuchaction. KarnailSinghv.UOI(2011)63DTR336(P&H)(HighCourt) S.281: In respect of tax arrears of tax of husband no recovery proceedings can be taken against property purchased by the wife from the husband after obtaining I.T. Clearance certificate. AhujaChaudhuryv.UOI(1995)214ITR326(Cal)(HighCourt) IT authority do not have power to declare a transfer null and void. Suit be filed to have the transferdeclaredvoid. ShamimBanoG.Rathi&Anrv.OBCLtd.(2011)306ITR34(Bom)(HighCourt) The question of validity of transfer arises only when a specific demands are made against properties and proceedings are taken to recover the same by proceedings against properties. Where the assessments made for the relevant assessment year had been set aside and as yet there was no demand outstanding for those years , it was held that properties in question could not be sold for recovery of any tax for said two assessment years .B.A. Basith v. ITO (1981)128ITR434(Kar)(HighCourt) Priority of dues to Government Secured creditor Incometax department by way of attachment of assets cannot claim for priority over secured creditor for realization of Incometax due. (S.13, 35, Securitization and Reconstruction of Financial Assets and EnforcementofSecurityInterestAct(54of2002). AssetReconstructionCo(India)Ltd.v.CITAIR2012(NOC)196(Guj.)(HighCourt)
22 ATreatiseOnTheLaw&PracticeOfStay&RecoveryOfTaxArrearshttp://www.itatonline.org

Pendency of income tax proceedings Transfer can be held void only if transferee had notice of pendencyofincometaxproceedings. TaxRecoveryOfficerv.IndustrialFinanceCorporationofIndiaandanother(2012)346ITR11 (Guj.)(HighCourt) DirecttaxescodeFifthscheduleModeofrecovery:Rule3(2) (2) The defaulters moveable or immoveable property , referred to in subparagraphs (1) shall include any property transferred directly , or indirectly , otherwise than for adequate considerationbythedefaulterto (a)hisspouse;or (b)minorchild (3) In respect of any arrears due from the defaulter for the period to the date of attainment of majority by the minor child , the property shall continue to be included in the defaulters moveableorimmoveablepropertyevenafterthedate NosuchprovisionunderthepresentSchedule2Rule4 Asthereisnotimelimitthegifttospouseorminorchildmaybechallengedbythetaxrecovery Officer. 5.5. Priorityfortaxrevenueoversecuredcreditors. BankofIndiav.JohanBowmanAIR1955Bom.305(HighCourt) DenaBankvBhiabhaiPrabhudasParekh(2001)247ITR165(SC) 5.6. Powerofarrest:Rule73Secondschedule Revenue can resort to attachment as well as arrestSimultaneous execution both against thepropertyandpersonofjudgmentdebtorisallowed. Padrauna Raj Krishna Sugar works Ltd v. Land Reforms Commissioner, UP and others (1970) 75ITR358(SC) K.T.Thomasv.CIT(1990)185ITR292(Ker)(HighCourt)(SLPdismissed(1988)173ITR(ST)1(SC). FortaxarrearsofHUF,arrestanddetentionofmembersofHUFcannotbemade;however, KartaofHUFdeemedtobedefaulter. KapurchandShrimalv.TRO(1969)72ITR623(SC) When a firm is in default, if partner of firm is treated as assessee in default, he can be arrested. Partner is not immune from arrest in the proceedings for recovery of income tax due. S.M.Ibrahimv.DyCollectorSalestax(1978)CTR356(All)(HighCourt) Legalrepresentativescannotbearrestedfortaxarrearsofdeceased.
23 ATreatiseOnTheLaw&PracticeOfStay&RecoveryOfTaxArrearshttp://www.itatonline.org

Prohibitionagainstarrestofwomenorminoretc. Rule81Schedule11ofIncometaxAct. TheTaxrecoveryOfficershallnotorderthearrestanddetentioninthecivilprisonof a) Awomanor b) Anypersonwhoisopinionofminororofunsoundmind. DefaulterattendingtheTribunalinconnectionwiththemattercannotbearrestedSection135 ofCPC. As per section 135 of CPC no person who is going to or attending such tribunal for the purpose ofsuchmatterandwhilereturningfromsuchTribunalinconnectionwithanylitigationinwhich suchpersonisconnected,pendingbeforesuchTribunalshallnotbearrested. TheobjectofRule73isnottopunishthedefaulterbuttorecoverthearrearsoftax. Onpaymentofdueamountbydefaulter,hecanbeentitledtobereleasedfromcustody. CollectorofMalbarandanotherv.ErimmalEbrahimHajee(1957)32ITR124(132)(SC) 6. Accountabilityprovision. Dr Raja Chelliah in his report( 1992) 197 ITR 177(st) para. 5.9 P. 257,has stated that there has to be accountability provision in the provision. Unless some accountability provision is introduced honest assessees will suffer. Professional organization like BCAS, can play a proactive role by making representation to the Government to introduce accountability provisioninthestatuteitself.AspertheArticle265oftheConstitutionofIndianotaxshallbe levied or collected except by authority of law. It is the duty of tax professional to advice the assesseestopaythetaxwhatisrightfullyduetotheGovernmentanditistheresponsibilityof the tax officials to collect the revenue what is rightfully due to the Government by following dueprocessoflaw. Disclaimer : The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. Neither the author nor itatonline.org and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document norforanyactionstakeninreliancethereon.Nopartofthisdocumentshouldbedistributedor copied (except for personal, noncommercial use) without express written permission of itatonline.org Excerpted from a speech given by the author at the Bombay Chartered Accountants Society on 02.01.2013.WethankBCASforpermissiontoprintthespeech

24 ATreatiseOnTheLaw&PracticeOfStay&RecoveryOfTaxArrearshttp://www.itatonline.org