K.L.Roy, J. -
(1.) This rule challenges the validity of certain notices issued by the-respondent-income-tax Officer on the Union Bank of India Ltd., respondent No. 4, and Messrs. Andrew Yule & Company Ltd., respondent No. 5, directing-them to pay to the respondent-Income-tax Officer any amount due from them or held by them for or on account of the petitioner to meet the tax liability of a firm called Messrs. Dunichand Sons & Company. The rule was issued on the 30th April, 1968, calling upon the respondents, the Income-tax Officer, "K" Ward, District 1(1), Calcutta, the Commissioner of Income-tax, West Bengal III, Calcutta, and the Union of India to show cause why the aforesaid notices should not be quashed, and the said respondents restrained from giving any effect to the impugned notices.
(2.) The facts as alleged in the petition are shortly as follows: Under a deed of partnership dated the 24th July, 1960, and registered under the provisions of the Indian Partnership Act, one Bimala Devi Rateria, the wife of Jaidayal Rateria, and one Krishnakanta Rateria, wife of Dewan Chand Rateria, agreed to carry on business with equal shares on and from the aforesaid date under the name and style of P. K. Trading Company. Subsequently, the partnership was reconstituted under a fresh deed of" partnership dated the 9th May, 1962, with effect from the 13th April, 1962, whereby the shares of these two ladies were reduced to 40 per cent. each and a new partner, Onkarmal Rateria, with a share of 20 per cent. was introduced. There has also been a subsequent reconstitution of this firm which is not material for the purpose of this application. The assessment of the petitioner firm for the assessment years 1962-63, the first year of the business of the firm, and 1963-64, were completed by the Income-tax Officer, District V(I), Calcutta, on the 7th February, 1967, and the 29th February, 1968. In the order for the first assessment the Income-tax Officer took the status of the petitioner to be an association of persons as against that of a unregistered firm claimed and further held that as the source of capital introduced in the business could not be explained and, as the two ladies who were claiming to be. partners of the firm did not, in fact, conduct the business of the firm, the firm was not genuine. The assessment order went on to state that as the source of capital could not be explained satisfactorily the assessment was being completed as a protective measure. As the husbands of the alleged partners were doing individual business and were being assessed separately, considering the circumstances of the case, it was assumed that this concern was a benamidar of their husbands. Hence, this concern was being assessed on protective measure and the total income was determined at Rs. 18,231. For the subsequent year also the Income-tax Officer, following his decision in the earlier year, held that the income of the petitioner firm was the benami income of the husbands of the two ladies, but, as the return was filed in the name of the concern, the assessment was made without prejudice to any order that might be passed by any authority of the income-tax department. In that year the total income of the firm consisting of the two ladies up to the period of the introduction of the third partner was determined at Rs. 3,557. Appeals were preferred against the two assessment orders by the petitioner and the decision of the Appellate Assistant Commissioner in respect of the appeal for the assessment year 1962-63, dated the 27th August, 1969, i.e., long after the rule was issued, has been filed before me and in this order the Appellate Assistant Commissioner has refused to go into the question of benami or whether a protective assessment as purported to have been made in this case was permissible. On the merits, however, he held that it could not be said that the introduction of the capital of the business was unexplained and he deleted the addition made on that account. The two husbands, Jaidayal Rateria and Dewan-chand Rateria, carry on business in co-partnership under the name and style of Dunichand Sons & Co. whose assessments are made by the first respondent herein while they are also assessed separately in their individual, capacity by the Income-tax Officer, "G" Ward, District I(I), Calcutta. It is stated in the petition that neither in the assessment of the said Dunichand Sons & Co. for the two assessment years, 1962-63 and 1963-64, nor in the individual assessments of the two husbands for these two years were the income of the petitioner firm or the proportionate Income therein of the two ladies who are partners have been included. The petitioner has a current account with the Union Bank of India Ltd., hereinafter referred to as the bank, and in March, 1968, it had deposited with Messrs. Andrew Yule & Co. Ltd. a sum of Rs. 1 lakh as security deposit for being appointed a broker for the sale of jute goods of that company and an amount of Rs. 75,000 is, lying with the company to the credit of the petitioner. On March 22, 1968, the petitioner was informed by the bank that it had been directed by the respondent-Income-tax Officer to pay to him forthwith any amount lying, with the bank in the account of the petitioner on account of a tax liability of Rs. 1,30,000 due from Messrs. Dunichand Sons & Co. and in accordance with the aforesaid notice the bank has attached the said account. Along with the said letter the bank forwarded a copy of the aforesaid notice to the petitioner which has been annexed to the petition. The notice is dated the 21st March, 1968, and the respondent-Income-tax Officer requires the bank to pay to him any amount due from the bank to Messrs. P. K. Trading Co. as a sum of Rs. 1,30,000 was due from Messrs. Dunichand Sons & Co. The Income-tax Officer by another notice further informed the bank that any payment by it in compliance with the notice would in law be deemed to have been made under the authority of the taxpayer and the receipt granted by the Income-tax Officer would constitute a good and sufficient discharge of the bank's liability to that person to the extent of the amount referred to in the receipt. The notice further cautions the bank that if it discharged any liability to the taxpayer after receipt of the notice it would personally be liable to the Income-tax Officer to the extent of the liability discharged or to the extent of the liability of the taxpayer referred to in the preceding paragraph. The notice concluded with the observation that a copy of the notice was being sent to Messrs. Dunichand Sons & Co. (taxpayer). The petitioner was further informed by Messrs. Andrew Yule & Co. Ltd., respondent No. 5, that the respondent No. 1 had served a similar notice purported to be under Section 226(3) of the Income-tax Act, 1961, requiring it to pay all moneys due and/or held for and on account of the petitioner to the respondent-Income-tax Officer for the alleged tax liabilities of Messrs. Dunichand Sons & Co. As the said company did not forward a copy of the aforesaid notice to the petitioner no copy of such a notice could be annexed to the petition. By a letter dated March 27, 1968, the petitioner protested to the respondent-Income-tax Officer against the validity of the aforesaid notices and pointed out that it was not the taxpayer in default and no such notice could be issued in respect of any moneys due -and owing from its creditors to the petitioner firm. By letters dated April 3 and 4, 1968, the petitioner through its solicitors, Messrs. Jalan & Co., wrote to the respondents Nos. 4 and 5 pointing out that the said purported notices under Section 226(3) were illegal and ultra vires as the petitioner was in no way concerned with the said Dunichand Sons & Co., nor did it owe any money to the said firm and that the petitioner had no outstanding liability for income-tax. Similar letters dated April 6 and 8, 1968, were again addressed by the said solicitors tp respondents Nos. 4 and 5. On receipt of these letters Messrs. Andrew Yule & Co. wrote to the respondent-Income-tax Officer on the 8th April, wherein after referring to the letters written by Messrs. Jalan & Co., it was intimated to the respondent No. 1 that, unless a notice under Section 226(3) was issued in the name of Messrs. P. K. Trading Co. it would not be possible for the company to release any payment to the respondent No. 1 that might be due from the company to Messrs. P. K. Trading Co. In answer to the aforesaid letter the respondent No. 1 by his letter dated the 15th April, 1968, informed the company that, as the firm, Messrs. P. K. Trading Co., has been found to be a benami business of the partners of Messrs. Dunichand Sons & Co., the tax liability of the firm Messrs. Dunichand Sons & Co., could validly be realized from the benami business carried by the partners of the aforesaid firm as the liability of the firm is the liability of the partners. In the circumstances, the company was required to pay the amount due by it to Messrs. P. K. Trading Co.
(3.) The two notices under Section 226(3) of the Income-tax Act, 1961 (hereinafter referred to as the Act), are impugned broadly on the two following grounds, viz., (1) that the said Section 226(3) is ultra vires Articles 14 and 19 of the Constitution of India as the said Sub-section, confers an arbitrary and naked power on the Income-tax Officer to pick and choose the assessees in respect of whom action under the said section is to be taken. There is no right to appeal against the order made by the Income-tax Officer under the said section, and the provisions of the said section are discriminatory and impose unreasonable restriction on the right to hold property, and (2) that the respondent-Income-tax Officer has no jurisdiction, power or authority to issue the impugned notices as the petitioner is neither an assessee in default nor the taxpayer in respect of whose tax liabilities such notices could be issued on the debtors of the taxpayer; and, further, that the Income-tax Officer cannot by an unilateral decision as to the benami character of the petitioners' business give himself jurisdiction under Section 226(3) of the Act.;