- (1.) THIS petition filed under Article 226 of the Constitution challenges the notice issued under Section 226(3) of the Income-tax Act by the Inspecting Assistant Commissioner of Income-tax, D-Range, Kanpur, calling upon the National Textile Corporation Limited, Kanpur, to pay a sum of Rs. 5,00,000 alleged to be due to the Department towards the income-tax dues from Swadeshi Cloth Dealers Limited, Kanpur.
(2.) THE case of the petitioner is that the sum of Rs. 5,00,000, which had been deposited by Swadeshi Cloth Dealers Limited as security money, had been adjusted as against the outstandings against them and that the National Textile Corporation Limited did not have any funds or money in its possession due to the Swadeshi Cloth Dealers Limited. THE petitioner also challenged the validity of the notice issued under Section 226(3) of the Act on the ground that the tax due from Swadeshi Cloth Dealers Limited could be recovered by the Income-tax Department from the Central Government from the compensation which would be awardable in respect of the assets acquired under the Swadeshi Cotton Mills Company Limited (Acquisition and Transfer of Undertakings) Act, 1986. We have heard counsel for the parties. In our opinion, the demand made by the Income-tax Officer towards the income-tax dues payable by the firm, Swadeshi Cloth Dealers Limited, Kanpur, could not be recovered from the National Textile Corporation Limited, the petitioner. From the facts stated, it appears that during the course of business, Swadeshi Cotton Mills Company Limited, entered into an agreement of sole selling agency with Swadeshi Cloth Dealers Limited, a company incorporated under the Companies Act, which was owned and controlled by the family of Jaipurias who were also managing the Swadeshi Cotton Mills Company Limited. The agreement was executed on November 26, 1953. Clause 9 of the said agreement deals with the liability of the agents. When the petitioner (National Textile Corporation Limited) took over, it was found that two accounts were maintained by the erstwhile company, one in the name of Swadeshi Cotton Mills Company Limited and the other in the name of Swadeshi Cloth Dealers Limited. In the account of Swadeshi Cloth Dealers Limited, there was no money lying. They were, in fact, arrears of income-tax dues and a notice under Section 226(3) of the Act was served on the petitioner by the Assistant Commissioner of Income-tax for the recovery of the amount due from Swadeshi Cloth Dealers Limited. It was this notice which was challenged in the present writ petition on the ground that, under the Acquisition Act, the liability of Swadeshi Cloth Dealers Limited stands suspended and, as such, no money could be demanded from the petitioner towards the income-tax dues. The further claim was that the Inspecting Assistant Commissioner had acted against the principles of natural justice, and he could not adjust the income-tax dues from the security made by respondent No. 2 for due performance of the contract. The security money in the account, if any, is due to the depositor. In our opinion, the Assistant Commissioner of Income-tax could not realise the income-tax dues from the petitioner (National Textile Corpora-tion Limited). The liability of the said concern stood suspended under the notification issued by the Central Government on April 20, 1978, which was subsequently extended from time to time. The remedy was to proceed against the Swadeshi Cotton Mills Company Limited by resorting to the procedure laid down in Sections 8 and 9. Really, a controversy which was required to be decided and towards which the Assistant Commissioner of Income-tax did not invite his attention was whether the substantial commission payable by the Swadeshi Cotton Mills Company Limited had already been paid to the Swadeshi Cloth Dealers Limited and that there is no amount lying in deposit which could be paid to the Income-tax Department. Furthermore, the petitioner had not been given any notice to which it was entitled and, as such, to us it appears that the notice was invalid.
(3.) IN the result, the writ petition succeeds and is allowed and the notice dated June 22, 1979, issued under Section 226(3) of the INcome-tax Act, is quashed.;