C V RAMANA Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) This judgment will dispose of the two writ petitions as they are inter-connected.

(2.) The petitioner in Writ Petition No. 12292 of 1987, is the husband of the petitioner in Writ Petition No. 12297 of 1987. Both the petitioners, residents of Rajam, Srikakulam District, are carrying on the business of money-lending. On 7/04/1971, their business and residential premises were searched by the officials of the Income-tax Department, when certain pronotes and account books were seized. Challenging that seizure, the petitioners filed Writ Petition No. 1699 of 1971, on the file of this court questioning the constitutionality of section 132(5) of the Income-tax Act. That writ petition was dismissed by this court upholding the validity of section 132(5) of the Act and also the search conducted by the Income-tax Departmental officials and the consequent seizure of the account books and the promissory notes. Thereafter, two suits were filed by the petitioners, O.S. No. 30 of 1974, by the wife and O.S. No. 32 of 1974, by the husband seeking a decree for damages and loss said to have been sustained by them as a result of the wrongful retention of the promissory notes; the decree sought in O.S. No. 30 of 1974, was for Rs. 62,918.32 and in O.S. No. 32 of 1974, was for Rs. 13,783,10. The civil court decreed both the suits. The Income-tax Department carried the matter in appeal. Both the appeals, A.S. No. 208 of 1978, and Transfer A.S. No. 519 of 1980, were allowed by this court by a common judgment dated 31/03/1986, and, consequently, both the suits were dismissed. The common judgment in the aforesaid two appeals thus became final. In the meantime, the income-tax officials finalised the assessments of both the wife and husband. The petitioners preferred appeals against both the assessment orders to the appellate authority and also to the Income-tax Appellate Tribunal unsuccessfully. A demand notice dated 1/07/1987, for Rs. 24,848, was issued to the husband in respect of the assessment years 1971-72, 1972-73 and 1973-74. Likewise, on the same date, another demand notice was issued to the wife for Rs. 33,520 in respect of the assessment years 1966-67 to 1973-74. In these two writ petitions, the said demand notices have been challenged.

(3.) Mr. K. V. Subrahmanya Narusu, learned counsel for the petitioners, contends that when the income-tax officials, subsequent to the search they conducted on 7/04/1971, issued notices to the debtors of the promissory notes seized from the business and residential premises of the petitioners, it was incumbent upon them (departmental officials) to collect the amounts covered by the promissory notes and adjust the same towards the arrears of tax due from both the petitioners. As a result of the inaction, deliberate or accidental, on the part of the departmental officials, several promissory notes became time-barred. If only the departmental officials had taken steps to collect the amounts from the debtors, the promissory notes would not have become time-barred since the attachment of the promissory notes would automatically result in the limitation being extended. Countering these contentions, Mr. M. Suryanarayana Murthy, learned counsel for the Revenue, argues that the mode of recovery contemplated under section 226 of the Income-tax Act is not the only mode to recover the tax; it is only one of the several modes contemplated by the Act. So far as the factual situation is concerned, learned counsel says that the petitioners had taken back 86 promissory notes and when the departmental officials offered to return the rest, the petitioners have not taken them back deliberately. Almost all the promissory notes which the petitioners declined to take return of were time-barred even by the date of search and seizure. Only in respect of two promissory notes aggregating Rs. 2,600, the limitation had expired after the seizure was effected and before the offer to return was made and in respect of those two promissory notes, the Department had adjusted the amount towards the tax due from the petitioners.