Recovery of Income tax –Provisions and ProceduresPresented byShankar BoseInspector of Income-taxMSTU, Puri
Primary duty of collection ofthe demand is with theAssessing Officer who hasraised the demand
Planning Collect all the details of assets duringthe course of assessment Make provisional attachment u/s281B with the approval of the CIT, ifrequired Serve the demand notice as early aspossible
Precautiono Study from records whetherallowing full 30 days will bedetrimental to the revenue
Proviso to Sec. 220(1) Record the reason to believe. Obtain approval from Addl. CIT Allow reduced period for payment ofthe demand Take recovery measures as early aspossible
RESPONSESAssessee has paid the demandwithin due dateAssessee has filed an applicationwithin due date for extension oftime/installmentAssessee has filed an appeal andhas applied for stay of the demandNeither has paid the demandnor prayed for stay
Section 220(3)Extension oftime or stay ofdemandGranting Installment
Conditions u/s 220(3) Application must be made within the duedate Reasonable opportunity is to be given Each case should be judged on merit Security/bank guaranty may be obtainedin suitable cases Do not allow much time to pay and in nocase, more than 18 installments begranted
Order u/s 220(3) Make a speaking Order mentioningtime allowed and terms of payment Mention the amount to be paid andthe date of payment Review the position after a certainintervals Maintain the installment register
Non- complianceHas not paid withinthe extended timeCommits default inpayment of any of theinstallments within fixedtimeTreat the assessee as deemedto be in default and take measuresto collect the demand
Installment petition rejectedAssessee makes part paymentFate?
Stay petition- Sec. 220(6) Where the assessee has presented anappeal u/s 246 The AO has the discretion to granttime He may impose conditions as hethinks fit He may treat the assessee not beingin default
Instruction No.96 dated21.08.69 Where the income determined onassessment was substantially higherthan the returned income, say, twicethe latter amount or more , thecollection of the tax should be heldin abeyance till the decisions inappeal.
Instruction No-1914Stay petitions have to be dealt within accordance with the guidelinesstipulated in Instruction No-1914dated 02.12.1993 and it supersedesearlier instructions
Merit of the case Points of dispute relate to facts or are aconsequences of different interpretation oflaw. The additions have been made as a resultof detailed investigation. They are based on materials gatheredthrough enquiry/survey/search & seizureoperation
Important pointsMere filing of appeal is not a criteria forgranting stay.Opportunity must be given beforerejecting the petition . Stay petitions shall always be dealt withutmost care
Issues to be consideredPoints of dispute have been decided in favourof the assessee in an earlier order by theCIT/ITAT/High CourtThe disputed point arises because the AOhas taken an interpretation of law in respect ofwhich there exist conflicting decisions
Conditions Stay only the demands attributable todisputed points Require the assessee to offer suitablesecurity Require the assessee to pay areasonable amount in lump sum or ininstallment
Further ConditionsReserve a right to review the order passedafter a reasonable time to consider thedevelopment during the period.Require an undertaking from the assesseethat he will cooperate in early disposal ofappealMention that if any refund becomes payableby the Depptt. will be adjusted against thedemand stayed
Other measures When the demand is more than 1lakh the AO will intimate the detailspending appeal, the quantum demandstayed and conditions imposed to theJCIT. The JCIT will request the CIT to writeto the concerned CIT(A) for earlydisposal of appeal
Authorities who can stayStay should normally be entertained by theAO/JCITCIT can interfere when the assessment isunreasonably high or there will be genuinehardship of the assessee
Power of CIT(A)The CIT(A) is also vested with the powersof granting stay order, which is not onlynecessary but also expedient for effectiveadjudication of appeal.Prem Prakash Tripathi vs CIT 208 ITR 461 (All)
Demand should be stayed when It isunreasonably highAllahabad agriculturalInstitute (2007)VsUOI291 ITR 116(All)MGM Transport (Madras)(P) Ltd.(2007)VsITO207 CTR (Mad) 90
A demand of Rs 66 lakh was raised u/s158BC.The assessee has Rs 24 lakh in the bankaccount. On a stay petition, the AO asked topay Rs 5 lakh initially and pay the balance in 10fortnightly installments.The High court treated the order as harsh It directed to make an initial payment of Rs 15lakh and to obtain a security for the balancepayment
Important phrasesAssesseedeemed tobe in defaultAssessee indefaultAssessee notbeing indefault
Penalty u/s 221 When the assessee is in default ordeemed to be in default Issue show cause letter giving anopportunity May not be imposed when there isgood or sufficient reason Quantum of penalty is discretionarybut it should not be more than taxarrear
• Imposition of penalty is not arecovery measure, it is merely apunishment for the default of thetaxpayer• Default must be willful and notmerely accidental
Penalty order Penalty cannot be imposed for non-payment of interest Penalty can not be imposed for nonpayment of penalty. The order imposing the penalty should bespeaking and clearly specify the amount ofpenalty payable
Example• Assessee became in default on 31.3.2009• Penalty notice u/s 221 was issued on15.05.2009• Demand paid on 20.05.2009 i,e, beforethe date of hearingCan the penalty be imposed in thiscase?
Attachment of salary-Section226(2)• AO can require the employer to remita portion of salary towards the arrearsof tax due• Portion exempt u/s 60 of CPC can notbe attached.
Exempted itemsPensionProvident Fundgratuity
Example• The assessee is due to receive anhonorarium of Rs 50,000/ from All IndiaRadioIs it attachable u/s 226(2)?
Attachment u/s 226(3)When money is due or may become dueto the assesseeAny person holds or may subsequentlyhold on account of the assesseeAO will issue the notice to pay the moneyto him forthwith or within the time specifiedin the notice.
Scope of attachment Debtors Bank Accounts Rent receivable Retention money of a contractor Security money/Deposit Compensation receivable
Attachment of Fixed DepositsVysya bank/ Global Trust Ltd vs JointCIT  241ITR 178 (Kar)ANDAdministrator, Unit trust of India vsB.M.Malani 164 Taxman 463(SC)
CAUTIONThis power must be exercised withutmost care and circumspectionNot to exercise this power hastily,indiscriminately and capriciouslyThe AO must be in possession of primafacie informationJagannath Bawri vs CIT  234ITR464( Gauhati)
Service of notice• A copy of the notice to be served to theassessee to his last address• In case of joint holders, notice is to beserved to all the joint holders to their lastknown addresses
Compliance of the persono To whom a notice is issued is bound tocomply with the noticeo When a notice is issued to a post office,banking company or insurer , it is notnecessary to produce the pass book,deposit receipt , policy or any documento When a person objects , a statement onoath is to be recorded
Personal liability A false statement is given on oath Discharges any liability to theassessee after receipt of the notice
Deemed to be in default• When the person fails to pay evenafter the notice shall be treated asdeemed to be in default• Proceedings may be taken againsthim in the manner provided in section222 to 225
A question• Can the salary of the third party debtor beattached for non-compliance?
Example• The AO attached the bank account of theassessee showing the demand as Rs 5lakh but it was found subsequently that thedemand is actually Rs 6.5 lakh.Will the notice be void?
Money in custody of court-226(4)• Money belonging to the assesse is incustody of any court• The AO shall apply to the court forpayment of the money sufficient todischarge the tax
Attachment• At the time of attachment the money mustbe at custody of the court• Where the court has already passed arateable distribution order , the moneycannot be attached
Priorities Govt. dues get priority over unsecuredcreditors As for the Govt. dues not secured byany charges, the first Depptt attachesthe property will get precedence overothers.
Distraint and saleThe AO may recover the arrears of taxdue by distraint and sale of movableproperty of the assesseeThe AO should be authorized by the CITIt should be done as per procedure laiddown in Third schedule
Procedure• First verify, whether any rectificationpetition, stay petition or appeal effect ispending.• A notice must be given indicating theamount due• Issue the distraint warrant in the name ofInspector• The Inspector will make a discreet enquiryabout the time the assessee will availablein the premises
Execution of the warrant• The inspector will enter the premisesalong with team members• He will serve the warrant on the assesseeto make the payment forthwith.• If the assessee makes the payment, hewill issue the cash receipt• If he does not make payment withinreasonable time he will make attachmentof the movable properties
Attachment attachment means taking possession byway of actual seizureHe should first seize the cashThen attach all other movable assets asper requirement and make inventories.It should be done in presence of twowitnesses and a panchnama be prepared.
Others Seizure should not be done inexcessive Seized items should be kept insafe custody Arrangement of sale is to bemade as early as possible.
Section 281During pendency of any proceeding, afterCompletion but before service of notice u/r 2 of2ndscheduleTransfers by way of sale ,mortgage,Gift, exchange or any other modeBecome void
ExceptionWhen transferred for adequate considerationand without notice of pendency of suchproceeding or demandWith the permission of the AO
Applicable• This section is applicable only when thedemand payable is more than Rs 5000/and the asset transferred is more than Rs10000/
Assets -illustrationLandBuildingPlantMachinerySharesSecuritiesFixed deposits in bank
Whether automaticTRO VS Gangadhar Biswanath Ranade234 ITR 188 (SC) (1998)
Recovery survey The idea of recovery survey wasintroduced in the action plan in theyear 1996-97 It is like other survey u/s 133A
PlanWhen there is no visible asset of theassessee .He has a businessThis can be done by TRO alsoThis can be done jointly with the TRO.
Cash• Make an inventory• Request the assessee to deposit in thebank account and attach the bank account• If there is huge amount of cash may beconverted to search an seizure• If it is a certificated case, the TRO mayauthorize his inspector to attach andseize
Bank accountThere may be bank accounts in thename of assessee or his benamidarsMake an inventoryAttach the bank accounts, if possible
FD/NSCMake inventory of FD/NSC foundVerify whether shown in the returnAttach wherever possible
DOCUMENTS Examine the documents to find outany information regarding any asset Take extract or impound
Immovable property• Examine the purchase deeds oragreements found during the survey, if any• Whether these are in the names of anybenamidar
Legal representative• When a person dies, his legalrepresentative is liable to pay any sumwhich the deceased would have beenliable to pay.• Legal representative can not transfer anyasset when the liability is undischarged.
Who is a legal representative• Besides administrator, executors andheirs-in-law, a stranger taking possessionof deceased’s estate is liable to beproceeded against as legal representative.An agent holding power of attorney froman executor of the deceased is a legalrepresentative.James Anderson vs CIT (1960) 39 ITR(sc)
How to proceed• In the case of death of assessee afterservice of demand notice, make aninvestigation to find out the legalrepresentative. Keep them on record.• Issue fresh demand notices to each of thelegal representatives.
liability• The legal representative is liable only tothe extent of estate or property of thedeceased which has come to his handsand not been duly disposed of.
Firm -188A• Every person who was the partner duringthe previous year shall be jointly andseverally liable along with the Firm for theamount of the tax.• Legal representative of such partner whois deceased shall also be liable.
Dissolved Firm-189(3)In the case of discontinuance ordissolution of the Firm, the partners of thefirm of the relevant period or legalrepresentative in respect of the partnerwho is deceased will be liable
An example• A Firm which had two partners, had ademand of Rs 5.5 lakh for the AY 2004-05.The business of the firm was taken over byone of the partners on 01.04.2004 andmade it a proprietorship concern.Who will be liable to pay the demand?
Company in liquidation• Every liquidator within 30 days ofbecoming liquidator give a notice of hisappointment to the concerned AO• The AO will notify to the liquidator withinthree months of the receipt of informationthe amount which will be payable by thecompany
Duty of the liquidator• Shall not part with any asset without thepermission of the CIT/CCIT beforenotification by the AO• Set apart an amount equal to the amountnotified by the AO.
PERSONAL LIABILITY• If the liquidator fails give notice to the AO• Fails to set apart the amount notified bythe AO• Parts with any asset of the company in hishand in contravention of provisionsHe will be personally liable.
PriorityPriority of Govt dues over unsecured creditorshas been accepted by Hon’ble Supreme CourtBuilders Supply Corporation vs UOI 56 ITR91
Important Case lawImperial Chit Fund vs ITO 219 ITR 499(SC)
Companies Act- ContradictorypositionSection 529A has been introduced in theyear 1985 to give priority to the paymentto workmen and secured debts
RECENT JUDGEMENTS• Strait India Ltd vs CIT 242 ITR 247(Bom)• Syndicate bank vs CIT 242 ITR 281 (Bom)
Private Company-Sec 179• The private company the demand of which cannot be recovered .• Every person who were directors during therelevant year will be jointly and severally liable topay the tax• No action can be taken against the director if hecan prove that non-recovery can not beattributed to any gross neglect, misfeasance,breach of provision on his part.
ProcedureBe sure that norecovery can bemade from thecompanyMake investigationto make the directorsliable
Order u/s 179First part of the order will contain the detailsof the actions taken to recover the demandfrom the company.Second part will contain what investigation/enquiries have been made to make thedirector liable jointly and severallyThird part will be the decision.
Receiver• Property in the hand of the receiver cannot be attached without the permissionfrom the court which has appointed thereceiver.
Declared insolvent-1Assessee received income and filed returnDeclared insolvent before filingAO assessed and raised demandInsolvent is liable to tax
Declared insolvent-2Assessment made in his nameAdjudicated insolvent after assessment butBefore collection of demandAO can claim it as a debt against the estate ofthe assessee from official assignee
Declared insolvent-3Adjudicated insolventOfficial assignee has received income after thator carries on businessTax will be collected from the official assignee
BIFR An Industrial undertaking whichhas filed reference in BIFR underthe provisions of SICA 1985 for itsrevival, IT demand against suchcompany can not be recovered.
Exception- for recovery Showing that despite the claim ofsickness the company has resourcesto meet the dues Revealing through evidences that thisis a case of diversion of fund/assetstripping by the directorsAll petitions before BIFR are to bemade through DGIT (Admn) who isthe nodal agency
DRAWING UP CERTIFICATE The procedure of drawing upcertificate has been modified w,e,f,01.04.1989 U/S 222, the TRO will draw upcertificate when the assessee is indefault or deemed to be in default inmaking the payment of tax
GuidelineNew guideline regarding drawingup certificate has been has beengiven in CBDT letter inFNo.396/3/90-ITCC dated13.02.1990
Procedure The AO will first exhaust the actionsu/s 221 and 226 He will obtain an approval from theJCIT to that effect. He will prepare a statement of assetsand fill up the relevant columns ofForm No 57 Send these to the TRO for drawingup certificate
Quarterly reviewThe AO will make quarterly review ofthe cases to be referred to the TROThe TRO and the AO will meet after acertain interval to review the position ofcertificated casesJCIT will monitor the cases
Time limitThere is no time limit of drawing upcertificate as section 230 has beenomitted w.e.f. 01.04.1989