Restrictions of Tax Authorities to attach Cash Credit Account to recover tax dues

Fiscally challenged, the government is frantically exploring ways to tap into the towering mountain of tax dues. Since the option provides a fast way to boost revenues, it is going to any lengths to recover arrears.

The income tax department can attach anyone’s assets and properties, if the assessing officer thinks that a company or an individual may not pay up the tax demand. Even the “apprehension” that there could be difficulty in recovering the tax demanded once the assessment is completed, would be sufficient ground for provisional attachment of assets. In short, the assessing officer has been vested with extensive powers.

Tax-payers are used to a regime in which assets and properties are attached to recover unpaid income tax. But the CBDT has instructed tax authorities to provisionally attach properties and other assets if the assessing officer thinks that persuading the assessee to pay might be difficult. The assessing officer can do this even while the scrutiny process is on.

Provisional attachment under Section 281B of the I-T Act is for a maximum of two years. However, according to the circular, if the tax is not recovered during the period of provisional attachment, it can be upgraded into regular attachment under Section 226 of the Act.

 

Properties which cannot be attached

• Overdraft bank accounts having certain limit cannot be attached. K.M. Adam v. ITO (1958) 33 ITR 26 (Mad)(High Court)
• As per Rule 10(1) of the second Schedule of the Income tax Act, all such property as is by the Code of Civil Procedure, 1908, (section-60 exemption from attachment and sale in execution of a decree of a Civil Court) shall be exempt from attachment and sale under the said schedule.
• It was held in Stock Exchange v. ACIT (2001) 248 ITR 209(SC) & Vinay Bubna v. Stock Exchange (1999) 97 (Comp Cases) 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 incapable of being alienation by the member or his legal representatives and heirs except to the limited extent as provided in the rules on the fulfilment of conditions provided therein. Hence, the garnishee notice against stock exchange was set aside.

 

• Property of sons not be attached in case of liability of father

Properties belonging to the joint family was attached by TRO for realization of tax arrears of firm in which the assessee karta was a partner. Father was a partner of the firm in his individual capacity investing his monies and not on behalf of HUF though he was a joint family manager. It was held that only share belonging to father was liable to be attached and not the rest belonging to the sons.

• Salary of debtor cannot be attached – Tejal R. Amin (Smt.) v. Asst. CIT (Guj.) (High Court)

 

In P. C. Chandra & Sons (India) Ltd. Vs Deputy Commissioner of Income Tax, Assessing Officer passed assessment order on assessee and raised huge tax demand upon it. Against assessment order, assessee filed appeal before Commissioner (Appeals). In meantime, Assessing Officer by order passed under section 220 (6) required assessee to pay 50 per cent of total demand. Commissioner rejected request of assessee for staying demand. Immediately thereafter, bank account including cash credit account of assessee had been attached by income tax authorities.

 

The High Court of Calcutta held that in view of decision of Madras High Court rendered in case of K.M. Adam v. ITO, cash credit account of assessee could not be attached by income tax authorities and it was entitled to be discharged. Other bank accounts of the writ petitioner will continue to remain attached with a rider that the Department will not be able to appropriate any sum therefrom till the disposal of the appeal before the Commissioner (Appeals).