Holding

The Income‑Tax Officer must give notice and hold an inquiry before deeming a statement on oath false; his failure to do so invalidated the notices of 31 December 1966 and 11 January 1967, though the original notice of 21 May 1966 remained valid.

Summary

The petitioners, a partnership firm, had a running account with B.R. Sons Ltd. The Income‑Tax Officer issued a notice under s.226(3)(i) of the Income‑Tax Act requiring the petitioners to pay any amount due from them to B.R. Sons Ltd., but the notice did not specify the exact sum. The petitioners filed a sworn affidavit, prepared by their accountant, stating that they owed nothing to B.R. Sons Ltd. and that B.R. Sons Ltd. actually owed them Rs 76,436.23. The Officer concluded the affidavit was false, held the petitioners personally liable under s.226(3)(vi), and treated them as “assessee in default” under s.226(3)(x) without conducting an inquiry or giving them a chance to be heard. The High Court upheld the validity of the original notice but quashed the recovery proceedings for lack of a recovery certificate under s.222. The Supreme Court held that (i) the original notice was valid despite not stating the amount, (ii) an accountant’s affidavit satisfies the “statement on oath” requirement of s.226(3)(vi), but (iii) the Officer must give notice and hold a quasi‑judicial inquiry before deeming such a statement false; his failure rendered the December 31, 1966 and January 11, 1967 notices invalid. Consequently, the appeal was allowed in part, quashing those two notices while leaving the May 21, 1966 notice intact.

Issues considered

Whether a notice issued under s.226(3)(i) of the Income‑Tax Act must specify the exact amount payable by the garnishee.
Whether an affidavit filed by an accountant qualifies as a “statement on oath” within the meaning of s.226(3)(vi).
Whether the Income‑Tax Officer is required to give notice and conduct an inquiry, observing natural justice, before concluding that a statement on oath is false and imposing personal liability.
Whether recovery proceedings can be initiated without a recovery certificate under s.222 of the Act.

Legislation cited

Income Tax Act, 1961s. 222, s. 226(3)(i), s. 226(3)(vi), s. 226(3)(x)

Subjects

Income TaxSection 226(3)garnisheenoticeaffidavitstatement on oathnatural justicepersonal liabilityrecovery certificatedefault

Judgment

A

BEHARILAL RAMCHARAN
v.
INCOME-TAX OFFICER, SPECIAL CIRCLE 'B' WARD,
B
KANPUR AND ANR.

July 21, 1981

[P.N. BHAGWATI, A.P. SEN AND E.S. VENKATARAMIAH JJ.J
• '
Income· Tax Act 1961-Seclion 226(3) (i)-Scope of-Notice issued to osse-
c
ssee in default did not specify amount of tax payable by hbn-Amount payable was
within knowledge of assessee in default-Notice if invalid.

Clause (x) of section 226(3)-Sworn affidavit filed by accountant of assessee
in default-·z'f valid-Income TCix Officer-Whether bollhd to give opportunity of
being heard before rejecting aifidavit and declaring him responsible for tax. D
On May 21, 1966 the Income Tax Officer issued a notice to the petitioners
under section 226 (3) (i) of Income Tax Act, 1961, stating that according to the
books of accounts of B.R. Sons Ltd. (the assessee) the petitioners owed them
Rs. 76 thousand odd and that this amount should be paid by them to the Depart·
ment against arrears of tax due from the assessee. In reply the petitioners stated
that it was not they who owed the assessee but it was the assessee who owed E
them a large amount. The Income Tax Officer directed the petitioners to file a
sworn affidavit setting out their pleas.

In the sworn 1ffidavit filed on their behalf by the accountant of the .peti.
tioners the above contentions were reiterated. But the Income Tax Officer
stating that an examination of the assessee's books of account showed that the
facts stated in the affidavit were false in material particulars held the petitioners F
personally liable to make payment to the extent of their liability to the assessee.
On January 11, 1967 the Income Tax Officer wrote to the petitioners that since
they had not furnished any particulars to rebut his conclusion that the affidavit
• was false and also because they had failed to pay up the amount due from
them to the assessee they were held to be an "assessee in default" within the
meaning of section 226 (3) (x) of the Act.
G
In the petitioner's writ petition seeking to quash the action of the Depart·
ment to attach their immovable property the High Court held that although
it was necessary for the Income Tax Officer to have mentioned the amount
due f1om the petitioners to the assessee, since the petitioners knew what the
a1nount referred to by the Income Tax Officer was, no prejudice could be said to
have been caused to them and that the notice issued to them was not invalid on H
that account; and (ii) the Income Tax Officer was justified in treating the peti·
tioners as "assessee in default" for non-pay1nent of the amount due and owing
2 SUPREME COURT REPORTS (1982] I S.C.R.

A from them to the assesse, (iii) but since no 1ecovery certificate as required under
section 222 of'1hc Act had been issued by the Incon1e Tax Officer the recovery
proceedings were invalid.

In the appeal lo this Court,

HELD : I. The view of the High Court that by reason of non-specifica-
B tion in the notice dated May 21, 1966 of the amount due from the petitioners to
the assessee no prejudice had been caused to the petitioners was correct. At no
time did the petitioners complain that the notice did not specify the an1ount
alleged to be due from them to the assessee or that it was vague and indefinite.
In fact they replied to the notice on merits and filed a sworii affidavit. Secondly
in his letter dated December 31, 1966 the Income Tax Officer pointed out to the

c
petitioners that the assessee had a credit balance of over Rs. 8 lakhs as on
May 24, 1966. Therefore the petitioners had clear notice of what the amount
alleged to be due from them to the assessee was. [8 G-9C]
.-
2. (a) It is not nece_<;sary under clause (vi) that the statement on oath
contemplated in that provision should be made only by the person to whom the
notice under clause (i) is issued. It is sufficient if the- objection to the requisition
contained in the notie:e.is.,rnade by the person to whom the notice is sent and
D such objection is suppo~ted on oath by a person competent to make such
statement. [IO BJ

(b) Merely because the affidavit was sworn by the accountant of the peti-
tioners it was not open to the Incoine Tax Officer to disregard the affida~
vit. The accountant had obviously knowledge of the state of account bet-
We('.n 1he pelitioners and the assessee and .y..-as .competent to make a statement
E on oath in regard to the position of such account. (9 E] .;
.,
(c) If the Income Tax Officer discovers that a statement made on oath is
false in any material particulars the garnishee is made personally liable to the
Income Tax Officer to the extent of his own liability to the assessee on the date of
the notice or to the extent of the assessee's liability for arrears of tax, whichever
F is Im. [IO E-FJ

3. (a) For reaching an objective conclusion that in his opinion the state-
ment on oath made on behalf of the garnishee is false in any material parti- •
culars the Income Tax Officer would have to give notice to the party concerned,
hol<l an enquiry for determining whether the statement on oath is false and if
so in which material particulars and what amount is in fact due from the garni-
G shee to the assessee. In such an enquiry he would have to follow the principles
of natural justice and reach an objective conclusion. [11 B-C]

( b) Once a statement on oath is made on behalf of the garnishee that the
sum demanded is not due from him to the assessee the burden of showing
H that the statement is false is on the Revenue which would be bound to disclose
to the garnishee all Sleil'-evidence or.material Qil _•hich it proposes to rely. The
Revenue should also ·st.o~~n the~ baSi~ of rCl~y@.\lt~ evidence that the statement.
BEHARILAL v. l.T.O. (B/wgwati, J,) 3

on oath is false. It is only then that personal liability for payment can be im-
A
J?OSed on the garnishee under clause (vi). [11 D-EJ

In the instant case, after receiving the affidavit of the accountant, the lncome
Tax Officer, without giving any notice and without holding any enquiry, straight
away reached the conclusion that the statement in the affidavit was false and held
the petitioners personally liable under clause (vi). (1 IF, 12 A]

B
Although the.Income Tax Officer did set out in the notice dated Decem
ber 31, 1966 the reasons for reaching this conclusion he did not offer any oppor
tunity to the petitioners to show that the reasons that weighed with him were
not correct. His decision was therefore invalid. Notice dated Decembe!" 31, 1966
and January 11-, 1967 muSt therefore be set aside. [l 2 E-FJ

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2367(NT)
c
of 1976.

From the judgment and order dated the 20th May, 1971 of the
AllaJ,abad High Court in Civil Miscellaneous Writ No. 636 of 1967.

S.T. Desai, J.P. Goyal and S.K. Jain for the Appellant.
D
D. V. Patel and Miss A. Subhoshini for the Respondent.

The Judgment of the Court was delivered by·

BHAGWATJ, J. This appeal by certificate raises a short question
of law relating to the interpretation of section 226 (3) of the Income
Tax Act 1961. The petitioners were at all material times a partner
E
ship firm carrying on business as bankers and dealers in cloth and
over the years, they had dealing with a ·limited company called
B:R. Sons Limited which at one time acted as the sole selling agent
of Laxmi Ratan . Cotton Mills Company Limited. There was a
running account between the petitioners and B.R. Sons Limited in
respect of these dealings and according to the petitioners, there was
F
a debit balance of Rs . 76,436.23 against B.R. Sons Limited in this
account as on 24th May 1966. On 21st May 1966 the Income Tax
Officer, Cen t ral Circle, Kanpur issued a notice to the petitioners
under section 226 (3) (i) stating th at a sum of Rs. 22,89.281.97 was
due from B.R. Sons Limited on account of income tax, super tax,
G
penalty etc. and requiring the petitioners to pay to him forthwith
any amount due from the petitioners to B.R. Sons Limited or held
hy the petitiOil�fB fOf Of Qn account of B.R. Sons Limited to the
extent of the aforesaid arrears of tax due from B.R. Sons Limited.
The petitioners were warned that if they failed to make payment H
pursuant to this notice, they would be deemed to be assessee in
default and proceedings would be taken against them for realisa-
4 SUPREME COURT REPORTS (1982] I S.C.R.

A tion of the amount as if it were an arrear of tax due from them.
This notice was served on the petitioners on 24th May, 1966 and
the petitioners replied to it on I st July 1966 pointing out that
according to the state of the account between the· petitioners and
B.R. Sons Limited, there was no credit balance in favour of B.R.
Sons Limited, and that on the contrary B.R. Sons Limited owed
B a large amount to the petitioners and in the circumstances the
notice should be discharged. The Income Tax Officer by his Jetter
dated I Ith October 1966 intimated to the petitioners that they
should file a sworn affidavit setting out their contention that they
did not owe any amount to B.R. Sons Limited. This was followed

c by another letter dated 14th December 1966 addressed by the Income
Tax Officer to the petitioners in which the Income Tax Officer
pointed out that he had in his possession evidence to show that the
petitioners still owed money to B.R. Sons Limited to a substantial
-
extent and requesting the petitioners to pay up the amount due to
B.R. Sons Limited on or before 21st December 1966. The peti-
tioners thereupon filed an affidavit sworn by their accountant Shiv
D Kumar Arora on 22nd December, 1966 setting out the position
of the account of B.R. Sons Limited and stating that far from any
amount being due from the petitioners to B.R. Sons Limited, there
was a debit balance of Rs. 76,436.23 against B.R. Sons Limited as
on 24th May 1966 and the notice issued against the petitioners
under section 226 (3) (i) was therefore unjustified. The affidavit was ,
E forwarded to the Income Tax Officer along with a letter addressed
by the petitioners. The Income Tax Officer replied to the petitioners
by his letter dated 31st December 1966 in which he pointed out that
during the course of search of Bihari Niwas, the Income Tax Autho-
rities have seized account books in Hindi, Muriya and English per-
F
taining to the year commencing from 1st July 1965 and that the
account of B.R. Sons Limited in the Muriya and English cash books
showed that payments aggregating to Rs. 8,69,000.00 had been
-
made to B.R. Sons Limited prior to 24th May 1966 but the original
cash book in Hindi did not show any such payments having been
made and he had therefore reason to believe that the affidavit file<4:.;
on behalf of the petitioners showing that B.R. Sons Limited had a
G debit balance against them in the books of the petitioners as on 24th
May 1966 was false in material particulars. The Income Tax Officer
accordingly \;eld the petitioners to be personally liable to make pay-
m~nt to the extent of their liability to B.R. Sons Limited as on 24th
May 1966 and intimated to the petitioners that if they failed to make
H such payment on or before 10th January 1967, the Income Tax
Officer would treat them as assessee in default under section 26 (3)
BEHARILAL v. I.T.O. (Bhagwati, J.) 5

(x) and proceed to take recovery proceedings against them. The A
petitioners howe·1er, reiterated their stand and reaffirmed the cor-
rectness of their affidavit by their letter dated 10th January 1967.
The Income Tax Officer thereupon addressed a letter dated 11th
January 1967 stating that the petitioners had not furnished any
material or evidence to rebut his conclusion that the affidavit filed
on behalf of the petitioners was false in material particulars and 8
since the petitioners had failed to pay up the amount due from
them to B.R. Sons Limited, they were 'assessee in default' within
the meaning of section 226 (3) (x) and consequently appropriate
coercive steps were being taken for realising the amount of the tax.
A copy of this letter was forwarded to the Tax Recovery Officer,
Kanpur for information and necessary action. The Tax Recovery c
Officer, on the basis of this letter issued an order dated 27th Jan-
uary 1967 under Rule 48 of the second Schedule to the Act attaching
some of the immovable properties belonging to the petitioner. and
following upon this order of attachment, he issued a notice on
' 7th February 1967 for setting the proclamation in respect of the
sale of these immovable properties. The petitioners thereupon D
filed a writ petition in the High C~urt of Allahabad for quashing
and setting aside the notice dated 21st May 1966 and the subsequent
proceedings adopted by the Income Tax Officer and the Tax Reco-
very Officer against the petitioners.

The writ petition came up for hearing before a Division Bench E
of the High Court. One of the contentions advanced on behalf
of the petitioners before the High Court was that the notice dated
21st May 1966 issued against the petitioners under section 226 (3)
(i) was invalid, since it did not specify the amount alleged to be due
from the petitioners to B.R. Sons Limited. The High Court
accepted the contention of the petitioners that the notice issued by F
the Income Tax Officer under section 226 (3) (i) "should mention
or give some specific indication of the amount which he believes is
due or may fall due from such person to the assessee or which he
holds or may subsequently hold for or on account of the assessee"
bnt held that since the petitioners knew what was the amount which
was being referred to by the Income Tax Officer in his notice and no
G
prejudice was caused to the petitioners by the reason of non-specifi-
cation of the amount in the notice issued by the Income Tax Officer,
the notice could not be said to be invalid on that ground. The
petitioners also contended before the Etigh_Court that if the Income
• Tax Officer was not inclined to accept the statement contained in
H
6 SUPREME COURT REPORTS [1982) I S.C.R.

A
the affidavit filed on behalf of the petitioners and he was disposed
to take the view that the affidavit was false in material particulars,
he should have summoned the deponent of the affidavit for cross
� xamination and held an inquiry before coming to the conclusion
that the statement contained in the affidavit was false. This con
tention was quite clearly a formidable one, based as it was on the
B
language of section 226 (3) (vi) but the High Court negatived it on
the ground that the affidavit filed on behalf of the petitioners was
not in compliance with the terms of section 226 (3) (vi) since it was
not sworn by any of the partners of the petitioners but was made
only by an accountant of the petitioners and when the accountant
G
stated in the affidavit that a sum of Rs. 76,436.23 was due and
·

owing to the petitioner.s from B.R. Sons Limited on 24th May 1966,
there was nothing to indicate as to which part of this averment
was true to his personal knowledge and which, on the basis of the
account books. The High Court accordingly repelled the challenge
against the validity of the notice dated 21st May 1966 and held that
D the Income Tax Officer was justified in treating the petitioners as
'assessee in default' on ground of non-payment of the amount due
and owing from them to B.R. Sons Limited. But so far as the
recovery proceedings adopted by the Tax Recovery Officer were
concerned, the High Court took the view that no recovery pro
ceedings could be adopted without issue of a recovery certificate by
E the Income Tax Officer under section 222 and since in the present
case, no such recovery certificate was issued by the Income Tax
Officer, the recovery proceedings adopted by the Tax Recovery
Officer were invalid and they were accordingly quashed. This was
the only limited relief granted by the High Court to the peti
tioners and the rest of the reliefs claimed were rejected. The peti
F tioners thereupon preferred the present appeal in this Court after
obtaining certificate from the High Court.

The principal question that arises for determination in this
appeal is as to whether, on a true interpretation of section 226 (3)
(vi), the Income-tax Officer was bound to hold an inquiry before he
G came .to the conclusion that the statement contained in the affidavit
filed on behalf of the petitioners was false in any material particular.
Section 226 (3) deals with recovery of arrears of tax from an assessee
by requiring "any person from whom money is due or may become
due to the assessee or any person who holds or may subsequently
H hold money for or on account of the assessee" (hereinafter referred
to as the garnishee) to pay to the Income-tax Officer "so much of
BEHARILAL V. I.T .0. (Bhagwati, J.) 7

the money as is sufficient to pay the amount due by the assessee iu A.
respect of arrears or .the whole of the money when it is equal to or
less than that amount." There are ten clauses in which section
226 (3) is divided and these clauses, in so far as material provide
inter alia as follows :

(i) The Income-tax Officer may, at any time or from time B
to time, by notice in writing require any person from
A, whom money is due or may become due to the assessee
or an any person who hold or may subsequently hold
money for or on account of the assessee, to pay to the

- Income-tax Officer either forthwith upon the money
becoming due or being held or at or within the time
specified in the notice (not being before the money
becomes due or is held) so much of the money as is
sufficient to pay the amount due by the assessee in
respect of arrears or the whole of the money when it is
equal to or less than that amount.
D
(iv) Save as otherwise provided in this sub-section, every
person to whom a notice is issued under this sub-
section shall be bound to comply with such notice, and,
in particular, where any such notice is issued to a post
office, banking company or an insurer, it shall not be
• necessary for any pass book, deposit receipt, policy, E
or any other document to be produced for the purpose
of any entry, endorsement or the like being made before
payment is made notwithstanding any rule, practice or
requirement to the contrary.

- (vi) Where a person to whom a notice under this sub-
section is sent objects to it by a statement on oath that
F

the sum demanded or any N\l thereof is not due to
the asseessee or that he does not hold any money for
or on account of the assessee, then nothing contained
in this sub-section · shall be deemed to require such
person to pay any such sum or part thereof, as the case G
may be, but if it is discovered that such statement
was false in any material particular, such person shall
be personally liable'to the Income-tax Officer to the
extent of b·is own liability to the assessee on the date
9f the notice, -0r. t-0 the.extent of assessee's liability H
· for any sum due under this Act, whichever is less.
...,.
,,,
.

8 SUPREME COURT REPORTS [1982] I S.C.R.

A (viii) The Income-tax Officer shall grant a receipt for any
amount paid in compliance with a notice issued under
this sub-section, and the person so paying shall be fully
discharged from his liability to the assessee to the
extent of the amount so paid.

H (x) If the person to whom a notice under this sub-section
is sent fails to make payment in pursuance thereof to
the Income-tax Officer, he shall be deemed to be an
assessee in default in respect of the amount specified in

-
the notice and further proceeding may be taken against
him for the realisation of the amount as if it were an
c arrear of tax due from him, in the manner provided in
sections 222 to 225 and the notice shall have the same
effect as an attachment of a debt by the Tax Re-
covery Officer in exercise of his powers under
section 222.
I)
It was in exercise of the power conferred under clause (i) that the
notice dated 21st May 1966 was issued by the Income-tax Officer to
the petitioners. This notice did not mention or even indicate any
specific amount alleged to be due from the petitioners to B. R. Sons
Limited and it was therefore observed by the High Court that the
notice was not in accordance with the provisions of clause (i). We
E •
are not sure whether, on a true interpretation of clause (i) in the
light of the other clauses of section 226 sub-section (3), it is necessary
that the notice under clause (i) should set out a specific amount as
due from the garnishee to the assessee or it is enough if the notice
merely reproduces the language of clause (i) and requires the
F
gamishee to pay "at or within the time specified in the notice" so
much of the money as is sufficient to pay the amount due from the
-
assessee in respect of arrears of tax. It is a debatable question on
which we do not wish to express any opinion, since the High Court •
has taken the view that even though the notice dated 21st May 1966
issued to the petitioners did not mention or give indication of any
specific amount alleged to be due from the petitioners to B.R. Sons
G
Limited, it was not invalid, since no prejudice was caused to the
petitioners by reason of non-specification of such amount and this
view taken by the High Court was plainly correct, because the
petitioners at no time complained that the notice did not specify the
H amount alleged to be due from the petitioners to B.R. Sons Limited
or that it was vague and indefinite and in fact replied to the notice
on merits by raising an objection that, according to the statement
BEHARILAL v. l.T.O. (Bhagwati, J.) 9

of account between the petitioners and B.R. Sons Limited, there was A
no credit balance in favour of B.R. Sons Limited and on the contrary
B.R. Sons Limited owed a large amount to the petitioners and also
filed an affidavit sworn by their accountant Shiv Kumar Arora
stating that on 24th May I 966 when they received the notice dated
21st May 1966 there was nothing due from the petitioners to B.R.
Sons Ltd. but on the contrary B.R. Sons Limited owed a sum of
Rs. 76,436.23 to the petitioners. The view taken by the High Court B
could also be sustained additionally on the ground that, in any
event, by his letter dated 31st December, 1966 the Income-tax Offi-
cer pointed out to the petitioners that, according to him, B. R Sons
Limited had a credit balance of over Rs. 8 lacs as on 24th May i 966
and the petitioners had therefore clear notice of what was the amount
alleged to be due from the petitioners to B.R. Sons Limited. So far c
as the affidavit of the accountant filed on behalf of the petitioners
was concerned, it was disputed before us on behalf of the Revenue
whether this affidavit could be regarded as a "statement on oath"
within the meaning of clause (vi) so as to attract applicability of
'
that clause. The argument of the Revenue was and this argument
was accepted by the High Court, that though this affidavit was D
undoubtedly made on oath, it was not a "statement on oath" within
the contemplation of clause (vi), because it was not a statement of
any of the partners of the petitioners but was merely a statement of
an accountant of the petitioners. Now it is true that this affidavit
filed on behalf of the petitioners was sworn by an accountant of the
petitioners and not by one of their partners but we do not think
E
that on that account it could be disregarded by the Income-tax
Officer. The accountant of the petitioners would obviously have
knowledge of the state of the account between the petitioners and
B.R. Sons Limited and he would be competent to make statement
on oath in regard to the position of such account. In fact, the
F
accountant of the petitioners stated in paragraph I of the affidavit
that he was acquainted with the facts deposed to in the affidavit
and he also mentioned in the verification clause that so far.as the
averments in paragraphs 2 and 3 of the affidavit were concerned
which related to the position of the account between the petitioners G
and B.R. Sons Limited, they were "true to his knowledge and based
on the account books" of the petitioners. The state of the account
between the petitioners and B.R. Sons Limited detailed by the
accountant in the affidavit was thus based both on the account
books of the petitioners as also on his personal knowledge and he H
was therefore competent to state on oath what was the position of
• that account. Moreover, the affidavit containing the statement of
JO SUPREME COURT REPORTS (1982] I S.C.R.

A the accountant on oath was filed by the petitioners in support of
their objection that far from there being any money due from them
to B.R. Sons Limited, a sum of Rs. 76,436.23 was, in fact, due from
B.R. Sons Limited to them. There was therefore sufficient com-
pliance with the requirement of clause (vi). It is not necessary under
clause (vi) that the statement on oath contemplated in that provision
B should be made only by the person to whom the notice under clause
(i) is sent by the Income-tax Officer. It is in our opinion sufficient
if the objection to the requisition contained in the notice is made by
the person to whom the notice is sent and such objection is supported
by a statement on oath made by a person competent to make such
statement. Here, as we have pointed out above, the accountant
c of the petitioners was competent to state on oath as to what was the
true state of the account between the petitioners and B.R. Sons
Limited and since an affidavit containing this statement on oath
made by the accountant was filed on behalf of the petitioners in
support of their objection, the requirement of clause (vi) was satis-
fied and its provisions were attracted.
D
Now under clause (vi), where a garnishee to whom a notice
under clause (i) is sent objects to it by a statement on oath that the
sum demanded or any part thereof is not due to the assessee or that
he does not bold any money for or on account of the assessee, he is
not required to pay such sum or any part thereof to the Income-tax
£ Officer in compliance with the requisition contained in the notice.
•
But if it is discovered by the Income-tax Officer that such statement
on oath was false in any material particular, the garnishee is made
personally liable to the Income-tax Officer to the extent of his own
liability to tloe assessee on the date of the notice or to the extent of
the assessee's liability for arrears of tax, whichever is less. The
F petitioners bving objected to the requisition contained in the notice
dated 21st May 1966 by filing an affidavit of their accountant that
nothing was due from the petitioners to B.R. Sons Limited, were
not bound to comply with the requisition contained in such notice,
but if the Income-tax Officer discovered that such statement on oath
was false in material particular and that some amount was due from
G
the petitioners to B.R. Sons Ltd. the petitioners would be personally
liable to pay such amount to the Income-tax Officer. The question
is whether the Income-tax Officer could be said to have discovered
that the statement on oath made in the affidavit of the accountant of
tl1e petitioners that nothing was due from tile petitioners to B.R.
H
Sons Limited was false in any material particular, as claimed by the
BEHARILAL v. I.T.O. {Bhagwati, J.) 11

Revenue in the notices dated 31st December 1966 and I Ith January A
1967. Now it is obvious that under clause {vi) the discovery by the
Income-tax Officer that the statement on oath made on behalf of the
garnishee is false in any material particular has the consequence of
imposing personal liability for payment on the garnishee and it must
therefore be a quasi-judicial decision preceded by a quasi-judicial
inquiry involving observance of the principles of natural justice. B
The Income-tax Officer cannot subjectively reach the conclusion
that in his opinion the statement on oath made on behalf of the
garnishee is false in any material particular. He would have to
give notice and hold an inquiry for the purpose of determining whe-
ther the statement on oath made on behalf of the garnishee is false
and in which material particular and what amount is in fact due c
from the garnishee to the assessee and in this inquiry he would have
to follow the principles of natural justice and reach an objective
decision. Once· a statement on oath is made on behalf of the
garnishee that the sum demanded or any part thereof is not due from
the garnishee to the assessee, the burden of showing that the state·
ment on oath is false in any material particular would be on the D
Revenue and the Revenue would be bound to disclose to the
garnishee all such evidence or material on which it proposes to rely
and it would have to be shown by the Revenue on the basis of
relevant evidence or material that the statement on oath is false in
any material particular and that a certain definite amount is due
from the garnishee to the assessee. Then only can personal liability E
for payment be imposed on the garnishee under clause {vi).

Here what happened was that an affidavit of tbe accountant
containing a statement on oath that on 24th May 1966 nothing was
due from the petitioners to B.R. Sons Limited but on the contrary a
sum of Rs. 76,436.23 was due from B.R. Sons Limited to the peti· F
tioners was filed on behalf of the petitioners sometime after 22nd
December 1966 and on receipt of this affidavit, the Income-tax
Officer pointed out to the petitioners by his notice dated 31st
December, 1966 that this statement on oath contained in the affidavit
was false in material particulars, because on 24th May 1966, B.R.
Sons Limited had a credit balance of over Rs. 8 lacs in the books G
of the petitioners and concluded that the petitioners were therefore
personally liable to the Income-tax Officer to the extent of their
liability to B.R. Sons Limited. This notice clearly embodied the deci-
sion of the Income-tax Officer that the statement on oath made by
the accountant in the affidavit filed on behalf of the petitioners was
H
12 SUPREME COURT REPORTS [1982] J S.C.R.

A false in material particulars and that the petitioners were personally
liable to make payment nuder clause (vi). The petitioners by their
letter dated 10th January 1967 disputed the conclusion reached by
the Income-tax Officer in his notice dated 31st December, 1966 and
reiterated that nothing was due from the petitioners to B.R. Sons
Limited as on 24th May, 1966. The Income-tax Officer however
B adhered to the decision reached by him and by his notice dated
I Ith January, 1967 intimated to the petitioners that he was treating
them as assessee in default within the meaning of clause (x) and
proceeding to take appropriate coercive steps for realising the amount
of tax due from them. It will thus be seen that after receipt of the

c
affidavit of the accountant, the Income-tax Officer did not give any
notice or hold any inquiry for the purpose of determining whether
i
'
or not the statement on oath made by the accountant in the affidavit
was false in any material particular and whether any and if so, what
amount was due from the petitioners to B.R. Sons Limited, but
straight-away reached the conclusion that the statement on oath that
nothing was due from the petitioners to B.R. Sons Limited was false
D in material particulars and without even determining what precise
amount was due from the petitioners to B.R. Sons Limited, held
that the petitioners were personally liable to the Income·tax Officer
under clause (vi). The Income·tax Officer did set out in his notice
dated 31st December, 1966 the reasons which prevailed with him in
reaching this decision but he did not offer any opportunity to the
E petitioners to show that the reasons which weighed with him were •
not correct. The decision reached by the Income-tax Officer that the
statement on oath made in the affidavit of the accountant was false ·,..
in material particulars as set out in the notices dated 3 lst December,
1966 and 1 Ith January, 1967 was therefore clearly invalid and the
notice dated 31st December, 1966 and 11th January, 1967 must
F consequently be set aside.

We accordingly dismiss the appeal in so far as it is directed
against the validity of the notice dated 21st May 1966 but so
far as the notices dated 31st December, 1966 and 11th January,
1967 are concerned, we allow the appeal and issue a writ quashing
G and setting aside the said two notices. We may make it clear that
it will be open to the Income-tax Officer to proceed to hold an
inquiry for the purpose of determining whether the statement on
oath contained in the affidavit of the accountant of the petitioners
that nothing was due from the petitioners to B. R. Sons Ltd. as on
H 24th May 1966, was false in material particulars, and if as a result
BEHARILAL v. l.T.O. (Bhagwati, J.) 13

of such inquiry carried out in accordance with the principles of A
natural justice, the Revenue is able to show, the burden being upon
it, that the statement on oath made by the accountant was false in
material particulars and that a certain definite amount was due from
the petitioners to B.R. Sons Limited on 24th May, 1966, the
petitioners would be personally liable to pay such amount to the
Income-tax Officer and in case of default, the Income-tax Officer B
would be entitled to treat the petitioners as 'assessee in default'
under clause (x) of section 226 sub-section (3).

Since the petitioners have partly succeeded and partly failed,
the fair order of costs would be that each party should bear and
• i:ay its own costs throughout. c

P.B.R. Appeal partly al/owed