Law:

Section:

Section 226 of the Income-tax Act, 1961, read with section 73(3) of the Code of Civil Procedure, 1908 - Collection and recovery of tax - Other modes of recovery - Assessee was a broker and member of Bombay Stock Exchange (BSE) - He failed to pay income-tax arrears - On his failure to fulfil obligations, he was declared a defaulter by BSE - Under prohibitory order, issued by TRO, membership card of broker and his accounts in books of Stock Exchange were attached - Whether in instant case broker-member's right of membership stood vested in BSE and he would no more have any right, title and interest in membership card or its sale and therefore TRO was not right in attaching such sale proceeds - Held, yes - Whether, however, in view of rule 16(1)(iii) of the Bombay Stock Exchange Rules, balance surplus from sale of membership card would become payable to Tax Recovery Officer (TRO) since said amount came into hands of BSE for and on behalf of assessee-broker in course of administration of assets and allocation under said rule - Held, yes - Whether a clear dichotomy under Rules and bye-laws between sale of Membership Card and recovery of defaulter's other assets, i.e., clearing house account; security account; membership security deposit account, securities; membership security deposit account [cash], etc. and application thereof and even on vesting of such other assets in Defaulters' Committee, such other assets continue to belong to Member-Broker for purposes of distribution, which is for benefit of BSE, Clearing House and other creditor-members so that these other creditor-members dues could be recovered expeditiously and TRO is, therefore, entitled to attach such other assets - Held, yes - Whether since debts due to State are entitled to a priority over all other debts, credit balances in various accounts of defaulter broker in books of BSE has got to be appropriated and applied to liquidate crown debts first in priority and balance, if any, could be applied to meet defaulter's liability to BSE, clearing house and other creditor-members in manner indicated under Bye-law 400 of Mumbai Stock Exchange Bye-law - Held, yes Principles of law - Principle of rateable…

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