Law:

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Section 226 of the Income-tax Act, 1961 - Collection and recovery of tax - Other modes of recovery - Whether tax can be recovered from an assessee only when it becomes a debt due from him and it becomes a debt due when notice of demand calling for payment of tax has been served on assessee - Held, yes - Whether where ITO make application under section 226(4) for recovery of tax to court in which there is money lying to credit of assessee in default and if assessee objects to said recovery proceeding under section 226(9) on ground that there has been no valid service of notice of demand and that therefore, no debt is due, Court must decide objection, and if it upholds objection, it cannot permit recovery of tax claimed - Held, yes FACTS Certain amount had been deposited in the Court of sub-judge by the debtor(appellant) to the credit of the decree obtained by the petitioners, decreeholders .The ITO filed an application before that Court under section 226(4), for adjustment of the aforesaid amount, against alleged income-tax dues of the decreeholders. The decreeholders objected on the ground that no notice of demand as required under section 156 had been served on them for that amount. The Sub-judge rejected the application of the ITO. On revision, the Single Judge, held that a Civil Court to which a petition or application had been made under section 226(4) had no jurisdiction to decide the questions of fact, such as absence of service of a notice of demand for arrears of tax. He also held that once an application was made by the ITO under section 226(4) no discretion was given to the Civil Court at all to make an investigation as to whether the assessment of tax was according to law or if the tax was in arrears or whether the notice of demand had been served or whether the recovery of tax was barred by a general or special law of limitation and that on such an application, the amount deposited in the Court to the credit of the assessee must be paid over to the ITO. On appeal to the Supreme Court: HELD When an assessee is in default, there are two modes of recovery open to an ITO. The first mode is provided under section 222. Under that section, when an assessee…

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