Law: Income Tax Act, 1961

Section: 226,226(3)

Income-tax--Recovery of tax---Garnishee proceedings---Condition precedent--­Subsisting relationship of debtor and creditor---Fixed deposit in Bank--­Banker becomes a debtor the moment the fixed deposit receipt is obtained--­Fixed deposit can be withdrawn before date of maturity---Fixed deposit can be attached in garnishee proceedings---Indian Income Tax Act, 1961, S.226(3). Section 226(3) of the Income Tax Act, 1961, contemplates that the Income-tax Officer may require any person at any time or from time to time (1) from whom money is due; (2) or may become due to the assessee; (3) arrived person who holds money for an assessee; (4) or may subsequently hold money on account of an assessee, to pay to the Assessing Officer or Tax Recovery Officer either forthwith or 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) There should be an obligation on the person on whom notice is served to pay money to the assessee, i.e. the subsisting relationship of a debtor and creditor is a sine qua non for the exercise of the power under the section. In the case of a fixed deposit in a bank the banker becomes a debtor of the assessee in default the moment the fixed deposit receipt is obtained. Normally, the payment of the fixed deposit receipt is made on the due dates. But on forgoing interest or paying lesser rate of interest the bankers generally permit customers to withdraw the amount of the fixed deposits before the maturity date. The fixed deposit receipt is not a negotiable instrument, but could be assigned with the concurrence of the bank in favour of other persons: According to the instructions which are issued by the Reserve Bank from time to time if a depositor wants to encase the fixed deposit receipt before its maturity, the bank is bound to refund the amount. with lesser interest as is permissible looking to the time involved. The Department steps into the shoes of the assessee and. can claim payment even before its maturity. Attachment of the amount in the fixed deposit could be made by the income-tax authorities under the proviso to section 226(3). Adam (K.M.) v. ITO…

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