ivil Appeal No 1979 of 1981
From the Judgment and Order dated 7181 of the Bombay High Court in Civil Writ Petition No 1248 of 1977
PP Rao Kailash Vasdev and section Murlidhar for the Appel lants
AK Sanghi for the Respondent
The Judgment of the Court was delivered by VERMA J
This appeal by special leave is against the judgment dated January 7 1981 in Writ Petition No 1248 of 1977 of the Nagput Bench of the Bombay High Court
The special leave has been confined only to the question of liability of the appellant Life Insurance Corporation to pay interest for the period after date of maturity of insur ance policy in case of delay in payment
Accordingly this is the only question arising for decision in this appeal
The writ petition in the High Court was filed by Smt
Kamalabai G Ranade the wife of Gangadhar Vishwanath Ranade of Nagput
The said GV Ranade took four policies on his own life from the Life Insurance Corporation of India hereinafter referred to as the LIC during the period 1958 to 1960
These policies were paid up and the particu lars thereof including their paid up value payable on the date of maturity are as under Policy Sum Paid up Date of Number Assured Value Maturity
19620636 1000000 341570 14972 13932229 350000 111865 281273 13969 144 500000 89220 91175 13972300 200000 55770 211275 In April 1969 GV Ranade assigned absolutely all these four 101 insurance policies in favour of his wife Smt
Kamalabai G Ranade and the assignment so madewas duly registered by the LIC as under In registering this Assignment the Corpora tion makes no admission as to its validity
Nagpur sd Dt
8469 P Divisional Manag er It appears that there were some income tax dues against the said GV Ranade for recovery of which Income tax Offi cer had commenced recovery proceedings
Prior to the date of maturity of these policies the Income tax Officer on 2711971 issued a notice under section 2263 of the Income Tax Act 1961 to the Manager of the LIC at Nagpur directing the LIC to pay to the ITO forthwith any amount due from the LIC to or held by the LIC for or on account of the said GV Ranadeto meet the amount due from GV Ranade as ar rears of income tax
This notice further mentioned the consequences envisaged by section 2263 of the Income Tax Act 1961
The Divisional Manager of the LIC at Nagput intimated the fact of receipt of the notice under section 2263 of the Income Tax Act 1961 to the assignee of these policies Smt
Kamalabai G Ranade suggesting that she take steps to get the notice vacated in order to safeguard her interest in the policies
The further correspondence in this behalf between Income tax Officer the LIC and the assignee shows that the Income tax Officer required the LIC to depos it the amount of Rs341570 payable against the first policy which was to mature on 14972 and the LIC kept the assignee informed of this demand by the ITO adding in its letter dated 2771972 to the assignee that the moneys due under the policies will be paid to her only after your getting the notice served on us by the ITO vacated
This was reit erated by the LIC in its letter dated 11872 to the assign ee
The assignee sent a notice dated 21872 to the LIC reiterating that the policies had been absolutely assigned to her as admitted by the LIC as a result of which the amount payable against the same had to be paid only to her since the amount was not held by the LIC for or on account of GV Ranade
The LIC was also required by this notice to take the necessary steps for revocation of the ITO s notice and to make the payment due in respect of all these policies to the assignee
The assignee sent a similar notice to the ITO asserting her claim as the assignee to get the moneys payable under the policies
The ITO in a letter dated 28772 addressed to the LIC had added that the alleged 102 transfer of policies by GV Ranade to his wife are void with an intention to defraud the revenue and the case falls within the mischief of section 281 of the Income Tax Act 1961 and the LIC was requested to withhold any payment to Smt
Kamalabai G Ranade till further communication from the ITO
On 591972 Smt
Kamalubai G Ranade filed a writ peti tion SCA No 861 of 1972 in the High Court of Bombay impleading the LIC and the ITO as respondents therein claim ing several reliefs which are mentioned at pages 33 to 35 of the paper book
The reliefs included a direction to the LIC for payment of Rs341570 due on 14972 on maturity of the first policy to Smt
Kamalabai G Ranade and also to make a statement on oath as contemplated by section 2263 of the Income Tax Act 1961 that no part of the said amount is due to GV Ranade nor does the LIC hold any part of the sum for or on account of GV Ranade
This writ petition was dis missed in limine by the High Court on 14972
The amount of Rs341570 payable against the first policy which matured on 14972 was paid by the LIC to the ITO
Kamalabai G Ranade filed an appeal CA No 373of 1973 by special leave in this Court against dismissal of her writ petition by the Bombay High Court
That appeal was disposed of by this Court on October 6 1975 as under On behalf of the Life Insurance Corporation of India Mr Rathi stated that he would file the necessary statement on oath in accordance with sub cl
vi of CI
3 of section 226 of the Income Tax Act 1961 and file it in Court within two months from today stating that no sum of money is due to the Assessee insured person before the Incometax Officer
It will thereafter be open to the Income tax Officer to take such other proceedings as he might consider necessary in order to realise the amounts due from the assessee
It is however stated that in respect of one policy the Life Insurance Corporation has already paid the money to the Income tax Officer
In respect of it no statement need be made and consequently no order can be made under section 2263vi
The appeal is disposed of accord ingly
There will be no order as to costs
In pursuance of the above order of this Court the LIC filed on December 5 1975 the requisite statement on oath under section 2263vi of the Income Tax Act L961 in respect of the remaining three policies
103 It appears that the ITO did not revoke the order of attachment in spite of the LIC making the requisite state ment on oath under section 2263vi of Income Tax Act 1961 on 51275
This led to another writ petition SCA 302 of 1977 filed in the Bombay High Court by Smt
Kamala bai G Ranade praying for a direction to the ITO to revoke all notices issued under section 2263 to the LIC and to the LIC to pay to her the amount due against the policies which had matured
On 4471 counsel for the ITO produced before the High Court a copy of the order dated 1477 passed by the Income tax Officer withdrawing the notice under section 2263 of the Income Tax Act 196 1 and the writ petition was dismissed as withdrawn
Kamalabai G Ranade then promptly sent a notice to the LIC demanding payment of the total amount due against these four policies together with interest  15 since the delay in payment had been occasioned by the default of the LIC
Admittedly the LIC had made the payment of these amounts to Smt
Kamalabai G Ranade in these circumstances
The LIC has not disputed at any stage its liability to pay to Smt
Kamalabai G Ranade the amounts due under these policies
However it has disputed its liability to pay interest thereon for any period after the date of maturity on the ground that the delay was Occasioned by the ITO s notice under section 2263
On the other hand Smt
Kamala bai G Ranade claimed that the LIC nad wrongfully refused to make the statement as contemplated under section 2263vi of the Income Tax Act 1961 resulting in delay in payment of the moneys after maturity of the policies
This dispute regarding the LIC s liability to pay interest led to the filing of the Writ Petition No 1248 of 1977 decided on January 7 1981 which gives rise to this appeal
The impugned judgment of the Bombay High Court in Writ Petition No 1248 of 1977 holds that the last two policies having matured on 911
1975 and 21121975 ie a few days before or after 51275 when the statement on oath under section 2263 of the Income Tax Act 1961 was made by the LIC did not qualify for award of such interest which was payable in respect of the first two which had matured much earlier on 14972 and 281273
For the period com mencing from the date of maturity of the policy ending with performance of the LIC s obligation to make the statement under section 2263vi of the Income Tax Act 1961 on 51275 the LIC has been held liable to pay interest on the basis of its failure to perform 104 its statutory obligation
This view of the High Court on which the award of interest is based is assailed on behalf of the appellant
The surviving dispute in this appeal is now only about the LIC s liability for payment of interest on the prin cipal amount from the date of maturity of the first two policies to 311275 and the rate of 15  per annum which is alleged to be excessive
Broadly stated the contention of the appellant is that the appellant was not liable to pay any interest for the period during which it was restrained from making the pay ment on account of the ITO s notice under section 2263 of the Income tax Act 1961 and the ITO also adding that the matter fell within the ambit of section 281 of the Act
On this basis it was urged on behalf of the appellant that the award of interest on the first two policies from the date of their maturity till 31121975 statement on oath by the LIC being made only
on 5121975 is contrary to law
To support the main contention of the appellant that it is not liable for payment of any interest for any period after maturity of the policies Shri PP Rao learned counsel for the appellant advanced several arguments
His first argument is that the Income tax Officer was a neces sary party in the writ petition giving rise to this appeal and in his absence no effective adjudication of this dispute can be made
The second argument is that the High Court has misconstrued section 2263 of the Income Tax Act 1961 and thereby wrongly fastened the liability for payment of inter est upto 311275 on the appellant
The third argument is that the principle of res judicata or atleast constructive res judicata as a result of the earlier writ petitions bars the claim for payment of interest in this writ peti tion
The fourth argument is that the writ petition SCA No 302 of 1977 being withdrawn unconditionally without liberty to file a fresh petition this writ petition WP No 1248 of 1977 is not maintainable
The fifth argument is that the rate of 15 pa at which interest has been awarded is excessive
The sixth and the last argument is that the appellant has been required to make double payment of Rs341570 due against the policy which matured on 1491972 inasmuch as the LIC had already deposited that amount earlier in September 1972 with the ITO in pursuance to the ITO s demand
In reply Shri AK Sanghi learned counsel for the respondent contended that the liability for payment of interest has been correctly fastened on the appellant be cause of its failure to discharge the statu 105 tory obligation of making the requisite statement on oath under section 2263vi of the Income Tax Act 1961 till 5121975
He argued that the LIC having accepted and registered the absolute assignment made by the insured GV Ranade in favour of his wife Smt
Kamalabai G Ranade it was the duty of the LIC to promptly make the requisite statement on oath under section 2263vi of the Income Tax Act 1961 which it made much later on 51275 in pursuance to the Court s order to enable the ITO to revoke the notice issued by him under section 2263 of the Income Tax Act 1961
Shri Sanghi stated that even though the special leave granted by this Court is confined only to the question of interest and therefore does not extend to the question of alleged double payment of Rs341570 by the LIC yet the respondent concedes that the amount of Rs341570 depos ited by the LIC with the ITO may be refunded by the ITO to the LIC together with interest if any payable on refund of that amount and that the respondent does not lay any claim to that amount from the ITO having obtained that amount from the LIC
We shall first dispose of the last point relating to double payment by the LIC of the amount of Rs341570 in view of the express concession made by Shri Sanghi learned counsel for the respondent that the respondent does not lay any claim to it and that the LIC may obtain its refund from the ITO
In view of this statement of learned counsel for the respondent Shri Sanghi it is sufficient to observe that it would be open to the LIC to obtain refund of the amount of Rs341570 deposited by it with the ITO togeth er with interest if any payable on the refund by the Income Tax Department since it has been conceded that the respondent does not claim that amount from the ITO We shall now deal with the remaining arguments of Shri Rao learned counsel for the appellant
The first argument of the learned counsel for the appel lant is that the ITO was a necessary party in the writ petition giving rise to this appeal
We are unable to accept this contention
The only claim made in Writ Petition No 1248 of 1977 decided on 711981 giving rise to this appeal is for payment of interest by the appellant and no relief has been sought against the ITO This being so for effective adjudication of the LIC s liability towards the respondent the presence of the ITO is not necessary
The respondent s claim is only against the LIC without any claim being made in the alternative or otherwise against the ITO
The respondent s claim has therefore to succeed or fail only on the basis of the LIC s liability vis a vis the respondent without involving the ITO or anyone else in that process
Merely 106 because the defence of the LIC was based on an act of the ITO it was not incumbent for the respondent to implead the ITO in this proceeding when neither any relief was claimed against the ITO nor was any suggestion of ITO s liability for payment of interest made in the writ peti tion
This argument is therefore rejected
The second argument relating to construction of section 2263 of the Income Tax Act 1961 is in fact the main argument of Shri Rao and therefore we shall consider the same after disposing of the remaining arguments which are shorter points
The third argument is based on the principle of res judicata and constructive res judicata on the basis of two earlier writ petitions filed by Smt
Kamalabai G Ranade
The first writ petition was SCA No 861 of 1972 filed in the Bombay High Court on 5972 prior to the date of maturi ty of the first policy claim againstwhich was required to be paid by the LIC to the assignee Smt
Kamalaba G Ranade
This was after issuance of the notice under section 2263 of the Income Tax Act 1961 by the ITO to the LIC One of the reliefs claimed therein was a direction to the LIC to make a statement on oath as required by sec tion 2263vi of the Income Tax Act 1961 that no part of the amount due against the policy maturing on 14972 was due to the insured GV Ranade nor did the LIC hold any part of that sum for or on account of the alleged defaulter
No doubt some other reliefs including revocation of the notice under section 2263 of the Income Tax Act 1961 were
also claimed including payment 01  the amount together with the accretions thereto
This writ petition being dis missed Smt
Kamalabai G Ranade came to this Court by special leave and Civil Appeal No 373 of 1973 was disposed of by this Court s order dated 6101975 requiting the LIC to make the necessary statement on oath in accordance with section 2263vi of the Income Tax Act 1961 within two months
It is obvious that with this direction requiring the LIC to make the requisite statement on oath under section 2263vi of the Income Tax Act 1961 no further question survived in that writ petition and the consequent civil appeal in this Court since the further questions including payment of interest on the principal amount were to arise only at a subsequent stage
Asking for any other relief was obviously premature at that stage
It is appar ently for this reason that this Court did not at that stage go into the other questions relating to the further reliefs specified in that writ petition
That decision cannot therefore preclude agitation of the question of interest subsequently
107 The next writ petition filed by Smt
Kamalabai G Ranade was SCA No 302 of 1977 in the Bombay High Court
The prayer made therein was for a direction to the LIC to pay the principal amount together with interest thereon
In this writ petition also the ITO was impleaded as a party
This writ petition had to be filed because in spite of the LIC having made the requisite statement under section 2263vi of the Income Tax Act 1961 on 51275 the Income tax Officer had not withdrawn the notice under section 2263 of the Income Tax Act 1961 issued to the LIC and there fore the LIC was not making the payment to the respond ent
On 4477 that writ petition was dismissed as withdrawn as a result of the ITO  s counsel filing a copy of the order dated 141977 withdrawing the ITO s notice under section 2263 of the Income Tax Act 1961 enabling the LIC to make the payment due against the policies to the respondent
The operation of the notice under section 2263 of the income Tax Act 1961 by the ITO being the only reason given by the LIC to support its action of non payment to the respondent it was unnecessary to persue that writ petition when the ITO had made the order withdrawing the notice under section 2263 of the Act
Admittedly it was in consequence of the withdrawal of the ITO s notice by order dated 1477 that payment was actually made by the LIC to the respondent
It is therefore difficult to appreciate how the withdrawal of that writ petition can in any manner preclude the respondent from raising the ques tion of the LIC s liability to pay interest when the principal amount alone was paid later
The LIC having refused to pay the interest on the principal amount in spite of the inordinate delay in pay ment the Writ Petition No 1248 of 1977 had to be filed giving rise to this appeal raising only the question of LIC s liability to pay interest on the principal amount due against the policies
The same is therefore clearly maintainable and the earlier writ petitions cannot in any manner bar the adjudication of this point her in for the reasons already given
This contention of learned counsel for the appellant is also therefore rejected
The fourth contention based on withdrawal of writ peti tion SCA No 302 of 1977 being covered by the discus sion relating to the third contention the same is rejected
The fifth argument relates to the rate of interest
Shri Rao contended that the award of interest 15 pa is exces sive even if the LIC is held liable for payment of inter est
Reference was made by 108 Shri Rao to Section 244 of the Income Tax Act 1961 provid ing for payment of interest on refund which prescribed the rate of 12 pa from 171972 to 1101984 the increase to 15 pa being made therein only from 11084 by amendment of that section
It was urged that the period in question in the present case being prior to 11084 the rate of 15 pa in excess of the statutory provision of 12 pa in Section 244 of the Income Tax Act 1961 is unjustified
Admittedly the award of interest in the present case for payment by the LIC is not governed by Section 244 of the Income Tax Act 1961
Apparently for this reason learned counsel for the appellant relied on Section 244 of the Income Tax Act 1961 as of persuasive value
We are not impressed by this argument
The High Court has relied on the fact that inter est  15 pa is reasonable in the present case particu larly in view of the fact that the LIC itself charges interest at that rate
It is sufficient for us to state that there is no material produced in the present case to suggest that award of interest  15 pa is excessive to permit interference with the rate in this appeal particular ly when the High Court has come to the conclusion that this is the reasonable rate
This argument also is therefore rejected
The only point remaining for consideration now is the construction of Section 2263 of the Income Tax Act 1961 the relevant portion of which reads as under Other modes of recovery 2261 Notwith standing the issue of a certificate to the Tax Recovery Officer under section 222 the In come tax Officer may recover the tax by any one or more of the modes provided in this section
  3i The Income tax Officer may at any time or from time to time by notice in writing require any person from whom money is due or may become due to the assessee or any person who holds 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
109 ii A notice under this sub section may be issued to any person who holds or may subsequently hold any money for or on account of the assessee jointly with any other person and for the purposes of this sub section the shares of the joint holders in such account shall be presumed until the contrary is proved to be equal
iii A copy of the notice shall be forwarded to the assessee at his last address known to the Income tax Officer and in the case of a joint account to all the joint holders at their last addresses known to the Income tax Officer
iv Save as otherwise provided in this sub section every person to whom a notice is issued under this subsection
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 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
v Any claim respecting any proper ty in relation to which a notice under this sub section has been issued arising after the date of the notice shall be void as against any demand contained in the notice
vi Where a person to whom a notice under this subsection 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 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 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 his own liability to the assessee on the date of the notice or to the extent of the assessee s liability for any sum due under this Act whichever is less
vii The Income tax Officer may at any time or 110 from time to time amend or revoke any notice issued under this sub section or extend the time for making any payment in pursuance of such notice
viii The Income tax Officer shall grant a receipt for any amount paid in compli ance 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
ix Any person discharging any liability to the assessee after receipt of a notice under this sub section shall be person ally liable to the Income tax Officer to the extent of his own liability to the assessee so discharged or to the extent of the assessee s liability for any sum due under this Act whichever is less
x If the person to whom a notice under this subsection 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 proceedings may be taken against him for the realisation of the amount as if it were an 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 Recovery Officer in exercise of his powers under sec tion 222    The argument of the learned counsel for the appellant is that on receipt of the ITO s notice under section 2263 of the Income Tax Act 1961 the LIC was not left with the option to make the payment to assignee of the policies since the LIC or its officer making the state ment on oath under section 2263vi would thereby have been exposed to personal liability as the defaulter of the income tax dues
It was argued that in these circumstances the LIC could make the payment only aftter revocation of the notice by the ITO s Order dated 1477 and there fore the LIC cannot be held liable for payment of inter est for any period prior to revocation of the notice
The period for which the LIC has been held liable to pay interest being prior to revocation of the notice by the ITO it was urged that the same was unjustified
111 Having given our anxious consideration to the argument we cannot persuade ourselves to accept the same
On a close scrutiny of the provision we find that the benefit claimed by the LIC is not available to it in the facts of the present case
Admittedly assignment of the policies was made by the insured GV Ranade and the same was duly accepted and registered by the LIC in April 1969
It is therefore obvious that the LIC was bound to act on that assignment in favour of Smt
Kamalabai G Ranade unless the assignment was held to be invalid by a competent authority in a proper proceeding taken for this purpose
It is significant that the LIC never disputed the validity of the assignment and was throughout prepared to act on it
It is undisputed that the assignment was not declared invalid by any competent authority
Mere issuance of notice under section 2263 of the Income Tax Act 1961 did not have the effect of invali dating the assignment nor did the casual mention of Section 281 of the Income Tax Act 1961 by the ITO in his letter dated 28872 result in this consequence
Any further step towards formation of the final opinion by the ITO could be taken only after the LIC had made the requisite state ment on oath under section 2263vi of the Income Tax Act 1961 on the basis of the registered assignment of policies
This act was performed by the LIC only on 51275 which led to revocation of the notice under section 2263 of the Act by the ITO
The question is of the liability of the LIC in these circumstances
Section 226 consists of several Sub sections of which sub sections 1 and 3 alone are relevant for our purpose
Sub section 1 enables the ITO to recover the tax by anyone or more of the further modes provided in this sec tion
Sub section 3 deals with one such mode where the defaulter s money is held by another person
Clause i of sub section 3 enables the ITO by notice in writing to require any person from whom money is due or may become due to the assessee or any person who holds or may subsequently hold money for or on account of the assessee to pay the Income tax Officer that money or so much of it as is suffi cient t6 pay the dues of the assessee in respect of the arrears of tax
It is in exercise of this power that the ITO had issued the notice to the LIC in the present case
Obviously the ITO had assumed that the money payable on maturity of these policies belonged to the in suredassesseedefaulter GV Ranade overlooking the duly registered assignment made much earlier in favour of the assessee s wife in April 1969
The further clauses ii to v of sub section 3 deal with ancillary matters and also provide that any 112 claim in respect of property covered by the notice shall be void after the date of the notice as against the demand contained in the notice
Clause vi is relevant for the present purpose and speaks of the obligation of a person to whom such a notice has been sent
Clause vi relieves the person receiving such a notice from the liability to pay any sum to the ITO in obedience to the notice if he 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 hold any money for or on account of the assessee
This clause fur ther provides that if it is discovered that such statement was false in any material particular such person shall be personally liable to the ITO to the extent of the asses see s liability on the date of notice
Clause vii then provides inter alia for amendment or revocation of the notice issued under this sub section by the ITO
This stage of amendment or revocation of the notice under clause vii is reached only after the stage provided in clause vi in a case where the notice objects that he does not hold the money for or on behalf of the defaulter of tax dues
It is therefore obvious that the question of revoca tion of the notice under clause vii of sub section 3 of section 226 of the Income Tax Act 1961 arose in the present case only after the LIC made the requisite statement on oath under section 2263vi of the Act in view of its consistent stand throughout that the moneys due under the policies were held by it for and on behalf of the assignee and not the defaulter
Mere information of the assignment to the ITO and keeping the assignee informed of the ITO s action did not amount to discharge of the statutory obliga tion under section 2263vi of the Act by the LIC
The statute having expressly provided the mode of raising such an objection in the form of a statement on oath specified in clause vi performance of that obligation by the notice had to be made only in that manner
This statutory obliga tion was performed by the LIC only on 5121975 as stated earlier
The personal liability arising after making the requisite statement on oath as envisaged by clause vi is only if it is discovered that such statement was false in any material particular and not otherwise
Learned counsel for the appellant argued that the requisite statement under section 2263vi of the Income Tax Act 1961 could not be made by the LIC since it involved the risk of exposing the LIC or its officer making the statement on oath to personal liability for the income tax dues of the assesseedefaulter GV Ranade
In the first place such a statement was in fact made without hesitation by the 113 LIC on 51275 after the assignee was compelled to obtain such a direction in a writ petition filed by her
That apart the risk visualised on behalf of the LIC in ultimate analysis is entirely imaginary and not real
The risk of personal liability envisaged in clause vi arises only if it is discovered that such statement was false in any mate rial particular
Thus there is no risk of personal liabil ity of the person making the statement on oath unless any material particular mentioned in the statement is false
The statement on oath required to be made by clause vi is only that the sum demanded or any part thereof is not due to the assessee or that he does not hold any money for or on ac count of the assessee
The LIC itself has taken the stand throughout that the sum demanded by the notice issued under section 2263 of the Income Tax Act 1961 by the ITO did not belong to the assessee inasmuch as it was payable only to the assignee Smt
Kamalabai G Ranade by virtue of the assignment made accepted and registered in April 1969 much earlier to the date of the notice
This being so the making of this statement on oath of the LIC s own stand which in fact was so made on 51275 did not involve even remotely the possibility of any risk of personal liability
On the contrary real risk of the LIC being treated deemed defaulter assessee under clause x of sub section 3 of section 226 of the Act lay in its failure to pay to the ITO after receipt of notice under section 2263 the amounts of the matured policies within the time given by the ITO or a reasonable time without objecting to the demand by denying its liability to the assessee in the manner prescribed in clause vi thereof instead of in doing so
Prudence also required the LIC in its own interest to object to the demand according to clause vi instead of refusing or delaying the objection
The argument that such a statement was not made since it involved the likelihood of exposing the LIC or any of its officers to personal liability has therefore no merit
This being the only reason given by the LIC to justify the inordinate delay in making the requisite statement under section 2263vi of the Income Tax Act 1961 it is obvious that this defence is untenable
Sub section 3 of section 226 of the Income Tax Act 1961 clearly shows that on a notice thereunder being issued by the ITO to the LIC in the present case it was incumbent on the LIC to make the requisite statement on oath under clause vi thereof raising an objection on the basis of the registered assignment
It was then for the ITO to proceed further and form his final opinion and revoke the notice under clause vii
It was not possible for the assignee of the 114 policies to obtain revocation of the notice by the ITO without the requisite statement on oath being made by the LIC as envisaged in clause vi of sub section 3 of section 226 of the Income Tax Act
It is obvious that the inordinate delay in making the statement on oath by the LIC under section 2263vi of the Income Tax Act 1961 was the result of misconstruction of the provision and misappreciation of its liability thereunder
Obviously the assignee of the policies who had become entitled to receive the amounts due thereunder on the dates of their maturity must be compensated by the LIC for its failure to perform its statutory obligation under section 2263vi of the Income Tax Act 1961 within a reasonable time
We have no doubt that this is the proper construction of section 2263 of the Income Tax Act 1961 and the conse quential liability resulting from the failure of the notice to raise the objection in the prescribed manner under clause vi thereof within a reasonable time
Performance of this statutory obligation by the LIC in the present case being after inordinate delay award of interest to the assignee of the policies to whom the payment thereunder had to be made even according to the stand of the L1C is therefore clearly justified
This contention which is really the main contention urged on behalf of the appellant therefore fails and is rejected
Consequently the appeal is dismissed with costs
The costs are quantified at Rs2000
RNJ Appeal dis missed


Summary:
Applying the principle enunciated in Atma Ram Mittal vs Ishwar Singh Punia   this Court dismissed the special leave petition and HELD 11 The exemption would apply for a period of ten years and will continue to be available until suit is dis posed of or adjudicated
121H 12 If the petitioner fails to file an undertaking on usual terms the decree shall become executable forthwith
122B