Case: Life Insurance Corporation of India and Another Vs. Gangadhar Vishwanath Ranade (Dead) By Lrs

behalf of the assignee and not the defaulter. Mere information of the assignment to the Income Tax Officer and keeping the assignee informed of the Income Tax Officers action did not amount to discharge of the statutory obligation under Section 226(3)(vi) of the Act, by the Life Insurance Corporation. 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 obligation was performed by the Life Insurance Corporation only on December 5, 1975, 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. 31. Learned counsel for the appellant argued that the requisite statement under Section 226(3)(vi) of the Income Tax Act, 1961, could not be made by the Life Insurance Corporation since it involved the risk of exposing the Life Insurance Corporation or its officer making the statement on oath to personal liability for the income Tax dues of the assessee/defaulter, G. V. Ranade. In the first place, such a statement was, in fact, made without hesitation by the Life Insurance Corporation on December 5, 1975, 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 Life Insurance Corporation, in the 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 material particular. Thus, there is no risk of personal liability 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 account of the assessee. The Life Insurance Corporation itself has taken the stand throughout that the sum demanded by the notice issued under Section 226(3) of the Income Tax Act, 1961 by the Income Tax Officer 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 Life Insurance Corporations own stand which in fact was so made on December 5, 1975 did not involve even remotely the possibility of any risk of personal liability. 32. On the contrary, the real risk of the Life Insurance Corporation 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 Income Tax Officer after receipt of notice under Section 226(3), the amounts of the matured policies within the time given by the Income Tax Officer or a reasonable time, without objecting to the demand by denying its liability to the assessed in the manner prescribed in clause (vi) thereof, instead of in doing so. Prudence also required the Life Insurance Corporation 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 Life Insurance Corporation or any of its officers to personal liability has, therefore, no merit. This being the only reason given by the Life Insurance Corporation to justify the inordinate delay in making the requisite statement under Section 226(3)(vi) of the Income Tax Act, 1961, it is obvious that this defence is untenable. 33. Sub-section (3) of Section 226 of the Income Tax Act, 1961 clearly shows that, on a notice thereunder being issued by the Income Tax Officer to the Life Insurance Corporation in the present case, it was incumbent on the Life Insurance Corporation 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 Income Tax Officer to proceed further and from his final opinion and revoke the notice under clause (vii). It was not possible for the assignee of the policies to obtain revocation of the notice by the Income Tax Officer without the requisite statement on oath being made by the Life Insurance Corporation 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 Life Insurance Corporation under Section 226(3)(vi) of the Income Tax Act, 1961 was the result of misconstruction of the provision and misappreciation of its liability thereunder. 34. 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 Life Insurance Corporation for its failure to perform its statutory obligation under Section 226(3)(vi) of the Income Tax Act, 1961 within a reasonable time. We have no doubt that this is the proper construction of Section 226(3) of the Income Tax Act, 1961 and the consequential 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 Life Insurance Corporation in the present case, being after inordinate delay, award of interest to the assignee of the policies to whom the payment there under had to be made even according to the stand of the Life Insurance Corporation is, therefore, clearly justified. This contention which is really the main contention urged on behalf of the appellant, therefore, fails and is rejected.

Court's decision (1 = petition accepted / positive for appellant, 0 = rejected / negative): 0

Reasoning from the judgment:
0[ds]16. We shall first dispose of the last point relating to double payment by the Life Insurance Corporation of the amount of Rs. 3415.70 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 Life Insurance Corporation may obtain its refund from the Income Tax Officer. 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 Life Insurance Corporation to obtain refund of the amount of Rs. 3415.70 deposited by it with the Income Tax Officer together with interest, if any, payable on that refund by the Income Tax department, since it has been conceded that the respondent does not claim that amount from the Income Tax Officer. We shall now deal with the remaining arguments of Shri Rao, learned counsel for the appellant17. The first argument of learned counsel for the appellant is that the Income Tax Officer 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 January 7, 1981, giving rise to this appeal is for payment of interest by the appellant, and no relief has been sought against the Income Tax Officer. This being so, for effective adjudication of the Life Insurance Corporations liability towards the respondent, the presence of the Income Tax Officer is not necessary. The respondents claim is only against the Life Insurance Corporation without any claim being made, in the alternative or otherwise against the Income Tax Officer. The respondents claim has, therefore, to succeed or fail only on the basis of the Life Insurance Corporations liability vis-a-vis the respondent without involving the Income Tax Officer or anyone else in that process. Merely because the defence of the Life Insurance Corporation was based on an act of the Income tax Officer, it was not incumbent on the respondent to implead the Income Tax Officer, in this proceeding when neither was any relief claimed against the Income Tax Officer nor was any suggestion of the Income Tax Officers liability for payment of interest made in the writ petition. This argument is, therefore, rejected18. The second argument relating to construction of Section 226(3) 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 points22. The fourth contention based on the withdrawal of the writ petition (S.C.A. No. 302 of 1977) being covered by the discussion relating to the third contention, the same is rejected23. The fifth argument relates to the rate of interest. Shri Rao contended that the award of interest at 15 per cent per annum is excessive even if the Life Insurance Corporation is held liable for payment of interest. Reference was made by Shri Rao to Section 244 of the Income Tax Act, 1961 providing for payment of interest on refund which prescribed the rate of 12 per cent per annum from July 1, 1972, to October 1, 1984, the increase to 15 per cent per annum being made therein only from October 1, 1984, by amendment of that Section. It was urged that the period in question in the present case being prior to October 1, 1984, the rate of 15 per cent per annum in excess of the statutory provision of 12 per cent per annum in Section 244 of the Income Tax Act, 1961 is unjustified. Admittedly, the award of interest, in the present case, for payment by the Life Insurance Corporation 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 interest at 15 per cent per annum is reasonable, in the present case, particularly in view of the fact that the Life Insurance Corporation 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 at 15 per cent per annum is excessive to permit interference with the rate in this appeal particularly when the High Court has come to the conclusion that this is the reasonable rate. This argument also is, therefore, rejected26. 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 Life Insurance Corporation is not available to it, in the facts of the present case27. Admittedly, assignment of the policies was made by the insured, G. V. Ranade and the same was duly accepted and registered by the Life Insurance Corporation in April 1969. It is, therefore, obvious that the Life Insurance Corporation 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 Life Insurance Corporation 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 226(3) of the Income Tax Act, 1961 did not have the effect of invalidating the assignment nor did the casual mention of Section 281 of the Income Tax Act, 1961 by the Income Tax Officer in his letter dated August 28, 1972 result in this consequence. Any further step towards formation of the final opinion by the Income Tax Officer could be taken only after the Life Insurance Corporation had made the requisite statement on oath under Section 226(3)(vi) of the Income Tax Act, 1961 on the basis of the registered assignment of policies. This act was performed by the Life Insurance Corporation only on December 5, 1975, which led to revocation of the notice under Section 225(3) of the Act, by the Income Tax Officer. The question is of the liability of the Life Insurance Corporation in these circumstances28. Section 226 consists of several sub-section of which sub-sections (1) and (3) alone are relevant for our purpose. Sub-section (1) enables the Income Tax Officer to recover the tax by any one or more of the further modes provided in this section. Sub-section (3) deals with one such mode where the defaulters money is held by another person. Clause (i) of sub-section (3) enables the Income Tax Officer 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 to the Income Tax Officer that money or so much of it as is sufficient to pay the dues of the assessee in respect of the arrears of tax. It is in exercise of this power that the Income Tax Officer had issued the notice to the Life Insurance Corporation in the present case. Obviously, the Income Tax Officer had assumed that the money payable on maturity of these policies belonged to the insured/assessee/defaulter, G. V. Ranade, overlooking the duly registered assignment made much earlier in favour of the assessees wife in April 1969. The further clauses (ii) to (v) of sub-section (3) deal with ancillary matters and also provide that any 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 notice29. 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 Income Tax Officer 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 further provides that 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 the assessees 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 Income Tax Officer. 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 moneys for or on behalf of the defaulter of tax dues30. It is, therefore, obvious that the question of revocation 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 Life Insurance Corporation made the requisite statement on oath under Section 226(3)(vi) 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 Income Tax Officer and keeping the assignee informed of the Income Tax Officers action did not amount to discharge of the statutory obligation under Section 226(3)(vi) of the Act, by the Life Insurance Corporation. 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 obligation was performed by the Life Insurance Corporation only on December 5, 1975, 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 otherwise33. Sub-section (3) of Section 226 of the Income Tax Act, 1961 clearly shows that, on a notice thereunder being issued by the Income Tax Officer to the Life Insurance Corporation in the present case, it was incumbent on the Life Insurance Corporation 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 Income Tax Officer to proceed further and from his final opinion and revoke the notice under clause (vii). It was not possible for the assignee of the policies to obtain revocation of the notice by the Income Tax Officer without the requisite statement on oath being made by the Life Insurance Corporation 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 Life Insurance Corporation under Section 226(3)(vi) of the Income Tax Act, 1961 was the result of misconstruction of the provision and misappreciation of its liability thereunder34. 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 Life Insurance Corporation for its failure to perform its statutory obligation under Section 226(3)(vi) of the Income Tax Act, 1961 within a reasonable time. We have no doubt that this is the proper construction of Section 226(3) of the Income Tax Act, 1961 and the consequential 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 Life Insurance Corporation in the present case, being after inordinate delay, award of interest to the assignee of the policies to whom the payment there under had to be made even according to the stand of the Life Insurance Corporation is, therefore, clearly justified. This contention which is really the main contention urged on behalf of the appellant, therefore, fails and is rejected