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

This appeal by special leave is against the judgment dated January 7, 1981, in Writ Petition No. 1248 of 1977 of the Nagpur Bench of the Bombay High Court. The special leave has been confined only to the question of liability of the appellant, the Life Insurance Corporation, to pay interest for the period after date of maturity of the insurance policy, in case of delay in payment. Accordingly, this is the only question arising for decision in this appeal2. The writ petition in the High Court was filed by Smt. Kamalaba G. Ranade, wife of Gangadhar Vishwanath Ranade of Nagpur. The said G. V. 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 particulars thereof including their paid up value payable on the date of maturity are as underPolicy number Sum assured Paid up value Date of maturity19620636 10, 000.00 3415.70 14-09-197213932229 3, 500.00 1118.65 28-12-197313969144 5, 000.00 892.20 9-11-197513972300 2, 000.00 557.70 21-12-19753. In April, 1969, G. V. Ranade assigned absolutely all these four insurance policies in favour of his wife, Smt. Kamalabai G. Ranade, and the assignment to made was duly registered by the LIC as underIn registering this assignment, the Corporation makes no admission as to its validityDated : April 8, 1969 P. Divisional Manager4. It appears that there were some income tax dues against the said G. V. Ranade for recovery of which the Income tax Officer had commenced recovery proceedings. Prior to the date of maturity of these policies, the Income tax Officer on January 27, 1971, issued a notice under section 226(3) ofthe 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 G. V. Ranade to meet the amount due from G. V. Ranade as arrears of income tax. This notice further mentioned the consequences envisaged by section 226(3) of the Income Tax Act, 1961. The Divisional Manager of the LIC at Nagpur intimated the fact of receipt of the notice under section 226(3) ofthe 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 the Income tax Officer, the LIC and the assignee shows that the Income-tax Officer required the LIC to deposit the amount of Rs. 3415.70 payable against the first policy which was to mature on September 14, 1972, and the LIC kept the assignee informed of this demand by the ITO adding in its letter dated July 27, 1972, 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 Income tax Officer vacated. This was reiterated by the Life Insurance Corporation in its letter dated August 11, 1972, to the assignee5. The assignee sent a notice dated August 21, 1972, to the Life Insurance Corporation reiterating that the policies had been absolutely assigned to her as admitted by the Life Insurance Corporation 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 Life Insurance corporation for or on account of G. V. Ranade. The Life Insurance corporation was also require by this notice to take the necessary steps for revocation of the Income tax Officers notice and to make the payment due in respect of all these policies to the assignee. The assignee sent a similar notice to the Income tax Officer asserting her claim as the assignee to get the moneys payable under the policies. The Income tax Officer in a letter dated July 28, 1972, addressed to the Life Insurance Corporation had added that the alleged transfer of policies by G. V. Ranade to his wife are void with an intention to defraud the Revenue and the case falls within the mischief of section 281 ofthe Income tax Act, 1961; and the Life Insurance Corporation was requested to withhold any payment to Smt. Kamalabai G. Ranade till further communication from the Income tax Officer6. On September 5, 1972, Smt. Kamalabai G. Ranade filed a writ petition (S.C.A. No. 861 of 1972) in the High Court of Bombay impleading the Life Insurance Corporation and the Income tax Officer as respondents therein claiming several reliefs which are mentioned at pages 33 to 35 of the paper book. The reliefs included a direction to the Life Insurance Corporation for payment of Rs. 3415.70 due on September 14, 1972, on maturity of the first policy to Smt. Kamalabai G. Ranade and also to make a statement on oath as contemplated by Section 226(3) ofthe Income tax Act, 1961, that no part of the said amount is due to G. V. Ranade not does the Life Insurance Corporation hold any part of the sum for or on account of G. V. Ranade. This writ petition was dismissed in limine by the High Court on September 14, 1972. The amount of Rs. 3415.70 payable against the first policy which matured on September 14, 1972, was paid by the Life Insurance Corporation to the Income tax Officer. Smt. Kamalabai G. Ranade filed an appeal (C.A. No. 373 of 1973) by special leave in this Court against the dismissal of her writ petition by the Bombay High Court. That appeal was disposed of by this Court on October 6, 1975, asn behalf of the Life Insurance Corporation of India, Mr. Rathi stated that he would file the necessary statement on oath in accordance with sub-clause (vi) of clause (3) of Section 226 ofthe 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 Income tax 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 that no statement need be made and consequently no order can be made under section 226(3) (vi). The appeal is disposed of accordingly. There will be no order as to costs7. In pursuance of the above order of this Court, the Life Insurance Corporation filed on December 5, 1975, the requisite statement on oath under Section 226(3)(vi) of the Income Tax Act, 1961, in respect of the remaining three polices8. It appears that the Income Tax Officer did not revoke the order of attachment in spite of the Life Insurance Corporation making the requisite statement on oath under Section 226(3)(vi) of the Income Tax Act, 1961 on December 5, 1975. This led to another writ petition (S.C.A. 302 of 1977), filed in the Bombay High Court by Smt. Kamalabai G. Ranade praying for a direction to the Income Tax Officer to revoke all notices issued under Section 226(3) to the Life Insurance Corporation and to the Life Insurance Corporation to pay to her the amount due against the polices which had matured. On April 4, 1978, counsel for the Income Tax Officer produced before the High Court a copy of the order dated April 1, 1977, passed by the Income Tax Officer withdrawing the notice under Section 226(3) of the Income Tax Act, 1961, and the writ petition was dismissed as withdrawn9. Smt. Kamalabai G. Ranade then promptly sent a notice to the Life Insurance Corporation demanding payment of the total amount due against these four policies together with interest at 15 per cent since the delay in payment had been occasioned by the default of the Life Insurance Corporation. Admittedly the Life Insurance Corporation has made the payment of these amounts to Smt. Kamalabai G. Ranade in these circumstances10. The Life Insurance Corporation 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 Income Tax Officers notice under section 226(3). On the other hand, Smt. Kamalabai G. Ranade claimed that the Life Insurance Corporation had wrongfully refused to make the statement as contemplated under Section 226(3)(vi) of the Income Tax Act, 1961, resulting in delay in payment of the moneys after the maturity of the policies. This dispute regarding the Life Insurance Corporations liability to pay interest led to the filing of Writ Petition No. 1248 of 1977 decided on January 7, 1981, which gives rise to this appeal11. The impugned judgment of the Bombay High Court in Writ Petition No. 1248 of 1977 holds that the two policies having matured on November 9, 1975, and December 21, 1975, i.e., a few days before or after December 5, 1975, when the statement on oath under section 226(3) of the Income Tax Act, 1961, was made by the Life Insurance Corporation did not qualify for award of such interest which was payable in respect of the first two which had matured much earlier on September 14, 1972 and December 28, 1973. For the period commencing from the date of maturity of the policy ending with the performance of the Life Insurance Corporations obligation to make the statement under section 226(3)(vi) of the Income Tax Act, 1961, on December 5, 1975, the Life Insurance Corporation has been held liable to pay interest on the basis of its failure to perform its statutory obligation. This view of the High Court on which the award of interest is based is assailed on behalf of the appellant20. The next writ petition filed by Smt. Kamalabai G. Ranade was S.C.A. No. 302 of 1977 in the Bombay High Court. The prayer made therein was for a direction to the Life Insurance Corporation to pay the principal amount together with interest thereon. In this writ petition also, the Income Tax Officer was impleaded as a party. This writ petition had to be filed because in spite of the Life Insurance Corporation having made the requisite statement under Section 226(3)(vi) of the Income Tax Act, 1961, on December 5, 1975, the Income Tax Officer had not withdrawn the notice under Section 226(3) of the Income Tax Act, 1961, issued to the Life Insurance Corporation and, therefore, the Life Insurance Corporation was not making the payment to the respondent. On April 4, 1977, that writ petition was dismissed as withdrawn as a result of the Income Tax Officers counsel filing a copy of the order dated April 1, 1977, withdrawing the Income Tax Officers notice under Section 226(3) of the Income Tax Act, 1961 enabling the Life Insurance Corporation to make the payment due against the policies to the respondent. The operation of the notice under Section 226(3) of the Income Tax Act, 1961 by the Income Tax Officer being the only reason given by the Life Insurance Corporation to support its action of non-payment to the respondent, it was unnecessary to pursue that writ petition when the Income Tax Officer had made the order withdrawing the notice under Section 226(3) of the Act. Admittedly, it was in consequence of the withdrawal of the Income Tax Officers notice by order dated April 1, 1977, that payment was actually made by the Life Insurance Corporation 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 question of the Life Insurance Corporations liability to pay interest when the principal amount alone was paid later21. The Life Insurance Corporation having refused to pay interest on the principal amount in spite of the inordinate delay in payment, Writ Petition No. 1248 of 1977 had to be filed giving rise to this appeal raising only the question of the Life Insurance Corporations 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 herein for the reasons already given. This contention of learned counsel for the appellant is also, therefore, rejected

Reasoning: 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