The document discusses various provisions and procedures related to the recovery of income tax in India. It explains that the primary duty of collecting tax demand lies with the Assessing Officer who raised the demand. It outlines planning steps like collecting asset details, provisional attachment, and early service of demand notices. It also describes the different recovery measures available to tax authorities ranging from persuasive actions to coercive actions like penalty, attachment of assets or salary, recovery by sale of movable property, and liability of legal representatives.

1. Recovery of Income tax –
Provisions and Procedures
Presented by
Shankar Bose
Inspector of Income-tax
MSTU, Puri

2. Primary duty of collection of
the demand is with the
Assessing Officer who has
raised the demand

3. Planning
 Collect all the details of assets during
the course of assessment
 Make provisional attachment u/s
281B with the approval of the CIT, if
required
 Serve the demand notice as early as
possible

4. Precaution
o Study from records whether
allowing full 30 days will be
detrimental to the revenue

5. Proviso to Sec. 220(1)
 Record the reason to believe.
 Obtain approval from Addl. CIT
 Allow reduced period for payment of
the demand
 Take recovery measures as early as
possible

6. R
E
S
P
O
N
S
E
S
Assessee has paid the demand
within due date
Assessee has filed an application
within due date for extension of
time/installment
Assessee has filed an appeal and
has applied for stay of the demand
Neither has paid the demand
nor prayed for stay

7. Section 220(3)
Extension of
time or stay of
demand
Granting Installment

8. Conditions u/s 220(3)
 Application must be made within the due
date
 Reasonable opportunity is to be given
 Each case should be judged on merit
 Security/bank guaranty may be obtained
in suitable cases
 Do not allow much time to pay and in no
case, more than 18 installments be
granted

9. Order u/s 220(3)
 Make a speaking Order mentioning
time allowed and terms of payment
 Mention the amount to be paid and
the date of payment
 Review the position after a certain
intervals
 Maintain the installment register

10. Non- compliance
Has not paid within
the extended time
Commits default in
payment of any of the
installments within fixed
time
Treat the assessee as deemed
to be in default and take measures
to collect the demand

11. Installment petition rejected
Assessee makes part payment
Fate?

12. Stay petition- Sec. 220(6)
 Where the assessee has presented an
appeal u/s 246
 The AO has the discretion to grant
time
 He may impose conditions as he
thinks fit
 He may treat the assessee not being
in default

13. Instruction No.96 dated21.08.69
 Where the income determined on
assessment was substantially higher
than the returned income, say, twice
the latter amount or more , the
collection of the tax should be held
in abeyance till the decisions in
appeal.

14. Instruction No-1914
Stay petitions have to be dealt with
in accordance with the guidelines
stipulated in Instruction No-1914
dated 02.12.1993 and it supersedes
earlier instructions

15. Merit of the case
 Points of dispute relate to facts or are a
consequences of different interpretation of
law.
 The additions have been made as a result
of detailed investigation.
 They are based on materials gathered
through enquiry/survey/search & seizure
operation

16. Important points
Mere filing of appeal is not a criteria for
granting stay.
Opportunity must be given before
rejecting the petition .
 Stay petitions shall always be dealt with
utmost care

17. Issues to be considered
Points of dispute have been decided in favour
of the assessee in an earlier order by the
CIT/ITAT/High Court
The disputed point arises because the AO
has taken an interpretation of law in respect of
which there exist conflicting decisions

18. Conditions
 Stay only the demands attributable to
disputed points
 Require the assessee to offer suitable
security
 Require the assessee to pay a
reasonable amount in lump sum or in
installment

19. Further Conditions
Reserve a right to review the order passed
after a reasonable time to consider the
development during the period.
Require an undertaking from the assessee
that he will cooperate in early disposal of
appeal
Mention that if any refund becomes payable
by the Depptt. will be adjusted against the
demand stayed

20. Other measures
 When the demand is more than 1
lakh the AO will intimate the details
pending appeal, the quantum demand
stayed and conditions imposed to the
JCIT.
 The JCIT will request the CIT to write
to the concerned CIT(A) for early
disposal of appeal

21. Authorities who can stay
Stay should normally be entertained by the
AO/JCIT
CIT can interfere when the assessment is
unreasonably high or there will be genuine
hardship of the assessee

22. Power of CIT(A)
The CIT(A) is also vested with the powers
of granting stay order, which is not only
necessary but also expedient for effective
adjudication of appeal.
Prem Prakash Tripathi vs CIT [1994]
208 ITR 461 (All)

23. Demand should be stayed when It is
unreasonably high
Allahabad agricultural
Institute (2007)
Vs
UOI
291 ITR 116(All)
MGM Transport (Madras)
(P) Ltd.(2007)
Vs
ITO
207 CTR (Mad) 90

24. A demand of Rs 66 lakh was raised u/s158BC.
The assessee has Rs 24 lakh in the bank
account. On a stay petition, the AO asked to
pay Rs 5 lakh initially and pay the balance in 10
fortnightly installments.
The High court treated the order as harsh
 It directed to make an initial payment of Rs 15
lakh and to obtain a security for the balance
payment

25. Important phrases
Assessee
deemed to
be in default
Assessee in
default
Assessee not
being in
default

26. Recovery measures
Persuasive measures Coercive measures

27. Penalty u/s 221
 When the assessee is in default or
deemed to be in default
 Issue show cause letter giving an
opportunity
 May not be imposed when there is
good or sufficient reason
 Quantum of penalty is discretionary
but it should not be more than tax
arrear

28. • Imposition of penalty is not a
recovery measure, it is merely a
punishment for the default of the
taxpayer
• Default must be willful and not
merely accidental

29. Penalty order
 Penalty cannot be imposed for non-
payment of interest
 Penalty can not be imposed for non
payment of penalty.
 The order imposing the penalty should be
speaking and clearly specify the amount of
penalty payable

30. Example
• Assessee became in default on 31.3.2009
• Penalty notice u/s 221 was issued on
15.05.2009
• Demand paid on 20.05.2009 i,e, before
the date of hearing
Can the penalty be imposed in this
case?

31. Attachment of salary-Section
226(2)
• AO can require the employer to remit
a portion of salary towards the arrears
of tax due
• Portion exempt u/s 60 of CPC can not
be attached.

32. Exempted items
Pension
Provident Fund
gratuity

33. Example
• The assessee is due to receive an
honorarium of Rs 50,000/ from All India
Radio
Is it attachable u/s 226(2)?

34. Attachment u/s 226(3)
When money is due or may become due
to the assessee
Any person holds or may subsequently
hold on account of the assessee
AO will issue the notice to pay the money
to him forthwith or within the time specified
in the notice.

35. Scope of attachment
 Debtors
 Bank Accounts
 Rent receivable
 Retention money of a contractor
 Security money/Deposit
 Compensation receivable

36. Attachment of Fixed Deposits
Vysya bank/ Global Trust Ltd vs Joint
CIT [2000] 241ITR 178 (Kar)
AND
Administrator, Unit trust of India vs
B.M.Malani[2007] 164 Taxman 463
(SC)

37. CAUTION
This power must be exercised with
utmost care and circumspection
Not to exercise this power hastily,
indiscriminately and capriciously
The AO must be in possession of prima
facie information
Jagannath Bawri vs CIT [1998] 234
ITR464( Gauhati)

38. Service of notice
• A copy of the notice to be served to the
assessee to his last address
• In case of joint holders, notice is to be
served to all the joint holders to their last
known addresses

39. Compliance of the person
o To whom a notice is issued is bound to
comply with the notice
o When a notice is issued to a post office,
banking company or insurer , it is not
necessary to produce the pass book,
deposit receipt , policy or any document
o When a person objects , a statement on
oath is to be recorded

40. Personal liability
 A false statement is given on oath
 Discharges any liability to the
assessee after receipt of the notice

41. Deemed to be in default
• When the person fails to pay even
after the notice shall be treated as
deemed to be in default
• Proceedings may be taken against
him in the manner provided in section
222 to 225

42. A question
• Can the salary of the third party debtor be
attached for non-compliance?

43. Example
• The AO attached the bank account of the
assessee showing the demand as Rs 5
lakh but it was found subsequently that the
demand is actually Rs 6.5 lakh.
Will the notice be void?

44. Money in custody of court-226(4)
• Money belonging to the assesse is in
custody of any court
• The AO shall apply to the court for
payment of the money sufficient to
discharge the tax

45. Attachment
• At the time of attachment the money must
be at custody of the court
• Where the court has already passed a
rateable distribution order , the money
cannot be attached

46. Priorities
 Govt. dues get priority over unsecured
creditors
 As for the Govt. dues not secured by
any charges, the first Depptt attaches
the property will get precedence over
others.

47. Distraint and sale
The AO may recover the arrears of tax
due by distraint and sale of movable
property of the assessee
The AO should be authorized by the CIT
It should be done as per procedure laid
down in Third schedule

48. Procedure
• First verify, whether any rectification
petition, stay petition or appeal effect is
pending.
• A notice must be given indicating the
amount due
• Issue the distraint warrant in the name of
Inspector
• The Inspector will make a discreet enquiry
about the time the assessee will available
in the premises

49. Execution of the warrant
• The inspector will enter the premises
along with team members
• He will serve the warrant on the assessee
to make the payment forthwith.
• If the assessee makes the payment, he
will issue the cash receipt
• If he does not make payment within
reasonable time he will make attachment
of the movable properties

50. Attachment
 attachment means taking possession by
way of actual seizure
He should first seize the cash
Then attach all other movable assets as
per requirement and make inventories.
It should be done in presence of two
witnesses and a panchnama be prepared.

51. Others
 Seizure should not be done in
excessive
 Seized items should be kept in
safe custody
 Arrangement of sale is to be
made as early as possible.

52. Section 281
During pendency of any proceeding, after
Completion but before service of notice u/r 2 of
2nd
schedule
Transfers by way of sale ,mortgage,
Gift, exchange or any other mode
Become void

53. Exception
When transferred for adequate consideration
and without notice of pendency of such
proceeding or demand
With the permission of the AO

54. Applicable
• This section is applicable only when the
demand payable is more than Rs 5000/
and the asset transferred is more than Rs
10000/

55. Assets -illustration
Land
Building
Plant
Machinery
Shares
Securities
Fixed deposits in bank

56. Whether automatic
TRO VS Gangadhar Biswanath Ranade
234 ITR 188 (SC) (1998)

57. Recovery survey
 The idea of recovery survey was
introduced in the action plan in the
year 1996-97
 It is like other survey u/s 133A

58. Plan
When there is no visible asset of the
assessee .
He has a business
This can be done by TRO also
This can be done jointly with the TRO.

59. Cash
• Make an inventory
• Request the assessee to deposit in the
bank account and attach the bank account
• If there is huge amount of cash may be
converted to search an seizure
• If it is a certificated case, the TRO may
authorize his inspector to attach and
seize

60. Bank account
There may be bank accounts in the
name of assessee or his benamidars
Make an inventory
Attach the bank accounts, if possible

61. FD/NSC
Make inventory of FD/NSC found
Verify whether shown in the return
Attach wherever possible

62. DOCUMENTS
 Examine the documents to find out
any information regarding any asset
 Take extract or impound

63. Immovable property
• Examine the purchase deeds or
agreements found during the survey, if any
• Whether these are in the names of any
benamidar

64. Legal representative
• When a person dies, his legal
representative is liable to pay any sum
which the deceased would have been
liable to pay.
• Legal representative can not transfer any
asset when the liability is undischarged.

65. Who is a legal representative
• Besides administrator, executors and
heirs-in-law, a stranger taking possession
of deceased’s estate is liable to be
proceeded against as legal representative.
An agent holding power of attorney from
an executor of the deceased is a legal
representative.
James Anderson vs CIT (1960) 39 ITR
(sc)

66. How to proceed
• In the case of death of assessee after
service of demand notice, make an
investigation to find out the legal
representative. Keep them on record.
• Issue fresh demand notices to each of the
legal representatives.

67. liability
• The legal representative is liable only to
the extent of estate or property of the
deceased which has come to his hands
and not been duly disposed of.

68. Firm -188A
• Every person who was the partner during
the previous year shall be jointly and
severally liable along with the Firm for the
amount of the tax.
• Legal representative of such partner who
is deceased shall also be liable.

69. Dissolved Firm-189(3)
In the case of discontinuance or
dissolution of the Firm, the partners of the
firm of the relevant period or legal
representative in respect of the partner
who is deceased will be liable

70. An example
• A Firm which had two partners, had a
demand of Rs 5.5 lakh for the AY 2004-05.
The business of the firm was taken over by
one of the partners on 01.04.2004 and
made it a proprietorship concern.
Who will be liable to pay the demand?

71. Company in liquidation
• Every liquidator within 30 days of
becoming liquidator give a notice of his
appointment to the concerned AO
• The AO will notify to the liquidator within
three months of the receipt of information
the amount which will be payable by the
company

72. Duty of the liquidator
• Shall not part with any asset without the
permission of the CIT/CCIT before
notification by the AO
• Set apart an amount equal to the amount
notified by the AO.

73. PERSONAL LIABILITY
• If the liquidator fails give notice to the AO
• Fails to set apart the amount notified by
the AO
• Parts with any asset of the company in his
hand in contravention of provisions
He will be personally liable.

74. Priority
Priority of Govt dues over unsecured creditors
has been accepted by Hon’ble Supreme Court
Builders Supply Corporation vs UOI 56 ITR
91

75. Important Case law
Imperial Chit Fund vs ITO 219 ITR 499
(SC)

76. Companies Act- Contradictory
position
Section 529A has been introduced in the
year 1985 to give priority to the payment
to workmen and secured debts

77. RECENT JUDGEMENTS
• Strait India Ltd vs CIT 242 ITR 247
(Bom)
• Syndicate bank vs CIT 242 ITR 281 (Bom)

78. Private Company-Sec 179
• The private company the demand of which can
not be recovered .
• Every person who were directors during the
relevant year will be jointly and severally liable to
pay the tax
• No action can be taken against the director if he
can prove that non-recovery can not be
attributed to any gross neglect, misfeasance,
breach of provision on his part.

79. Procedure
Be sure that no
recovery can be
made from the
company
Make investigation
to make the directors
liable

80. Order u/s 179
First part of the order will contain the details
of the actions taken to recover the demand
from the company.
Second part will contain what investigation/
enquiries have been made to make the
director liable jointly and severally
Third part will be the decision.

81. Receiver
• Property in the hand of the receiver can
not be attached without the permission
from the court which has appointed the
receiver.

82. Declared insolvent-1
Assessee received income and filed return
Declared insolvent before filing
AO assessed and raised demand
Insolvent is liable to tax

83. Declared insolvent-2
Assessment made in his name
Adjudicated insolvent after assessment but
Before collection of demand
AO can claim it as a debt against the estate of
the assessee from official assignee

84. Declared insolvent-3
Adjudicated insolvent
Official assignee has received income after that
or carries on business
Tax will be collected from the official assignee

85. BIFR
 An Industrial undertaking which
has filed reference in BIFR under
the provisions of SICA 1985 for its
revival, IT demand against such
company can not be recovered.

86. Exception- for recovery
 Showing that despite the claim of
sickness the company has resources
to meet the dues
 Revealing through evidences that this
is a case of diversion of fund/asset
stripping by the directors
All petitions before BIFR are to be
made through DGIT (Admn) who is
the nodal agency

87. DRAWING UP CERTIFICATE
 The procedure of drawing up
certificate has been modified w,e,f,
01.04.1989
 U/S 222, the TRO will draw up
certificate when the assessee is in
default or deemed to be in default in
making the payment of tax

88. Guideline
New guideline regarding drawing
up certificate has been has been
given in CBDT letter in
FNo.396/3/90-ITCC dated
13.02.1990

89. Procedure
 The AO will first exhaust the actions
u/s 221 and 226
 He will obtain an approval from the
JCIT to that effect.
 He will prepare a statement of assets
and fill up the relevant columns of
Form No 57
 Send these to the TRO for drawing
up certificate

90. Quarterly review
The AO will make quarterly review of
the cases to be referred to the TRO
The TRO and the AO will meet after a
certain interval to review the position of
certificated cases
JCIT will monitor the cases

91. Time limit
There is no time limit of drawing up
certificate as section 230 has been
omitted w.e.f. 01.04.1989

92. Thank You