Can they attach your bank account while the stay application is still pending?
No. Recovery should not be made pending expiry of the appeal period or disposal of the stay application, and for a reasonable period after — so you can approach a higher forum. Reasonable prior notice must also precede withdrawal from an attached account.
Decided by the High Court (Bombay High Court (Dr. D.Y. Chandrachud and M.S. Sanklecha, JJ.; judgment delivered by Dr. D.Y. Chandrachud, J.); Writ Petition Lodging No. 606 of 2012) on 2012-03-14, reported as [2012] 19 taxmann.com 250 (Bom) / [2012] 206 Taxman 341 (Bom) / [2012] 345 ITR 71 (Bom) / [2012] 249 CTR 190 (Bom); Writ Petition Lodging No. 606 of 2012; assessment year 2009-10. It bears on section 226(3), section 177(3), section 161(1A), section 160(1)(iv), section 10(23D), section 61, section 63 of the Income Tax Act 1961, in Demand, Recovery & Stay matters.
It converts KEC International's parameters into a sequence of timing rules that are easy to check against what actually happened to you: was there an attachment before the stay application was decided?
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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UTI Mutual Fund is a trust registered with SEBI whose income is exempt under s.10(23D). It was one of the beneficiaries of India Corporate Loan Securitisation Trust, 2008 Series 14, constituted on 20 May 2008 to securitise a Rs 300 crore loan made by Yes Bank to HPCL, and subscribed to pass-through certificates issued by that trust. For assessment year 2009-10 the Assessing Officer assessed the securitisation trust as an association of persons, rejecting its contention that its status was that of an individual, and raised a demand. The trust applied for stay on 12 January 2012; without disposing of that application the officer directed on 23 January 2012 that at least 50 per cent be paid. No assessment was ever made against the mutual fund. Even so, by a communication dated 29 February 2012, received on 7 March 2012, the officer called on the fund to pay Rs 9.63 crore under s.177(3) as a member of the association jointly and severally liable. The fund applied for stay the same day and, 8 March being a holiday, moved the Commissioner on 9 March. The officer disposed of the stay application on 9 March but the fund learned of it only on 13 March - after a garnishee notice dated 12 March 2012 had gone to Axis Bank under s.226(3) for up to Rs 26.70 crore. The fund's case was that the whole exercise followed a letter of 7 February 2012 from the Chairman of the CBDT telling officers that achievements against revenue collection targets would carry the highest weightage in their 2012 postings.
This is interim protection with guidelines, not a final decision. The Court said expressly that the issue before it was confined to whether the Revenue could enforce the demand and the s.226(3) garnishee, that it was not called on to adjudicate the merits, and that it rendered no conclusive determination on the questions that would arise in the trust's pending appeal (para 9). It found the fund had a serious prima facie case, including on whether s.177(3) applied at all. The relief granted was that, pending disposal of the trust's appeal before the Commissioner (Appeals) and for six weeks thereafter, the Revenue must take no coercive step to enforce the demand of 29 February 2012 or the s.226(3) notice of 12 March 2012, and any attachment levied stood lifted (para 10). What survives generally are the five guidelines the Court laid down in para 9 for effecting recovery: no recovery pending the time to appeal or the disposal of a stay application and for a reasonable period after, unless the authority has reason to believe the assessee may defeat the demand and says why; stay applications to be disposed of after hearing the assessee and on the KEC International parameters; a departure from the treatment accepted in preceding years without a material change in facts or law is a relevant consideration; reasonable prior notice before withdrawing from an attached bank account; and the officer is to act as a quasi-judicial authority balancing the interest of the revenue against hardship to the assessee, not as a mere tax gatherer.
The Court called the Revenue's attempt to recover from the fund an unfortunate and hasty one, made without letting it take reasonable recourse to the remedies open in law: the demand was received on 7 March, a stay application went in the same day, and a garnishee notice issued on 12 March before the fund even knew its application had been decided (para 9). Administrative directions for meeting recovery targets must not come at the expense of foreclosing an assessee's remedies; the sanctity of the rule of law must be preserved. Assessing Officers and appellate authorities exercise quasi-judicial functions, so rejecting a stay application without hearing the assessee, considering its submissions and giving at least brief reasons is impermissible. The Court set out the parameters laid down by the Division Bench presided over by Kapadia J in KEC International Ltd. v. B.R. Balakrishnan, noted that they were being breached, and recalled that in Coca Cola India (P.) Ltd. another Division Bench had already deprecated the practice of attaching bank accounts before communicating the order on the stay application as high handed - a caution that had again not been followed. It adopted the Kerala High Court's observation in N. Rajan Nair v. ITO that the officer should not act as a mere tax gatherer but as a quasi-judicial authority vested with the power of mitigating hardship. On the prima facie case, it noted that the submission that a trust cannot be an association of persons finds support in this Court's decisions in CIT v. Marsons Beneficiary Trust and L.R. Patel Family Trust v. ITO, and that the s.61 and s.63 argument on revocable transfer, which would place the income in the fund's own hands where it is exempt under s.10(23D), needed careful consideration at the appellate stage (para 9).
No recovery of tax should be made pending (a) Expiry of the time limit for filing an appeal; (b) Disposal of a stay application, if any, moved by the assessee and for a reasonable period thereafter to enable the assessee to move a higher forum, if so advised. Coercive steps may, however, be adopted where the authority has reason to believe that the assessee may defeat the demand, in which case brief reasons may be indicated.
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Handle my notice → Ask a CA on WhatsAppNo. Recovery should not be made pending expiry of the appeal period or disposal of the stay application, and for a reasonable period after — so you can approach a higher forum. Reasonable prior notice must also precede withdrawal from an attached account. This was decided by the High Court (Bombay High Court (Dr. D.Y. Chandrachud and M.S. Sanklecha, JJ.; judgment delivered by Dr. D.Y. Chandrachud, J.); Writ Petition Lodging No. 606 of 2012) and bears on section 226(3), section 177(3), section 161(1A), section 160(1)(iv), section 10(23D), section 61, section 63 of the Income Tax Act 1961. It is reported as [2012] 19 taxmann.com 250 (Bom) / [2012] 206 Taxman 341 (Bom) / [2012] 345 ITR 71 (Bom) / [2012] 249 CTR 190 (Bom); Writ Petition Lodging No. 606 of 2012; assessment year 2009-10. It converts KEC International's parameters into a sequence of timing rules that are easy to check against what actually happened to you: was there an attachment before the stay application was decided? If it applies to you, the first step is this: File the stay application immediately with the appeal, and keep the acknowledgement — it starts the protection.
UTI Mutual Fund is a trust registered with SEBI whose income is exempt under s.10(23D). It was one of the beneficiaries of India Corporate Loan Securitisation Trust, 2008 Series 14, constituted on 20 May 2008 to securitise a Rs 300 crore loan made by Yes Bank to HPCL, and subscribed to pass-through certificates issued by that trust. For assessment year 2009-10 the Assessing Officer assessed the securitisation trust as an association of persons, rejecting its contention that its status was that of an individual, and raised a demand. The trust applied for stay on 12 January 2012; without disposing of that application the officer directed on 23 January 2012 that at least 50 per cent be paid. No assessment was ever made against the mutual fund. Even so, by a communication dated 29 February 2012, received on 7 March 2012, the officer called on the fund to pay Rs 9.63 crore under s.177(3) as a member of the association jointly and severally liable. The fund applied for stay the same day and, 8 March being a holiday, moved the Commissioner on 9 March. The officer disposed of the stay application on 9 March but the fund learned of it only on 13 March - after a garnishee notice dated 12 March 2012 had gone to Axis Bank under s.226(3) for up to Rs 26.70 crore. The fund's case was that the whole exercise followed a letter of 7 February 2012 from the Chairman of the CBDT telling officers that achievements against revenue collection targets would carry the highest weightage in their 2012 postings. The matter was decided on 2012-03-14 by the High Court (Bombay High Court (Dr. D.Y. Chandrachud and M.S. Sanklecha, JJ.; judgment delivered by Dr. D.Y. Chandrachud, J.); Writ Petition Lodging No. 606 of 2012). On those facts the High Court held as follows. This is interim protection with guidelines, not a final decision. The Court said expressly that the issue before it was confined to whether the Revenue could enforce the demand and the s.226(3) garnishee, that it was not called on to adjudicate the merits, and that it rendered no conclusive determination on the questions that would arise in the trust's pending appeal (para 9). It found the fund had a serious prima facie case, including on whether s.177(3) applied at all. The relief granted was that, pending disposal of the trust's appeal before the Commissioner (Appeals) and for six weeks thereafter, the Revenue must take no coercive step to enforce the demand of 29 February 2012 or the s.226(3) notice of 12 March 2012, and any attachment levied stood lifted (para 10). What survives generally are the five guidelines the Court laid down in para 9 for effecting recovery: no recovery pending the time to appeal or the disposal of a stay application and for a reasonable period after, unless the authority has reason to believe the assessee may defeat the demand and says why; stay applications to be disposed of after hearing the assessee and on the KEC International parameters; a departure from the treatment accepted in preceding years without a material change in facts or law is a relevant consideration; reasonable prior notice before withdrawing from an attached bank account; and the officer is to act as a quasi-judicial authority balancing the interest of the revenue against hardship to the assessee, not as a mere tax gatherer.
The Court called the Revenue's attempt to recover from the fund an unfortunate and hasty one, made without letting it take reasonable recourse to the remedies open in law: the demand was received on 7 March, a stay application went in the same day, and a garnishee notice issued on 12 March before the fund even knew its application had been decided (para 9). Administrative directions for meeting recovery targets must not come at the expense of foreclosing an assessee's remedies; the sanctity of the rule of law must be preserved. Assessing Officers and appellate authorities exercise quasi-judicial functions, so rejecting a stay application without hearing the assessee, considering its submissions and giving at least brief reasons is impermissible. The Court set out the parameters laid down by the Division Bench presided over by Kapadia J in KEC International Ltd. v. B.R. Balakrishnan, noted that they were being breached, and recalled that in Coca Cola India (P.) Ltd. another Division Bench had already deprecated the practice of attaching bank accounts before communicating the order on the stay application as high handed - a caution that had again not been followed. It adopted the Kerala High Court's observation in N. Rajan Nair v. ITO that the officer should not act as a mere tax gatherer but as a quasi-judicial authority vested with the power of mitigating hardship. On the prima facie case, it noted that the submission that a trust cannot be an association of persons finds support in this Court's decisions in CIT v. Marsons Beneficiary Trust and L.R. Patel Family Trust v. ITO, and that the s.61 and s.63 argument on revocable transfer, which would place the income in the fund's own hands where it is exempt under s.10(23D), needed careful consideration at the appellate stage (para 9). In the words reproduced by the source cited on this page: "No recovery of tax should be made pending (a) Expiry of the time limit for filing an appeal; (b) Disposal of a stay application, if any, moved by the assessee and for a reasonable period thereafter to enable the assessee to move a higher forum, if so advised. Coercive steps may, however, be adopted where the authority has reason to believe that the assessee may defeat the demand, in which case brief reasons may be indicated." The decision followed or applied KEC International Ltd. v. B.R. Balakrishnan [2001] 251 ITR 158 / 119 Taxman 974 (Bombay) - followed; its parameters are set out in full (para 9); Coca Cola India (P.) Ltd. v. Addl. CIT [2006] 285 ITR 419 / 150 Taxman 359 (Bombay) - followed (para 9); N. Rajan Nair v. ITO [1987] 165 ITR 650 / 33 Taxman 451 (Kerala) - adopted for the tax gatherer observation (para 9); CIT v. Marsons Beneficiary Trust [1991] 188 ITR 224 / 52 Taxman 454 (Bombay) and L.R. Patel Family Trust v. ITO [2003] 262 ITR 520 / 129 Taxman 720 (Bombay) - relied on for the prima facie case that a trust is not an association of persons (para 9); Followed in BHIL Employees Welfare Fund No.4 v. ITO [2023] 147 taxmann.com 427 (Bombay), Writ Petition Nos. 315 and 316 of 2023, 7 January 2023 (Dhiraj Singh Thakur and Kamal Khata, JJ.), whose case review records this decision and UTI Mutual Fund v. ITO [2013] 31 taxmann.com 222 (Bombay) followed (para 33).
It was decided by the High Court on 2012-03-14 and is reported as [2012] 19 taxmann.com 250 (Bom) / [2012] 206 Taxman 341 (Bom) / [2012] 345 ITR 71 (Bom) / [2012] 249 CTR 190 (Bom); Writ Petition Lodging No. 606 of 2012; assessment year 2009-10. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 226(3), section 177(3), section 161(1A), section 160(1)(iv), section 10(23D), section 61, section 63, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. This is interim protection with guidelines, not a final decision. The Court said expressly that the issue before it was confined to whether the Revenue could enforce the demand and the s.226(3) garnishee, that it was not called on to adjudicate the merits, and that it rendered no conclusive determination on the questions that would arise in the trust's pending appeal (para 9). It found the fund had a serious prima facie case, including on whether s.177(3) applied at all. The relief granted was that, pending disposal of the trust's appeal before the Commissioner (Appeals) and for six weeks thereafter, the Revenue must take no coercive step to enforce the demand of 29 February 2012 or the s.226(3) notice of 12 March 2012, and any attachment levied stood lifted (para 10). What survives generally are the five guidelines the Court laid down in para 9 for effecting recovery: no recovery pending the time to appeal or the disposal of a stay application and for a reasonable period after, unless the authority has reason to believe the assessee may defeat the demand and says why; stay applications to be disposed of after hearing the assessee and on the KEC International parameters; a departure from the treatment accepted in preceding years without a material change in facts or law is a relevant consideration; reasonable prior notice before withdrawing from an attached bank account; and the officer is to act as a quasi-judicial authority balancing the interest of the revenue against hardship to the assessee, not as a mere tax gatherer. It arises in Demand, Recovery & Stay matters, on section 226(3), section 177(3), section 161(1A), section 160(1)(iv), section 10(23D), section 61, section 63 of the Income Tax Act 1961, and was decided by Bombay High Court (Dr. D.Y. Chandrachud and M.S. Sanklecha, JJ.; judgment delivered by Dr. D.Y. Chandrachud, J.); Writ Petition Lodging No. 606 of 2012. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. If recovery begins while it is pending, put the dates in a single paragraph; the sequence is the case. Ask for a reasonable period after any adverse order before coercive steps, which this decision expressly requires.
Still good law. Followed by the Bombay High Court in BHIL Employees Welfare Fund No.4 v. ITO [2023] 147 taxmann.com 427 (Bombay), Writ Petition Nos. 315 and 316 of 2023, decided 7 January 2023, whose case review records this decision, the later UTI Mutual Fund v. ITO [2013] 31 taxmann.com 222 (Bombay) and Humuza Consultants v. Asstt. CIT [2022] 145 taxmann.com 495 (Bombay) as followed. Note how the guidelines actually work in practice: in Malco Energy Ltd. v. Asstt. CIT [2025] 171 taxmann.com 843 (Bombay), 4 February 2025, counsel relied on both UTI Mutual Fund decisions and KEC International to press for an unconditional stay, and the Court granted a stay conditional on a deposit of Rs 60 crore. The guidelines govern how a stay application must be dealt with; they do not entitle an assessee to unconditional stay. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
High Court - binding in Maharashtra and Goa, persuasive elsewhere. Two things to keep straight. First, the guidelines in para 9 are habitually cited on s.220(6) stay applications, but this judgment arose under s.226(3): the demand on the fund was made under s.177(3) and enforced by a garnishee notice to its bankers, and s.220(6) is nowhere in the judgment. Second, the order is interim. The Court said in terms that it was not adjudicating the merits and rendered no conclusive determination; the protection given ran only until six weeks after the securitisation trust's appeal before the Commissioner (Appeals) was disposed of. Guideline 1 carries a carve-out that is easy to lose: coercive steps may still be taken where the authority has reason to believe the assessee may defeat the demand, provided brief reasons are given. The companion decision is UTI Mutual Fund v. ITO [2013] 31 taxmann.com 222 (Bombay), decided 6 March 2013. The judgment does not decide whether the securitisation trust was rightly assessed as an association of persons, whether s.177(3) could be invoked against a beneficiary, or whether ss.61 and 63 applied; all were left to the appeal before the Commissioner (Appeals), whose outcome is not recorded. The report carries no citator banner, so whether the Revenue appealed is not established. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
This is interim protection with guidelines, not a final decision. The Court said expressly that the issue before it was confined to whether the Revenue could enforce the demand and the s.226(3) garnishee, that it was not called on to adjudicate the merits, and that it rendered no conclusive determination on the questions that would arise in the trust's pending appeal (para 9). It found the fund had a serious prima facie case, including on whether s.177(3) applied at all. The relief granted was that, pending disposal of the trust's appeal before the Commissioner (Appeals) and for six weeks thereafter, the Revenue must take no coercive step to enforce the demand of 29 February 2012 or the s.226(3) notice of 12 March 2012, and any attachment levied stood lifted (para 10). What survives generally are the five guidelines the Court laid down in para 9 for effecting recovery: no recovery pending the time to appeal or the disposal of a stay application and for a reasonable period after, unless the authority has reason to believe the assessee may defeat the demand and says why; stay applications to be disposed of after hearing the assessee and on the KEC International parameters; a departure from the treatment accepted in preceding years without a material change in facts or law is a relevant consideration; reasonable prior notice before withdrawing from an attached bank account; and the officer is to act as a quasi-judicial authority balancing the interest of the revenue against hardship to the assessee, not as a mere tax gatherer.
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