My bank says the income tax department has attached my account. What did they use, and can a third party resist?
Section 226(3) is the garnishee power: a written notice to anyone holding money for you, requiring them to pay it over. Section 222 and the Second Schedule are the wider machinery, allowing attachment and sale of movable and immovable property, arrest and detention, and appointment of a receiver. A third party's protection is the sworn objection under s.226(3)(vi) and the claim procedure in Rule 11.
There are two distinct routes and it is worth knowing which one you are looking at. Section 226(3) is the quick one. The Assessing Officer or the Tax Recovery Officer issues a written notice to any person from whom money is due to the assessee, or who holds money for or on account of the assessee, requiring him to pay so much of it as is enough to meet the arrears. Banks are the classic target, but so are debtors, tenants and customers. A copy of the notice must be forwarded to the assessee at his last known address — that is a requirement of clause (iii), not a courtesy.
The person who pays gets protected. Clause (viii) gives him a receipt and a full discharge of his liability to the assessee to the extent paid, so a bank that honours a valid notice is not exposed to the customer. The person who ignores it is not protected: clause (x) deems him an assessee in default in respect of the amount, and proceedings under ss.222 to 225 can be taken against him personally.
Between those two positions sits the objection. Under clause (vi), a recipient who says the sum is not due to the assessee, or that he does not hold any money for the assessee, may say so by a statement on oath, and if he does, he is not required to pay. That is the third party's real protection. The consequence of a false statement is severe — he becomes personally liable to the extent of his own liability to the assessee or the assessee's arrears, whichever is less — but the officer cannot simply decide on his own that the affidavit is false. In Uttar Pradesh Carbon and Chemicals Ltd v. TRO, 368 ITR 384 (All), the Allahabad High Court held that the officer must give notice that he proposes to hold an inquiry and actually hold one, and that s.226(3) is meant for an admitted liability, not for adjudicating a bona fide dispute between the garnishee and the assessee. Where there is a genuine dispute, it belongs in a civil court.
The other route starts with s.222. When an assessee is in default or deemed to be in default, the Assessing Officer forwards a certificate to the Tax Recovery Officer specifying the arrears, and the TRO may then proceed by attachment and sale of movable property, attachment and sale of immovable property, arrest of the assessee and detention in prison, or appointment of a receiver for the assessee's properties. Sub-section (2) makes clear that a certificate can be issued even though recovery by another mode has already been attempted, so the modes are cumulative rather than sequential.
The Second Schedule then supplies the procedure. Rule 2 requires the TRO to serve a notice on the defaulter to pay within fifteen days. Rule 10 imports the exemptions from attachment in the Code of Civil Procedure, 1908, so property exempt from attachment in execution of a civil decree is exempt here too. Rule 16 stops the defaulter dealing with his property: once the notice is served he cannot mortgage, charge, lease or otherwise deal with any property except with the TRO's permission, and private transfers after attachment are void as against claims enforceable under the attachment.
Rule 11 is the third-party route on this side. Where someone objects that attached property is his and not the defaulter's, the TRO investigates whether the claimant had an interest in the property at the relevant date. Rule 11(6) then preserves the civil remedy: the party against whom the TRO decides may institute a suit in a civil court to establish his right, and subject to the result of that suit the TRO's order is conclusive. That is why a TRO's decision on ownership is not the last word — but you have to sue, and until you do the order stands.
A garnishee notice can empty an operating bank account without warning, and a business's customers can be told to pay the department instead of the business. Knowing that a copy of the notice must come to you, that a genuine dispute can be met by a sworn objection, and that a third party's ownership claim survives via Rule 11(6), is the difference between a temporary problem and a permanent loss.
My assessment was reduced in appeal after the officer had already sent a recovery certificate to the Collector and my property was attached. Can he carry on with the old certificate?
The TRO has attached property the defaulter transferred years ago and calls the transfer void. Can he do that?
The deductor deducted my tax and never deposited it. The Assessing Officer says he cannot give me credit until the money reaches the treasury, and has attached my bank account. Is he right on both counts?
My appeal is filed and part-heard, but the Assessing Officer says pay 20% or recovery continues, and my bank account is attached. What can the High Court do?
What is the officer actually required to do when deciding your stay application?
The officer has attached my cash credit account under 226(3). Can an unutilised overdraft limit be garnished?
I bought a property at the liquidator's e-auction. The Income Tax Department had attached it before the liquidation started and the Sub-Registrar will not register my sale deed. Where do I stand?
The department has attached my bank account under s.226(3) because I did not pay the 20%. I say I have already paid more than that. Will the High Court interfere?
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