Section 226(3)

Section 226(3) — the law in short

What the courts have decided on section 226(3), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Saumya Chaurasia v Union of India High CourtHelps departmentNo later treatment found
  CBDT Circular 24/2019 says prosecution under s.276C(1) is to be launched only after the ITAT confirms the penalty. My appeal is still before the CIT(A). Can the sanction under s.279(1) be quashed on that ground?
  Not where the amount sought to be evaded exceeds Rs.25 lakh. On the Delhi High Court's reading of Circular No.24/2019 dated 09.09.2019 as clarified by Circular No.5/2020 dated 23.01.2020, the requirement of prior administrative approval of a collegium of two CCIT/DGIT rank officers, and the direction that prosecution be launched only after the ITAT confirms the penalty, are addressed to cases at or below the Rs.25 lakh threshold; above it the approval of the sanctioning authority, the Principal Commissioner, suffices and no pre-condition is attached. The challenge to Circular 5/2020 under Article 14 was rejected.
• Kundlas Loh Udyog v Union of India High CourtHelps taxpayerJudgment not reachable
  The officer has attached my cash credit account under 226(3). Can an unutilised overdraft limit be garnished?
  No. Section 226(3) is garnishee machinery: it reaches money due to the assessee or held for him, which presupposes a debtor-creditor relationship. A bank that has merely sanctioned a cash credit or overdraft limit owes the customer nothing until it is drawn — if anything, drawing makes the customer the debtor.
• Sonal Nimish Patel v ACIT (Gujarat) High CourtHelps taxpayerNo later treatment found
  The department has passed an order under s.179 making me liable for my company's tax. Must the notice first show that recovery from the company failed?
  Yes. That the tax cannot be recovered from the company is a condition precedent to any action under s.179, and the satisfaction of it must appear in the show-cause notice and in the order itself. A notice silent on what steps were taken against the company cannot be saved by explaining it later in an affidavit-in-reply. The order and the consequential s.226(3) notices to the banks were quashed.
• Bhupendra Murji Shah v DCIT High CourtHelps taxpayer
  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?
  The Bombay High Court directed that during the pendency of the appeals the assessee not be called upon to pay any sum, much less 20%, and that any attachment on his bank account be raised forthwith. The reasoning is that a statutory right of appeal must not be rendered illusory and nugatory by recovery that would make the appeal infructuous before it is heard. But read the order to the end: the Court itself said it cannot be treated as a precedent for all cases of this nature.
• Madhya Pradesh Audyogik Kendra Vikas Nigam Ltd v DCIT High CourtHelps departmentNo later treatment found
  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?
  Not if the payment you point to was self-assessment tax paid against your own returned income, and not against the assessment demand. The Court upheld the garnishee notice to the bank: the assessee was obliged under the CBDT circulars to pay 20% of the outstanding demand, it had not done so, and the department was therefore justified in proceeding under s.226(3).
• Sony India Pvt Ltd v Additional CIT (Delhi) High CourtHelps taxpayerNo later treatment found
  The AO rejected my stay application and issued a garnishee notice to my bank the same day. Is that permissible?
  The Delhi High Court held that issuing a notice under s.226(3) on the very day the stay application was rejected, and emptying the bank account two days later, carried an element of impropriety and arbitrariness, even though it could not be said to be illegal. The Court ordered the money reversed to the account and restrained coercive steps until the Tribunal decided the stay application.
• UTI Mutual Fund v ITO High CourtHelps taxpayer
  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.
• Purnima Das v Union of India High CourtHelps taxpayerNo later treatment found
  Your bank account was attached while the stay application was still pending. Was that lawful?
  On this reasoning, no. Section 226(3)(iii) uses 'shall', so notice to you before attachment is mandatory, and where a stay application is on file with an appeal pending the officer should decide it before attaching.
• KEC International Ltd v B.R. Balakrishnan High CourtHelps taxpayer
  What is the officer actually required to do when deciding your stay application?
  Five parameters, four of them addressed to the officer deciding the stay application: set out the assessee's case briefly, give short prima facie reasons if directing a part deposit, indicate whether the assessee is financially sound where financial difficulty is pleaded, and check whether the time to appeal has expired. Coercive measures should generally not be used during the appeal period unless the authority concludes the assessee is likely to defeat the demand. The fifth parameter is addressed to the administrative authority above him, which need not give a second reasoned order if those four have been complied with.
• ACIT v Om Prakash Gattani High CourtCuts both ways
  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?
  He may be right on the first and is wrong on the second. This is the foundational decision holding that s.205 bars any recovery from the deductee once tax has in fact been deducted, whether or not the deductor paid it over - the garnishee notices under s.226(3) were quashed - while at the same time holding that credit under s.199 is contingent on the tax being paid to the Central Government, so the Assessing Officer's note withholding credit until proof of payment was allowed to stand.
• Nawal Kishore Chowdhury v ITO High CourtHelps taxpayer
  The department has treated my client's trust as revocable, taxed the income in the settlor's hands, and is now attaching the trust's rents under s.226(3) to recover the settlor's arrears for a string of other years. Can it do that?
  Not on that basis. Section 65 is the only route by which the person in whose name the asset stands can be made to pay, and it permits recovery only on the service of a notice of demand on that person and only of the portion of the tax levied on the assessee which is attributable to the income so included. Where no such notice was served, and where the demand covers years and amounts unrelated to the trust income, s.65 has been breached and the recovery notices are liable to be quashed.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.