JUDGMENT
Mrs. Sujata Manohar, J.
1. In this writ petition, the petitioner has challenged a letter dated May 6, 1991, addressed by respondent No. 1 the Deputy Commissioner of Income-tax, to respondent No. 3, the Oil and Natural Gas Commission (ONGC).
2. The petitioner is a company incorporated under the laws of South Korea. On September 27, 1982, the petitioner-company entered into a contract with respondent No. 3 (ONGC) for the fabrication of water injection platform facilities at Bombay High. The contract, inter alia, provided that the tax liabilities of the petitioner-company would be borne by respondent No. 3 and that if there was any change in Indian law which affected economically the position of the petitioner, respondent No. 3 would compensate if for the extra costs.
3. The petitioner-company, in turn, entered into a sub-contract with an Italian concern known as “Micoperi S.P.A.” which is dated December 5, 1982. This Contract contained clauses similar to the clauses in the Contract between the petitioner-company and respondent No. 3 (ONGC) relating to the payment of tax liabilities of Micoperi by the petitioner-company and any change in Indian law which might affect economically the position of Micoperi S.P.A. Under the Contract dated December 5, 1982, the petitioner company agreed, inter alia, to pay the tax liabilities of Micoperi. S.P.A.
4. After these contracts were entered into, under a Notification No. G.S.R. 304(E) dated March 31, 1983, issued under section 6(6) and section 7(7) of the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976, the Central Government extended the Income-tax Act, 1961, to the Continental Shelf of India with effect from April 1, 1983, subject to certain restrictions specified therein. As a result, Micoperi S.P.A. has been subjected to income-tax assessment under the Income-tax Act, 1961. Several proceedings have taken place in this connection which we need not go into. Ultimately, on March 15, 1991, a fresh assessment was made by respondent No. 1 in respect of the assessment year 1985-86 under which the income of Micoperi S.P.A. was determined at Rs. 12,95,00,309 and their liability for tax and interest was determined at Rs. 14,48,97,084. This assessment is under challenge in proceedings under the Income-tax Act.
5. On May 6, 1991, the Deputy Commissioner of Income-tax, Special Range, Bombay has addressed a letter to the Deputy Director of respondent No. 3. The subject of the letter is “Recovery of tax in the case of Messrs. Micoperi, S.P.A. – assessment year 1985-86”. The letter says that the above mentioned case is for the assessment year 1985-86 and was completed on March 15, 1991. The assessee-company had shown receipts from the contract with Messrs. Hyundai Heavy Industries (the Petitioner) for the year under consideration. The tax liability pertaining to Messrs. Hyundai Heavy Industries inclusive of interest is to be the tune of Rs. 14.88 Crores. The tax liability of the assessee-company (i.e. Messrs. Micoperi, S.P.A.) is to be borne by Messrs. Hyundai Heavy Industries. As Messrs, Hyundai Heavy Industries is a non-resident company, the collection of tax at a later stage may create problems. The first respondent, therefore requested the Oil and Natural Gas Commission (ONGC) to withhold a sum of Rs. 10 to 12 crores form the payments which are still due to Messrs. Hyundai Heavy Industries. In other words, by this letter, the first respondent has asked the third respondent not to pay Rs. 10 to 12 crores to the petitioner-company in view of the tax liabilities of Micoperi, S.P.A.
6. Under section 226(3) of the Income-tax Act, 1961, the Assessing Officer or the Tax Recovery Officer may, by notice in writing 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 an account of the assessee, to pay to the Assessing Officer or Tax Recovery Officer so much of the money as is sufficient to pay the amount due by the assessee.
7. In the present case, the assessee is Micoperi S.P.A. and its tax liability of the assessment year 1985-86 has been determined at over Rs. 14 crores. The third respondent, however has not entered into any contractual relation with Micoperi S.P. A. nor is any money due from the third any money on account of Micoperi S.P.A. The provisions of Section 226(3) therefore, are not attracted at all in case like the present one. The letter dated May 6, 1991, also does not state in terms that it is issued under section 226(3). We are not shown any other provision of the Income-tax Act, 1961, under which such a letter could been issued. In the premises, the letter dated May 6, 1991, is without any authority of law.
8. In this connection, our attention was drawn to a decision of this court in the case of McDermott International Inc. (No. 1) v. Union of India [1988] 173 ITR 155, delivered by one of us (Mrs. Sujata Manohar J.). In a similar situation, it was held that under section 226(3), the Income-tax Officer can require, by a notice in writing, only such persons 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 such money.
9. It is also pointed out by the petitioner-company that Income-tax Department cannot take advantage of any agreement between the assessee and the petitioner-company or between the petitioner-company and respondent No. 3 under which the parties may have contracted in respect of the discharge of the tax liabilities of one by the other.
10. In the case of CEPT v. Ramnath Bajoria [1951] 19 ITR 79, the Calcutta High Court said that even if B was liable under an agreement with A to discharge the income-tax and excess profits tax liabilities, of A, the income-tax authorities could not take advantage of the provision of that agreement and make B liable.
11. In the case of Iqtida Khan v. ITO [1961] 41 ITR 165, the Division Bench of the Allahabad High Court Considered a converse case where A and B were the partners of a firm having equal shares. A having migrated to Pakistan, was declared an evacuee and his half share in the firm vested in the Custodian of Evacuee property. The Competent Officer passed an order directing the sale of the assets of the firm and the other partner, B. B purchased the assets if the firm in the sale which was free from any encumbrance for any tax payable in respect of the business of the firm. In recovery proceedings, B claimed that neither the assets of the firm his properties could be proceeded against and the amount of tax due from A was realisable from the Custodian. The court said that the fact that the assets of the firm were sold free from encumbrances or that the liability of A to pay the tax was on the Custodian was of no effect. It might be that as between B and the Custodian, the ultimate responsibility for its payment was on the latter. But so far as the income-tax authorities were concerned they had a right under section 44 of the Indian Income-tax Act, 1922, to realise the amount from B. In other words, the private agreement between the parties relating to discharge of tax liability would not affect the right of the income-tax authorities to recover the dues from the person who was liable under the provisions of the Income-tax Act.
12. In the premises, any agreement entered into between the third respondent and the petitioner-company and between the petitioner-company and the assessee, pertaining to the discharge of the tax liability, cannot be availed of by the income-tax authorities. In the present case, there is not even an agreement between the third respondent and the assessee, Micoperi S.P.A., for discharge of the assessee’s tax liabilities. The agreement is between Micoperi S.P.A. and the petitioner. There is a similar agreement between the petitioner and respondent No. 3. But respondent No. 3 has not agreed to discharge the tax liabilities of Micoperi S. P.A. We have also been told that there is a subsequent agreement dated April 10, 1985, between the petitioner-company and the assessee, Micoperi S.P.A., as also an agreement dated January 23, 1987, between the petitioner-company and the ONGC under which all claims inter se have been finally settled. In view of the position in law set out above, we need not examine these agreements any further.
13. In the premises, the rule is made absolute in terms of prayer (a). Respondents Nos. 1 and 2, their servants and agents are also restrained from recovering the said sum of Rs. 14,48,97,084 or any part thereof from respondent No. 3 under the agreement of the petitioner with Micoperi S.P.A. dated December 5, 1982, and from directing the third respondent to withhold the above sum or any part thereof from out of the amount due by respondent No. 3 to the petitioner-company.
14. Rule is made absolute accordingly with costs.
15. Certified copy expedited.