Taxation

Procedure of Collection and Recovery of Tax

Recovery of Tax

Generally, upon the completion of the Income-tax assessment, the tax department issues a notice u/s 156 of the ITA 1961 for the enforcement of collection of tax demand, which the assessee must pay within 30 days from the date of service of the notice as per Sec- 220(1) of the Act.  The failure in respect of the same would make the assessee a defaulter u/s 220(4) of the Act, and consequently, the department shall initiate the recovery proceedings in terms of Sections 222 and 226 of the Act.

The present article shall discuss the procedure of collection and recovery of tax as per the IT Act 1961 to provide a better understanding of the same.

What is the Procedure for the Collection and Recovery Of Tax?

The procedure for collection and recovery of tax is provided in section 222 of the IT Act, which is discussed below –

The proceedings for collection and recovery of tax can be initiated. The TRO can initiate the proceedings for collection and recovery of the tax amount specified in such certification in the event of the assessee being in default or is deemed to be the payment of the same by the below-mentioned modes of recovery.

  • Attachment and sale of movable property
  • Attachment and sale of immovable property 
  • Assessee’s arrest and his detention in prison 
  • Appointing a receiver for managing the movable and immovable properties of the assessee

Which TRO Can Initiate the Collection and Recovery of Tax

Only that TRO within whose jurisdiction the assessee conducts the business/ profession or the principal place of business is situated or where the residence or any movable, immovable property of the assessee is located

Validity of the Certificate and its Cancellation/ Amendment

The assessee cannot dispute the correctness of the certificate issued by the TRO. However, it is well within the powers of the TRO to cancel the certificate if it is deemed necessary or corrects any clerical or arithmetical mistake in the same

Stay on Recovery Proceedings

The TRO is empowered to grant time to the assessee for the payment of tax, and while doing so, he shall put a stay on the recovery p[proceedings until the expiration of the time so granted by  him 

If the order regarding the issue of the recovery certificate has been preferred for appeal and the amount of the demand of tax has been reduced as a result of such an order, but the order is still subject to further appeal, the TRO can put a stay on the recovery of such part of the amount specified in the certificate pertaining to the said reduction for the period of the pendency the appeal or other proceeding remains pending and amend or cancel the certificate accordingly after the order of the appeal has become conclusive and final.

What are the Other Modes of Recovery of Tax?  

In cases where the certificate of recovery hasn’t been drawn, the AO can recover tax through the following modes of recovery –

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Deduction from Salary

If the assessee receives income through the salary, the AO can recover the tax payable by the assessee through deducting such amount from his salary, and such person shall be required to comply with any such requisition and make the payment of the sum so deducted to the credit of the Central Govt[1] or as directed by the board.

But any part of the salary which has been exempt from attachment in execution of the decree of a civil court shall be exempted from any requisition made under this subsection.

Collection of Tax by the money owed to the Assessee

  • If any person owes any money to the defaulter assessee, The AO or the TRO may, through issuing a written notice from time to time, require  that person to make  such payment to the AO or TRO rather than the assessee in order to recover the amount of tax as defaulted by the assessee
  •  The copy of such notice shall be sent o the assessee as well at the last address known to such officers as well as to the joint holders in the case of a joint account.
  • Every person to whom such notice has been issued must comply with such notice, particularly in the event of any such notice being issued to a   banking company, post office, or an insurer,  the production of any passbook, deposit receipt, policy, or any other document won’t be necessary for any entry, endorsement or the like being made prior to the payment being made, despite any practice, rule or requirement to the contrary.
  • Any claim with respect to any property relating to there has been the issuance of notice under this sub-section after the date of the notice would be void as against any demand contained in the notice.
  • Where the receiver of the notice provides the objection by a statement on oath that the alleged sum or any part of it so demanded isn’t due to the assessee or that he doesn’t hold any money for or on account of the assessee, the notice won’t be required to make such payment, but if such statement is discovered to be false in any material particular, such person would have a personal liability to the officers to the extent of his own liability to the assessee as on the date of the notice,  the assessee’s liability for any sum due under ITA whichever is less.
  •  The relevant officers, at any time or from time to time, do the amendment or revocation of any notice issued under this sub-section or provide an extension of time for making any payment in section 226 in pursuance of such notice.
  • The relevant officer shall grant a receipt for any amount paid in adherence with a notice issued under this subsection, and the person making such payment shall be fully discharged from his liability to the taxpayer o the extent of the amount so paid.
  • Any person who discharges any liability to the assessee subsequent to the receipt of a notice would be personally liable to the AO or TRO to the extent of his own liability to the assessee so discharged of the assessee’s liability for any sum due under ITA, whichever is less.
  • Upon the failure of the person in making the payment in pursuance thereof to the officers he shall be considered to be an assessee in default pertaining to the amount as specified in the notice and any further proceedings may be initiated against him for the recovering the amount as an arrear of tax due from him, in the manner enumerated in sec – 222 to 225  & the notice shall have the exact same effect as an attachment of a debt by the TRO in the exercise of his powers under section 222.
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Applying to the Court for payment of money in  the  custody

Of the court

The  TRO or AO  may apply to the court having custody of the assessee’s money for paying him the entire amount of that money, or in case it is greater than the tax due, an amount sufficient for discharging the tax.

Distraint and Sale of Movable Property

The AO/ TRO may,  only after having the authorization from the  Commissioner or Chief Commissioner by special or general order, recover any arrears of tax so due from the taxpayer by sale and distraint of his movable property in the prescribed manner under the Third Schedule.

Recovery of tax through State Government

If the authority of tax recovery in any area has been entrusted to a State Govt., it may direct,  regarding that area or any part of the same, that tax shall be recovered and additionally any municipal tax or local rate, by the same person in an identical manner as the municipal tax at local rate is recovered.

Recovery of Tax as a Result Of an Agreement with Foreign Countries

Where  the Central Govt has entered into an agreement  with the Govt of any country outside India for recovery of income tax under ITA  and the corresponding law  of  that country and the Govt of that country or any authority under that Govt.  which is specified in this behalf in such agreement sends a certificate for the recovery of any tax due under  that  corresponding law from a person  that has any property in India to the board, it may forward such certificate to any TRO having  jurisdiction of  such property is situated and thereupon such TRO shall

 a) proceed towards  recovering the specified  amount in the  same manner in which he would  follow for a certificate drawn up by him u/s  222; and

b) remit any sum that has been recovered by him to the Board after the deduction of his expenses regarding the recovery proceedings.

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Section 228A(2) states that where an assessee is in default or is considered to be in default  with regard to payment of tax regarding the property, the TRO may forward to the Board a certificate  issued up by him u/s 222 and the Board may take appropriate action as deemed fit by it and duly considering the terms of the agreement, with that  country if the assessee has property in a country outside India  with which the Central Govt has entered into an agreement for the recovery of tax under this Act and the corresponding law in force in that country)

Recovery of Fines, Penalties, Interest And Other Sums

Any sum imposed as interest, penalty,  fine, or any other sum to be paid under the provisions of this Act shall be recovered in the prescribed manner.

Section 230 – Tax Clearance Certificate

Section 230  states that no person who is not domiciled in India,  and has come to India  for the purpose of business, profession or employment, and  derives income from any source in India shall leave the territory of  the country  by sea land or air unless he provides  an undertaking in the prescribed form from his employer, or by whom such person is in receipt of the income to the effect that tax payable by such person who is not domiciled in this country  must  be paid by the employer as  provided in clause (i) or the person referred to in clause (ii), and the prescribed authority shall, on receipt of the undertaking, immediately give to such person a no objection certificate, for leaving India:

The provision won’t apply to foreign tourists who are not domiciled in India and visit India for any other purposes not related to business, profession or employment.

Recovery By Suit or Under Other Law Unaffected

 Sec-  232 of the Act provides that the various modes of recovery specified  herein won’t affect

  • Any other law  subsisting for the time being in force  regarding  the recovery of debts due to the Government; or
  • Government’s right with regard to the institution of suit for the recovery of the arrears which is due from the assessee; and it would be lawful for the AO or the Govt,  depending upon the case, to have recourse to any such law or suit,  despite the fact that the due tax is being recovered from the assessee by any mode provided herewith.

Conclusion

The assessee must ensure timely payment of taxes to avoid the initiation of proceedings regarding the collection and recovery of tax. However, if any such scenario arises, he must be aware of the procedure in respect of the same, along with the various modes of recovery of tax.

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