RE: Legal Opinion regarding the hold instruction given by the Tax Authority against A/c Mr. x.
We refer to your letter dated 4 February 2007 on the same subject.
From perusal of your letter it appears that Mr. x, son of ………………. is availing a personal loan and Car loan from BANK 1. The total outstanding of the loan is BDT 1,198,477/-.
Now BANK 1 has received a letter dated 09 October 2006 from the Tax Authority with hold instruction on A/c Mr. x for BDT 3,005,257/- in favour of the Tax Authority.
You now seek our legal opinion as to whether BANK 1 is legally obliged to comply with the hold instruction given by the Tax Authority.
The relevant provisions of Section 143 of the Income Tax Ordinance, 1984 (the “Ordinance”) is as follows:
“143. Other modes of recovery
(1) Notwithstanding the issue of a certificate for recovery of tax under section 138 or section 142, the Deputy Commissioner of Taxes may also recover the tax in the manner provided in sub-section (1A) or (2)……
(2) For the purposes of recovery of any tax payable by an assessee, the Deputy Commissioner of Taxes may, by notice in writing, require any person –
(a) from whom any money or goods is due or may become due to the assessee, or who holds, or controls the receipt or disposal of, or may subsequently hold, or control the receipt or disposal of, any money or goods belonging to, or on account of, the assessee, to pay to the Deputy Commissioner of Taxes the sum specified in the notice on or before the date specified therein for such payment; ……
(3) A person who has paid any sum as required by sub-section (2)(a) shall be deemed to have paid such sum under the authority of the assessee and the receipt by the Deputy Commissioner of Taxes shall constitute a good and sufficient discharge of the liability of such person to the assessee to the extent of the sum specified in the receipt….
(5) If the person to whom a notice under sub-section (2) is sent fails to make payment or to make deductions in pursuance of the notice, he shall be deemed to be an assessee in default in respect of the amount specified in the notice and proceedings may be taken against him for realisation of the amount as if it were an arrear of tax due from him; and the provisions of this Chapter shall apply accordingly.”
The letter from the Tax Authority dated 09.10.2006 provided to us appears to be incomplete i.e. only half of the page seems to be scanned. From this incomplete letter, it is not possible to decipher whether or not this letter was sent by the Deputy Commissioner of Taxes. We give our opinion assuming that the letter was sent by the Deputy Commissioner of Taxes.
In view of the above provision of the Ordinance, BANK 1 is legally obliged to comply with the request of the Deputy Commissioner of Taxes where BANK 1 holds, or controls the receipt or disposal of, or may subsequently hold, or control the receipt or disposal of, any money belonging to, or on account of Mr. x.
However since substantial amount is due from the Assessee by the Bank, BANK 1 should adjust its liabilities by setting off the account and then pay to the Income Tax Authority the balance amount if any. If there is no amount after adjustment of liabilities of the Assessee
with BANK 1, then BANK 1 should inform the Income Tax Authority of the actual situation and also the fact that there is no excess amount which can be paid to the Income Tax Authority.
In this regard, Bank must obtain receipt from the concerned Deputy Commissioner of Taxes regarding the amount to be paid to the said Deputy Commissioner. As stated in section 143(3) of the Ordinance, the receipt shall constitute a good and sufficient discharge of the liability of the Bank to the account holder to the extent of the sum specified in the receipt.
If you have any further query, please do not hesitate to contact the undersigned.
For: “The Lawyers & Jurists”