Landmark Judgements of Supreme Court on Section 156 [Notice of demand]

Service of demand notice of demand under section 156 is mandatory before initiating recovery proceedings and constitutes foundation of subsequent recovery proceedings

Section 222, read with Schedule II and sections 225 and 156, of the Income-tax Act, 1961 - Sale of property in question was held on 11.01.1980 but TRO was injuncted by writ of civil court from confirming sale - Interim order issued by civil court ceased to operate on 12.01.1998 - In meanwhile demand against assessee stood reduced to nil and ITO as also TRO had been informed about that through letter dated 22.11.1996. However, order of confirmation of sale was passed on 25.03.1998 by TRO ignoring this important event. Between date of sale and actual passing of order confirming sale if an event happens or a fact comes to notice of TRO which goes to root of matter TRO may refuse to pass order confirming sale. In view of facts within knowledge of department, TRO was unjustified in confirming sale on 25.03.1998 and he was obliged to annul same. Further service of notice of demand on assessee under section 156 is mandatory before taking steps for recovery under Second Schedule and a sale held in recovery proceedings initiated without serving notice of demand shall be invalid. Since in instant case, finding of fact recorded by Tribunal was that notice of demand was not served on assessee, assessee could neither have been deemed to be in default nor any proceedings for recovery of tax could have been initiated against him. – [Mohan Wahi v. CIT (2001) 248 ITR 799 : 167 CTR 86 : 116 Taxman 63 (SC)]

Form I.T.N.S 150 is also a form for determination of tax payable and when it is signed or initialled by the Assessing Officer, it is certainly an order in writing by the Assessing Officer determining the tax payable within the meaning of section 143(3). The said form also contains the calculation of interest payable on the tax assessed. This form must, therefore, be treated as part of the assessment order

Assessment was completed as per assessment order and tax was duly determined on reverse side of notice of demand issued under section 156. Both were signed by ITO simultaneously. There is no statutory requirement that both computations, that is, of total income as well as tax payable, should be done on same sheet of paper, that is, assessment order, no fault can be found with process if tax payable is computed on a different sheet of paper and ITO approves of it, either immediately or sometime later. In view of aforesaid, it could be concluded that statutory provision had been duly complied with and assessment order was not in any manner vitiated. However, Department should adopt practice of incorporating tax calculations in assessment order itself, or make ITNS 150 an annexure to form part of assessment order. - [Kalyankumar Ray v. CIT (1991) 191 ITR 634 : 102 CTR 188 (SC)]

Tax can be recovered from an assessee only when it becomes a debt due from him and it becomes a debt due when notice of demand calling for payment of tax has been served on assessee - Where ITO make application under section 226(4) for recovery of tax to court in which there is money lying to credit of assessee in default and if assessee objects to said recovery proceeding under section 226(9) on ground that there has been no valid service of notice of demand and that therefore, no debt is due, Court must decide objection, and if it upholds objection, it cannot permit recovery of tax claimed