Collection and Recovery of Tax – Chapter XVII

1. Dictionary, meaning.

Collection – An act or process of collecting – or gathering Law Lexicon – To collect – when used with reference to – the collection of money, it often implies much more than the mere act of receiving the money.

Recovery – Law Lexicon – The word “Recover” has a technical meaning in law whereby it signifies, to recover by action and by the judgment of the court.

Tax Recovery

2. This Chapter contains Section 190 to 234.

Collection – Deduction at source – B – Section 1 90-206B

Collection at source – BB – Section 206C-206CA

Advance payment of tax – C – Section 207-219 Recovery – Chapter XVII – D – Section 220 to 232

3. Miscellaneous – Chapter XXIII

Section –         281

Section –         281B

4. The procedure for recovery is provided in Schedule II to the Income Tax Act, 1961.

Some important Rules are as under:

(i)  Rule 1 – provides definitions of certain words – Certificate, defaulter, execution, movable property, officer, etc.

(ii) Rule 2 – Notice to the defaulter after the certificate is drawn u/s 222 to pay within 15 days.

The provisions of this rule correspond to Rule 22(1), order 21 of the CPC. Under the Act, the notice is mandatory.

(iii) Rule 4 – Mode of Recovery.

(a)  by attachment and sale of movable property.

(b)  by attachment and sale of immovable property.

(c) by arrest of the defaulter and his detention in prison.

(d)   by appointing a receiver for the management of the defaulter’s movable and immovable property.

Speakers Note:

  • In order to be attachable under this chapter the property must be saleable property and the capable of being transferred.
  • Even benami property is capable of being attached.

(iv) Rule 6 – The scope of purchaser’s title is defined.

(1)  Rule 94, Order 21 of CPC.

(2) The implied covenant of absolute title in Section 55(2) of the Transfer of Property Act, 1882 is not applicable to sale in execution of Certificate.

The purchaser buys the property in such sale with all rights and defects.

Kunjikavna vs. Janaki (1957) Ker 321.

Caveat Emptor – let the purchaser beware.

Ahmedabad Municipal Corporation vs. Haji Abdul Gaffur AIR 1971 SC 101

(v) Rule 8 – procedure and order in which proceeds to be disposed off.

(vi) Rule 9 – Issue between the TRO and defaulters are not subject matter jurisdiction of civil courts unless and until there is a allegation of fraud.

(vii) Rule 10 – Provides for the properties which are exempt from attachment. Clause (2) of the Rule is very important. It vests discretion with TRO.

(viii) Rule 11 – Any person affected by the attachment or sale can raise objections before the TRO. Clause (6) provides that an order this Rule can be challenged by instituting a suit in a civil court.

5. Appeals against the order of TRO.

II Schedule Rule 86 of Income-tax Act, 1961, specifically provides right of appeals from the any original order passed by the TRO under the II Schedule, not being an order which is conclusive.

Such appeal shall be filed before the Principal Chief Commissioner of Income Tax (CCIT) or Commissioner of Income Tax (CIT) [II Schedule Rule 86(1)] Every appeal under the rule 86 is to be presented within 30 days from the date of order appealed against [II schedule Rule 86(2)].

Pending the decision of appeal, execution of the certificate may be stayed, if the appellate authority so direct. [II schedule Rule 86(3)].

An appeal can be preferred against the order of rejection of claim / objection to attachment or sale of property passed under rule 11 (Rule Eleven of II schedule).

An appeal can also be preferred against the order of TRO – confirming a sale under Rule 63 of II schedule [see (1977) 106 ITR 77 (Bom) – Balkisandas vs. Addl Collector]

6. Provisional Attachment u/s 281B

Section 281B with an intention to protect the interests of the revenue empowers the Assessing Officer for provisional attachment of any property belonging to the assessee. The conditions precedent is ‘during the pendency of any proceedings’. The provisional attachment can be effected after prior approved for the Principal Chief Commissioner or Chief Commissioner, Principal Commissioner or Commissioner, Principal Director General or Director General or Principal Director or Director. The sub-section (2) provides that the provisional attachment shall not continue after expiry of 6 months from the date of the order. However, the first proviso provides that the Principal Chief Commissioner or Chief Commissioner, Principal Commissioner or Commissioner, Principal Director General or Director General or Principal Director or Director after recording the reasons in writing can extend the period of provisional attachment cannot exceed two years. It is very important to note that while computing period of two years the period starting from the date of filing application before settlement commission u/s. 254C to the date of an order u/s. 245D( 1) shall be excluded.

Circular explaining the provision of section 281 B (1976) 102 ITR St. 9 (20) Gandhi Trading vs. Asst. CIT (1999) 239 ITR 337 (341) (Bom.)

The Hon’ble Andhra Pradesh High Court in the case of Society for integrated Development in Urban and Rural Areas v CIT (2001) 252 ITR 642 (AP), observed that the power given to the authorities under Section 28 1B must be exercised with extreme care and caution. It should neither be used as a tool to harass the assessee nor should it be used in a manner which may have an irreversible detrimental effect on the business of the assessee. Attachment of bank accounts and the trading assets should be resorted to only as a last resort. In any event, attachment under section 281 B should not be equated with attachment in the course of recovery proceedings. In this case the Hon’ble Court has recognized difference in the proceedings under Section 222 and Section 28 1B.

The Apex Court has held that the membership right in the Stock Exchange is not property of the assessee and therefore it cannot be attached under section 28 1B. Please refer to Stock Exchange, Ahemadabad v Asst. CIT (2001) 248 ITR 209(SC). Vinay Bhubana v Stock exchange Mumbai JT 1999 (S) SC 164 AIR COMPANY LAW. Stock Exchange, Bombay Vs. V.S. Kandalgaonkar 261 ITR 577.


Applicability: Section 226 is applicable in the following situations –

(a) No certificate u/s 222 has been drawn by the Tax Recovery Officer, then the Assessing Officer can recover the tax through the following modes.

(b) Where a certificate has been drawn u/s 222, the Tax Recovery Officer, without any prejudice to the modes of recovery specified in Section 222, can recover by any one or more of the other modes u/s 226.

Modes of Recovery

Mode Tax
due from
Arrears of tax
to be deducted
Payment of
Attachment of


[Section 226(2)]



Person paying salary to such person To the credit

of        Central


Not applicable

where           the

salary              is exempt      from
attachment under            the Code of civil



Order [Section




Any         person from        whom money is due or may become due to the Assessee or any person who holds any money  for Assessee jointly  with any other person To the credit

of  Central


Refer Pt. 3



from      money

belonging       to

Assessee lying in Court’s custody





money is

in Court’s custody

Court To the AO or

TRO to the

extent           of



8. What is a Certificate of Recovery u/s 222(1)?

Certificate of Recovery [Section 222(1)]: When an Assessee is in default or deemed to be in default in payment of tax, the Tax Recovery Officer may draw up a statement under his signature in Form No. 57 specifying the amount of arrears due from the Assessee. Such a statement is called certificate.

The Assessee cannot dispute the correctness of any certificate drawn up by the TRO on any ground. [Section 224]

It is lawful on the part of the TRO to cancel the certificate for any reason he thinks necessary so to do or to correct any clerical or arithmetical mistake therein. [Section 224]

9. Assessee in default –

Assessee deemed to be in default [section 220(4)]: the assessee shall be deemed to be in default if the amount specified in the notice u/s 156 is not paid within the time allowed or within such extended time u/s 220(3) Amount of default [Section 220(5)]: where the payment is allowed by installments, and if the assessee commits default in paying any one

installment, then amount of default shall be the whole amount outstanding at the time of default. All the subsequent installments shall be deemed to be in default on the same date as the installment actually in default. Circumstances under which the Assessee is not deemed to be in default:

(a)   If the Assessee presents an appeal to the CIT(Appeals), the Assessing Officer may, in his discretion and subject to such conditions as he may think fit to impose, treat the Assessee as not being in default as long as the appeal is not disposed of. [Section 220(6)]

(b)  Where the income of an Assessee arising in India is assessed in a Country where the laws prohibit or restrict the remittance of money to India, such as Assessee shall not be treated as Assessee in default in respect of tax due on the income which cannot be brought into India. [Section (220(7)]

(c)  Where the demand in dispute has arisen because the Assessing Officer has adopted an interpretation of law in respect of which there are conflicting High Court decisions and the Department has not accepted the interpretation of the Court, the Assessee shall not be deemed in default. [Circular No. 530/6-3-1989]

(d)  Where the demand in dispute relates to issues which are decided earlier in the Assessee’s favour by an appellate authority/Court in his own case (say, for preceding assessment years), the Assessee shall not be deemed to be in default to the extent of tax liability relatable to such disputed points. [Circular No. 530/6-3-1989]

As per section 220 the assessee is required to pay the tax with in of 30 days from the date of service of the demand notice at the place and to the person mentioned in the notice. For the service of notice the officer has to follow the procedure of order v Rule 17,18 & 19 of the CPC. Here it is important to note that service of a notice means something subsequent and distinct from the making of the order. Srevice of a notice of demand implies formal communication of the notice of demand after it has been made of the completion of proceedings.

In, Sri Mohan Wahi v CIT (2001) 248 ITR 799 (SC) the Hon’ble Apex Court held that valid service is mandatory, failure to serve notice recovery proceedings not valid.

If the notice of demand is sent by registered post. As per section 27 of the General Clauses Act 1897, presumption is service is proper. In CIT vs. Mulchand Surana (1958) 28 ITR 684 (Cal.). However, the presumption can be rebutted by filing an affidavit. When service on person if it is served on the adult family member is proper service. Though the Brother is not authorized to receive the notice of demand.

10. Recovery of Company Dues from director:

Under Section 179: Directors of a Private Company are personally liable for tax due if the person was director at any time during the period for which the tax is due ans cannot be recovered. Under the provisions of this section the directors are jointly and severally liable for the tax due. The provisions apply for a private company which is later converted into a public company.

  • Director is liable in respect of arrears of tax of company only for assessment year when he was functioning as a director; further arrears of company for period prior to its becoming deemed public company coumd not be recovered from director as held in the case of Arvind Kumar Gupta Vs. TRO 276 ITR 373 (All) .
  • Revenue has to establish that recovery of tax due cannot be made against company and then, and than alone would it be permissible for revenue to initiate action against the director or directors responsible for conducting affairs of company during the relevant accounting period as held in the case of Indubhai T. Patel Vs. ITO 146 Taxman 163 (Guj.).

11. Filing Appeal and Stay of Demand before the CIT and Tribunal

(i) Valid Appeal must be pending.

The appeal must be filed within 30 days of receipt of the order. An appeal filed beyond 30 days of service of the impugned order is not a valid appeal. It is very important to note that the appeal should satisfy the conditions. In Umesh Popatlal Shah v DCIT. The Mumbai tribunal held that the appeal should be treated as belated till the tax was paid and consequently condonation of delay to be considered, if there is no valid appeal is pending there is no question of granting an stay. Section 249 (4) refers only tax not interests under section 234 A, 234B and 234C not paid the appeal is maintainable. Subbaiah Nadar v Asst CIT (2003) 84 ITD 55 (Chenai). In Harsad Shantilal Mehata v Custodian & others (1998) 231 ITR 871 (SC) the apex court held that tax will not include interest and penalty.

12.  Stay by assessing officer.

Section 220(6) provides that where an assessee has preferred an appeal before the first appellate authority disputing any part or the shole of the amount demanded, the assessee may make an application to the assessing officer and the assessing officer may, in his discretion and subject to such conditions as he may think fit treat the assessee not being in default in respect of the amount in dispute even though, the time for payment has expired, as long as such appeal remains undisposed off. The discretion u/s 220(6) is to be exercised by the by the Assessing Officer and not the commissioner as held by the Kerala High Court in the case of Pradeep Ratanshi Vs Asst CIT 221 ITR 502 .

Here the A.O. has the power coupled with responsibility, he should use his discretion in the best possible manner ensuring there is no genuine hardship caused to the assessee at the same time ensure that there is no loss of revenue to the Government. In any case the A.O. shall provide reasons for granting stay or rejecting the same by passing an order in writing.

13.     Instruction For Recovery Of Tax Demands.

No 1914 -F. NO 404/72/93-ITCC dt 2-12-1993.

(i) Stay petition must be disposed of with in two weeks.

(ii) Appeal effect must be given with in two weeks of receipt of order.

(iii) Rectification application with in two weeks of receipt of application

(iv) Higher authorities should dispose of stay application with in two weeks.


  1. If issue decided earlier in favour buy appellate authority.
  2. Conflicting of decision of High Courts.
  3. Decision of High Court not accepted by the dept

Circular no 530 dt 6-3-1989 176 ITR (st) 240

Circular no 589 dt 16-1-1991.187 ITR (st) 79.

Assurance by Minister of Revenue Lok Sabha dt 11-12-70.

Office Memorandum no 404/72/93-ITCC dated 29/02/2016

Office Memorandum dated 31/07/2017 which is partial modification to O.M. 404

Request under section 220 (6) cannot be summarily being dismissed. Shri Sakarpal Vibag Jangal Kmdar Sahakari Mandali Ltd v ITO (1992) 198 ITR 68(Guj).

Instruction no 96F no 1/6/69 dt 21-8-1969 165 ITR 650 (Ker).N. RAJAN Nair v ITO (1987)

14. Guidelines For Tax Authorities To Stay The Recovery:

(i) KEC International Ltd v B. R. Balakrishnan (2001) 251 ITR 158 (BOM)

(ii) Golam Momen vs. Dy. CIT (2002) 256 ITR 754(Cal).

Where the income determined on assessment is more than twice the income returned, collection of tax should be stayed during appeal.

(iii) Maharana Shri Bhagwat Singahiji of Mewar v ITAT (1997) 223 ITR 192 (Raj).

15. Stay By Commissioner Of Income Tax.

(i)  Prem Pakash Tripathi v CIT (1994) 208 ITR 461 (ALL) (463,464).

(ii)  Paulsons Litho Works v ITO (1994) 208 ITR 676(Mad) (689).

(iii) Tin Mfg Co of India v CIT(1995) 212 ITR 451(All) 452.

(iv) Bongaigan Refinary & Petro Chemicals v CIT (1999) 239 ITR 873 (Gauh).

16. Stay by Tribunal. Rule 35 A of the Appellate Tribunal Rules. Rs 500 / Apendix X (E)

Stay petition before the tribunal can be filed only when a valid the appeal is pending before the tribunal. Therefore, when an appeal is pending before the CIT (A) commissioner rejected the stay cannot be filed before the tribunal. You have only remedy to approach High court under article 226 of the constitution of India

Unless the commissioner rejects the application the tribunal will not entertain the stay application.

If assessee agrees for installment and thereafter cannot approach for stay.

If commissioner refusing to give in writing for rejecting the stay the assessee has to file an affidavit stating the fact than only the stay will be kept for hearing.

17. Whether Separate Application Is Required For Each Appeal.

The Mumbai tribunal has held that one application is sufficient Chiranjilal vs. Goenka v WTO (2000) 66 TTJ (Mum) 728.However in Wipro Ltd v ITO (2003) 86 ITD 407 (Bang) separate application required to be filed for each appeal separately.

18. When application is pending the revenue authorities should not recover the tax.

(i) Mahindra & Mahindra Ltd v CCE (1992) ELT 505 (Bom).

(ii) RPG Enterprises Ltd v Dy CIT (2001) 251 ITR 20(AT)

(iii) Western Agencies (2003) 86 ITD 462(Mad)

(iv) Security and Detective Bureau ltd v Asst CIT (1993) 44 ITD 452 (Mad.)

19. Tribunal has power to pass interim order.

(i) Bulk India Transport co v CIT (2004) 266 ITR 144(ALL).

20. The tribunal power to stay the assessment proceedings.

(i)  Ritz Ltd v Vyas (1990) 185 ITR 311(Bom).

(ii) ITO v Khalid Mohdi Khan (1977) 110 ITR 79(AP).

(iii) Puranmal v ITO (1975) 98 ITR 39 (Pat).

21. Once the stay granted the appeals will have to be disposed on priority basis.

(i) Endeavourer Investments Ltd v Dy CIT (1999)70 ITD 17 (Chennai) (TM).

22. Time Limit For Stay Granted Appeals To Be Disposed Off :

Proviso to section 254 (2A) deals with the Time limit within which the stay granted matters should be disposed off. The time limit provided in the first proviso is 180days subject to the condition that the assessee deposits not less than twenty per cent of the amount of tax, interest, fee, penalty, or any other sum payable under the provisions of this Act, or furnishes security of equal amount in respect thereof and if no order was passed within the time limit then the stay granted stands vacated.

As per second proviso of Section 254(2A), no extension of stay shall be granted by the Appellate Tribunal, where such appeal is not so disposed of within the said period of stay as specified in the order of stay, unless the assessee makes an application and has complied with the condition referred to in the first proviso and the Appellate Tribunal is satisfied that the delay in disposing of the appeal is not attributable to the assessee, so however, that the aggregate of the period of stay originally allowed and the period of stay so extended shall not exceed three hundred and sixty-five days and the Appellate Tribunal shall dispose of the appeal within the period or periods of stay so extended or allowed

23. Priority for tax revenue over secured creditors.

Dena Bank v Bhikhabhai Prabhudass Parekh & co Ors (2001) 247 ITR 165 (SC). Tax due to Govt is crown Debt. Which was recognized by India High courts, prior to 1950 “Law in force “ within the meaning of Article 372(1) of the constitution of India and will have priority over others.

(i)  Circular no 551 dt. 23-1-1990. (1990) 183 ITR (ST) 7 (54) explaining the scope and effect of collection & recovery of tax.

Disclaimer: The contents of this article are for information purposes only and does not constitute advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer to relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up.  The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that Author / TaxGuru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.

(Republished with Amendments by Team Taxguru)

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  1. Rohan A. R. says:

    Hello Sir / madam
    I could not find the case cited by you (Kunjikavna vs. Janaki (1957) Ker 321.) I want to go through the case. will u please gaive me the exact citation.? or if ossible mail it to me..

    Thank you

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