CA Sandeep Kanoi
Hon’ble Gujarat HC has held in the case of Dineshchandra Bhailalbhai Gandhi VS. TRO has held that deposits in PPF Account are immune from attachment for recovery of tax dues and Rule 10 of Schedule II of the I-T Act exempts all such properties from attachment or sale.
Brief facts of the Case
Petitioner has challenged action of the respondent in attaching and recovering an amount of Rs. 9,05,000/= from the Public Provident Fund account [PPF account] of the petitioner. The petitioner is assessed as an individual by the Income tax Department.
The respondent Tax Recovery Officer, Surat issued a notice dated 25th February 2005 under section 226(3) of the Income tax Act, 1961 to the Branch Manager of Salabatpur Branch of the State Bank of India stating that a sum of Rs. 25,16,790/= is due from the petitioner to the Income tax Department. His PPF account is therefore attached under section 226 (3) of the Act and the amount lying in the said account may be remitted to the Tax Recovery Officer.
Contention of the Assessee
Petitioner placed heavy reliance on Section 9 of the Public Provident Fund Act, 1968 to contend that the amount outstanding in the petitioner’s PPF account cannot be attached for recovery of his tax dues. He also relied on Rule 10 of Schedule II to the Income tax Act, 1961 in this respect. Our attention was drawn to Section 60 of the Civil Procedure Code to contend that the amount in the PPF account cannot be attached.
Contention of the Revenue
Department opposed the petition contending that Section 9 of the PPF Act only pertains to the attachment under any decree or order of the Court in respect of any debt or liability incurred by the subscriber and has no reference to his incometax dues. He relied on CBDT circular dated 7th November 1990 in which it is clarified as under :‑
“It has been clarified by the C.B.D.T and the Ministry of Law that Section 9 of the Public Provident Fund applies only to attachment under a decree/order of a Court of Law and not to attachment by the Income Tax Authorities. In view of this clarification, the amount standing to the credit of subscriber in PPF Account shall be liable to attachment under any order of income tax authorities in respect of debt or liability incurred by the subscriber.”
Held by High Court
Section 9 of the PPF Act, 1968 Rule 10 of Schedule II to the Income tax Act, 1961 and clause (ka) to the proviso to Section 60(1) of the Code of Civil Procedure complete a full circuit, making any amount lying in the public provident fund of a subscriber immune from attachment and sale for recovery of the income tax dues. We may recall that Rule 10 of Schedule II to the Income tax Act, 1961 exempts all such properties as by the Civil Procedure Code are exempted from attachment and sale in execution of a decree of a civil court from attachment and sale under the said schedule. In turn, clause (ka) of the provision to Section 60 (1) of the Code of Civil Procedure provides that all deposits and other sums in or derived fromany fund to which the Public Provident Fund Act, 1968 applies in so far as theyare declaring by the said Act not to be liable to attachment, shall not be liable for attachment or sale under the Code. This brings us right back to Section 9 of the PPF Act, 1968 which provides that the amount standing to the credit of any subscriber shall not be liable to attachment under any decree or order of any Court in respect of any debt or liability incurred by the subscriber.
In case of Union of India v. Smt. Hira Devi & Anr., reported in AIR 1952 SC 227, the Apex Court held and observed that the compulsory deposit made in the Provident Fund under Section 2 (1) of the Provident Fund Act, 1925 is not liable to attachment. It was observed that the prohibition against the assignment or the attachment of such compulsory deposits is based on grounds of public policy.
Considering the benevolent provisions of the PPF Act, 1968 and taking harmonious construction of the relevant provisions of the PPF Act read with the provisions of the Civil Procedure Code and the provisions contained in the Income tax Act, 1961 for recovery of the tax dues, it clearly emerges that as long as an amount remains invested in a PPF account of an individual, the same would be immune from attachment from recovery of the tax dues. The situation may change as and when such amount is withdrawn and paid over to the subscriber, which is not the situation in the present case. In our opinion, the clarification issued by the CBDT does not take into account the provisions of Rule 10 of the Second Schedule to the Income tax Act, 1961 and the provisions of Section 60(1) of the Code of Civil Procedure. The said clarification is contrary to such statutory provisions.
In the result, writ petition is allowed. Action of the respondent in first attaching and thereafter unilaterally withdrawing a sum of Rs. 9,05,000/= from the PPF account of the petitioner is quashed. Rule is made absolute.