Mohan, J.
1. This writ petition is for certiorari to quash the proceedings in T.R.C. No. 1 of 1974, on the file of the Tax Recovery Commissioner, Madras-I, Madras, dated February 11, 1975.
2. The short facts are as follows : The petitioner is an assessee on the file of the ITO, Circle V(2), Madras. In respect of taxes stated to be due from a firm carrying on business under the name 'R. R. Pictures', recovery proceedings were taken against her under Section 226(3) of the I.T. Act (hereinafter referred to as 'the Act'). By a notice dated March 6, 1973, the ITO (Administration and Collection), Central Circle XI, intimated that a sum of Rs, 12,05,208 is due from M/s. R. R. Pictures on account of taxes. She was called upon to pay forthwith any amount which is due from her to the said R. R. Pictures. No money was due from the petitioner to the said R. R. Pictures. Therefore, under the bona fide belief that there was no need to reply, she remained silent. On November 13, 1973, the ITO, Central Circle XIII, Madras, sent a letter to the petitioner stating that since no reply had been sent by her to the notice dated March 6, 1973, she was directed to send a copy of the account of R. R. Pictures as found in her books enclosing the latest transaction as on date. The letter further called upon her to show cause why she should not be treated as an 'assessee in default', under Section 226(3)(x) of the Act, in respect of the amounts specified therein, and why further proceedings may not be taken against her for the realisation of the amount due by her to the said 'R. R. Pictures'. Pursuant to this notice, the petitioner caused to be produced before the ITO, the books of Rajakumari Theatre which is her proprietary concern, on January 22, 1974. It was explained that no money was due by her to the said R. R. Pictures. On May 4, 1974, the ITO, Central Circle XIII, Madras, sent a letter to the petitioner intimating that the stand taken by her is untenable and, therefore, she would be treated as a defaulter under the provisions of Section 226(3)(x) of the Act. It was further stated that coercive steps would be taken against her for the recovery of the taxes due from R. R. Pictures, as if the arrears were due from the petitioner to the extent of Rs. 4,42,348. On August 22, 1974, a warrant of attachment was issued to her under Rule 48 of the 2nd Sch. to the Act, by the TRO, V, Madras, prohibiting her from charging or transferring the land and building bearing Door No. 134, Habibullah Road, T. Nagar, Madras, which is the residential house of the petitioner. Similarly, another warrant of attachment was served on her prohibiting her from charging or transferring Rajakumari Theatre belonging to her. The warrant of attachment was also served on her attaching the movable in her house. On receipt of the attachment warrants, the petitioner filed an appeal under Rule 86(1)(a) of the 2nd Sch. to the Act, to the Tax Recovery Commissioner stating that the entire proceedings were without jurisdiction and the attachments had to be raised. On this appeal, the TRC found that there was no dispute of the statement of fact that the claim of R. R. Pictures with reference to the sum of Rs. 4,42,348 from the petitioner had become time barred. Nevertheless, he held that the issuance of tax recovery certificate under Section 226 was proper and hence the attachments were valid. This is by an order dated February 11, 1975. Thus, the writ petition.
3. In the affidavit filed in support of the writ petition, it is stated that having found that the right of R. R. Pictures to recover the sum of Rs. 4,42,348 got time barred, the TRC should have held that the petitioner's denial of liability is true. Therefore, the ITO has no jurisdiction to call upon the petitioner to pay any amount in pursuance of his notice under Section 226(3) of the Act. Having regard to that finding, he should have concluded that the mandatory provisions of Section 226(3)(vi) prohibit the ITO from calling upon her to pay any amount. Thus the petitioner could not be held as having failed to pay any amount, nor could she be treated as an assessee in default. Inasmuch as the petitioner had denied her liability to the said R. R. Pictures, when the officer issued a notice under Section 226(3), he could not call upon the petitioner to pay any amount alleged to be due to the assessee, R. R. Pictures. It could not any longer be said that there was a failure on her part to pay. Therefore, the officer had no jurisdiction to treat the petitioner as an assessee in default, nor could he issue a certificate to the TRO. Equally, the TRO could not gain jurisdiction to make any attachment of her properties under Rule 48 of the 2nd Schedule.
4. When a notice is issued under Section 226(3) of the Act, it is for the purpose of recovering the tax due from the assessee by calling upon the assessee's debtor to pay the money due by him. It is in the nature of garnishee proceedings. Such proceedings could not be continued against the debtor when the right to recover the money is barred. The debtor is also entitled to urge the equitable plea to set off the money due to the creditor by him. In the circumstances stated, the monies advanced by R. R. Pictures to the petitioner were set off against the large amount of advance made by her to the partners of R. R. Pictures. Further, the claim of R. R. Pictures against the petitioner had become barred long ago. Hence, the proceedings under Section 226(3) of the Act could not be continued against her.
5. In opposing the stand of the petitioner in the counter-affidavit, it is stated :
The petitioner has admitted in her letter dated January 25, 1974, that a sum of Rs. 4,42,348 is due by her to R. R. Pictures, but according to her R. R. Pictures cannot recover this amount from her.
6. The proceeding under Section 226 was initiated against the petitioner after verifying from the books of R. R. Pictures, which showed that the aforesaid amount was due to the firm from the petitioner. The petitioner never objected to the notice under Section 226(3)(vi) by filing a statement on oath as required thereunder. In the absence of a statement on oath, the ITO was correct in proceeding under Section 226(3)(x) and in holding the petitioner as an assessee in default in respect of the sum found due from her to R. R. Pictures and in proceeding to recover the same from the petitioner. The petitioner herself has claimed the deduction of this liability of Rs. 4,42,348 in her wealth-tax return for the year ending March 31, 1970, and this was allowed.
7. The petitioner never availed of the opportunities given to her by the ITO and did not produce her personal account books to prove her case.
8. The petitioner did not claim before the ITO at any time that the sums received by her from R. R. Pictures were actually in discharge of the amounts which she claims to have spent on her brothers and cousin who are partners of R. R. Pictures. The Tax Recovery Commissioner was correct in rejecting the contentions of the petitioner as an after-thought and in dismissing the appeal.
9. Section 226(3) of the I.T. Act envisaged that money due from a person to an assessee can be recovered in respect of the arrears of the assessee. R. R. Pictures is the assessee in the instant case and is in arrears of tax. It is also admitted that the petitioner owes money to R. R. Pictures and the said sum is due from her. The petitioner's only objection is that R. R. Pictures cannot recover this amount from her on the ground of limitation. But even a time-barred debt is an amount due within the meaning of Section 226(3) of the I.T. Act. Therefore, the attachments made by the TRO, V, on the properties of the petitioner are perfectly valid. On this basis, it is contended that the TRO was correct in dismissing the appeal and the attachment of properties are in accordance with law.
10. Mr. S. Swaminathan, learned counsel for the petitioner, reiterating the stand taken in the affidavit, urges that having regard to the nature of the proceedings taken under Section 226 of the Act, which are similar to garnishee proceedings, if the debt could not be recovered from the debtor, when it had become time-barred, which is so in this case, the revenue cannot seek to recover that amount. Nor can the debtor be called upon to pay that amount. According to him, if the right to recover the money from the debtor is lost for some reason or other garnishee proceedings cannot be taken. The proceedings under Section 226 of the Act are in the nature of summary proceedings for enforcing the existing liabilities. It does not create any new right. Where, therefore, the liability had ceased to exist as against the principal debtor, the revenue cannot seek the recovery of the same. The word 'due' occurring under Section 226(3) must be held to be 'legally recoverable '. The mere existence of the liability does not clothe the officer with jurisdiction to take recovery proceedings under the said section. In support of this contention, reliance is placed on the passage occurring in the Supreme Court Practice, 1973, Vol. I, at pages 720 and 721 ; and also In re General Horticultural Company: Ex parte White-house [1886] 32 Ch D 512 , Glegg v. Bromley [1912] 3 KB 474 and Sinnott v. Bowden [1912] 2 Ch 414 . If there is a disputed liability, the mode of recovery contained in the section cannot be resorted to as laid down in Rajeswaramma v. 1TO : [1960]39ITR654(AP) and ITO v. Budha Pictures : [1967]65ITR620(SC) , . The word 'due' means a subsisting relationship of debtor and a creditor as decided in Southern Textiles Ltd. v. ITO : [1972]83ITR790(Mad) . In the instant case, there is no such relationship for the officer to assume jurisdiction. Relying on Arumugha Bhakthar v. Narasimha Iyengar, : AIR1961Mad299 and Hals-bury's Laws of England, 3rd edn., Vol. 16, page 83, it is contended, to initiate garnishee proceedings there must be an enforceable debt.
11. Mr. J. Jayaraman, learned counsel appearing for the revenue, very fairly submits that he does not want to go beyond the factual finding that the claim of R. R. Pictures against the petitioner had become,time-barred. However, it is contended by him that having regard to the language of Section 226(3), where the word 'due' occurs it must be held that notwithstanding the remedy of recovery of the debt being lost by the application of the Limitation Act, the liability does exist. Such a liability, therefore, could be enforced. It is not necessary that the debt must actually be recoverable from the debtor. The right to recover is there and it also could be recovered but for the bar of limitation. Therefore, it is not correct to contend that the word 'due' connotes an existing obligation. However, the learned counsel brings to our notice certain authorities which throw good deal of light to aid the construction of this provision, though the decisions do not support his stand. They are : Hansraj Gupta v. Dehra Dun Mussourie Electric Tramway Co. , New Delhi Municipal Committee v. Kalu Ram : AIR1976SC1637 and Malabar Petroleum Co. v. Continental Oil Co. Ltd. : AIR1963Mad307 .
12. Having regard to the stand of the revenue that the disputed question of fact that the amounts due from the petitioner to R. R. Pictures had become time-barred, we have only to construe the scope of Section 226(3) of the Act. The said section occurs under Part D of Chap. XVII which relates to 'Collection and recovery of tax '. S. 220 states as to when an assessee could be deemed to be in default. When any amount other than advance tax is required to be paid under notice of demand, if not paid within 35 days or within the extended period, as the case may be, the assessee is deemed to be in default. Such an assessee is liable to pay penalty also under Section 221. Once the assessee is in default or is deemed to be in default, the ITO may forward to the TRO, a certificate specifying the tax arrears due from the assessee. Armed with that certificate, the TRO takes recovery proceedings against the assessee by (i) attachment and sale of-the assessee's movable property ; (ii) attachment and sale of the assessee's immovable property; (iii) arrest of the assessee and his detention in prison ; and (iv) appointing a receiver for the management of the assessee's movable and immovable properties.
13. Section 226 contemplates other modes of recovery and Sub-section (3)(i) which is material for deciding the issue in question reads :
'The Income-tax Officer may, at any time or from time to time, by notice in writing require any person from whom money is due or may become due to the assessee or any person who holds or may subsequently hold money for or on account of the assessee, to pay to the Income-tax Officer either forthwith upon the money becoming due or being held or at or within the time specified in the notice (not being before the money becomes due or is held) so much of the money as is sufficient to pay the amount due by the assessee in receipt of arrears of the whole of the money when it is equal to or less than that amount.'
14. What exactly is the meaning of the word 'due', which occurs in more than one place under this Sub-section Does it mean factually due Or does it mean legally due In other words, where the debt is not legally recoverable from the debtor, is it open to the revenue to have resort to Section 226(3)(i) It cannot be gainsaid that this mode of recovery contemplated under this sub-section is in the nature of garnishee proceedings. If so construed, the question to be asked is, where the monies cannot be recovered by the principal from the debtor, because the debt had become time-barred, can it still be said the revenue could proceed against that debtor In the Law Lexicon of British India, by P. Ramanatha Aiyar, at page 367, 'due' is stated to mean 'As a noun, an existing obligation; an indebtedness ; a simple indebtedness without reference to the time of payment : a debt ascertained and fixed though payable in future; As an adjective, capable of being justly demanded; claimed as of right; owing and unpaid, remaining unpaid; payable...'. Learned author also cites Ex parte Cawley, 34 SJ 29, wherein it was held :
'A debt is still 'due' notwithstanding that the Statute of Limitations may have run against it, for that statute only bars the remedy and does not extinguish the debt.' From this decision, the learned counsel for the revenue draws succour.
In Hansrai Gupta v. Dehra Dun Mussourie Electric Tramway Co. :
, in dealing with the meaning of the words 'money due' occurring under Section 186 of the Indian Companies Act, 1913, it was held (see Headnote in : 'The words 'any money due from him or from the estate of the person whom he represented to the company' in Section 186 must be confined to money due and recoverable in a suit by the company and they do not include any moneys which at the date of the application under Section 186 could not have been so recovered.'
15. In so doing the Privy Council approved the decision reported in Sri Narain v. Liquidator, Union Bank of India, AIR 1924 Lah 53 and held at page 66 :
'Their Lordships are glad to find that this view has already prevailed in India. In the case of Shri Narain v. Liquidator, Union Bank of India, AIR 1924 Lah 53, it was held that a debt time-barred (and therefore unenforceable in suit) could not be enforced by a summary order under Section 186, on the ground that the section does not create new liabilities or confer new rights, but merely creates a summary procedure for enforcing existing liabilities.'
16. In Malabar Petroleum Co. v. Continental Oil Company Ltd. [1963] 2 Com LJ 38 ; [1963] 33 Comp Cas 367, dealing with Section 469 of the CompaniesAct (Act 1 of 1956), it was held (at page 369):
'...before an order for payment can be made under Section 469 (of the Companies Act, 1956), the applicant (official liquidator) must show that the amount is, 'due' and if under the law of limitation governing actions for recovery of money, the claim would be barred, it cannot be said that the amount is a sum 'due' within the meaning of section 469. The test will be if the company were to institute a suit as on the date of an application under Section 469, it would or would not be barred by time under the Indian Limitation Act, 1908.'
17. 'Any time' in Section 469(1) is not used with reference to limitation. The effect of the expression 'any time' is not that the court can make an order under the section without reference to the limitation prescribed by law. Hence a debt barred by time cannot be enforced by the liquidation court by a summary order under Section 469.
18. In New Delhi Municipal Committee v. Kalu Ram : AIR1976SC1637 , in construing the word 'payable' occurring under Section 7 of the Public Premises (Eviction of Unauthorised Occupants) Act, 1958, it was held (p. 1639):
'The word 'payable' is somewhat indefinite in import and its meaning must be gathered from the context in which it occurs. 'Payable' generally means that which should be paid. If the person in arrears raises a dispute as to the amount, the Estate Officer in determining the amount payable cannot ignore the existing laws. If the recovery of any amount is barred by the law of limitation, it is difficult to hold that the Estate Officer could still insist that the said amount was payable. When a duty is cast on an authority to determine the arrears of rent, the determination must be in accordance with law. Section 7 only provides a special procedure for the realisation of rent in arrears and does not constitute a source or foundation of a right to claim a debt otherwise time-barred. Construing the expression 'any money due' in Section 186 of the Indian Companies Act, 1913, the Privy Council holds in Hansraj Gupta v. Official Liquidators of the Dehra Dun Mussourie Electric Tramway Company Ltd. :, that this meant moneys due and recoverable in a suit by the company, and observed : ' It is a section which creates a special procedure for obtaining payment of moneys; it is not a section which purports to create a foundation upon which to base a claim for payment. It creates no new rights.' We are clear that the word 'payable' in Section 7, in the context in which it occurs, means 'legally recoverable'. Admittedly a suit to recover the arrears instituted on the day the order under Section 7 was made would have been barred by limitation. The amount in question was therefore irrecoverable.'
19. It would readily be seen that the decision of the Privy Council, cited above, had been accepted as correct by the Supreme Court.
20. The proceedings under Section 226 of the Act are summary proceedings intended for enforcing the existing liabilities. It is no doubt true, the law of limitation merely bars the remedy without touching the right. But does it mean a liability which cannot be recovered in law, could be recovered by the revenue Our answer should be 'no', because such a liability does not exist in law. Further, no new right is created in favour of the revenue. It is in this connection, we have to note that the proceedings under this section are in the nature of garnishee proceedings. As to what is the right of a garnishee is to be gathered from the Supreme Court Practice, 1973, Vol. 1, at page 721, wherein it is stated :
'It is essential that the relation of creditor and debtor should exist between the judgment debtor and the garnishee. If the judgment-debtor could sue the garnishee for the amount and recover it, it is plain that there would be an attachable debt ; but this is not an infallible test.'
21. Again it is stated :
'A judgment creditor cannot, by means of attachment, stand in a better position as regards the garnishee than the judgment-debtor did ; he can only obtain what the judgment-debtor could, honestly give him: (Chitty J., at p. 516), Re General Horticultural Co.: Ex-parte Whitehouse [1886] 32 Ch D 512, Glegg v. Bromley [1912] 3 KB 474 and Sinnott v. Bowden [1912] 2 Ch 414 .'
22. In Halsbury's Laws, of England, 3rd edn., Vol. 16, at page 83, in paragraph 124, it is stated :
'The debt must be one which the judgment-debtor could himself enforce within the jurisdiction for his own benefit; for the creditor acquires no larger rights than those of the debtor.'
23. Again in paragraph 125, it is stated :
'Money in the hands of a third person, where the relation of debtor and creditor does not exist between him and the judgment-debtor, cannot be attached.'
24. In the instant case, once the debt became time-barred, there was no subsisting legal relationship as 'debtor and creditor'. Therefore, we conclude that where the right of recovery is lost to the creditor, garnishee proceedings cannot be taken.
25. In Rajeswaramma v. ITO : [1960]39ITR654(AP) in construing the scope of Section 46(5A) of the Act (of 1922), the forerunner to the present section, viz., Section 226(3), it was held :
'The provision, it seems to me, is intended to apply only to an admitted liability.'
26. Again in ITO v. Budha Pictures : [1967]65ITR620(SC) in construingthe same sub-section, their Lordships of the Supreme Court held atpage 624 :
'It seems to us that the High Court was right in holding that what was contemplated was the subsistence of a similar relationship as between a garnished and the assessee. This construction of the sub-section is strengthened by the last paragraph in Section 46(5A).' In Southern Textiles Ltd. v. ITO : [1972]83ITR790(Mad) , the ITO gave notice to the writ petitioner under Section 226(3)(vi) to pay over certain monies due by the petitioner to another company which was in arrears of tax and sought to recover the same. The petitioner contended that no money was due to the company by the petitioner. Hence, the liability for payment was disputed. Under those circumstances, a Division Bench of this court, to which one of us was a party, held at page 793 : 'The bone of contention between the parties, as we appreciate from the material on record, is that the petitioner as garnishee says that the sum demanded by the Income-tax Officer is not due to Messrs. Textools, the assessee, or in any event, their case is that they do not hold any money for or on account of the assessee. The revenue, however, is insistent that the petitioner should be deemed to be a person legally responsible to pay the amount demanded by them to Messrs. Textools, But, as the petitioner has come up to this court even at the stage when the Income-tax Officer did not fully go into the question so as to find whether the contention of the petitioner is bona fide, false or otherwise, the revenue did not have any opportunity to discover whether the statements made by the petitioner were false in any material particular. Section 226(3)(vi) read as a whole, lays on the shoulders of the revenue, the responsibility to discover in cases like the one before us whether the statements made by the garnishee are false in any material particular. That has not been undertaken so far by the revenue and it is not very clear from the record whether all the materials were placed by the petitioner and the assessee to enable the Income-tax Officer to discover the falsity or otherwise of such particulars made available before him. In those circumstances and as we are not inclined in our discretion to engage ourselves in such an enquiry for discovery, we refrain from making the rule absolute but would give a direction instead so that the matter may be readverted to by the Income-tax Officer in the correct perspective as required by law.'
27. Having regard to the above decision, we necessarily hold that where the jural relationship of debtor and creditor does not exist, the mode of recovery under Section 226(3) cannot be resorted to, since they are in the nature of garnishee proceedings. In passing, we have also to note that this sub-section will have to be construed strictly. In fact, in Behari Lal Ram Charan Kothi v. ITO : [1972]84ITR113(All) :
'The mode prescribed by Section 226(3) for recovering arrears of tax has vested in the Income-tax Officer a special jurisdiction. It is a jurisdiction which extends beyond that ordinarily enjoyed by the Income-tax Officer in the matter of recovering arrears of tax. It is a jurisdiction directed against a person who is not the assessee, but who has been selected by the statute because money is due or may become due from him to the assessee or he holds money or may subsequently hold money for or on account of the assessee. The jurisdiction extends not merely to requiring such person to pay the amount of the arrears to the Income-tax Officer, but further to treating him as an assessee in default where he does not pay. It is a serious matter for a person to be exposed to such a proceeding, where the only reason is that he is or may become a debtor of the assessee or holds or may hold money for or on account of him. In our opinion, the powers conferred upon the Income-tax Officer by Section 226(3) are intended to be exercised with the greatest caution, and should be construed strictly.'
28. If we are to hold as contended by the revenue that since the law of limitation does not extinguish a right but merely bars the right to recover under the ordinary law, we would be conferring a greater power on the revenue which would be clearly against the spirit of the sub-section. That would cause a serious inroad into the rights of a person who himself is not the assessee, but who happens to owe money to the assessee or money may become due from him to the assessee.
29. In the view taken by us, as above, we find that the reasoning of the CIT under the impugned order dated February 11, 1975, is hardly supportable.
30. In the result, we allow the writ petition, and the rule nisi is made absolute. The petitioner will be entitled to her costs. Counsel's fee Rs. 250.