Bank a/c can be attached::Attachment Order issued by Tax Authorities

Attachment Order issued by Tax Authorities

The credit balance in the account of a customer of a  banker may be attached by the Income-Tax authorities, if the former defaults in  making payment payment of the tax due from him. Section 226 (3) of the Indian Income- Tax Act, 1961, authorizes the Income- Tax Act, 1961, authorities

the Income Tax Officer “to require by notice in writing any person from whom money is due or may become due the assesse  or any person who holds or may subsequently hold money for a or account of the assesse, to pay to the Income-Tax Officer an amount equal to or less than the amount of such arrears.” Thus, the order of the Income-Tax Officer may attach (i) any debts due and payable, (ii) debts due but not payable on the date of the receipt of the notice, and (iii) any amount received subsequently. Balances lying in a joint account may also be attached even though the notice is issued on a single account. The share of the joint holders in such account shall be presumed, until contrary in proved, to be equal. Thus the amount to the credit of  a joint account may be attached propata irrespective of the fact that the joint account is payable to ‘either or survivor’ or otherwise.

This section makes it obligatory for every person to whom such notice is issued to comply with such notice. In case of a banking company, it shall not be necessary for any pass book or deposit receipt or any other document to be produced for the purpose of any entry, endorsement, etc., before payment is made. After making payment as required under  this section, the banker shall be fully discharged from his liability to the assessee to the extent of the discharged from his liability to the assessee to the extent of the amount so paid. But if he fails  to make payment, he shall be deemed to be an assessee in default in respect of the amount specified in the notice and further proceedings may be taken against him for the realization of such amount. The banker should, therefore, comply with such order. His obligation towards his customer is reduced to that extent.

 Attachment order can be issued under other Acts also such as Sales Tax Acts, DRT Act etc.

Effects of attachment Order: The relationship between the banker and customer issuspended temporarily if the balance in the account is less than amount of order. Bank has no obligation to pay cheques issued by the depositor.

Application of order for different accounts & amounts

1.Accounts covered by the order: SB, current account, term deposit accounts (matured or not matured both), cash credit and overdraft accounts with credit balance.

2.Loan /overdraft against Fixed deposit : Surplus amount of margin is covered by the order.

3.Funds lying in the account of a deceased person are covered by the order.

4.Fixed deposits as collateral security with the bank: Not covered by the order.

5.Account of insolvent person, are not covered.

6.Cash credit and overdraft balance or un-used limit, are not covered by the order.

Amount covered by the order:

·       Amount with the bank when order was received and amount received subsequently, is covered.

·       Amount of cheque sent for clearing, where amount is still to be received by the bank, is not covered. But after clearing returning time, is over, the amount will be attached automatically.

·       Amount of cheques already debited, but payment not made to payee or where these are received in clearing and debited but clearing returning time is still not over, is covered.

·       Cheque purchased by the bank and amount credited to deposit account and not withdrawn by the customer, are covered by the order.

Capacity - Accounts should be held in the same name and same capacity (example as under).

Order in name of Account of Status:

Suppose one attachment order in the name of “A” is received by a branch of the account having following types of accounts:

Account in the individual name of “A”  -   Applicable

Account in the name of  A (as Trustee) – not applicable

Account in the name of  A & B -  order applicable on pro-rata basis.

Account in the name of  ABC Firm - Not applicable

Account in the name of “A” as proprietor of a  firm - Applicable

Account is in the name of a company wherein “A” is a director- Not applicable

Account is in the name “A”, a deceased – Not applicable

Account is in the name of “A” who is declared insolvent- Not applicable

If Attachment order in the name of A & B  and the account is also in the name of A & B  -  Applicable

If Attachment order is in the name of ABC firm and account is also in the name of  ABC firm  -  Applicable

If ABC Firm has a partner named “A” and the attachment order is in the name of “A” - Applicable

Order served on Head Office – Attachment order will be applicable on the branch even if it is served on Head Office, provided Head Office is given reasonable time to intimate its concerned branch.

Right of Set off & attachment order: On receipt of the order, bank is entitled to recover its own dues first, by exercising its right of set off.

Priority of payment of order: While making payment of attachment order and garnishee order, the priority shall be given to payment of attachment order.

Failure of the bank - If bank fails to comply with the attachment order, it shall be deemed to be an assess in default in respect of amount specified in the order.

Where order is not applicable:

1. Marked good for payment cheque.

2. Payment already made before receipt of order.

3. Where the banker has acknowledged the notice of assignment, the order will not apply to this amount.

4. It is applicable for the specific amount mentioned in the order and is not applicable beyond the stated amount.

5. Cash credit / Overdraft account – It is not applicable on limits sanctioned irrespective of the fact whether the limits are partially or fully utilised, since relationship in this case is of creditor/debtor and not debtor/creditor.

6. Different name in order -If the name of the assesse mentioned in the order does not match with the name on bank records, the order will be inapplicable.

7. Trust account -Account held in trust for order issued in the individual liability of the trustee.

8. Funds in other capacities - funds, goods or money held by the bank, other than a debtor, such as in safe custody, safe deposit lockers, funds in trust, cheques or bills sent on collection, sale proceeds of shares/securities still to be received, notice deposit, un-cleared balances in saving or current account, credits received after receipt of

garnishee order.