Whether deposits in PPF Account are immune from attachment for recovery of tax dues - YES: HC

THE issues before the Bench are - Whether deposits in PPF Account are immune from attachment for recovery of tax dues and Whether Rule 10 of Schedule II of the I-T Act exempts all such properties from attachment or sale. And the verdict goes in favour of the assessee.

Facts of the case

The Assessee is assessed as an individual. The Assessee had opened a PPF account under the Public Provident Fund Scheme, 1968. From time to time, the Assessee went on depositing various amounts in the said account. The Tax Recovery Officer, issued a notice u/s 226(3) to the Branch Manager of SBI stating that a sum of Rs. 25,16,790/- was due from the Assessee to the I.T department. His PPF account was therefore attached u/s 226 (3) and the amount lying in the said account may be remitted to the Tax Recovery Officer. The case of the Assessee was that the order of assessment giving rise to the Income-tax dues of the Assessee was under challenge before the Appellate Commissioner. Pending such appeal, the assessee had deposited substantial amount of taxes and that therefore, the rest of the demand was stayed.

Before the HC the Assessee's Counsel submitted that the amount outstanding in the assessee's PPF account cannot be attached for recovery of his tax dues. The Revenue's Counsel submitted that Section 9 of the PPF Act only pertained to the attachment under any decree or order of the Court in respect of any debt or liability incurred by the subscriber and had no reference to his Income-tax dues.

Having heard the parties, the HC held that,

++ to our mind, three provisions namely, 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 from any fund to which the Public Provident Fund Act, 1968 applies in so far as they are 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;

++ 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.