1. Writ petition under Article 226 challenging income tax assessment notices and orders issued under the Saurashtra Income Tax Ordinance for escaped income. (Para 1 , 3 )
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1964 Supreme(SC) 352
SUPREME COURT OF INDIA
P.B. Gajendragadkar, C.J.I.,K.N. Wanchoo, M. Hidayatullah, J.C. Shah, N. Rajagopala Ayyangar, JJ.
Lalji Haridas - Appellant
Versus
R.H. Bhatt and another - Respondent
Civil Appeal No. 793 of 1963
Decided On : 05-08-1964
Important Points
Writ jurisdiction under Article 226 cannot be used to supersede the authority of income tax officers to decide on the merits of an assessment, including pleas of limitation or protective assessment, which must be raised before the tax authorities.
Subject
Tax Law - Income Tax
Act Referred
Headnote
(A) Constitution of India - Article 226 - Saurashtra Income tax Ordinance, 1949 - Section 46(l)(a) - India Income Tax Act - Section 34(1)(a) - Writ jurisdiction - Challenge to income tax assessment - Plea of limitation and protective assessment - Jurisdiction of High Court under Article 226 is not intended to supersede the jurisdiction and authority of income tax officers to deal with the merits of all the contentions that the assessees may raise before them - It would be entirely inappropriate to permit an assessee to move the High Court under Article 226 in a matter which the income tax authorities must consider on the merits in the light of the relevant evidence. (Para 7)
(B) Writ Petition - Scope - Pleas regarding the validity of a notice being barred by time or claims that other persons have been taxed for the same transactions are matters of merit to be decided by the assessing officer and cannot be the basis for a writ petition under Article 226. (Paras 7, 9)
Facts of the case:
An assessee was issued a notice for income escaping assessment and subsequently an assessment order was passed. Following an appeal, the matter was remanded to the assessing officer for further examination of witnesses. Instead of complying with the remand directions and appearing before the assessing officer, the assessee filed a writ petition in the High Court seeking to quash the notices and the assessment order. The High Court dismissed the petition in limine, leading to an appeal by special leave before the Supreme Court.
Findings of Court:
The court found that the appellant's attempts to raise issues of limitation and protective assessment were inappropriate for a writ proceeding and should have been raised before the tax authorities. The court observed that the appellant had adopted judicial proceedings to prolong the assessment and postpone final disposal.
Issues: Whether the High Court under Article 226 should entertain challenges to the validity of tax notices on grounds of limitation or merits of assessment that are within the jurisdiction of the income tax authorities.
Ratio Decidendi: The jurisdiction conferred under Article 226 is not meant to bypass the statutory authority of income tax officers to adjudicate on the merits of an assessee's contentions. Matters such as limitation and the identity of the taxable person must be addressed before the tax authorities rather than through writ proceedings.
Result: Appeal fails and is dismissed with costs.
(B) Writ Petition - Scope - Pleas regarding the validity of a notice being barred by time or claims that other persons have been taxed for the same transactions are matters of merit to be decided by the assessing officer and cannot be the basis for a writ petition under Article 226. (Paras 7, 9)
Facts of the case:
An assessee was issued a notice for income escaping assessment and subsequently an assessment order was passed. Following an appeal, the matter was remanded to the assessing officer for further examination of witnesses. Instead of complying with the remand directions and appearing before the assessing officer, the assessee filed a writ petition in the High Court seeking to quash the notices and the assessment order. The High Court dismissed the petition in limine, leading to an appeal by special leave before the Supreme Court.
Findings of Court:
The court found that the appellant's attempts to raise issues of limitation and protective assessment were inappropriate for a writ proceeding and should have been raised before the tax authorities. The court observed that the appellant had adopted judicial proceedings to prolong the assessment and postpone final disposal.
Issues: Whether the High Court under Article 226 should entertain challenges to the validity of tax notices on grounds of limitation or merits of assessment that are within the jurisdiction of the income tax authorities.
Ratio Decidendi: The jurisdiction conferred under Article 226 is not meant to bypass the statutory authority of income tax officers to adjudicate on the merits of an assessee's contentions. Matters such as limitation and the identity of the taxable person must be addressed before the tax authorities rather than through writ proceedings.
Result: Appeal fails and is dismissed with costs.
Legal Category Hierarchy
Advocates Appeared:
For the Appellant :G.S. Pathak, Senior Advocate (B. Dutta and T.A. Ramachandran, Advocates and O.C. Mathur, J.B. Dadachanji and Ravinder Narain, Advocates of J.B. Dadachanji and Co.
For the Respondent:C.K. Daphtary, Attorney-General for India (N.D. Karkhanis and B.R.G.K. Achar, Advocates.
For the Appellant :G.S. Pathak, Senior Advocate (B. Dutta and T.A. Ramachandran, Advocates and O.C. Mathur, J.B. Dadachanji and Ravinder Narain, Advocates of J.B. Dadachanji and Co.
For the Respondent:C.K. Daphtary, Attorney-General for India (N.D. Karkhanis and B.R.G.K. Achar, Advocates.
Table of Contents
2. Validity of the governing Ordinance, notices barred by limitation, and existence of protective assessments regarding the same transactions. (Para 6 , 7 , 9 )
3. Writ jurisdiction under Article 226 cannot supersede the authority of income tax officers to decide merits, limitation, or factual disputes. (Para 7 , 9 )
4. Pleas regarding limitation or merits of assessment must be raised before the income tax authorities and cannot be adjudicated via Article 226 writ proceedings. (Para 7 , 9 )
5. Appeal dismissed with costs. (Para 10 )
6. Can a taxpayer challenge the limitation period of an income tax notice through a writ petition under Article 226?
No. Pleas regarding limitation must ordinarily be raised before the Income Tax Officer. Article 226 jurisdiction is not intended to supersede the authority of tax officers to deal with the merits of such contentions. (Para 7 )
7. Can a claim of protective assessment or double taxation be raised in a writ petition under Article 226?
No. Such points must be raised before the Income Tax Officer. Furthermore, allegations regarding other persons being taxed must be stated on oath rather than as vague understandings. (Para 9 )
8. What is the court's view on using judicial proceedings to delay tax assessments?
The court observed that assessees may adopt judicial proceedings available under law to prolong assessment proceedings and indefinitely postpone final disposal by income tax authorities. (Para 2 )
JUDGMENT :
Gajendragadkar, CJI.
This appeal by special leave arises out of a writ petition Died by the appellant Lalji Haridas in the High Court of Gujarat under Article 226 of the Constitution in which he prayed for a writ including a writ in the nature of certiorari against Respondent 1, the Income Tax Officer, Ward D, Jamnagar, as well as Respondent 2, the Union of India, quashing two notices issued by Respondent 1 against him on 14th April, 1960 and the 7th July. 1960. He also prayed that the assessment order passed against him by the Income Tax Officer on 17th December, 1958 should likewise be quashed. This petition was dismissed by the High Court in limine without issuing notice to the respondents. Against the dismissal of his petition, the appellant applied for and obtained special leave from this Court and it is with the special leave thus granted to him that the appeal has come before us for final disposal today.
2. Having heard Mr Pathak on behalf of the appellant, we have come to the conclusion that there is no substance in this appeal and it must be dismissed with costs. In fact, this appeal illustrates how an assesses can prolong the assessment proceedings by adopting judicial proceedings available to him under the law and thereby postpone indefinitely the final disposal of the said proceedings by the income tax authorities.
3. The appellant is the resident of Jamnagar and the order of assessment as passed against him on 17th December, 1958 assessing him to pay income tax on Rs. 4,74,046. Before making this order of assessment, notice had been issued against the appellant on the 20th December, 1957 under Section 46(l)(a) of the SAURASHTRA INCOME TAX ORDINANCE , 1949. This section corresponds to Section 34(1)(a) of the India Income Tax Act. It appears that Respondent 1 came to know the for Assessment Year 1949-50, a large amount of income received by the appellant had escaped assessment. That is why notice was issued against him calling upon him to make a return of his income for the relevant year. The appellant thereupon made a return showing an income of Rs. 46 for the year in question. Respondent 1 had come to know that several amounts had been credited m the account-books of the appellant and appeared to represent his income. On the 24th October, 1948, for instance, two sums of Rs. 1 lakh each had been credited in the names of M/s Bhagirath Madangopal & Co., Bombay, and Mulji Manilal Kamdar respectively. The latter amount was subsequently transferred to the account of another firm of M/s Bhagirath Kasat & Co. On the 7th of March, 1949, another sum of Rs. 1,80,000 was transferred to the said company. Further credits to the tune of Rs. 74,000 and Rs. 20,000 were also discovered. In submitting his return, the appellant attempted to say that these amounts did not represent his income at all and showed "Benami" transactions entered into by him on behalf of other persons. Respondent 1 was not satisfied with the explanation given by the appellant, and so, he passed the order of assessment as indicated above.
4. Against this order of assessment, the appellant preferred an appeal to the Appellate Assistant Commissioner of Income tax, Rajkot. Before the Appellate Authority, the appellant contended that all his witnesses were not allowed to be examined by Respondent 1 and that some of the evidence which was being given by his witnesses was also not properly recorded. The Appellate Authority partly accepted his contention and by its order passed on the 3rd September, 1959, it remanded the proceedings to Respondent 1 and directed him to submit a report after examining the witnesses whom the appellant wanted to cite. Even while making this order of remand, the Appellate Assistant Commissioner commented on the fact that the appellant appeared to be determined to adopt dilatory proceedings and delay as much as he can the final disposal of the proceedings taken against him.
5. After the matter was thus remanded to Respondent 1, the
