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High Court Of Delhi
VASHIST BHARGAVA - Appellant
Versus
INCOME TAX OFFICER, SALARY CIRCLE - Respondent
Civil 1098 of 1973
Decided On : 12/10/1974
INCOME TAX - Reassessment - Information - Meaning - Whether payment of interest to Provident Fund amounts to expenditure incurred in connection with transfer of house - Whether writ Court can refuse relief to petitioner on grounds of conduct, injustice or positive injustice - Held, yes.
Fact of the Case:
Petitioner, a retired Judge of the Supreme Court, took a loan of Rs. 65,000 from his Provident Fund as a non-refundable advance in 1958-59 and spent it along with his own Rs. 13,000 in buying and reconstructing a house at Allahabad. He sold the said house in 1967 for Rs. 1,25,000 without obtaining the prior permission of the Government. As the petitioner parted with the possession of the house contrary to rule 7-E (1) of the Indian Civil Service Provident Fund Rules, the sum withdrawn by him became payable together with interest thereon amounting to Rs. 27. 932 by him as the subscriber to the Fund under rule 7-E (2). The petitioner paid the amount with interest to his Fund accordingly. In calculating income-tax payable on “capital gains” under section 48 of the Act, the petitioner deducted from the sale proceeds of the house the interest of Rs. 27,932 as expenditure incurred wholly and exclusively in connection with the transfer of the house in addition to the cost of acquisition of the said house.
Finding of the Court:
1. The payment of interest by the petitioner to the Provident Fund did not amount to an expenditure incurred by him in connection with the transfer of his house within the meaning of section 48 of the Act. 2. The money paid by the petitioner by way of interest went into his own account in the Provident Fund and remained his own money. 3. The Court has the discretion to refuse relief to the petitioner on grounds of conduct, injustice or positive injustice.
Issues: 1. Whether the notice under section 148 read with section 147 (b) was issued with jurisdiction? 2. Whether the petitioner has suffered no injustice by the issue of the impugned notice? 3. Whether positive injustice would result if the relief prayed for is granted to the petitioner?
Ratio Decidendi: 1. The information that the interest was paid to the Fund and not to the Government was not given by the petitioner to the Income-Tax Officer. The Income-Tax Officer, out of regard, to the petitioner, made the assessment solely relaying on the representation and the return made by the petitioner. 2. The payment of interest to the Fund meant a payment to the petitioner himself inasmuch as the account in the Provident Fund belonged to the petitioner and that the interest remained the property of the petitioner even after the payment to the Fund. 3. The Court has the discretion to refuse relief to the petitioner if (a) the conduct of the petitioner is such as to disentitle him to the relief, (b) he has not suffered any injustice, or (c) that the grant of the relief to him would result in injustice.
Final Decision: Writ petition dismissed with costs.
( 1 ) TWO questions are raised by this writ petition. The first relates to the true meaning of the word "information" in section 147 (b) of the Income-Tax Act, 1961 (hereinafter called "the Act" in short ). This has received enough attention in judicial decisions to produce a conflict between them. The resulting uncertainty makes further discussion necessary. The second is so fundamental as to require careful consideration to reach a definitive conclusion. It is this :-Can the writ Court refuse to grant the relief to a petitioner on such grounds as (a) his conduct, or (b) he has not suffered any injustice, or (c) that the grant of the relief to him would result in injustice.
( 2 ) THE petition raising these questions is filed by the petitioner who belonged to the former Indian Civil Service was a former Chief Justice of a High Court and is now a retired Judge of the Supreme Court on the following facts :-
THE petitioner took a loan of Rs. 65,000 from his Provident Fund as a non-refundable advance in 1958-59 and spent it along with his own Rs. 13,000 in buying and re-constructing a house at Allahabad. He sold the said house in 1967 for Rs. 1,25,000 without obtaining the prior permission of the Government. As the petitioner parted with the possession of the house contrary to rule 7-E (1) of the Indian Civil Service Provident Fund Rules (hereafter called "the Rules" in short), the sum withdrawn by him became payable together with interest thereon amounting to Rs. 27. 932 by him as the subscriber to the Fund under rule 7-E (2 ). The petitioner paid the amount with interest to his Fund accordingly. In calculating income-tax payable on "capital gains" under section 48 of the Act, the petitioner deducted from the sale proceeds of the house the interest of Rs. 27,932 as expenditure incurred wholly and exclusively in connection with the transfer of the house in addition to the cost of acquisition of the said house. In doing so, the petitioner stated that on the sale of the house "it became necessary to refund this Sum of Rs. 65,000 together with interest amounting to Rs. 27,932 as calculated by the Accountant-General, Central Revenues. Consequently, a total sum of Rs. 92,932. 00 was paid to the Accountant- General, Central Revenues. The amount of interest of Rs. 27,932. 00 is expenditure laid out wholly and exclusively in connection with the transfer of the house, because, under the terms of the advance from the Government, this interest was compulsorily payable on the sale of the house, so that the capital gain by selling the house could not possibly be earned without making this payment to the Government. " The Income-Tax Officer assessed the income-tax on "capital gains" solely on the basis of the representation made by the petitioner on March 26, 1973, however a notice under section 148 of the Act was issued to the petitioner by the Income-Tax Officer staling that the latter had reason to believe that the petitioner s income chargeable to tax had escaped assessment within the meaning of section 147 of the Act. When the petitioner asked the Income-Tax Officer as to what was the subsequent information received on the basis of which the latter proposed to make a re-assessment, the Income-Tax Officer replied that the petitioner had "claimed that this amount of interest was expenditure laid out wholly and exclusively in connection with the transfer of house because under the terms of advance, interest was compulsorily payable on the sale of the house. Subsequently, after 27-5-1969 (date of assessment) I got information that interest was not compulsorily payable. It became payable only because this house was sold in contravention of the provision of rule 7-E of the J. C. S. Provident Fund Rules. . . . . . Since deposit in the Provident Fund including the interest- accuring thereon belongs to the depositor only repayment is deferred, payment of this interest cannot be treated as expenditure. "
( 3 ) THE petitioner prays
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