2001 (7) TMI 90 - HC - Income Tax

Summary

Issues Involved:
1. Legality of the order passed u/s 281B of the Income-tax Act, 1961.
2. Justification for the attachment of bank accounts and properties of the petitioner-society.
3. Impact of the attachment on the functioning and charitable activities of the petitioner-society.

Summary:

1. Legality of the order passed u/s 281B of the Income-tax Act, 1961:
The petitioner, an income-tax assessee, challenged the validity of the order dated May 29, 2001, passed by the Deputy Commissioner of Income-tax, Circle 4(3), Hyderabad, u/s 281B of the Income-tax Act, 1961. The court examined whether the power conferred u/s 281B was exercised irrationally and without justification. The court noted that the power u/s 281B is a drastic one and should be used sparingly and only on substantive grounds. The court found that the second respondent had sufficient material to justify the provisional attachment to protect the interests of the Revenue.

2. Justification for the attachment of bank accounts and properties of the petitioner-society:
The second respondent's counter affidavit detailed various financial irregularities and violations committed by the petitioner-society, including obtaining loans under false pretenses and making unexplained payments. The court observed that the attachment was necessary to prevent the petitioner from disposing of its assets and thwarting the ultimate collection of the tax demand. The court upheld the attachment, noting that it was limited to the property and bank balance as of the date of attachment, and did not gag the petitioner's activities.

3. Impact of the attachment on the functioning and charitable activities of the petitioner-society:
The petitioner argued that the attachment hindered its ability to pay salaries and continue its charitable activities. However, the court found this assumption to be unfounded. The court noted that the petitioner had received around Rs.50.70 lakhs in donations, of which only Rs.20 lakhs was under attachment. The court also highlighted that the petitioner was allowed to operate its bank account except for the attached balance. Therefore, the court concluded that the attachment did not adversely affect the petitioner's functioning or charitable activities.

Conclusion:
The court dismissed the writ petition, holding that the second respondent's action u/s 281B was justified and necessary to protect the interests of the Revenue. The court emphasized that judicial review under Article 226 is limited to examining the decision-making process and not the merits of the decision itself. The court found no substantive grounds to interfere with the impugned action.