1998 (8) TMI 83 - HC - Income Tax

Summary

Issues Involved:
1. Legality and validity of the direction issued u/s 226(3) of the Income-tax Act, 1961.
2. Ownership of the property in question.
3. Jurisdiction and authority of the Assistant Commissioner of Income-tax.
4. Protective assessments and their implications.
5. Judicial review of administrative actions.

Summary:

1. Legality and Validity of Direction u/s 226(3):
The petitioners challenged the notice issued by the Assistant Commissioner of Income-tax (Investigation Circle), Shillong, u/s 226(3) of the Income-tax Act, 1961. The notice directed the deposit of full rent payable for the premises to the Assistant Commissioner's account from October 1994 onwards. The petitioners claimed this notice was illegal and without jurisdiction as they were the co-owners of the property, not Shri Binod Kumar Bawri.

2. Ownership of the Property:
The petitioners argued that following a family partition, the property known as "Bawri Mansion" belonged to them and not to Shri Binod Kumar Bawri. They supported their claim with income-tax returns showing income from the property as co-owners. The respondents countered that Shri Binod Kumar Bawri was the owner, supported by a sale deed from 1960, building permissions, and loan agreements. The court noted that the Department's conclusion that Shri Binod Kumar Bawri was the owner was based on substantial inquiry and evidence, and thus, not arbitrary or unreasonable.

3. Jurisdiction and Authority of the Assistant Commissioner:
The court highlighted that u/s 226(3), the tax authorities have the power to issue notices to persons holding money for the assessee. This power must be exercised with care and based on prima facie evidence. The court found that the Assistant Commissioner had sufficient material to issue the notice and acted within his jurisdiction.

4. Protective Assessments:
The petitioners contended that their income-tax returns should prevent the same income from being taxed twice. The court explained that protective assessments are permissible under the law to safeguard the Revenue's interest when there is ambiguity about the liability. The court cited the Supreme Court's observation in Lalji Haridas v. ITO, affirming the practice of making protective assessments.

5. Judicial Review of Administrative Actions:
The court emphasized that judicial review focuses on the decision-making process, not the decision itself. The court found that the Assistant Commissioner considered all relevant factors and did not act arbitrarily or unreasonably. The decision-making process was deemed proper, and the court refused to substitute its discretion for that of the tax authority.

Conclusion:
The writ petition was dismissed with costs quantified at Rs. 5,000. The interim order, if any, was vacated. The court upheld the legality and validity of the notice issued u/s 226(3) and affirmed the Department's actions based on the evidence and proper exercise of jurisdiction.