1953 (12) TMI 24 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the disclosure proceedings under the Income Tax Act.
2. Whether the petitioner was coerced into an agreement with the Income Tax authorities.
3. Legality of the tax assessment based on the disclosure petition.
4. Applicability of Article 265 of the Constitution regarding the collection of tax.

Detailed Analysis:

1. Validity of the Disclosure Proceedings:
The petitioner challenged the validity of the disclosure proceedings, arguing that they were not based on any legislative measure and infringed Article 265 of the Constitution, which mandates that no tax shall be levied or collected except by the authority of law. The court held that the liability to pay income tax is founded on the charging sections of the Income Tax Act (Sections 3 and 4) and not on the machinery sections (such as Section 22), which are merely procedural. The court cited the principles laid down in Chatturam v. Commissioner of Income Tax, Bihar and W.H. Cockerline & Co. v. Commissioners of Inland Revenue to support the view that an agreed basis for tax payment without formal assessment is permissible.

2. Coercion into Agreement:
The petitioner claimed that he was coerced into agreeing to the settlement with the Income Tax authorities under duress and threats. The court found that the petitioner, being an adult, must be taken to have understood the consequences of his actions. The petitioner had the option to refuse the offer and appeal against any assessment made, but he chose to accept the settlement and even made part payment. The court stated that the petitioner's acceptance and part performance of the agreement indicated a voluntary settlement rather than coercion.

3. Legality of Tax Assessment Based on Disclosure Petition:
The petitioner argued that the assessment based on the disclosure petition was invalid as it was not a formal assessment under the Income Tax Act. The court held that the petitioner had waived the procedural requirements by opting for the disclosure scheme and agreeing to the settlement. The court emphasized that the petitioner's conflicting statements and conduct indicated that he was not entitled to relief in equity. The court concluded that the assessment on an agreed basis was valid and not contrary to law.

4. Applicability of Article 265 of the Constitution:
The petitioner contended that the disclosure proceedings violated Article 265 of the Constitution. The court clarified that Article 265 prohibits the collection of tax without the authority of law, but in this case, the tax liability was based on the charging sections of the Income Tax Act. The court reiterated that the procedural aspects could be waived by the assessee, and the agreed basis for tax payment did not infringe Article 265.

Conclusion:
The court dismissed the petitioner's application, holding that the disclosure proceedings were valid, the petitioner was not coerced into the agreement, the tax assessment based on the disclosure petition was legal, and there was no violation of Article 265 of the Constitution. The Rule was discharged, interim orders were vacated, and no order as to costs was made. The court allowed the interim order staying further proceedings to continue till a fortnight after the Christmas holidays, as the petitioner intended to appeal.