1989 (5) TMI 322 - HC - Income Tax

Summary

Issues Involved:

1. Arbitrary refusal to grant permission for remittance of retiral benefits.
2. Alleged collusion and conspiracy between Enforcement Directorate, RBI, and Income-tax Authorities.
3. Jurisdiction and validity of notices under sections 147 and 148 of the Income-tax Act.
4. Service of notice as a condition precedent under section 149 of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Arbitrary Refusal to Grant Permission for Remittance of Retiral Benefits:

The writ application under consideration centers on the court's arbitrary refusal to grant permission for the remittance of the petitioner's retiral benefits. The petitioner contended that whim and caprice dominated the refusal, while the respondents, being governmental agencies, argued that outstanding dues against the petitioner justified the refusal. The petitioner joined the Indian Steamship Company in 1947 and resigned in 1973. After resignation, the company sought income-tax clearance and permission from the RBI to remit the petitioner's provident fund, gratuity, and leave salary. The RBI initially sought further information due to a pending proceeding under the Foreign Exchange Regulation Act. Despite the Enforcement Directorate clearing the petitioner in April 1977, the RBI continued to withhold permission citing pending inquiries and further information requests from the Enforcement Directorate and Income-tax Department.

2. Alleged Collusion and Conspiracy Between Enforcement Directorate, RBI, and Income-tax Authorities:

The petitioner's counsel argued that there was collusion and conspiracy between the Enforcement Directorate, RBI, and Income-tax Authorities, resulting in mala fide, arbitrary actions. The Enforcement Directorate's proceedings were completed in favor of the petitioner by April 1977. However, the RBI and Income-tax Department continued to withhold permission for remittance, citing pending inquiries. The court noted that the Enforcement Directorate had no objection to the remittance as of October 1978, yet the Income-tax Department informed the RBI in November 1978 to hold payments due to pending proceedings. The court found this action unjustified as no formal proceedings were pending at that time, indicating a concerted move to harass the petitioner.

3. Jurisdiction and Validity of Notices Under Sections 147 and 148 of the Income-tax Act:

The petitioner challenged the jurisdiction and validity of notices under sections 147 and 148 of the Income-tax Act, arguing that the notices were issued without jurisdiction and were not properly served. The court analyzed section 149 and relevant case law, concluding that service of notice is a mandatory requirement. However, the court found that the petitioner had received the notice through his employer and acted upon it, thus waiving any irregularities in service. The court held that the issuance of the notice was within the jurisdiction of the Income-tax Officer (ITO) as the notice had been received and acted upon by the petitioner.

4. Service of Notice as a Condition Precedent Under Section 149 of the Income-tax Act:

The petitioner argued that the notice under section 149 must be served properly, and since a copy was sent by the employer, it was not valid service. The court referred to the Supreme Court's decision in R.K. Upadhyaya v. Shanabhai P. Patel, which distinguished between the issuance and service of notice. The court found that the notice was issued within the limitation period and that the petitioner had acted upon it, thus fulfilling the requirement of service. The court concluded that any irregularity in service did not go to the root of the matter and was waived by the petitioner.

Conclusion:

The court found that the actions of the governmental agencies were arbitrary, harassive, and contrary to the principles of fairness and justice. The continuation of proceedings under sections 147 and 148 was deemed unfair and unjust, especially in light of the Tribunal's findings exonerating the Indian Steamship Company. The rule was made absolute, and each party was ordered to bear their own costs.