1990 (12) TMI 44 - HC - Income Tax

Summary

Issues Involved:
1. Exemption from payment of income-tax.
2. Liability of directors or shareholders for the company's tax dues.
3. Validity and authenticity of the Sikkim State Income-tax Manual and related notifications.
4. Legislative competence of the Sikkim State Income-tax Manual.
5. Appointment of Income-tax Officers and appellate authorities.
6. Requirement of deposit for filing an appeal.
7. Assessment of companies under the Manual.
8. Limitation period for assessment.
9. Validity of the Sikkim (Collection of Taxes and Prevention of Evasion of Payment of Taxes) Act, 1987.
10. Repeal of Order No. 405/50 by the Recovery Act.

Detailed Analysis:

1. Exemption from Payment of Income-tax:
The petitioners claimed exemption under Notification No. 2/TIC dated February 16, 1974. However, the court noted that no specific order exempting the petitioner company from income-tax was produced. The notification required compliance with participation guidelines, which were not met by the petitioners. The court held that the exemption was not automatic and required a government order. The plea of discriminatory treatment was also rejected as steps were being taken to assess all companies not specifically exempted.

2. Liability of Directors or Shareholders:
The court held that the directors could be personally liable for the company's tax dues if the corporate veil was used to evade tax obligations. The distribution of almost the entire profit without making provision for tax was deemed fraudulent. Thus, the corporate veil was lifted, and the directors were held jointly and severally liable for the tax dues.

3. Validity and Authenticity of the Sikkim State Income-tax Manual and Notifications:
The petitioners argued that the Manual and notifications were not signed or approved by the Maharaja of Sikkim. The court found that the Manual was in force before the merger and continued to be valid under Article 371F(k) of the Constitution. The lack of publication did not render the laws inoperative.

4. Legislative Competence of the Sikkim State Income-tax Manual:
The petitioners contended that the Manual was not a valid law as income-tax falls under the Union List. The court rejected this argument, citing Article 371F(k), which allows pre-existing laws to continue until amended or repealed by a competent authority.

5. Appointment of Income-tax Officers and Appellate Authorities:
The court held that the State Government had the jurisdiction to appoint Income-tax Officers under the Manual. The expression "State Government" was reasonably interpreted to include the Finance Secretary as the appellate authority.

6. Requirement of Deposit for Filing an Appeal:
The court upheld the requirement of depositing 50% of the assessed tax amount as a pre-condition for filing an appeal, as stipulated in Notification No. 1220-200/IT and ST dated December 20, 1973. This condition was deemed to have the legal effect of amending the Manual.

7. Assessment of Companies under the Manual:
The court found that the definition of "person" in the Manual included companies, as they are associations of individuals. Thus, companies were eligible to be taxed under the Manual.

8. Limitation Period for Assessment:
The court held that there were no words of limitation in the Manual restricting assessment to the immediate previous year. The Manual allowed for the assessment of any previous year if it had not been assessed earlier.

9. Validity of the Sikkim (Collection of Taxes and Prevention of Evasion of Payment of Taxes) Act, 1987:
The court found that the Recovery Act was within the legislative competence of the State Legislature as it was incidental to the levy of income-tax, which the State was entitled to recover under the Manual.

10. Repeal of Order No. 405/50 by the Recovery Act:
The court declared that Order No. 405/50 stood repealed by the Recovery Act concerning the collection of taxes. The Recovery Act provided a more comprehensive and effective procedure for tax collection.

Conclusion:
The petition was dismissed except for the declaration that Order No. 405/50 stood repealed by the Recovery Act concerning tax collection. The court emphasized the need for the State to publish laws to ensure proper compliance.