1990 (3) TMI 65 - HC - Income Tax

Summary

Issues Involved:
1. Refusal to grant stay of realization of tax demand pending appeal.
2. Application of discretion under Section 220(6) of the Income-tax Act.
3. Validity and application of Section 43B of the Income-tax Act.
4. Judicial review of discretionary powers exercised by tax authorities.
5. Interim relief and public interest considerations.

Detailed Analysis:

1. Refusal to Grant Stay of Realization of Tax Demand Pending Appeal:
The company filed an appeal against the judgment and order dated March 9, 1990, where a single judge rejected the writ petition challenging three orders dated February 16, 1990, related to the assessment years 1984-85, 1985-86, and 1986-87. These orders, passed by the Assistant Commissioner of Income-tax, refused to grant a stay of the realization of the disputed tax demand pending the disposal of the first appeal.

2. Application of Discretion Under Section 220(6) of the Income-tax Act:
The company argued that the Assistant Commissioner did not exercise his discretion reasonably under Section 220(6) of the Income-tax Act. The section allows the Income-tax Officer to treat the assessee as not being in default regarding the disputed amount during the pendency of an appeal. The court noted that the officer must consider various factors, such as the nature of the dispute and the basis of the additions to income, while exercising this discretion.

3. Validity and Application of Section 43B of the Income-tax Act:
The company did not challenge the validity of Section 43B, which mandates certain deductions only on actual payment. However, they argued that the officer did not reasonably exercise discretion regarding the application of this section. The court observed that Section 43B had been held intra vires and not ultra vires, and the company's contention was based on the alleged unreasonable exercise of discretion by the officer.

4. Judicial Review of Discretionary Powers Exercised by Tax Authorities:
The court emphasized that discretionary powers must be exercised reasonably and with proper reasoning. It was noted that the officer had given some relief to the company but did not provide adequate reasons for not granting further exemptions. The court referred to cases like Vetcha Sreeramamurthy v. ITO and Aluminium Corporation of India Ltd. v. C. Balakrishnan, which highlight that discretion must be exercised judicially, considering all relevant factors.

5. Interim Relief and Public Interest Considerations:
The court discussed the principles for granting interim relief, citing the Supreme Court's observations in Assistant Collector of Central Excise v. Dunlop India Ltd. It was highlighted that interim orders should not be granted merely because a prima facie case is made out. Factors such as balance of convenience, irreparable injury, and public interest must also be considered. The court refused the stay as prayed for, emphasizing that the officer's discretion must be exercised reasonably and with proper justification.

Conclusion:
The court allowed the application, directing the officer to reconsider the matter and provide a reasoned order within four weeks. The court did not decide on the merits of the case or the pending departmental appeals. All parties were directed to act based on the order's operative portion, and the stay was refused.