1989 (9) TMI 51 - HC - Income Tax

Issues Involved:
1. Validity of the show cause notice under Rule 73 of the Second Schedule to the Income-tax Act.
2. Validity of the demand notice dated April 3, 1989.
3. Validity of the notice of demand to defaulter dated May 31, 1988.
4. Validity of the income-tax assessment order dated March 5, 1986.
5. Jurisdiction of the High Court under Article 226 of the Constitution of India.

Issue-wise Detailed Analysis:

1. Validity of the Show Cause Notice under Rule 73 of the Second Schedule to the Income-tax Act:

The petitioner challenged the show cause notice issued under Rule 73 of the Second Schedule to the Income-tax Act, 1961, arguing that it was defective as it did not specify the grounds for issuance. The petitioner contended that the notice must explicitly mention the reasons as per Rule 73(1)(a) or (b), citing the decision in Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC). However, the court held that the notice under Rule 73 is procedural and meant to provide a safeguard before any order of arrest or detention is passed. The court found that the notice clearly stated the failure to pay the arrears and required the petitioner to show cause, thus satisfying the principles of natural justice. The court concluded that the notice was valid and did not need to spell out the reasons in detail.

2. Validity of the Demand Notice Dated April 3, 1989:

The petitioner sought to quash the demand notice dated April 3, 1989, demanding payment of Rs. 10,50,952 plus costs and interest. The court noted that the petitioner had filed appeals against the assessment order and the order passed in the rectification application under section 154 of the Income-tax Act. Given that the petitioner had resorted to the appellate remedy provided under the Act, the court held that the extraordinary jurisdiction under Article 226 of the Constitution could not be invoked to quash the demand notice.

3. Validity of the Notice of Demand to Defaulter Dated May 31, 1988:

The petitioner also challenged the notice of demand to the defaulter dated May 31, 1988, issued by the Tax Recovery Officer under Rule 2 of the Second Schedule to the Act. The court reiterated that the petitioner had filed appeals against the assessment order, and therefore, the writ proceeding under Article 226 was not maintainable. The court held that the notice of demand was valid and could not be quashed.

4. Validity of the Income-tax Assessment Order Dated March 5, 1986:

The petitioner contended that the income-tax assessment order dated March 5, 1986, was passed without giving an opportunity to be heard and was ex facie contrary to the facts. The court observed that the petitioner had filed appeals against the assessment order and the refusal to rectify the order under section 154 of the Income-tax Act. Since the petitioner had an effective remedy by way of appeal, the court held that the assessment order could not be quashed under Article 226.

5. Jurisdiction of the High Court under Article 226 of the Constitution of India:

The court emphasized that the petitioner had already resorted to the appellate remedy under the Income-tax Act. The court held that when an effective remedy is available, the extraordinary jurisdiction under Article 226 cannot be exercised to quash the assessment order or the consequential notices. The court dismissed the special civil application, discharging the rule and upholding the validity of the impugned notices and orders.

Conclusion:

The court dismissed the special civil application, holding that the petitioner had an effective remedy by way of appeal under the Income-tax Act. The show cause notice under Rule 73, the demand notice dated April 3, 1989, the notice of demand dated May 31, 1988, and the income-tax assessment order dated March 5, 1986, were all upheld as valid. The court declined to exercise its extraordinary jurisdiction under Article 226 of the Constitution of India.

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