1989 (7) TMI 86 - HC - Income Tax

Issues Involved:
1. Validity and interpretation of the Sikkim State Income-tax Manual, 1948.
2. Competence of the State Legislature to legislate on income-tax matters post-merger.
3. Validity of appointments of Income-tax Officers and appellate authorities.
4. Requirement of deposit of 50% of the assessed amount for appeal.
5. Adequacy of alternative remedies.
6. Validity of reassessment and best judgment assessments.
7. Discrimination in tax imposition.
8. Validity of transfer fees and related notifications.
9. Validity of the Sikkim (Collection of Taxes and Prevention of Evasion of Payment of Taxes) Act, 1987.
10. Appointment of Inspectors under the 1987 Act.
11. Continuation of proceedings under the 1987 Act after initiation under earlier notifications.

Issue-wise Detailed Analysis:

1. Validity and Interpretation of the Sikkim State Income-tax Manual, 1948:
The court held that the Sikkim State Income-tax Manual, 1948, and related notifications were in force immediately before the appointed day of the merger with India and continued to be valid laws under clause (k) of article 371F of the Constitution. The court rejected the contention that these were mere guidelines without legislative sanction, emphasizing that the Maharaja's orders, whether executive or legislative, had the force of law.

2. Competence of the State Legislature to Legislate on Income-tax Matters Post-merger:
The court ruled that the pre-existing laws, including the Income-tax Manual, continued to be valid under clause (k) of article 371F, even if they were contrary to other constitutional provisions. The non obstante clause in article 371F ensured their validity until amended or repealed by a competent authority.

3. Validity of Appointments of Income-tax Officers and Appellate Authorities:
The court found that the appointments of Income-tax Officers and appellate authorities by the State Government were valid. Clause 2(x) of the Manual defined "Income-tax Officer" as a person appointed by the Government of Sikkim, and the Adaptation of Sikkim Laws (No. 1) Order, 1975, adapted the expression "His Highness the Maharaja of Sikkim" to mean the "State Government."

4. Requirement of Deposit of 50% of the Assessed Amount for Appeal:
The court upheld the requirement of depositing 50% of the assessed amount as a precondition for filing an appeal, as stipulated in paragraph 3 of Notification No. 1220-200/IT and ST dated December 20, 1973. The court reasoned that this requirement was implied in the notification and was not merely an administrative order.

5. Adequacy of Alternative Remedies:
The court held that the availability of an appeal did not preclude the petitioners from filing writ petitions, especially when the appeal involved depositing 50% of the assessed amount, making the remedy illusory in some cases. The court cited the Supreme Court's observation that the rule requiring exhaustion of alternative remedies is one of convenience and discretion rather than law.

6. Validity of Reassessment and Best Judgment Assessments:
The court ruled that the requirement of assessment in the financial year following the previous year was directory, not mandatory. It held that the Income-tax Officer could assess escaped income in subsequent years and that the best judgment assessments were valid if based on reasonable estimates. However, assessments made without giving notice or opportunity to explain were quashed for violating natural justice principles.

7. Discrimination in Tax Imposition:
The court acknowledged allegations of discrimination but emphasized that the duty of the State was to levy tax on every person liable. The court directed the authorities to ensure that those left out of the tax net were also proceeded against.

8. Validity of Transfer Fees and Related Notifications:
The court held that the notification requiring transfer certificates and fees was valid under clause (k) of article 371F. However, it ruled that no transfer fee was liable if no transfer certificate was applied for, as per the modified notification dated May 1, 1967.

9. Validity of the Sikkim (Collection of Taxes and Prevention of Evasion of Payment of Taxes) Act, 1987:
The court upheld the validity of Act No. 7 of 1987, stating that it was incidental legislation for the collection of taxes within the legislative competence of the State of Sikkim. The Act was a procedural law for tax collection, not an imposition of new taxes.

10. Appointment of Inspectors under the 1987 Act:
The court found that Inspectors were not appointed by publication in the Official Gazette as required by the Act. Consequently, proceedings taken under the Act were invalid due to the lack of proper appointment.

11. Continuation of Proceedings under the 1987 Act after Initiation under Earlier Notifications:
The court ruled that Act No. 7 of 1987 superseded Notification No. 405/50 for matters covered by the Act. It held that recovery proceedings could continue under the 1987 Act even if initiated under earlier notifications.

Individual Cases:
Writ Petition No. 33 of 1987:
The court quashed the best judgment assessment regarding the loan amount of Rs. 29,53,400 and transfer fee, directing a reassessment following natural justice principles. The petitioner was liable to pay income-tax on the gift amount of Rs. 27,21,500 after adjustments.

Writ Petition No. 29 of 1987:
The court quashed assessments for the years 1983-84 to 1985-86, directing a new assessment for the year 1982-83 based on the loan amount of Rs. 15 lakhs. Recovery proceedings were quashed.

Writ Petition No. 38 of 1987:
The court directed the Income-tax Officer to issue a corrigendum for calculation errors in the best judgment assessment. The petitioner was entitled to a refund of the transfer fee.

Writ Petition No. 40 of 1987:
The court upheld the best judgment assessment for income-tax but quashed the transfer fee assessment, directing a refund of the transfer fee.

Writ Petition No. 41 of 1987:
The court upheld the best judgment assessment for income-tax but quashed the transfer fee assessment, directing a refund of the transfer fee.

Writ Petition No. 42 of 1987:
The court quashed the best judgment assessment for the loan amount of Rs. 2 lakhs and additional gifts of Rs. 5 lakhs, directing a reassessment. The petitioner was entitled to a refund of the transfer fee.

Writ Petition No. 43 of 1987:
The court upheld the best judgment assessment for income-tax but quashed the transfer fee assessment, directing a refund of the transfer fee.

Writ Petition No. 45 of 1987:
The court upheld the best judgment assessment for income-tax but quashed the transfer fee assessment, directing a refund of the transfer fee.

Writ Petition No. 47 of 1987:
The court upheld the best judgment assessment for income-tax but quashed the transfer fee assessment, directing a refund of the transfer fee.

Writ Petition No. 15 of 1988:
The court quashed the best judgment assessment for non-application of mind, directing a reassessment. The petitioner was entitled to a refund of the transfer fee.

Writ Petition No. 17 of 1988:
The court quashed the best judgment assessment for non-application of mind, directing a reassessment. The petitioner was entitled to a refund of the transfer fee.

Writ Petition No. 19 of 1988:
The court upheld the best judgment assessment for income-tax but quashed the transfer fee assessment, directing a refund of the transfer fee.

Writ Petition No. 20 of 1988:
The court upheld the best judgment assessment for income-tax but quashed the transfer fee assessment, directing a refund of the transfer fee.

Writ Petition No. 31 of 1987:
The court quashed the complaint regarding the transfer of Rs. 5,00,000 without a transfer certificate, ruling that such transfer was no longer an offense.

Writ Petition No. 32 of 1987:
The court quashed the complaint regarding the transfer of Rs. 76,72,200 without a transfer certificate, ruling that such transfer was no longer an offense.

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