1987 (11) TMI 21 - HC - Income Tax

Issues Involved:
1. Scope of powers of the Income-tax Officer under Section 7 of the Companies (Profits) Surtax Act, 1964.
2. Legality of the provisional assessment order and notice of demand.
3. Jurisdiction of the High Court under Article 226 of the Constitution of India.
4. Exclusion of certain items in the computation of capital by the Income-tax Officer.
5. Costs awarded by the learned single judge.

Detailed Analysis:

1. Scope of Powers of the Income-tax Officer under Section 7 of the Companies (Profits) Surtax Act, 1964:
The principal contention was that the provisional assessment under Section 7 of the 1964 Act must be made only on the basis of the return and it was not permissible for the Income-tax Officer to examine disputed questions either of law or of fact. The learned single judge held that Section 7(2), being a summary procedure, was not intended for determination of complicated questions either of law or fact. The powers of the Income-tax Officer while passing provisional assessment under Section 7 were not different from those exercised under Section 141 of the 1961 Act. The court concluded that the object of both sections is to expedite tax collection without holding it up until a regular assessment is made, and thus, the Income-tax Officer should not determine disputed questions of law or fact in a provisional assessment.

2. Legality of the Provisional Assessment Order and Notice of Demand:
The company filed a writ petition challenging the legality of the provisional assessment order and the notice of demand. The learned single judge set aside the order of provisional assessment and the consequent notice of demand, concluding that the Income-tax Officer was in error in excluding certain items from the computation of capital. The court held that the Income-tax Officer exceeded his jurisdiction by not adhering to the law as it then existed and which was binding on him.

3. Jurisdiction of the High Court under Article 226 of the Constitution of India:
The Revenue argued that the writ petition should not have been entertained as there was an alternate efficacious remedy available under Section 17 of the 1964 Act, which enables the Commissioner to exercise revisional powers. However, the court rejected this argument, stating that the power of revision is discretionary and does not confer a substantive right upon the assessee to challenge the order. The court held that the learned single judge was correct in entertaining the writ petition as the exercise of revisional powers is not an alternate efficacious remedy.

4. Exclusion of Certain Items in the Computation of Capital by the Income-tax Officer:
The Income-tax Officer excluded five items in the computation of capital, which were:
- Doubtful debts reserve
- Provision for doubtful debts
- Excess provision for taxation
- Deduction of a sum of Rs. 43,20,000 from the balance of the general reserve
- Deduction of a sum of Rs. 1,26,29,182 being the amount of deductions under Chapter VI-A of the Income-tax Act, 1961.

The learned single judge found that the exclusions made by the Income-tax Officer were not justified. The court pointed out that the decisions of Tribunals and High Courts supported the company's claims, and it was not permissible for the Income-tax Officer to ignore these decisions. The court emphasized that the Income-tax Officer is bound by the decisions of higher courts and should not determine disputed questions of law or fact in a provisional assessment.

5. Costs Awarded by the Learned Single Judge:
The learned single judge directed the Revenue to pay costs of Rs. 1,000 to the company. The Revenue argued that the question was not free from doubt, and thus, costs should not have been awarded. The court agreed that the question was not free from doubt and set aside the order of costs, directing each party to bear their respective costs throughout. The court clarified that the order of costs is normally discretionary and would not be disturbed as a matter of routine.

Conclusion:
The appeal was dismissed, and the judgment of the learned single judge was upheld, with the modification that each party would bear their respective costs. The court affirmed that the provisional assessment under Section 7 of the 1964 Act should be made on the basis of the return and should not involve determination of disputed questions of law or fact. The court also upheld the jurisdiction of the High Court under Article 226 of the Constitution of India to entertain the writ petition.

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