1987 (4) TMI 12 - HC - Income Tax

Summary

Issues Involved:
1. Challenge to the order for arrest under Rule 73 of Schedule II of the Income-tax Act, 1961.
2. Validity of the clearance certificate under Section 230A.
3. Alleged dishonest transfer and concealment of property details.
4. Utilization of Rs. 3 lakhs received by the petitioner.
5. Legality of the sale order of the property (Exhibit P-10).

Detailed Analysis:

1. Challenge to the Order for Arrest:
The petitioner challenged the order for arrest under Rule 73 of Schedule II to the Income-tax Act, 1961, issued by the Tax Recovery Officer (Exhibit P-4) and confirmed by the Commissioner of Income-tax (Exhibit P-7). The petitioner owed Rs. 7,87,784 in income-tax, wealth-tax, and interest for various years from 1965-66 to 1975-76. The Tax Recovery Officer found that the petitioner had dishonestly transferred his right in the West Hill Property to M/s. Malabar Produce and Rubber Company Ltd. by executing a registered lease deed and concealed the receipt of Rs. 3 lakhs from the department. The petitioner, having had the means to pay the arrears, refused or neglected to pay the same.

2. Validity of the Clearance Certificate:
The petitioner applied for a clearance certificate under Section 230A for the sale of the West Hill property, representing that the sale was for Rs. 5 lakhs, out of which Rs. 1.5 lakhs would be paid to the department. It was later discovered that the sale was actually for Rs. 9.75 lakhs. The department suggested that the petitioner should pay Rs. 5.34 lakhs, the amount left after meeting the liability of Rs. 4.41 lakhs due to the bank. The court did not delve into the validity of these facts as the Income-tax Officer, the authority to issue the clearance certificate, was not a party to the petition. The petitioner's complaint about the wrongful withholding of the clearance certificate could not be considered due to non-joinder of the Income-tax Officer and the need for the petitioner to resort to proceedings warranted by law.

3. Alleged Dishonest Transfer and Concealment of Property Details:
The petitioner had leased out the West Hill property to M/s. Malabar Produce and Rubber Company Ltd. in October 1984 and received Rs. 3 lakhs, which was not disclosed to the department. The Tax Recovery Officer called upon the petitioner to furnish details of loans taken for the purchase of the property, which the petitioner failed to disclose. The petitioner later mentioned a loan of Rs. 1,50,000 taken from Joe Thomas. The petitioner admitted receiving Rs. 3 lakhs in October 1984 but suppressed the bank account details from the department. The respondents found that the petitioner had the means to pay a substantial part of the arrears but did not choose to pay the same.

4. Utilization of Rs. 3 Lakhs Received by the Petitioner:
The petitioner contended that the Rs. 3 lakhs received was utilized to discharge other liabilities, specifically to Don Bosco Enterprises and K.J. Ittyavira. The respondents held that the petitioner had the means to pay a substantial part of the arrears but did not choose to do so. The petitioner's explanation of repaying loans taken from friends and relatives was not accepted by the Tax Recovery Officer, as the petitioner failed to disclose the names of these alleged creditors. The petitioner's contention that the amount was refundable if the sale did not go through was inconsistent with his claim of utilizing the amount for other payments.

5. Legality of the Sale Order of the Property (Exhibit P-10):
The petitioner also challenged Exhibit P-10, an order by which a property was ordered to be sold. The court did not find any illegality in this order. If the petitioner had any objections relating to Exhibit P-10, it was up to him to raise those points in the proceedings before the authorities.

Conclusion:
The court found that the respondents were justified in holding that the petitioner had dishonestly transferred the property, concealed details from the department, and did not utilize the Rs. 3 lakhs for repaying tax dues. The orders, Exhibits P-4 and P-7, were based on an appreciation of the evidence and materials in the case, and the court could not interfere with these orders. The original petition was dismissed without any order as to costs.