1987 (9) TMI 34 - HC - Income Tax

Summary

Issues:
1. Challenge to the order of arrest and detention under rule 76 of Schedule II to the Income-tax Act, 1961.
2. Dispute regarding the conduct of an enquiry as per rule 74 before ordering detention.
3. Appeal against the order passed by the Tax Recovery Officer.
4. Interpretation of rules 73 to 76 of Schedule II to the Income-tax Act.
5. Validity of the enquiry conducted by the Tax Recovery Officer.
6. Challenge to the sufficiency of time and opportunity given during the enquiry.
7. Assessment of the defaulter's means to pay the tax arrears.
8. Appealability of the order under rule 76 and failure to file an appeal.
9. Consideration of the Commissioner's direction to pay 50% of the demand to avoid detention.

Analysis:
The petitioner challenged the order of arrest and detention under rule 76 of Schedule II to the Income-tax Act, contending that no enquiry as per rule 74 was conducted before the detention order. The Tax Recovery Officer issued a notice under rule 73 for outstanding tax, leading to the petitioner's appearance with counsel. The Officer ordered arrest based on evidence of the defaulter's means to pay and refusal to clear tax dues. The court examined rules 73 to 76, emphasizing the necessity of notice, enquiry, and order before detention. The petitioner argued the enquiry was rushed, lacking sufficient time for evidence submission, but the court upheld the validity of the conducted enquiry, emphasizing the defaulter's awareness and opportunity during the process.

The Tax Recovery Officer's conclusion on the defaulter's means to pay and refusal to clear tax arrears was deemed a factual finding not challengeable under Article 226 of the Constitution. An order under rule 76 was issued, appealable under rule 86(1)(c), but no appeal was filed. The petitioner cited the Commissioner's direction to pay 50% of the demand to avoid detention as a reason for not appealing, deemed insufficient by the court. The failure to pursue the statutory appeal before seeking relief under Article 226 was noted by the court, leading to the dismissal of the original petition.

In summary, the court upheld the validity of the arrest and detention order under rule 76, finding no merit in the challenges raised by the petitioner regarding the conduct of the enquiry, sufficiency of time, and failure to file an appeal. The Commissioner's direction did not justify bypassing the appeal process, emphasizing the importance of following statutory procedures before seeking judicial intervention.