2015 (3) TMI 495 - HC - Income Tax

Assessee in default - orders passed by the Tax Recovery Officer, by which he has enhanced the rent of the premises of which they are tenants and to recover the same from the respective accounts of the petitioners maintained by the Reserve Bank of India - Held that - No force in submission of learned counsel for the Income Tax Department. The provisions of Section 23 (1) (a) of the Act relied upon by learned counsel relate to the determination of income from house property for the purpose of filing of I.T. returns and assessment thereof and the same has no relevance at all so far as fixation of rent payable by a tenant to the landlord is concerned. Any such fixation of fair rent or higher rent can only be either on the basis of agreement between the parties or by the exercise of powers in areas covered by the provisions of the Bihar Buildings (Lease, Rent and Eviction) Control Act,1982 by the competent authorities therein and not unilaterally by the Tax Recovery Officer or any other Officer of the Income Tax Department. Thus entire action of the Tax Recovery Officer and the consequential action taken by the respondent No.2, Reserve Bank of India, are de hors the powers conferred upon them by the law of the land and they are, accordingly, quashed. - Decided in favour of assessee.

Summary

Issues:
Quashing of show cause notices for being "assessee in default" under Income Tax Act, 1961; Challenge to orders enhancing rent by Tax Recovery Officer; Quashing of notices issued by Reserve Bank of India for payment; Jurisdiction of Tax Recovery Officer to unilaterally enhance rent without agreement.

Analysis:
The judgment by the High Court of Patna involved three writ petitions seeking the quashing of show cause notices issued by the Tax Recovery Officer under the Income Tax Act, 1961. The petitioners, who were Public Sector Banks, challenged the unilateral enhancement of rent by the Tax Recovery Officer and subsequent directions to the Reserve Bank of India for payment. The petitioners contended that the Tax Recovery Officer exceeded jurisdiction by unilaterally increasing the rent without any agreement in place. The Income Tax Department argued that there were correspondences between the landlord and the tenants regarding rent renewal and enhancement, justifying the actions taken by the Tax Recovery Officer.

Upon deliberation, the Court found that the provisions cited by the Income Tax Department were not relevant to the fixation of rent payable by a tenant to a landlord. The Court emphasized that the determination of fair or higher rent should be based on mutual agreement between parties or through authorities designated under the Bihar Buildings (Lease, Rent and Eviction) Control Act, 1982. Unilateral actions by the Tax Recovery Officer or any other Income Tax Department official were deemed unauthorized. Consequently, the Court quashed the actions of the Tax Recovery Officer and the Reserve Bank of India, directing the refund of any amounts recovered from the petitioners' accounts.

In conclusion, the High Court allowed the writ applications, highlighting that the actions of the Tax Recovery Officer and the Reserve Bank of India were beyond their legal authority. The judgment underscored the necessity for rent fixation to adhere to prescribed procedures and agreements, emphasizing the limitations of tax recovery officers in unilaterally determining rent amounts.