2015 (5) TMI 868 - HC - Income Tax

Arrears of income tax - Attachment of accounts and money in these accounts was appropriated towards arrears of income tax - Whether the civil suit filed by the plaintiff/respondent was not barred under Section 293 of the Income Tax Act? - Held that - A perusal of Section 293 of the Income Tax Act reveals that no suit shall be brought in any Civil Court to set aside or modify any proceeding taken or order made under the Income Tax Act thereby leaving no ambiguity that a Civil Court is prohibited from entertaining a suit to set aside or modify any order or proceedings initiated under the Income Tax Act. An exception, would obviously be available where the order passed or proceedings initiated are vitiated by fraud and then also if the fraudulent act is attributed to an officer exercising power under the Income Tax Act. The plaintiff/respondent No.1 does not allege any fraud by or at the behest of the Income Tax Department. The courts below have held that the fraud was perpetuated by M/s Janta Janta Scheme (Regd.) but have not returned a finding of fraud against the department. The plaintiff/respondent No.1 was competent to file a suit for recovery against M/s Janta Janta Scheme (Regd.) but in absence of any allegation of fraud against the department, could not maintain a suit against the Income Tax Department. The substantial question of law is consequently answered in favour of the appellant by holding that in the facts and circumstances of the present case, the jurisdiction of Civil Courts, to entertain the suit, against the Income Tax Department, was barred by Section 293 of the Income Tax Act.

Summary

Issues:
1. Jurisdiction of Civil Court to entertain a suit against the Income Tax Department under Section 293 of the Income Tax Act.

Analysis:

The case involved a dispute where the plaintiff alleged that he had deposited a sum of money with a registered scheme, which was later attached by the Income Tax Department. The plaintiff claimed that he was induced by fraud to make the deposit and sought recovery through a civil suit. The trial court and the first appellate court decreed the suit in favor of the plaintiff, holding that the Civil Court's jurisdiction was not barred due to the fraudulent inducement by the scheme.

The pivotal issue was whether the civil suit against the Income Tax Department was maintainable under Section 293 of the Income Tax Act. Section 293 explicitly prohibits bringing a suit in a Civil Court to set aside or modify any proceeding or order made under the Act. The court emphasized that unless fraud is attributed to an officer exercising power under the Income Tax Act, a Civil Court cannot entertain a suit to set aside or modify any order or proceeding initiated under the Act.

The courts below found that the fraud was committed by the registered scheme and not by the Income Tax Department. As a result, the plaintiff, while competent to file a suit against the scheme, could not maintain a suit against the Income Tax Department. The substantial question of law was answered in favor of the appellant, concluding that in the given circumstances, the jurisdiction of Civil Courts to entertain the suit against the Income Tax Department was indeed barred by Section 293 of the Income Tax Act.

Consequently, the judgment modified the decisions of the lower courts and dismissed the suit against the Income Tax Department. No costs were awarded, and a decree was to be drawn up accordingly, thereby upholding the statutory provisions and limitations on Civil Court jurisdiction in matters related to the Income Tax Act.