2008 (3) TMI 769 - HC - Income Tax

Summary

Issues Involved:

1. Legality of the notice issued u/s 6 of the Act.
2. Requirement of serving notice on the convict.
3. Consideration of the Income Tax Officer's report by the Appellate Tribunal.
4. Justification for rejecting materials indicating lawful acquisition of property.
5. Basis of conclusions by the authorities.
6. Impact of setting aside the order u/s 7 against the convict on the forfeiture of properties.

Summary:

1. Legality of the notice issued u/s 6 of the Act:
The petitioners contended that the notice issued u/s 6 of the Act was illegal as it did not disclose the reason for the proposed forfeiture and did not allege the existence of any nexus between the property sought to be forfeited and the convict.

2. Requirement of serving notice on the convict:
The court noted that the primary notice u/s 6(1) is intended to be served on the convict, requiring them to indicate the sources of their income, earnings, or assets. In this case, no notice was served on the convict, which was a jurisdictional defect, rendering the proceedings vitiated. The court emphasized that the procedure must be strictly followed as per the statute.

3. Consideration of the Income Tax Officer's report by the Appellate Tribunal:
The petitioners argued that the Appellate Tribunal acted illegally by ignoring the report of the Income Tax Officer, which was sought and secured by the competent authority.

4. Justification for rejecting materials indicating lawful acquisition of property:
The petitioners provided voluminous materials indicating their own income, accepted and assessed by the Income Tax Authorities from 1950 onwards. The court found that the Appellate Tribunal unjustifiably rejected these unrebutted materials, which indicated that the properties were acquired from lawful business activities.

5. Basis of conclusions by the authorities:
The petitioners contended that the conclusions of both authorities were based on surmises and conjectures, ignoring various materials produced on behalf of the petitioner. The court agreed that the authorities' orders were vitiated by non-application of mind.

6. Impact of setting aside the order u/s 7 against the convict on the forfeiture of properties:
The petitioners argued that since the order u/s 7 against the convict regarding the gold ornaments was set aside, there was no material to indicate that the property was held by the convict either directly or through a relative.

Conclusion:
The court quashed the orders passed by the authorities due to the jurisdictional defect of not serving notice u/s 6(1) on the convict. The court left open the question of whether notice u/s 6(1) can be issued to the legal representatives after the convict's death, allowing the authorities to initiate fresh proceedings if advised. The writ petitions were allowed, and no costs were imposed.