1993 (12) TMI 241 - HC - Income Tax

Summary

Issues Involved:
1. Constitutional validity of Sections 234A, 234B, and 234C of the IT Act.
2. Violation of principles of natural justice.
3. Quasi-judicial nature of power exercised by the CBDT under Section 119(2) of the IT Act.
4. Application of the principles to the Wealth Tax Act, 1957.

Detailed Analysis:

1. Constitutional Validity of Sections 234A, 234B, and 234C of the IT Act:
The petitioners initially challenged the constitutional validity of Sections 234A, 234B, and 234C of the IT Act. However, during the proceedings, the learned counsel for the petitioners made an endorsement that they were not pursuing this challenge for the time being and sought liberty to withdraw these writ petitions. Consequently, the writ petitions challenging the constitutional validity of these provisions were dismissed as withdrawn and not pressed. The court clarified that this dismissal should not be construed as an expression of any opinion on the validity of the provisions themselves.

2. Violation of Principles of Natural Justice:
The petitioners contended that the orders passed by the CBDT under Section 119 of the IT Act were in violation of the principles of natural justice. They argued that the CBDT summarily rejected their claims for waiver of interest without giving them an opportunity to be heard. The court agreed with this contention, emphasizing that the exercise of power under Section 119(2) of the IT Act is quasi-judicial in nature. Therefore, the CBDT must provide an effective opportunity to the assessees before passing any orders. The court quashed the impugned orders of the CBDT and directed the Board to reconsider the claims after giving an effective opportunity to the petitioners.

3. Quasi-Judicial Nature of Power Exercised by the CBDT under Section 119(2) of the IT Act:
The court examined the nature of the power exercised by the CBDT under Section 119(2) of the IT Act. It referred to the decision of the Karnataka High Court, which held that the power exercised by the CBDT under Section 119(2)(b) is quasi-judicial. The Karnataka High Court emphasized that the Board must exercise its discretion by considering all relevant facts and circumstances and that the order must be informed by reasons. The court agreed with this view, stating that the exercise of discretionary power must be according to law and not arbitrary or fanciful. The court held that any rejection of a claim under Section 119(2) must precede an effective opportunity to the assessee and that the decision must disclose the mind of the authority.

4. Application of the Principles to the Wealth Tax Act, 1957:
The court noted that the principles laid down in respect of the IT Act would also apply to the Wealth Tax Act, 1957. The petitioners challenged the provisions contained in Section 17B of the Wealth Tax Act, which is on par with the provisions in the IT Act. The court directed that the petitioners have the liberty to move the concerned assessing authority or the CBDT under Section 10(2) of the Wealth Tax Act, which is akin to the powers of the Board under Section 119(2) of the IT Act. The authorities must consider the claims made by the petitioners and pass appropriate orders on merits and in accordance with law after giving an effective opportunity.

In conclusion, the court quashed the impugned orders of the CBDT and directed it to reconsider the claims after giving an effective opportunity to the petitioners. The writ petitions challenging the constitutional validity of Sections 234A, 234B, and 234C of the IT Act were dismissed as withdrawn. The principles laid down in respect of the IT Act were also extended to the Wealth Tax Act, 1957.