1979 (5) TMI 6 - HC - Income Tax

Summary

Issues Involved
1. Jurisdiction of the High Court to stay the collection of tax pending a reference.
2. Inherent powers of the High Court under Section 151 of the CPC and Articles 225 and 227 of the Constitution.
3. Applicability of Section 265 of the I.T. Act, 1961.
4. Precedents and case laws supporting or opposing the inherent jurisdiction of the High Court in revenue matters.

Detailed Analysis

1. Jurisdiction of the High Court to Stay the Collection of Tax Pending a Reference
In this case, the petitioner sought a stay on the collection of disputed tax amounts for the assessment years 1967-68 and 1970-71, pending the disposal of a reference. The petitioner argued that the High Court has the jurisdiction to issue such a stay under its inherent powers. The respondents opposed this application, arguing that the High Court's jurisdiction in income tax references is limited to answering questions of law and does not extend to staying the collection of taxes.

The court examined the provisions of the I.T. Act, 1961, and concluded that no jurisdiction has been conferred by the Act on the High Court to issue orders for stay of collection or recovery of taxes. The jurisdiction of the High Court under Section 256 of the I.T. Act is strictly confined to decide questions of law raised in a reference by its judgment. Therefore, the High Court does not have the authority to stay the collection of taxes pending the disposal of a reference.

2. Inherent Powers of the High Court under Section 151 of the CPC and Articles 225 and 227 of the Constitution
The petitioner contended that under the proviso to Article 225 of the Constitution, the bar in Section 226 of the Government of India Act, 1935, on courts for exercise of their ordinary jurisdiction in respect of revenue matters had been removed. Additionally, under Article 227 of the Constitution, the High Court has general power of superintendence over all subordinate courts and Tribunals operating within its jurisdiction. The petitioner argued that these provisions, read with Section 151 of the CPC, empower the High Court to stay the collection of taxes.

The court, however, held that even if it is assumed that the High Court has certain inherent powers while sitting as a reference court, these powers do not extend to issuing orders of injunction and stay. The inherent powers of the court are complementary to the powers conferred by the CPC or other statutes and can only be exercised in very exceptional circumstances. They cannot be used to extend the jurisdiction of the High Court beyond what is conferred by the I.T. Act.

3. Applicability of Section 265 of the I.T. Act, 1961
Section 265 of the I.T. Act, 1961, mandates that notwithstanding the pendency of any reference, tax must be paid in accordance with the assessment made. The petitioner argued that this provision does not bar the High Court from exercising its inherent jurisdiction to stay the collection of taxes.

The court disagreed, stating that Section 265 clearly indicates the legislative intent that tax should be paid irrespective of the pendency of a reference. Therefore, the High Court cannot issue a stay order that would contravene this statutory provision.

4. Precedents and Case Laws
The court considered several precedents and case laws cited by both parties. The petitioner relied on cases like Polisetti Narayana Rao v. CIT [1956] 29 ITR 222 and ITO v. M. K. Mohammed Kunhi [1969] 71 ITR 815 (SC) to argue that the High Court has inherent powers to stay the collection of taxes. However, the court noted that these cases did not directly address the issue of the High Court's jurisdiction to stay tax collection pending a reference.

The respondents cited cases like CIT v. Hungerford Investment Trust Ltd. [1935] 31 TR 188 (Cal) and CIT v. Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589 (SC) to argue that the High Court's jurisdiction in income tax references is limited to answering questions of law. The court agreed with this view, stating that the High Court's jurisdiction under Section 256 of the I.T. Act does not extend to issuing stay orders.

Conclusion
The court held that it does not have the jurisdiction to stay the collection of taxes pending the disposal of a reference under the I.T. Act, 1961. The application for stay was dismissed, and all interim orders were vacated. The court also expressed its appreciation for the assistance rendered by Mr. P. P. Ginwalla as amicus curiae.