1976 (12) TMI 19 - HC - Income Tax

Summary

Issues Involved:
1. Validity of Provisional Assessments under Section 23B of the Indian Income-tax Act, 1922.
2. Requirement of Fresh Demand Notices and Recovery Certificates under Section 46(2) of the Act.
3. Applicability of the Validation of Recovery Proceedings Act, 1964.
4. Discretionary Jurisdiction under Article 226 of the Constitution.

Issue-Wise Detailed Analysis:

1. Validity of Provisional Assessments under Section 23B of the Indian Income-tax Act, 1922:
The petitioner challenged the provisional assessments for the years 1954-55 and 1955-56, arguing they were void and without jurisdiction as they were made before the petitioner had filed his returns. The court agreed, stating, "To make a provisional assessment under section 23B of the Act, the receipt by the I.T.O. of a return made under section 22 was a condition precedent." The court held that such assessments were "void ab initio" and could not be rectified under section 35 of the Act.

2. Requirement of Fresh Demand Notices and Recovery Certificates under Section 46(2) of the Act:
The petitioner contended that after the cancellation of the initial provisional assessments and the subsequent final assessments, no fresh demand notices or recovery certificates were issued, rendering the recovery proceedings illegal. The court supported this view, stating, "The purported orders of rectification made on May 14, 1958, could not render valid what were void ab initio." The court further noted that "there was no valid recovery certificate under section 46(2) of the Act issued prior to the final assessment orders."

3. Applicability of the Validation of Recovery Proceedings Act, 1964:
The respondents argued that under Section 3 of the Validation of Recovery Proceedings Act, 1964, no fresh demand notice or recovery certificate was necessary after the rectification or final assessment. The court disagreed, stating, "We are unable to read section 3(1) of the Validation of Recovery Proceedings Act as dispensing with the need to issue a fresh demand notice or a fresh recovery certificate where the earlier demand notice or the earlier recovery certificate was void ab initio or stood cancelled."

4. Discretionary Jurisdiction under Article 226 of the Constitution:
The respondents urged the court to exercise its discretionary jurisdiction under Article 226 to not quash the recovery proceedings, arguing that the tax was due and no substantial injustice had occurred. The court rejected this, citing Article 265 of the Constitution, which mandates that "no tax shall be levied or collected except by authority of law." The court emphasized that "where the levy or collection of a tax is not in accordance with law, it would be the duty of this court to prevent the authorities from making such illegal levy or collection."

Conclusion:
The court allowed the petition, quashing the attachment of the petitioner's properties for the recovery of income-tax for the assessment years 1954-55 and 1955-56. It issued a writ of mandamus restraining the respondents from recovering the arrears of tax for those years by following the procedure under the Second Schedule to the Income-tax Act, 1961. The court directed the parties to bear their own costs.