1974 (7) TMI 18 - HC - Income Tax

Summary

Issues Involved:
1. Maintainability of the suit in light of the bar of jurisdiction under Section 293 of the Income-tax Act, 1961.
2. Applicability of Rule 9 of Schedule II of the Income-tax Act, 1961.
3. Allegations of fraud and their implications on the proceedings.
4. Validity of the Tax Recovery Officer's actions and the rights of the plaintiff.

Detailed Analysis:

1. Maintainability of the Suit:
The primary issue was whether the suit was maintainable given the bar of jurisdiction under Section 293 of the Income-tax Act, 1961. The trial court initially dismissed the suit, holding it was barred by Section 293, which precludes civil courts from entertaining any suit in respect of any matter that the Income-tax Act provides for. However, the civil judge on appeal reversed this finding, leading to the present appeal.

The court examined the provisions of Section 293 and the scope of the term "assessment" and concluded that the suit was indeed barred under this section. The court emphasized that the bar of jurisdiction must be clearly and expressly enacted in the statute, and in this case, Section 293 provided such a bar.

2. Applicability of Rule 9 of Schedule II:
The alternative contention was based on Rule 9 of Schedule II of the Income-tax Act, which specifically excludes civil court jurisdiction over questions related to the execution, discharge, or satisfaction of a tax recovery certificate. The court agreed with this contention, stating that Rule 9 clearly applied to the present case.

The rule reads: "Except as otherwise expressly provided in this Act, every question arising between the Income-tax Officer and the defaulter or their representatives, relating to the execution, discharge or satisfaction of a certificate duty filed under this Act... shall be determined, not by suit, but by order of the Tax Recovery Officer before whom such question arises."

The court held that the plaintiff's suit essentially sought a declaration that his liability under the notice of demand had been discharged, which falls squarely within the ambit of Rule 9, thus barring the suit.

3. Allegations of Fraud:
The plaintiff contended that the suit was grounded on fraud, although not explicitly stated in the plaint. The allegation was that the income-tax authority should have asserted its statutory paramount lien instead of accepting the claim of a prior charge by the bank. The court found that these allegations did not constitute fraud within the meaning of Rule 9 of Schedule II.

The court noted that the provisions relating to a prior charge or paramount lien are intended for the benefit of the income-tax authority and are discretionary. Therefore, the failure to assert such a lien does not amount to fraud.

4. Validity of the Tax Recovery Officer's Actions:
The plaintiff argued that the Tax Recovery Officer's proceedings were null and void due to lack of notice to Balasubramaniam, the owner of the attached machinery. The civil judge had found merit in this argument, but the High Court disagreed, stating that such a question could only be raised by the owner himself, not the plaintiff.

The court concluded that the reliefs sought by the plaintiff, including declarations that the tax demand was unenforceable and that the Commissioner of Income-tax had a statutory priority, were essentially challenges to the execution and satisfaction of the tax recovery certificate. As such, these matters were exclusively within the jurisdiction of the Tax Recovery Officer under Rule 9.

Conclusion:
The High Court allowed the appeal, setting aside the judgment of the civil judge and restoring the trial court's decision. The court held that the suit was not maintainable due to the express bar under Section 293 and Rule 9 of Schedule II of the Income-tax Act. The parties were directed to bear their own costs.