1981 (11) TMI 123 - AT - Income Tax

Summary

Issues:
Departmental appeal against cancellation of order under section 170(3) of the Income-tax Act, 1961 holding National Textile Corporation Ltd. liable for taxes, income-tax, and surtax demanded from Tamilnadu Textile Corporation Ltd. for the assessment year 1974-75.

Analysis:
The case involved a departmental appeal arising from the cancellation of an order by the Commissioner (Appeals) under section 170(3) of the Income-tax Act, 1961, which held National Textile Corporation Ltd. accountable for taxes and surtax demanded from Tamilnadu Textile Corporation Ltd. for the assessment year 1974-75. The dispute arose due to the transfer of business from Cambodia Mills Ltd. to National Textile Corporation (Tamilnadu & Pondicherry) Ltd. under the Sick Textile Undertakings (Nationalisation) Act, 1974. The Income Tax Officer (ITO) found National Textile Corporation liable as a successor under section 170, leading to a demand notice for the outstanding amount. However, the affected party raised several grounds challenging the ITO's finding.

The grounds of appeal disputed the succession to Tamilnadu Textile Corporation Ltd., arguing that it was not a successor under section 170 due to the transfer of ownership from the Central Government, not by succession. Additionally, it was contended that the liability, if any, as a successor could only apply from a specific date and not for the entire period in question. The party also argued that the prerequisite of impossibility of recovery was not met, as both the predecessor and successor had assets, and the ITO's negligence in following the Nationalisation Act's procedure hindered recovery. Furthermore, it was claimed that the order violated principles of natural justice by not providing an opportunity to be heard before imposing the demand.

The first appellate authority canceled the order based on the assumption that the demands under section 170(3) were the same as those canceled in previous appeals. However, the Tribunal found that the cancellation was not justified solely on those grounds and highlighted the undisputed nature of the original assessment for the year 1974-75. The Tribunal emphasized the importance of providing the affected party with an opportunity to contest the ITO's findings, especially concerning the recoverability of the tax amount. The order under section 170(3) was deemed invalid due to the lack of natural justice principles, and the appeal was dismissed, emphasizing the need for proper procedure and consideration of legal objections in such cases.