1967 (8) TMI 32 - HC - Income Tax

Writ Petition filed by the petitioners for the issuance of a writ of prohibition or any other appropriate writ or order or direction prohibiting ITO and the ITO from proceeding with his proposals to reopen the petitioner s assessments - held that assessment proceedings before the ITO are quasi judicial in nature and while making assessments the ITO has solely to be guided by the provisions of law - he cannot avail of any instruction given by his higher authorities including the CBDT for making a particular assessment

Issues Involved:
1. Jurisdiction of the Income-tax Officer to reopen assessments.
2. Nature of interim payments under the Madras Estates Abolition Act.
3. Applicability of Article 14 of the Constitution regarding arbitrary and discriminatory taxation.
4. Binding nature of Central Board of Direct Taxes (CBDT) instructions on Income-tax Officers.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Income-tax Officer to Reopen Assessments:
The petitioners challenged the notices issued by the Income-tax Officer for reopening assessments under Section 148 of the Indian Income-tax Act, 1961, arguing that the interim payments made by the Government under the Madras Estates Abolition Act were capital receipts and not assessable to income tax. The court held that the Income-tax Officer had jurisdiction to issue these notices and proceed with the reopening of assessments. The petitioners failed to demonstrate that the Income-tax Officer lacked jurisdiction to issue these notices under Section 34 of the 1922 Act.

2. Nature of Interim Payments under the Madras Estates Abolition Act:
The petitioners contended that interim payments were part of the compensation for the estate taken over by the state and were capital receipts, thus not liable to income tax. They relied on the Madras High Court decision in Shanmuga Rajeswara Sethupathi v. Income-tax Officer, Karaikudi, which held that interim payments were not income. The court, however, disagreed, stating that these payments were revenue amounts payable for the non-payment of compensation on the abolition of the estate and were, therefore, income receipts. This conclusion was consistent with the court's earlier judgment in R.C. 35/63.

3. Applicability of Article 14 of the Constitution Regarding Arbitrary and Discriminatory Taxation:
The appellants argued that the action of the Income-tax Department in taxing interim payments for the Venkatagiri Estate while treating similar payments for other estates like Ramnad, Shivaganga, and Bobbili as capital receipts was arbitrary and discriminatory, violating Article 14 of the Constitution. The court considered the affidavit from the CBDT, which stated that the interim payments due and payable to landholders in Andhra Pradesh were of an income nature, unlike those in the Madras State, due to differences in the provisions of the respective Abolition Acts. The court found no merit in the appellants' contention, holding that there was no arbitrary or discriminatory action by the Income-tax Department.

4. Binding Nature of Central Board of Direct Taxes (CBDT) Instructions on Income-tax Officers:
The appellants contended that the CBDT's letter dated December 3, 1965, which directed that interim payments should be treated as capital receipts, was a general instruction binding on the Income-tax Officer. The court disagreed, stating that the letter was specific to the cases of Raja of Ramnad and Raja of Shivaganga and did not constitute a general directive. It emphasized that assessment proceedings are quasi-judicial, and the Income-tax Officer is not bound by administrative instructions when making assessments. The court cited S.B. Adityan v. First Income-tax Officer, Madras, to support the view that the Income-tax Officer must independently apply the law and is not bound by the CBDT's instructions in individual cases.

Conclusion:
The court dismissed the writ appeals and writ petitions, holding that the interim payments under Section 50 of the Abolition Act were income receipts. It found no violation of Article 14 of the Constitution and ruled that the CBDT's instructions were not binding on the Income-tax Officer in the assessment proceedings. The appellants' requests for writs of prohibition and mandamus were denied, and the court awarded costs to the respondent.

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