1968 (1) TMI 16 - HC - Income Tax

Petitioner, firm - even if the ITO had the jurisdiction to make an order in the petitioner s favour u/s 45, the discretion that he has exercised in not making that order in the petitioner s favour does not call for interference by this (HC) court

Issues Involved:

1. Assessment of the petitioner-firm as an unregistered firm.
2. Refusal to treat the firm as a registered firm.
3. Reassessment as a registered firm.
4. Payment and recovery of assessed tax.
5. Petition for quashing the appellate order and staying tax recovery.

Issue-wise Detailed Analysis:

1. Assessment of the petitioner-firm as an unregistered firm:

The petitioner, a partnership concern, was assessed to income-tax as an unregistered firm on 31st March 1962, for the assessment year 1957-58, and was required to pay Rs. 88,543 as income-tax by 30th April 1962. On appeal, the Appellate Assistant Commissioner of Income-tax remanded the case, reducing the firm's liability by approximately Rs. 9,000, lowering the total assessable income from Rs. 1,48,145 to Rs. 93,182. Consequently, the tax payable was reduced by Rs. 9,000.

2. Refusal to treat the firm as a registered firm:

During the appellate proceedings, the petitioner-firm appealed against the Income-tax Officer's order under section 26A of the Income-tax Act, 1922, which refused to treat the firm as a registered firm. The Appellate Assistant Commissioner upheld this order, but the Income-tax Appellate Tribunal set it aside on 24th September 1963, directing the registration of the petitioner-firm.

3. Reassessment as a registered firm:

Following the Tribunal's order, the petitioner-firm was reassessed as a registered firm on 21st September 1966. The Income-tax Officer passed a fresh assessment order under section 23(5)(a) of the Act, determining the amounts due from various partners. The firm appealed against this order, and the Appellate Assistant Commissioner partially accepted the appeal, reducing the firm's total income by Rs. 9,000.

4. Payment and recovery of assessed tax:

The petitioner-firm sought relief from the Income-tax Officer, requesting not to be treated as a defaulter and to stay the recovery of income-tax. Initially, the Income-tax Officer allowed payment in five monthly installments, but the petitioner did not avail of this concession. The Commissioner of Income-tax, in his revisional jurisdiction, directed a stay of recovery on the condition of furnishing adequate security, which the petitioner failed to provide satisfactorily. Consequently, the Income-tax Officer called for payment in installments, which the petitioner defaulted on, leading to stayed proceedings during the appeal's pendency.

5. Petition for quashing the appellate order and staying tax recovery:

The petitioner-firm approached the court under articles 226 and 227 of the Constitution, seeking to quash the appellate order dated 21st September 1966, and to stay the recovery of Rs. 28,000 assessed as income-tax. The Income-tax Officer refused to stay recovery under section 220(6) of the new Income-tax Act, 1961, leading the petitioner to amend their writ petition, seeking to quash this refusal and prohibit tax recovery until the pending appeal before the Income-tax Appellate Tribunal was resolved.

Judgment Analysis:

At the hearing, the petitioner's counsel, Mr. Ganga Parshad, focused on quashing the Income-tax Officer's refusal to stay recovery under section 45 of the Act. He argued that material questions regarding the petitioner's tax liability were pending before the Appellate Tribunal, justifying a stay of recovery.

The court examined precedents, including Ladhuram Taparia v. B. K. Bagchi, where it was held that the Income-tax Officer should refrain from enforcing tax payment during an appeal. However, the Division Bench in Kashiram Agarwalla v. Collector of 24-Parganas disagreed, emphasizing the discretionary nature of the Income-tax Officer's power.

The court referred to Lord Krishna Sugar Mills Ltd. v. Income-tax Officer, Ambala, where it was held that the discretion under section 45 should not be interfered with unless exercised capriciously or arbitrarily.

The court concluded that section 45's language is clear, limiting the Income-tax Officer's discretion to the pendency of an appeal under section 30. The court found no grounds to extend this discretion to appeals before the Income-tax Appellate Tribunal. Additionally, the court observed that the Income-tax Officer had exercised his discretion fairly, providing concessions to the petitioner-firm, which the firm failed to honor.

Conclusion:

The court upheld the Income-tax Officer's refusal to stay recovery, finding no capricious or arbitrary exercise of discretion. The petition was dismissed with costs, affirming the principle that discretionary powers must be exercised judiciously and within statutory limits.

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