1968 (3) TMI 26 - HC - Income Tax

ITO rejecting petitioner s application under section 45 of the Income-tax Act, 1922 - impugned application under article 226 of the Constitution to issue writ of certiorari for quashing an order of the Income-tax Officer

Summary

Issues:
Application for writ of certiorari and mandamus to quash income tax assessment order and stay enforcement of demands pending appeal.

Analysis:
The petitioners, a partnership firm and its partners, filed an application under Article 226 seeking a writ of certiorari to quash an income tax assessment order for the year 1959-60. The Income-tax Officer had rejected their application under Section 45 of the Income-tax Act, 1922, and demanded payment of tax. The petitioners requested a writ of mandamus to stay the enforcement of demands until the disposal of pending appeals for the assessment years 1956-57 and 1958-59. The assessments were disputed as arbitrary and unwarranted, alleging they were made at the end of the limitation period. The appeals against these assessments were pending at the time of the application.

The court emphasized that the discretion to treat an assessee as not in default under Section 45 of the Income-tax Act lies with the Income-tax Officer based on the material before him. The court cannot substitute its discretion through a writ under Article 226 unless the officer fails to discharge his duty. While an appeal does not automatically entitle the assessee to withhold tax payment, the officer may treat them as not in default until the appeal is decided. The officer's discretion should be exercised fairly and reasonably, and in special circumstances, he may refrain from enforcing payment until the appeal is resolved. The court cited various decisions to support this principle.

In this case, the Income-tax Officer found that the petitioners willfully failed to comply with the demand despite having sufficient assets. The officer concluded that the petitioners were diverting funds to avoid tax payment. The officer provided a reasonable opportunity for the petitioners to substantiate their inability to pay, scrutinizing their books of accounts and evidence. The officer's decision was based on the petitioners' conduct of diverting funds to avoid tax payment, leading to the rejection of their application under Section 45.

The court held that the Income-tax Officer had exercised his discretion fairly and reasonably in finding the petitioners in default. The officer had considered the evidence presented and concluded that the petitioners were deliberately withholding payment. The court dismissed the application for writs of certiorari and mandamus, upholding the officer's decision. The petitioners were ordered to pay costs and a hearing fee.

In conclusion, the court rejected the application, emphasizing the officer's fair and reasonable exercise of discretion in finding the petitioners in default of tax payment obligations.