1972 (2) TMI 23 - HC - Income Tax

By this writ petition filed under articles 226 and 227 of the Constitution, the petitioner, Vidarbha Housing Board, Nagpur, is seeking to challenge the validity and/or, legality of the notice issued by the Income-tax Officer, City Circle and Refunds, Nagpur - impugned notice is sought to be attacked as being without jurisdiction and in excess of authority of the officer concerned, and the circumstances in which the challenge is made may be stated - Whether a housing board constituted under Madhya Pradesh Housing Board Act is a part of the State Government and is exempt from income-tax - Whether the income of board was held under trust wholly for charitable purpose and is exempt from tax

Issues Involved:
1. Jurisdiction and authority of the Income-tax Officer in issuing the notice.
2. Immunity from Union taxation under Article 289(1) of the Constitution.
3. Exemption under Section 4(3)(i) of the Indian Income-tax Act, 1922.
4. Legality of the notice under Section 148 read with Section 147 of the Income-tax Act, 1961.
5. Actual taxable income of the petitioner-board.

Detailed Analysis:

1. Jurisdiction and Authority of the Income-tax Officer:
The petitioner, Vidarbha Housing Board, Nagpur, challenged the validity of the notice dated 6th March 1968, issued by the Income-tax Officer under Section 148 read with Section 147 of the Income-tax Act, 1961. The petitioner argued that the notice was without jurisdiction and beyond the authority of the officer concerned. The court found that the reasons for issuing the notice had been recorded by the Income-tax Officer and the sanction of the Commissioner had been obtained. Therefore, the notice was within the jurisdiction and authority of the Income-tax Officer.

2. Immunity from Union Taxation under Article 289(1) of the Constitution:
The petitioner contended that the income and property of the board were the income and property of the State Government, and thus immune from Union taxation under Article 289(1) of the Constitution. The court examined the relevant provisions of the Madhya Pradesh Housing Board Act, 1950, and concluded that the board was a distinct legal entity, separate from the State Government. The board was not acting as an agent or instrumentality of the State Government. Therefore, the immunity under Article 289(1) was not available to the petitioner-board.

3. Exemption under Section 4(3)(i) of the Indian Income-tax Act, 1922:
The petitioner claimed exemption under Section 4(3)(i) of the Indian Income-tax Act, 1922, arguing that the income derived from property held under trust or other legal obligation wholly for charitable purposes was exempt. The court noted that this issue required investigation into facts, which could be done in the assessment proceedings. The court emphasized that the section of the community sought to be benefited must be sufficiently defined and identifiable by some common quality of a public or impersonal nature. Therefore, the exemption claim could not be decided in writ jurisdiction and should be adjudicated by the Income-tax Officer.

4. Legality of the Notice under Section 148 read with Section 147 of the Income-tax Act, 1961:
The petitioner argued that the notice was issued without recording reasons, making it in excess of authority. The court found that reasons had indeed been recorded and the sanction of the Commissioner was obtained. The court also noted that there was no legal obligation to furnish these reasons to the petitioner at the time of issuing the notice. Hence, the notice was found to be legally valid.

5. Actual Taxable Income of the Petitioner-Board:
The petitioner contended that there was no taxable income as the board's expenditure always exceeded its receipts. The court held that this was a matter for scrutiny in the assessment proceedings. The Income-tax Officer was to determine whether any taxable income was left after considering the returns filed by the petitioner-board.

Conclusion:
The court dismissed the writ petition, holding that:
- The notice issued by the Income-tax Officer was within jurisdiction and authority.
- The petitioner-board was not immune from Union taxation under Article 289(1) of the Constitution.
- The claim for exemption under Section 4(3)(i) required factual investigation and could not be decided in writ jurisdiction.
- The notice under Section 148 read with Section 147 was legally valid.
- The question of actual taxable income should be determined in the assessment proceedings.

The rule was discharged, and the petitioner was ordered to pay the costs of the petition to respondent No. 1.

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