9911796707
TMI Blog1966 (2) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... e determination of the contentions urged before us. The appellant was originally assessed for the year 1955-56 to a tax of Rs. 2,95,540.19 and for the year 1956-57 to Rs. 10,70,643.13. A certificate was issued to the Collector for the recovery of the tax and the Collector, pursuant to the said certificate, attached all the immovable properties of the assessee in July, 1959. The Income-tax Officer also issued a notice under section 46(5A) of the Act restraining the tenants of the property from paying rents of nearly Rs. 1,200 per mensem to the petitioner ; and since July, 1959, onwards, the Income-tax Officer himself has been collecting the rents directly from the tenants. Against the assessment orders, appeals were preferred to the Appellate Assistant Commissioner, wherein the assessment for 1955-56 was set aside and remanded and the assessment for 1956-57 was reduced to Rs. 1,72,159. There was no appeal by the department against the order for 1956-57. After remand, the assessment for 1955-56 was completed by the Income-tax Officer and a tax of Rs. 77,738.22 was levied, against which an appeal was preferred by the appellant to the Appellate Assistant Commissioner on May 10, 196 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Officer and the Special Deputy Collector to bring to sale the immovable property under attachment and to realise the tax arrears; but these properties also have not been sold and no action has been taken against them on account of some claims put in by third parties. Though the claims were rejected by the Special Deputy Collector and it is possible to sell the properties under law and realise the tax arrears, the properties have not been notified for sale so far. Ultimately, the Special Deputy Collector issued a notice under rule 73 of the Rules, calling upon the appellant to show cause why the certificate issued by the Income-tax Officer on June 16, 1959, should not be executed by arresting and committing him to prison. The appellant then filed a petition challenging the validity of the certificate on the ground that the conditions precedent for the issue of such an order against him under rule 73 were not satisfied. The Income-tax Officer in his counter contended that the assessee had sold certain shares without the prior approval of the Special Deputy Collector, and also failed to deposit the proceeds realised on the shares with the Special Deputy Collector, that he had realis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tary payments made by the appellant towards the discharge of the same. It is further stated that the raiding of the premises of the appellant showed that, with the fraudulent intention of defeating and delaying the recovery proceedings, the appellant had created several nominal and benami alienations in favour of his wife, brother, relations and friends in respect of most of his properties ; that the appellant had made a settlement in favour of his wife in respect of a house worth Rs. 1,00,000 situated in Sultan Bazar, Hyderabad, without any consideration, which is void and unenforceable in law; that a mortgage was created by the appellant in favour of his brother, Kesarichand Bhora, who was residing in Delhi, by a deed, dated February 21, 1959, for Rs. 60,000, which is also nominal and collusive; and that he had also entered into nominal and collusive transactions without consideration with some of his friends and relations residing in Bombay. As the appellant did not pay the arrears of tax, the Tax Recovery Officer had to attach the properties belonging to him and bring the same to sale. The proclamation of sale was issued on August 4, 1964, and the auction was fixed to take plac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Raja Dhanrajgiriji, Rs. 500; (e) J. R. Moti Shah, Rs. 4,617. Thus, in all, it is averred, that the appellant has collected or realised or withdrawn amounts to the tune of Rs. 1,13,090. It is further pleaded that the allegation of the appellant that there was no dishonest transfer or removal of any property existing on June 16, 1959, the date of the certificate, with the object of obstructing execution, is untrue and untenable. It may at this stage be noted that the appellant did not deny either before the Tax Recovery Officer or the joint-Collector about any of the amounts realised by him, but while admitting all the said facts, he stated that the aforesaid dealings were made by him in due course of business but not dishonestly. The Income-tax Officer denied the allegation of mala fides and also the allegation that the admitted liabilities were only Rs. 4,00,000 while the disputed liability was about Rs. 7,00,000 and that the appeals were postponed with a view to harass the appellant. While it is stated that the department is willing to dispose of the appeals, it is contended that the pendency of the appeals does not give an automatic stay for the recovery of the huge arrea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en transferred or dealt with. As he has no means to pay, there is no refusal to pay, and as such it cannot be said that he had means to pay the arrears or some substantial part thereof or that he has refused or neglected to pay the tax. In these circumstances, the conditions prescribed in rule 73 have not been fulfilled. Inasmuch as there has also been no evidence, as the department has failed to adduce either before the Deputy Collector or at the appellate stage before the Joint-Collector, the impugned order cannot be passed. On the first question of jurisdiction, it was contended by the 3rd respondent that the petitioner had submitted to the jurisdiction of the 1st respondent and had, in fact, contested the proceedings under rule 73 of the rules and lost his case on merits ; that he had not raised any objection relating to the jurisdiction of the 1st respondent to initiate the proceedings in question, either at the initial stage of the show cause notice, or even at any stage of the enquiry conducted by him; and, as such, the petitioner could not be allowed to raise this question for the first time in the writ petition during the course of arguments, particularly when the facts, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chedule, the Tax Recovery Officer shall cause to be served upon the defaulter a notice requiring the defaulter to pay the amount specified in the certificate within fifteen days from the date of service of the notice and intimating that in default steps would be taken to realise the amount under this Schedule." Rule 4 relates to the mode of recovery and it enjoins : " If the amount mentioned in the notice is not paid within the time specified therein or within such further time as the Tax Recovery Officer may grant in his discretion, the Tax Recovery Officer shall proceed to realise the amount by one or more of the following modes : (a) by attachment and sale of the defaulter's movable property; (b) by attachment and sale of the defaulter's immovable property; (c) by arrest of the defaulter and his detention in prison ; (d) by appointing a receiver for the management of the defaulter's movable and immovable properties. " Rule 6(1) says that where property is sold in execution of a certificate, there shall vest in the purchaser merely the right, title and interest of the defaulter at the time of the sale, even though the property itself be specified. According to r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Recovery Officer, the means to pay the arrears or some substantial part thereof and refuses or neglects or has refused or neglected to pay the same. (2) Notwithstanding anything contained in sub-rule (1), a warrant for the arrest of the defaulter may be issued by the Tax Recovery Officer if the Tax Recovery Officer is satisfied, by affidavit or otherwise, that with the object or effect of delaying the execution of the certificate, the defaulter is likely to abscond or leave the local limits of the jurisdiction of the Tax Recovery Officer: Provided that, if the defaulter pays the amount entered in the warrant of arrest as due and costs of the arrest to the officer arresting him, such officer shall at once release him." Rule 77 says : " (1) Every person detained in the civil prison in execution of a certificate may be so detained,--- (a) where the certificate is for a demand of an amount exceeding two hundred and fifty rupees---for a period of six months, and (b) in any other case-for a period of six weeks: Provided that he shall be released from such detention--- (i) on the amount mentioned in the warrant for his detention being paid to the officer-in-charge of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attached, after the receipt of the notice or after the attachment was made. The department does not contend that the appellant has transferred or alienated any of the properties attached, but what the department says is that the appellant has not disclosed all the sources of his wealth or the amounts due to him, and as such they were not in a position to attach such of those properties as have been dealt with by the defaulter. It is appropriate to note at this stage that in the Civil Procedure Code there is no provision similar to rule 16(1), though section 64 of the said Code is analogous to rule 16(2). The question, therefore, is whether, as a matter of fact, the appellant has failed to disclose all the sources of his wealth or the amounts due to him, thus contravening rule 16(1). The department in order to attract the provisions of the Income-tax Rules, relied on the following circumstances : (1) The sale of 1,400 shares in Mysore Paper Mills for Rs. 10,340. (2) A life insurance policy of Rs. 25,000 was discounted for Rs. 24,497. (3) A sum of Rs.50,860 was received from the Bombay Light House. (4) Two sums of Rs. 4,500 and Rs. 800 were withdrawn from the Bank of Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nning of the Diwali year 1963-64, the amount due was Rs. 50,885. A copy of the account of the said debtor as appearing in the books of the petitioner is annexed. It will be seen from this copy that there are numerous business transactions during the accounting year 1963-64 and by June 15, 1964, the debtor had completely paid off the sums due from him. The amounts paid by the debtor from time to time are duly recorded in the petitioner's account books. The amounts realised are used for legitimate business purposes. The petitioner, therefore, respectfully submits that there is no truth in the respondent's allegation that the petitioner has in any way been guilty of realising the above money from the debtor and concealing the same from the notice of the Tax Recovery Officer with a view to evade payment of tax." As to the withdrawing of the amount from the Bank of India Limited, the appellant stated that the sum of Rs. 4,500 drawn on October 20, 1964, from the bank had been duly recorded in his account books and it was utilised for the following purposes : " Payment of electricity bill ... 77. 50 Payment of telephone bill ... 218. 96 Payment of office rent to Central Bank of In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was that, he being a dealer in shares, his day-to-day business consisted in the purchase and sale of shares and that the sale of shares was done in the course of his business. As regards the life insurance policy for Rs. 25,000, discounted for Rs. 24,997, the contention of Sri D. Narasa Raju is that this amount was utilised for discharging debts, whereas in the reply to the counter, the appellant's statement was that the amount was withdrawn from the bank on various dates and used for legitimate business requirements. As regards the sum of Rs. 50,860, the amount said to have been received from the Bombay Light House, it is contended by Sri D. Narasa Raju, the learned counsel for the appellant, that the assessee, who is a broker in shares, had borrowed this amount and when he got this amount, he repaid the same to the Bombay Light House. But this contention of the learned counsel does not appear to be correct on a perusal of the account. Annexure I contains the account of the Bombay Light House, Secunderabad, for the year 1963-64. A perusal of this account would go to show that the relationship between the appellant and the Bombay Light House was that of a creditor and debtor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our minds, even the dealing with property under sub-rule (1) would appear to be void because, when a person is not competent to deal with the property, those transactions are void as against claims enforceable under the demand. This is made clear by a further provision in sub-rule (1) prohibiting civil courts from issuing any process against such property in execution of a decree for payment of money. The contention of Sri D. Narasa Raju, the learned counsel, is that this prohibition would fetter the right to carry on business or to hold property and would be repugnant to the fundamental rights guaranteed under article 19(1)(g) of the Constitution. We do not agree with the learned counsel. There is no prohibition under rule 16(1) for a defaulter to do business. What is prohibited is that the defaulter shall not dispose of his property without the permission of the Tax Recovery Officer. By this restriction it cannot be said that the appellant is totally prohibited from carrying on the business. The restriction placed under the rule is a reasonable restriction. The contention of Sri D. Narasa Raju is that the restriction does not seem to be reasonable but is most unreasonable as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... occupation is affected ? So also can a person against whom an injunction is issued under Order 39, rule 1, Civil Procedure Code, complain in a like manner? Our answer is a simple "no". Similarly, in execution of a decree, where property is attached by a court for its discharge, it will be too much to say that by so doing the fundamental right to the property is affected. The provisions contained in rule 16 are of a similar nature. The defaulter under the above rule is not prohibited from carrying on the business. What is prohibited is that he shall not dispose of his property without the permission of the Tax Recovery Officer when the demand is outstanding. As long as he meets these demands from out of the property, there is no question of imposing any fetter on his business or trade. What rule 16 enjoins is that, during the subsistence of these demands, the defaulter should not deal with property without the permission of the Tax Recovery Officer. In the view we are taking, we cannot accept the contention of the learned counsel, Sri D. Narasa Raju, that rule 16 imposes an unreasonable restriction. Sri Kondaiah, the learned counsel for the respondents, relying on the proclamation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r (b) that the defaulter has, or has had, since (b) that the judgment-debtor has, or has the receipt of the certificate in the office of had,since the date of the decree, the theTax Recovery Officer, the means to pay means to pay the amount of the decree or the arrears or some substantial part thereof some subtantial part thereof and refuses or and refuses or neglects or has refused or neglets or has refused or neglected to pay neglected to pay the same. " the same.... A comparison of the provisions of the Civil Procedure Code would show that they are in pari materia with the relevant provisions contained in rule 73 of the Rules. Section 51, Civil Procedure Code, was amended in 1935 by a bill which originally intended to have a limited effect, viz., to protect industrial workers from arrest and imprisonment for a debt but the legislature thought that the protection should be applied to all persons. It is appropriate at this stage to refer to the Statement of Objects and Reasons : " The Bill seeks to amend the Civil Procedure Code of 1908 so as to protect honest debtors of all classes, and not of the industrial worker class only, from detention in a civil prison and to confine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Recovery Officer is satisfied that the defaulter, with the object of obstructing the execution of the certificate, has transferred, sold or removed any part of his property, an order can be passed, even though the requirement in clause (b) of that rule has not been established. In determining whether the defaulter has committed any act specified in rule 73(1)(a), viz., that he has dishonestly transferred, concealed or removed any part of his property, whether attached or not, rule 16, in our opinion, will have relevance because it prohibits the alienation by way of lease, mortgage, or creating a charge or otherwise dealing with any property belonging to him. It is true that if the defaulter privately alienated the property or created a charge or mortgaged the property, it would not naturally be presumed that he had dishonestly transferred, concealed or removed any part of the property as enjoined in rule 73(1)(a). But, of course, his conduct in stealthily dealing with the property would, in our opinion, not only lead to the inference that he has dishonestly transferred, concealed or otherwise dealt with the property so as to attract the provisions of rule 73(1)(a), but that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt to punishment. The mode of arrest, it may be noted, is no more than a mode for recovery of the amount due and it is not for any offence committed or a punishment for defaulting in any payment, as has been observed by their Lordships of the Supreme Court in the case of Collector of Malabar v. Erimmal Ebrahim Hajee. Relying on the case of Harpal Singh v. Hira Lal, it is contended by Sri Narasa Raju, the learned counsel, that meeting other demands would not amount to neglect or refusal to pay, as provided in rule 73. As a general proposition of law, this argument may hold good. If the facts of the case disclose that the debtor had other claims to satisfy or other necessities to meet, and spent the money on such purposes, in those cases it could be said that his conduct would not amount to neglect or refusal to pay. But the instant case is not one of that type. Here, even after the movable and immovable properties of the defaulter were attached and companies and banks were informed not to deal with him, the defaulter secretly purchased shares, withdrew amounts from the bank, sold his motor car and received moneys and, in spite of the fact that he had to pay the income-tax dues, he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defaulter, in spite of notice being served on him, does not appear and show cause, still the Tax Recovery Officer or the court, as the case may be, has to record reasons in writing for ordering his arrest on the material placed before it by the Income-tax Officer or the decree-holder after being satisfied that the defaulter had or has had, since the date of the issue of the certificate or the decree, dishonestly transferred, concealed or removed any part of the property or had the means to pay the arrears or a substantial part thereof an refuse or neglected to pay. Panchapakesa Ayyar J., while considering the scope of the proviso to section 51, Civil Procedure Code, in K. V. Muthu Pathar v. R. S. Mani Rao at page 582, observed thus : " ...whether the judgment-debtor appears or not, the court has to record the reasons for ordering his arrest, and has to be satisfied positively, in cases like this, that the judgment-debtor has or has had since the date of the decree the means to pay the amount of the decree or some substantial part thereof and has refused or neglected to pay the same." Raghubar Dayal J. (as he then was) in Harpal Singh v. Hira Lal, while considering the proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udgment-debtor has actually been in possession of substantial assets a few months prior to the suit, an inference is perfectly justifiable that he has since the institution of the suit dishonestly concealed them, and furthermore, that he has since the date of the decree means to pay a substantial portion of it from assets he is concealing from the court." It is not, however, essential that the decree-holder should be required to give strict proof that there has been a dishonest transfer or a concealment of assets in some other manner or that the judgment-debtor had in his actual possession a sum of money out of which he could have paid a substantial portion of the decree. What is required is only prima facie evidence. A perusal of the above judgments would show that the decree-holder must place some evidence or material on record from which an inference could be drawn that the judgment-debtor had transferred, concealed or removed any part of his property dishonestly or that he had means to pay the amount or a substantial part thereof, and refuses or neglects or had refused or neglected to pay the same. If there is no such material, it is not open to the court to call upon the j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He reiterated all the facts that had been stated in the affidavit filed in support of the writ petition and contended that if all of his property was attached or sold, the respondents would have realised the taxes due. He also denied that he ever withdrew any amount from the accounts to conceal the same from the reach of the income-tax authorities. He stated that every transaction was duly recorded in the account books and amounts were withdrawn by him as would appear from the account books for only domestic expenses. The counter filed by the department sets out the several transfers and collections made by the defaulter after the receipt of the notice, which have already been referred to in the earlier part of our judgment. We have also referred to the reply of the defaulter admitting all these items relied upon by the department and giving his explanation that all this was done during the course of his business, and denying that there was any dishonest concealment or transfer. Thus the defaulter's stand was that all these amounts were used for his legitimate business purposes and that he had not in any way dishonestly transferred, mortgaged or charged any of his properties and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y heavy income-tax dues. A certificate was issued to the Collector for recovery of the dues, and the Collector, pursuant to the said certificate, attached all the immovable properties of the assessee. The companies and banks were requested not to deal with him. It appears that, in spite of all this, the defaulter secretly dealt with some of his properties. The department came to know of this. Accordingly, the Special Deputy Collector issued a notice under rule 73 of the Rules calling upon the defaulter to show cause why the certificate issued by the Income-tax Officer should not be executed by arresting and committing him to prison. The appellant challenged this but, having regard to the admission made by him, the Tax Recovery Officer was satisfied that the defaulter, with the object or effect of obstructing the execution of the certificate, had dishonestly transferred, concealed or removed his properties, and also that he had the means to pay the arrears or some substantial part thereof and refused or neglected or had refused or neglected to pay the same, and passed an order for the arrest of the defaulter and his detention in civil prison. In view of the above discussion, we thin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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