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TMI Blog1980 (11) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... writ petitioners, wanted the writ of prohibition to be issued in a modified form and not in the form in which it is set out in the petitions, as it was realised that a bald prohibition from enquiry would not be appropriate in the circumstances of the case. We shall indicate the modified prayer in due course. The Tamil Nadu Farmers Service Co-operative Federation, which is the second respondent in these writ petitions, was registered on December 4, 1974. It executed a promissory note in favour of the writ petitioner in W.P. No. 3306 of 1978, for a sum of Rs. 14,700 on April 8, 1975, by name Datchinamurthy, agreeing to repay the amount set out in the promissory note with interest. The second respondent Federation was started with the object of helping the farmers by providing them integrated credit and other services. The membership of the Federation was open to the Farmers Service, Co-operative Societies and persons over 18 years of age from the Government of Tamil Nadu: The total individual members was not to exceed 20. The Federation was taking deposits on payment of 10% interest. A large number of farmers are said to have lent monies on interest to the Federation, of whom the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0. The ITO was seeking to make enquiries about the depositors and the court proceedings. As required by this court in the course of the proceedings in the earlier writ petitions, on May 27, 1977, an order of provisional assessment was made in order to find out the total amount that was required to be retained as and by way of tax so as to release the balance, if any, for being realised by the decree-holders. On June 10, 1977, the Inspectors attached to the I.T. Department visited the villages in Tirunelveli District for the purpose of verification of the averments in the large number of affidavits. On October 29, 1977, the ITO, City Circle I(2), the Assistant Director of Inspection and three Inspectors visited Serakulam, a village in Tirunelveli District, for making the enquiries. There were similar enquiries subsequently between March 10, 1978, and August 28, 1978. During these hearings a large number of persons were summoned by the assessing officer and their statements were recorded. The present writ petition s came to be filed in August, 1978. The allegations in the affidavits in support of the writ petitions are that the exercise of powers for summoning witnesses was witho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oners were making mala fide attempts on their part to subserve the interest of the Federation and to thwart the enquiry and the assessment to be made on the Federation. A reply affidavit has also been filed by the writ petitioner, V. Datchinamurthy, in which the statements in the counter-affidavits had been traversed. Another affidavit purporting to be a " reply affidavit " has been filed by the managing director of the Federation. On the allegations mentioned above, the first question that arises for consideration is whether the ITO can make any enquiries in relation to the decrees obtained from the courts in the suits mentioned already. The learned counsel for the writ petitioners drew our attention to two decisions in support of his contention that the findings of courts should be treated as conclusive in proceedings before quasi-judicial tribunals, which an ITO is. The first decision is of this court in Jerome D'Silva v. Regional Transport Authority, South Kanara [1952] AIR 1952 Mad 853; ILR 1952 Mad 632. In that case, a public carrier permit war, issued by the Regional Transport Authority to a transport operator. The lorry carrying certain materials was detained on suspi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al disposed of the particular matter, no prosecution had been launched, then it was not incumbent on it to await a criminal prosecution, and that a prosecution had actually commenced and if the prosecution was in respect of the same offence, then it would be desirable that the Transport Authority should await the decision of the criminal court. This procedure, it was indicated, would avoid the spectacle of two departments of the Government proceeding on contradictory lines, to the annoyance and hardships of the citizen. It may be seen from this judgment that the learned judges were considering the question whether there, could be contradictory conclusions in respect of the same matter by the statutory tribunal and by the criminal court. Both of them were concerned in that case with the question whether any offence has been committed on the same facts. In such a case, it would indeed be undesirable that the same matter should be proceeded with by the statutory tribunal in a manner inconsistent with the decision of the criminal court. The case before us is not of a similar type. Another decision, also of a Bench of this court, in K. Sankaralinga Thavar v. Thirumalammal [1977] 1 M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P. No.7430 of 1975-Periathambi Gounder v. District Revenue Officer, Coimbatore. In the judgment of the Full Bench delivered by Ismail J., as he then was, this judgment was approved, and a contrary view taken in Muniyandi v. Rajangam Iyer [1976] AIR 1976 Mad 287; [1976] 1 MLJ 344, was disapproved. The decision in Muniyandi v. Rajangam Iyer, AIR 1976 Mad 287; [1976] 1 MLJ 344, was disapproved only because in that case also there was a decision of the civil court before the introduction of s. 16A of Tamil Nadu Act 10 of 1969. It was held that since s. 16A was not retrospective in operation, the civil court's decree was not affected by it. This decision also is not relevant in the context of the present case. The scope of the enquiry before a civil court and before the Revenue authorities functioning under the Tamil Nadu Act 10 of 1969 was the same, viz., whether a particular person could be recognised as a tenant under the said Act. When once there was a judgment of the civil court, it was held that it was not open to the statutory tribunal to ignore the decision of the civil court. If the scope of the enquiry before the ITO was the same as it was before the civil court, then it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmed the decision. In the course of the judgment of the Supreme Court, it was observed at page 567 as follows : "There is nothing in the Income-tax Act which prevents the revenue authorities from determining the quantum of the amount which is payable by the appellant as local fund cess, when that question properly arises before them in the course of proceedings for assessment. The Income-tax Officer is, within the limits assigned to him under the Act, a, tribunal of exclusive jurisdiction for the purpose of assessment of Income-tax. He has under the Act to decide whether a particular receipt is income, and it is not predicated that he must make some person or body other than the assessee who may be concerned with that receipt as a party to the proceeding before he decides that question. As between the State and the assessee it is his function alone to determine whether the receipt is income and is taxable. The determination by the Income-tax Officer may be questioned in proceedings before superior tribunals which are permitted by the Act, but the Income-tax Officer cannot be prevented from determining a question which properly arises before him for the purpose of assessment of ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee are satisfied or not ". This decision was taken on appeal to the Supreme Court and was reversed in Hazarat Pirmohamed Shah Saheb Roza Committee v. CIT [1967] 63 ITR 490 (SC). The Supreme Court, however, did not pronounce on this point, as it was unnecessary to do so, since the result of the Supreme Court's decision was not inconsistent with that of the Charity Commissioner. There is also another decision of the Supreme Court in Narendrakumar J. Modi v. CIT [1976] 105 ITR 109. In that case for the assessment year 1955-56 it was claimed that there was a partition with effect from October 24, 1954, in the HUF. This claim was rejected by the ITO, and on appeal the AAC confirmed the ITO's order. Before the AAC reliance was placed on a preliminary decree of the civil court passed in 1965 in a suit instituted in 1961. The Supreme Court held that the income-tax authorities had their own view to take and that they were not bound by the decree. The plenitude of the ITO's power to examine the matter for himself and arrive at his own decision was recognised in this case also. The learned counsel for the writ petitioners sought to distinguish this decision by contending that the cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e do not find anything lacking in authority in several persons recording the statements. The next point that was urged was that the witnesses should be permitted to have their counsel present before the addressing officer. It was stated that any statement recorded from the decree-holders was likely to prejudice them. It was pointed out that even though the decrees had been passed under order 37, rule 1, CPC, any statement made by the decree-holders to the effect that they had not lent the amounts or that the amounts did not belong to them was likely to prejudice them, and that there could be protection to the decree-holders only if they were allowed to have their counsel with them, so that any statement, which was injurious to their interest did not go on record. It was also stated that though a witness is bound to answer all the questions under s. 132 of the Indian Evidence Act, 1872, the witness may claim that any answer may incriminate him. If he was compelled to give an answer, then such an answer could not be proved against him in any criminal proceedings. It was, therefore, submitted that a witness, who is a lay person, would not be aware of his rights, and that it was nece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en there is no likelihood of any prejudice to the witness as decree-holder. If he stated on oath that he did not lend any money and that someone else was at the back of the decree, then even assuming that in proceedings under order 37, rule 4 of the Code of Civil Procedure, such statement could be used, still there would be no prejudice caused to the witness, because he had not lent any amount and he was not likely to suffer by the decree being assailed under order 37, rule, 4, C.P.C. The grievance of the petitioners appears to be thus more imaginary than real. Further, s. 132 gives protection in respect of answers which the witnesses are compelled to give in any criminal proceedings. The apprehension was in respect of civil proceedings, and any statement recorded, despite objections, is not covered by any protection given in respect of such proceedings contemplated by s. 132 of the Indian Evidence Act. A witness has to speak the truth and the whole attempt at having a counsel to be present at the stage of the enquiry appears to be open to the objection that he does not want to come forward with the truth or to allow the truth to go into the record. It is not possible, therefore, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which these enquiries are made, the assessee should be allowed to be present, if necessary, with his counsel. In his submission any enquiry conducted behind the back of the assessee would be wholly illegal. It is necessary to remember that the Federation is only a respondent. 'The present petitions are by the persons, who have obtained decrees as against the Federation. The Federation itself had filed a writ petition, W.P. No. 2120 of 1977, which was disposed of by the judgment dated January 23, 1979. It is not clear how a respondent in the writ petition is entitled to seek any relief of declaration in the present proceedings. Therefore, the points sought to be canvassed by the learned counsel would thus be alien to the present proceedings. These points have been set out in what is called "a reply affidavit" sworn to by the managing director of the Federation. The learned counsel was not in a position to satisfy us on the legal position that a reply could be filed by one respondent to answer counter-affidavit filed by another respondent. Though some argument was sought to be advanced as if the interests of the Federation were hostile to the interests of the two writ petitioners, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the amounts of the cheques was made to the assessees. Before the Appellate Assistant Commissioner they stated that they handed over the moneys to some other persons whose presence could not be procured. There is nothing on the record to show that the Income-tax Officer had not disclosed to the assessees the material he had collected by examining Achaldas and Poonamchand. In any event, the Appellate Assistant Commissioner in the interest of justice and fair play gave the assessees an opportunity to cross-examine these two persons. The Income-tax Officer is not bound by any technical rules of the law of evidence. It is open to him to collect materials to facilitate assessment even by private enquiry. But if he desires to use the material so collected, the assessee must be informed of the material and must be given an adequate opportunity of explaining it. The statements made by Achaldas and Poonamchand before the Incometax Officer were material on which the income-tax authorities could act provided that the material was disclosed and the assessees had opportunity to render their explanation in that behalf. " It is thus manifest that there is great latitude allowed to the ITO i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecitals which made them appear to be debts due by the Federation to the various parties named therein. The ITO, however, had a hunch that these entries were bogus. At any rate, he was not prepared to accept the account entries on their face value and he wished to make a further probe and ascertain the real nature and source of the amounts represented by these cash credits. He, therefore, began investigation, both directly and also by issuing commissions to his colleagues who had territorial jurisdiction over the parties whose names appeared in the cash credit entries. The inquiry set on foot by the ITO involved the summoning of these parties for examination as to the nature and source of the amounts of receipts represented by the credit entries in the Federation's accounts. To any one measurably familiar with the practice and procedure followed by the I.T. department in the investigation of cash credits, there is nothing out of the ordinary in the way the ITO in this case had proceeded with the investigation of the credit entries in the Federation's account books. Hundreds of thousands of assessments are being done every day by the ITOs all over India, and quite a large number of, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions in the accounts which are entered by the book-keeper against each entry. If the recitals of each and every entry are true, then by a mere look at the accounts, without more, a correct assessment of the income can be made, because the entries themselves distinguish the assessee's income receipts from his non-income receipts. But this will not be the case if the recitals are false. Although the relevant narrations in the accounts may show the credit entries as representing loans due by the assessee or moneys of third parties held in suspense, those amounts, in truth, would be the assessee's own income receipts, masquerading under false recitals. If such be the case, the reality of every such credit entry would become apparent only if the nature and source of that credit entry are further probed into. If this investigation be not allowed, or is not carried out, there is risk of taxable income being passed off either as borrowing with all that it implies, such as under-assessment, tax evasion and the like. The ITO, charged with the duty of adjusting the fiscal liability of the taxpayers must, therefore, be held to be not under the slightest obligation to always act on account ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed against the Federation at the instance of the parties who figure in the Federation's accounts as creditors in respect of the very transactions on which the ITO would like to have the benefit of further investigation. The contention of Mr. Gopalaratnam is that when suits had been filed by the petitioners and other creditors of the Federation and decrees had been obtained against the Federation, they, in effect, provide conclusive adjudication as to the truth and genuineness of those credits. It is, in this sense, that the decrees passed by the court against the Federation are stated to bar further investigation in income-tax proceedings. Mr. Gopalaratnam does not forget the fact that the ITO is not a party to the suits filed against the Federation. The decrees have to be respected by the ITO for no other reason than that they are decrees of court. He suggested that the ITO cannot deign to ignore or flout civil court decrees to which the assessee is a party and which effectively adjudicates on the truth of the transactions in question. It is suggested that when once the court had adjudicated on the debts, it is not open to the ITO either to ignore or override that adjudication an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffect to the decrees of court in any matter in which the decision of the courts become relevant in the course of discharge of the tribunal's own functions. I may at once observe, without any intention to belittle the importance of courts, that they do not exist by divine right. On the contrary, they exist in much the same as any other non-judicial tribunal exists; that is to say, as creatures of law. It is law which had created them and permitted their continued existence. It is to the law that the courts owe their present position. Tomorrow they can be abolished or altered beyond recognition, if the law so wishes. Courts have, therefore, neither permanance nor pre-eminence. They are not only created by law but they also function according to law. All this is part of the rule of law system. In this sense, therefore, we cannot put a special halo over courts of law. Nor can their decrees possess added weight for no other reason than that they issue forth from the courts. Under any Legal system, the tribunals have their respective parts to play. Their decisions too are important in the way law accords them importance. The ITO is a tribunal of a kind. He is duly appointed under the I.T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion between the assessee and a third party. As was earlier mentioned, if, on the facts, the ITO was not a party to a litigation, then, on the principle that no man is bound by a decree to which he is not a party, the flat of the court cannot run against the ITO. What is more, the ITO cannot be joined at all as a party to a private litigation in a way which would set at naught any assessment or investigation made by him in the course of assessment. Modern taxation, no doubt, may bring about many situations in which the taxing authorities and court of law might have to cross each other's paths. Taxes on wealth or income are generally on the owners of wealth and the owners of income. It may well be a matter of dispute in given cases as to who the owner of the wealth or income might be. The issue might arise as between the ITO, on the one hand and the taxpayers, on the other, in assessment proceedings. The same dispute might arise between the taxpayers and another adversary who claims the real ownership. The basic issue may be the same in income-tax proceedings and in civil litigations, namely, the issue as to ownership. But the slant of the proceedings, the objective to be attained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in possession of the dividends, the executors of Vandervell were asked to pay the surtax on those dividends. The executors accordingly filed an originating summons in the High Court, Chancery Division, against the trustees for an order that the trustees should pay the executors of Vandervell's estate the entire dividends on the shares. In those proceedings, the Commissioners of Inland Revenue were sought to be added as parties under 0. 15, r. 6(2) of the Supreme Court Rules. This procedural provision enabled the court to order any person whose presence before the court was necessary to ensure that all matters in dispute in the cause or matter might be effectually and completely determined and adjudicated upon. The court originally added the Commissioner, Inland Revenue, as a party. But subsequently on a motion by the trustees they were struck off as defendants. On appeal, the decision was reversed by the Court of Appeal. Lord Denning and other members of the Court of Appeal were of the view that a court of law can add the Commissioners of Inland Revenue as parties to an existing proceeding between a taxpayer and a third party. Lord Denning observed that it would be a just and con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etion of that court merely because disputes before the court of a commercial or dispositive character have tax implications. Lord Wilberforce feared that such a course of action might even spell unwholesome consequences to one or other of the parties concerned. Lord Diplock was more forthright in laying down the proposition that the civil court's decree is not binding on the Revenue even in cases where the correctness of the assessment depends on an issue which had fallen for decision before the court in the action at law between the taxpayer and a third party. Lord Diplock made it clear that the Crown has no other interest in an issue of that kind excepting its effect upon the taxpayer's liability to tax. The noble Lord conceived of situations in which the taxpayer and the Crown might agree to accept as correct facts already found in a judgment of a court, whether or not they were parties to that judgment. But, he was quite definite that the function of the taxing authorities differs from a court of law on the hearing of a civil action. He pointed out that whereas a court of law adjudicates upon issues in dispute between the parties to the civil action which they have chosen to su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme Court of Ontario held that the purchaser was not to be made liable for tax. In this action at law between the seller and the purchaser, the Department of Revenue was not made a party. Subsequently, in the assessment proceedings, the seller prayed for a refund of the sales tax of 3,40,000 dollars from the Government. The ground for refund was that the original contract between, the parties did not entitle the seller to add the tax to the sale price and that this question was decided by the Ontario Supreme Court. The tax authorities, however, rejected this claim for refund. The seller, thereafter took the matter by petition of right before the Exchequer Court of Canada. In the Exchequer Court, Cattanach J. did not agree with the decision of the Ontario Supreme Court on the construction of the contract of sale between the parties. He did not agree with the view of that court that the original contract of sale did not comprehend future taxes to be paid by the purchaser. Notwithstanding that, the learned judge felt bound by the earlier judgment out of considerations of " judicial comity ". He upheld the claim for refund of tax made by the seller because he felt that judgments of cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovided by appropriate legislation". It may be observed that this was the view expressed by some of the learned judges in the Vandervell's case [1970] 46 TC 341 also. The comments of the learned judges in the two cases I have referred to make it quite clear that any finding or adjudication on an issue in civil litigation between the taxpayer and an adversary of his, is not binding in any proceedings for assessment which is entrusted by the statute to be determined by accredited revenue authorities. In these two cases, the discussion of the question was based on the special provisions in the taxing code under which exclusive jurisdiction to determine all matters concerning the assessment is found vested in the taxing authorities. The adjudication by civil courts of matters which have relevance to the assessment have been considered only in the light of the special provisions of the taxing code. There was no occasion in these two cases for any argument to be addressed before these courts on the basis that somehow decree of a civil court in civil litigation has an overriding force which the taxing authorities are bound to respect and give effect to. But the discussion, such as we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TO entering on a further and fuller probe into the reality of the transactions in question, either by direct investigation or by issuing commissions to other ITOs. The petitioners cannot resist the investigation by the ITO by merely furnishing the decrees of court which they had obtained against the Federation. Mr. Gopalaratnam cited a Bench decision of this court in Jerome D'Silva v. The Regional Transport Authority, South Kanara, AIR 1952 Mad 853; ILR 1952 Mad 632. There, the question was, whether a Regional Transport Officer can suspend a public carrier permit issued to a lorry-owner on the score that he had allowed the lorry to be engaged in smuggling foodgrains which was against the law, when in collateral criminal proceedings the lorry driver was discharged by a Magistrate on the ground that the charge of smuggling rice had not been made out by the prosecution. In deciding that question, this court took the stand that the subject-matter of the proceedings before the Magistrate and the subject-matter of the proceedings before the Regional Transport Authority were one and the same, namely, the offence of smuggling foodgrains contrary to law. While the court was prepared to ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment of income-tax. It seems to me that after the decision of the Supreme Court, although the case arose under the I.T. Act, it is doubtful if any broad proposition can be stated to the effect that the findings and orders of courts of law should be treated as conclusive in proceedings before quasi-judicial tribunals. The question, in my opinion, has to be considered in every case by going meticulously into the relative provisions of the statute under which the quasi-judicial tribunal is created and its powers defined. The principle am able to extract from the Supreme Court's decision is that where statute creates a tribunal and invests it with jurisdiction to go into certain legal relations or results and also provides for a hierarchy of appellate, revisional or other tribunals and excludes the jurisdiction of courts in those matters which are properly to be dealt with by the tribunal under the Act, then it cannot be said that the tribunals are in any way bound by the decisions of courts. For, by definition, the tribunals have exclusive jurisdiction with reference to matters which properly arise before them in the course of proceedings for presiding over which they have been d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat Order deals with the court's power to order attendance of a deponent to an affidavit for cross-examination, either by personal appearance before the court or on commission. There is no curb on the discretion of the court to cross-examine the deponent to an affidavit. The powers of the ITO to enquire into the subject-matter of assessment will necessarily include the power to summon the deponent of an affidavit in order to cross-examine him on the contents of his affidavit. The Officer is also given specific powers to compel the attendance of a witness in the same way as the court has. In the present cases, the farmers and representatives of the Farmers' Co-operatives having already filed affidavits before the ITO and having taken a stand that the transactions are genuine, cannot now assume stand that their affidavits should be accepted by the ITO without question. It is in the very nature of affidavit evidence that it is susceptible of being further scrutinised by a viva-voce examination. The Federation, which is the assessee in these cases, might well have rested content With flourishing the certified copies of decrees in the ITO's face and taken the line that those decrees con ..... X X X X Extracts X X X X X X X X Extracts X X X X
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