1965 (11) TMI 159 - HC - Income Tax

Summary

Issues Involved:
1. Legality and jurisdiction of tax levy on amounts withdrawn by the assessees from the company.
2. Constitutional validity of Section 2(6-A)(e) of the Income Tax Act, 1922.

Detailed Analysis:

1. Legality and Jurisdiction of Tax Levy:
The assessees, Hindu undivided families, challenged the reopening of their assessment orders for the year 1961-62 by the Income Tax Officer (ITO) under Section 34 of the Income Tax Act, 1922. The ITO included a sum of Rs. one lakh in each assessee's chargeable income, considering it as a deemed dividend under Section 2(6-A)(e) of the Act. The assessees contended that Gopalakrishna Mills (P.) Ltd., from whom the loans were taken, had no accumulated profits, and the development rebate reserve should not be considered as accumulated profits. The ITO, however, ruled that the development rebate reserve represented accumulated profits and did not need to correlate the loans with any particular reserve. The High Court declined to entertain the petitions under Article 226 of the Constitution due to the existence of an alternative remedy through appeals, which the assessees had already filed and were pending.

2. Constitutional Validity of Section 2(6-A)(e):
The second issue raised by the petitioners was the constitutional validity of Section 2(6-A)(e) of the Income Tax Act, 1922. This issue was already settled by the Supreme Court in Navanitlal C. Javeri v. K. K. Sen [1965] 56 ITR 198 (SC), which upheld the constitutional validity of the provision. Consequently, the High Court did not entertain arguments on this point.

Exercise of Discretion under Article 226:
The High Court emphasized that while Article 226 grants wide powers to issue directions, orders, or writs, these powers are discretionary. The Court typically refrains from exercising jurisdiction under Article 226 when an adequate alternative remedy exists. The Court cited several precedents, including Lalji Haridas v. R. H. Bhatt [1965] 55 ITR 415 (SC) and Sales Tax Officer v. Shivaratan C. Mohatta [1965] 3 SCR 71, to illustrate that the High Court should not bypass statutory remedies unless exceptional circumstances justify such an action.

Conclusion:
The High Court concluded that no question of jurisdiction or violation of natural justice principles arose in this case. The interpretation of Section 2(6-A)(e) was within the competence of the ITO and the appellate authorities. Since the assessees had already availed themselves of the alternative remedy by filing appeals, the Court found no exceptional reasons to bypass the statutory remedies. The petitions were dismissed with costs, and the Court urged the appellate authority to expedite the disposal of the pending appeals within two months.