1968 (9) TMI 4 - SC - Income Tax

Whether the notice under section 226(3) of the Income-tax Act 1961 hereinafter called the new Act bearing No. 770-d/60-61 61-62 62-63 and 63-64 issued by the III Income-tax Officer to M/s. Rajarajeswari Motor Service Mangalore produced as exhibit VIII with the writ petition was invalid and inoperative in respect of the following items of tax and penalty included therein? Held that - The Income-tax Officer had authority to issue the notices under section 156 and section 226(3) of the new Act with respect to the liability of the respondent under the old Act. The High Court was therefore in error in holding that the impugned notice was inoperative in regard to the amount of Rs. 485.55 for the assessment year 1961-62. There is the additional circumstance that the assessments of tax and penalty have been made against the respondent and demand notices have also been issued under section 156 of the new Act. It is therefore not possible to argue that the amount of tax and penalty for the assessment years 1962-63 and 1963-64 were not due by the assessee on April 23 1965 when the notice under section 226(3) of the new Act was issued. We are accordingly of the opinion that Mr. Srinivasan is unable to make good his argument on this aspect of the case. It follows therefore that the impugned notice dated April 23 1965 was validly issued as regards items 4 and 5 viz. penalty for the assessment year 1962-63 i.e. Rs. 1, 890 and tax for the assessment year 1963-64 i.e. Rs. 64, 307.90. In the absence of specific particulars by the respondent in his writ petition it is not open to the High Court to go into the question whether the Income-tax Officer has arbitrarily exercised his discretion. In the result we hold that the respondent is unable to substantiate his case that the impugned notice is in any way defective with regard to item No. 1 i.e. tax for the assessment year 1960-61 amounting to Rs. 7, 056.15.

Summary

Issues Involved:
1. Validity of the notice under section 226(3) of the Income-tax Act, 1961, for tax and penalty for different assessment years.
2. Applicability of the new Act's provisions to assessments and penalties under the old Act.
3. Proper exercise of statutory discretion by the Income-tax Officer.

Detailed Analysis:

1. Validity of the Notice Under Section 226(3) of the Income-tax Act, 1961:
The Mysore High Court had held that the notice issued under section 226(3) of the Income-tax Act, 1961 (new Act), was invalid and inoperative concerning the tax and penalty for the assessment years 1960-61, 1961-62, 1962-63, and 1963-64. The Supreme Court examined whether the notice was properly issued under the new Act for arrears of tax and penalty levied under the old Act.

2. Applicability of the New Act's Provisions to Assessments and Penalties Under the Old Act:
The High Court had accepted the argument that the provisions of section 226 of the new Act were not applicable to assessments and penalties under the old Act. It was contended that both the assessment and appellate orders were made under the old Act, and thus, section 226 of the new Act could not be invoked. The Supreme Court disagreed, stating that section 226(3) of the new Act does not require the assessee to be in default before a notice can be issued. The Supreme Court emphasized that section 297(2)(j) of the new Act allows for the recovery of sums payable under the old Act using the provisions of the new Act. The Court concluded that the Income-tax Officer had the authority to issue notices under sections 156 and 226(3) of the new Act for liabilities incurred under the old Act.

3. Proper Exercise of Statutory Discretion by the Income-tax Officer:
The High Court had found that the Income-tax Officer did not properly exercise statutory discretion under section 220(6) of the new Act when issuing the notice for the tax amount for the assessment year 1960-61. The Supreme Court, however, held that the respondent had not provided specific particulars in the writ petition to substantiate the claim that the discretion was exercised arbitrarily or capriciously. Consequently, the Supreme Court found no basis to uphold the High Court's finding on this issue.

Conclusion:
The Supreme Court set aside the judgment of the Mysore High Court and held that the Income-tax Officer had the authority to issue the impugned notice under section 226(3) of the new Act for the recovery of tax and penalty liabilities incurred under the old Act. The Court also found that the notice was validly issued concerning all the items, including the tax for the assessment year 1960-61, and that the Income-tax Officer had not exercised discretion improperly. The appeal was allowed, and the writ petition filed by the respondent was dismissed.