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1985 (3) TMI 70
Issues Involved:
1. Legitimacy of the seizure under Section 135(a)(ii) of the Customs Act, 1962.
2. Credibility of prosecution witnesses and evidence.
3. Delay in seizure and lodging of the complaint.
4. Burden of proof under Section 123 of the Customs Act.
5. Reasonableness of the trial court's judgment of acquittal.
Detailed Analysis:
1. Legitimacy of the Seizure under Section 135(a)(ii) of the Customs Act, 1962:
The appellant, Assistant Collector of Customs and Central Excise, lodged a complaint alleging that on January 16, 1973, a boat loaded with 150 packets of catechu was seized by the B.S.F. near the Bangladesh border. The boatmen fled, and the catechu was seized on January 18, 1973. The respondent claimed the boat and catechu, which were confiscated after departmental adjudication. A fine was imposed under Section 114, and the boat was sold in public auction.
2. Credibility of Prosecution Witnesses and Evidence:
The prosecution examined two witnesses, while the defense examined three. The trial court acquitted the accused-respondent, finding the defense witnesses more credible. The prosecution's key witness, P.W. 1, claimed the boat was near the Bangladesh border, but the trial court found inconsistencies in his testimony, particularly regarding the location of Pillar No. 1042 and the river's flow, which undermined his credibility.
3. Delay in Seizure and Lodging of the Complaint:
The defense argued that there was a significant delay in seizing the catechu and lodging the complaint. The catechu was seized on January 18, 1973, despite being detained on January 16, 1973. The trial court found this delay suspicious and indicative of possible manipulation by the B.S.F. Inspector, P.W. 1. The defense also noted that material witnesses, such as the majhis of the boat, were not examined, further weakening the prosecution's case.
4. Burden of Proof under Section 123 of the Customs Act:
The court noted that the burden of proof lies on the prosecution to prove that the goods were smuggled. Catechu was not included in the list of goods under Section 123, and no notification was produced to classify it as a prohibited good. Therefore, the burden of proof remained with the prosecution, which failed to provide sufficient evidence to support the smuggling allegation.
5. Reasonableness of the Trial Court's Judgment of Acquittal:
The trial court found the defense version more credible, supported by the challan and money receipt showing the legitimate origin and transit of the catechu. The court also found it unlikely that a smuggler would leave such documents with the goods. The accused-respondent promptly claimed the catechu and boat, further supporting his innocence. The trial court's judgment was based on reasonable grounds, and the High Court upheld the acquittal, citing precedents that if two views are possible, the High Court should not interfere with the trial court's decision.
Conclusion:
The High Court found no merit in the appeal and upheld the trial court's judgment of acquittal. The prosecution failed to prove the smuggling allegations beyond a reasonable doubt, and the defense provided a credible explanation supported by evidence. The appeal was dismissed, affirming the trial court's decision.
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1985 (3) TMI 69
Issues:
Entitlement to exclude trade discount and cash discount in determining manufacturing cost for excise duty levy.
Analysis:
The judgment addressed the question of whether manufacturers are entitled to exclude trade discount and cash discount in determining the manufacturing cost for excise duty levy. The respondents, manufacturers of embroidered cotton fabrics, were assessable to excise duty under Item 1911 of the Central Excises and Salt Act, 1944. The respondents had opted to pay duty at compounded rates under Rule 96J of the Central Excise Rules. The issue arose when the Assistant Collector of Central Excise disallowed the trade discount and cash discount allowed by the manufacturers, leading to a demand under Rule 10A of the Central Excise Rules. The authorities contended that the discounts were not uniformly allowed to all purchasers, and trade discount should only be allowed at the time of sale. However, the court held that trade discount need not be uniform and can be allowed even if given at a later point in time, as long as it is related to the sales. The court referred to a Supreme Court decision stating that trade discount is a percentage deduction from the regular list or catalogue price of goods and need not be uniform.
The judgment further discussed the distinction between trade discount and cash discount. The court emphasized that cash discount, which is allowed for prompt payment, should also be considered in determining the assessable value under Section 4 of the Act. Referring to a Bombay High Court decision, the court highlighted that if the nature of the discount is known to the purchaser prior to the purchase, it should be deducted from the sale price. In this case, the price list prepared by the manufacturers disclosed the cash discount offered for prompt payment, indicating that purchasers were aware of the discount. Therefore, the court concluded that both trade discount and cash discount should be allowed in determining the assessable value for excise duty levy.
In conclusion, the court dismissed all contentions raised by the manufacturers and upheld the disallowance of the trade discount and cash discount. The judgment clarified that both types of discounts can be excluded from the manufacturing cost for excise duty levy, even if not uniformly offered or given at the time of sale. The decision provided clarity on the treatment of trade and cash discounts in determining the assessable value for excise duty purposes.
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1985 (3) TMI 68
Issues involved:
Interpretation of the term "perfumed hair oils" under Item 14F(ii)(b) of Schedule 1 of the Central Excises and Salt Act, 1944.
Summary:
Issue 1:
The respondent, a manufacturer of perfumeries, challenged the classification of their products as "perfumed hair oils" under Item 14F(ii)(b) of the Act. The Central Excise Authorities contended that the thailams manufactured by the respondent fell within this category and were liable for excise duty.
The respondent argued that their thailams were solely intended for use as bath oils, not for grooming hair, and were not marketed as hair oils. The original authority upheld the classification, stating the thailams could be used for hair care. The appellate authority also supported this view, citing the depiction of a woman with long hair on the product label as suggestive of hair care use.
Issue 2:
The High Court analyzed whether the thailams prepared by the respondent could be considered "perfumed hair oils" as per the legal definition. The Court noted that the products were primarily used as bath oils, applied before bathing, and were not specifically marketed or intended for hair care.
The Court emphasized that the classification by the authorities must not be arbitrary or unreasonable to be upheld. It was highlighted that the presence of a woman with long hair on the product label did not definitively indicate the intended use as hair oil. The Court also referenced a previous case regarding the definition of perfumes to support the argument that the thailams did not meet the criteria of perfumed hair oils.
Conclusion:
After considering all arguments and evidence, the High Court agreed with the learned single Judge's decision that the thailams manufactured by the respondent were not appropriately classified as "perfumed hair oils." The writ appeal was dismissed, upholding the judgment that the products were rightly categorized as bath oils and not subject to excise duty under Item 14F(ii)(b) of the Act.
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1985 (3) TMI 67
Issues Involved:
1. Classification of PVC coated Periglass Sleevings or Silicon elastomer coated glass sleevings under the Indian Customs Tariff.
2. Whether these items fall under Item 53 (Textile Manufacture) or other entries such as 72-C, 73(1), 82(3), or 87.
3. The role of popular versus technical definitions in tariff classifications.
4. The jurisdiction of the High Court in interfering with the decisions of the Customs authorities.
Detailed Analysis:
1. Classification of PVC coated Periglass Sleevings or Silicon elastomer coated glass sleevings:
The primary issue in these appeals was whether the items imported by the respondent, specifically PVC coated Periglass Sleevings or Silicon elastomer coated glass sleevings, should be classified under Item 53 of the Indian Customs Tariff, which pertains to "Textile Manufacture not otherwise specified." The Assistant Collector of Customs initially assessed these items under Entry 82(3), which deals with synthetic resins and plastic materials, and this assessment was upheld by the Appellate Collector of Customs. However, the Ministry of Finance later classified these items under Entry 53.
2. Whether these items fall under Item 53 (Textile Manufacture) or other entries such as 72-C, 73(1), 82(3), or 87:
The court examined whether the items in question could be considered textiles. The learned Single Judge held that the items should not be classified under Entry 53 and directed the authorities to reconsider whether they fall under Entries 72-C, 73(1), or 87. The relevant entries were:
- Item 53: Textile Manufacture not otherwise specified.
- Item 73(1): Electrical instruments, apparatus, and appliances not otherwise specified.
- Item 82(3): Synthetic resins and plastic materials.
- Item 87: All other articles not otherwise specified.
The court had to determine if the Periglass Sleevings, which are fabric materials coated with PVC, could be construed as textiles. The court referred to various dictionary definitions and technical descriptions to understand the term "textile."
3. The role of popular versus technical definitions in tariff classifications:
The court emphasized that in the absence of a statutory definition, terms in tax statutes should be understood in their popular sense, as used in common parlance, rather than their technical or scientific meanings. This principle was upheld by the Supreme Court in several cases, including Indo-International Industries v. Commissioner of Sales Tax, U.P., and Ramavatar Budhiaprasad v. Asst. Sales Tax Officer, Akola. The court concluded that in common parlance, glass fibre or fabric made of glass fibre is not understood as a textile.
4. The jurisdiction of the High Court in interfering with the decisions of the Customs authorities:
The appellants argued that the classification of items is a matter for the Customs authorities and should not be interfered with by the High Court under Article 226 of the Constitution. However, the court held that it could intervene if the authorities' decision was based on an erroneous view or improper interpretation of statutory expressions. The court cited the Supreme Court's decision in Union of India v. Tata Iron and Steel Co. Ltd., emphasizing that fiscal legislation should provide clear definitions to avoid confounding controversies.
Conclusion:
The court upheld the learned Single Judge's decision that the PVC coated Periglass Sleevings or Silicon elastomer coated glass sleevings do not fall under Item 53 of the Customs Tariff. The matter was remitted to the authorities to determine the appropriate classification under Entries 72-C, 73(1), or 87. The court dismissed the appeals with costs and directed the authorities to pass final orders within six months.
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1985 (3) TMI 66
Issues Involved:
1. Jurisdiction of the summons issued under Section 14 of the Central Excises and Salt Act, 1944.
2. Relevance of documents requested in the summons for determining the price under Section 4(1)(a) of the Act.
3. Availability of an alternative remedy under Section 35 of the Act.
4. Potential misuse of summons for initiating proceedings under Section 11A of the Act.
Detailed Analysis:
1. Jurisdiction of the Summons Issued Under Section 14 of the Central Excises and Salt Act, 1944:
The summons dated September 4, 1984, issued to M/s Hindustan Safety Glass Works Limited (the Glass Works) under Section 14 of the Central Excises and Salt Act, 1944, was challenged as being without jurisdiction. The Glass Works contended that the summons required the production of documents irrelevant to the determination of the price under Section 4(1)(a) of the Act. The court noted that Section 14 empowers a Central Excise Officer to summon any person to produce documents or give evidence necessary for any inquiry under the Act. However, the court emphasized that the documents requested must be relevant to the inquiry. The court concluded that the summons lacked jurisdiction as it demanded documents unrelated to the inquiry concerning the approval of the price list under Section 4(1)(a).
2. Relevance of Documents Requested in the Summons for Determining the Price Under Section 4(1)(a) of the Act:
The court examined the relevance of the documents listed in the schedule of the summons. It was noted that the Glass Works had been submitting classification lists for several years, including the list dated April 13, 1984, for price determination under Section 4(1)(a). The court found that many documents requested, such as the value of goods transacted through Branch Offices and price lists effective in different depots, were irrelevant for determining the price under Section 4(1)(a). The court held that the inquiry under Section 4(1)(a) should be limited to the matters specifically mentioned in that clause, and any demand for unrelated documents was impermissible.
3. Availability of an Alternative Remedy Under Section 35 of the Act:
The Assistant Collector argued that the Glass Works had an alternative remedy under Section 35 of the Act, which provides for appeals against decisions or orders passed by a Central Excise Officer. The court, however, clarified that a summons issued under Section 14 does not constitute a "decision" or "order" within the meaning of Section 35. The court explained that a summons is merely an intimation requiring a person to appear or produce documents and does not involve the determination of any question or enforcement of a decision. Consequently, the court rejected the argument that the Glass Works had an alternative remedy under Section 35, allowing the writ petition under Article 226 of the Constitution.
4. Potential Misuse of Summons for Initiating Proceedings Under Section 11A of the Act:
The Glass Works contended that the summons might be an attempt by the Assistant Collector to reopen the question of liability for past transactions or to gather material for initiating proceedings under Section 11A of the Act. Section 11A allows for the recovery of duties not levied or paid within six months (or five years in cases of fraud, collusion, etc.). The court observed that while it did not delve into the validity of this contention, the provisions of the Act, including Section 14, should be administered fairly to ensure the interest of revenue without causing unnecessary harassment to the assessee. The court cautioned against using the summons for a roving and fishing inquiry to collect material for proceedings under Section 11A.
Conclusion:
The court quashed the summons dated September 4, 1984, as it demanded the production of documents irrelevant to the inquiry under Section 4(1)(a) of the Act. The Assistant Collector was, however, allowed to proceed afresh in accordance with the law and require the Glass Works to produce relevant documents through a properly issued summons under Section 14 if necessary. The petition succeeded, and the parties were directed to bear their own costs.
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1985 (3) TMI 65
Issues Involved:
1. Validity of action taken under Rule 10 after its omission.
2. Approval of classification lists and exercise of power under Rule 173B(5).
3. Timeliness of the show cause notice.
4. Exemption from additional duty under Notification No. 115, dated 1-3-1975.
Summary:
1. Validity of Action under Rule 10 after Omission:
The petitioners argued that the notice dated 1-8-1978 issued under Rule 10 of the Central Excise Rules, 1944, was invalid as Rule 10 was omitted with effect from 17-11-1980 without a saving clause. The court noted that the Assistant Collector took action based on this notice in June 1984, after Rule 10 was omitted. The court referenced the Supreme Court decision in M/s. Rayala Corporation (P) Ltd. v. The Director of Enforcement, which held that Section 6 of the General Clauses Act does not apply to omissions and thus cannot save actions initiated under omitted rules. Consequently, the court concluded that no action could be taken based on the notice issued under the now-omitted Rule 10.
2. Approval of Classification Lists:
The petitioners contended that their classification lists claiming exemption were approved without modification, and thus, the power under Rule 10 could not be exercised, especially since powers under Rule 173B(5) were not used to modify the classification. The court did not delve into this issue in detail, as it found the first ground sufficient to decide the case.
3. Timeliness of the Show Cause Notice:
The petitioners argued that the show cause notice was not issued within six months from the relevant date, as required by Rule 10. The court did not address this issue in detail, given its decision on the first ground.
4. Exemption from Additional Duty:
The petitioners claimed that additional duty was exempt under Notification No. 115, dated 1-3-1975, because the basic duty was exempted. The court did not explore this argument, as it resolved the case based on the first issue.
Conclusion:
The court allowed the petition, declaring the notice dated 1-8-1978 and the order dated 29-6-1984 passed by the Assistant Collector to be without authority of law and quashed them. The request for a certificate for leave to appeal to the Supreme Court was rejected, as the matter did not involve any question of law of general importance.
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1985 (3) TMI 64
Issues Involved:
1. Fundamental right to legal assistance during interrogation.
2. Validity of statements obtained under alleged coercion and duress.
3. Interpretation of Sections 107 and 108 of the Customs Act.
4. Application of Articles 21, 22(1), and 39A of the Constitution.
Detailed Analysis:
1. Fundamental Right to Legal Assistance During Interrogation:
The primary contention of the petitioners was that they have a fundamental right to legal assistance, which includes the right to have a counsel present during interrogation. This right, they argued, is guaranteed under Articles 21, 22(1), and 39A of the Constitution. The court examined various judgments, including M.H. Hoskot v. State of Maharashtra and Francis Coralie v. Union Territory of Delhi, to determine the scope of this right. The court concluded that the right to consult a legal adviser does not extend to requiring the presence of a lawyer during interrogation under Section 108 of the Customs Act. The court emphasized that the investigation must be discreet and secret, and the presence of a lawyer could compromise this process.
2. Validity of Statements Obtained Under Alleged Coercion and Duress:
The appellant alleged that he was subjected to severe beatings, ill-treatment, and unlawful detention, which coerced him into making statements against his will. The court noted that Sections 107 and 108 of the Customs Act do not authorize customs officers to use coercion or third-degree methods. The court referenced the Full Bench decision in Roshan v. Joint Secretary to the Government, Tamil Nadu, which stated that prolonged custody and coercion could render a statement involuntary and unreliable. The court held that any statements obtained through such means would be questionable and could not be relied upon in proceedings.
3. Interpretation of Sections 107 and 108 of the Customs Act:
Sections 107 and 108 empower customs officers to summon individuals for evidence or interrogation related to smuggling activities. The court clarified that these sections do not authorize the detention or coercion of individuals. The examination or interrogation should be conducted in a manner consistent with human dignity and comfort. The court also noted that the customs officers could not take individuals into custody under these sections, and any prolonged detention or coercion would be beyond their legal authority.
4. Application of Articles 21, 22(1), and 39A of the Constitution:
The court examined whether the right to legal assistance under Article 21, read with Article 39A, extends to having a lawyer present during interrogation. The court referred to the Supreme Court's observations in Nandini Satpathy v. P.L. Dani, which stated that the presence of a lawyer during interrogation is a constitutional claim in some circumstances. However, the court distinguished this case by noting that the interrogation under Section 108 of the Customs Act is part of an investigation and not a custodial interrogation. Therefore, the right to have a lawyer present does not apply in the same manner.
Conclusion:
The court dismissed the appeal and writ petitions, holding that there is no fundamental right for a person summoned under Section 108 to have a lawyer present during interrogation. The court advised the department to permit the presence of lawyers during such examinations, taking necessary precautions to maintain the confidentiality and secrecy of the investigation. The request for leave to appeal to the Supreme Court was also rejected, as no substantial question of law was found to arise from the order.
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1985 (3) TMI 63
Issues Involved:
1. Whether 'flush doors' were dutiable under Tariff Item 16-B of the Central Excises and Salt Act, 1944.
2. Whether the petitioner is entitled to a refund of excise duty paid on 'flush doors'.
3. The applicability of the plea of limitation to the petitioner's claim for a refund.
4. The impact of the respondents' memo clarifying that 'flush doors' should be assessed under Tariff Item 68.
Detailed Analysis:
1. Dutiability of 'Flush Doors' under Tariff Item 16-B:
The petitioner, M/s. Mafatlal Plywood and Industries Ltd., contended that 'flush doors' were not dutiable under Tariff Item 16-B or any other entry of the Central Excises and Salt Act, 1944. The respondents, however, initially assessed 'flush doors' under Tariff Item 16-B and collected excise duty accordingly. This was challenged by the petitioner, leading to a series of appeals and a revision petition, all of which upheld the initial assessment. However, the respondents later filed a memo clarifying that 'flush doors' should be assessed under Tariff Item 68, effectively conceding the petitioner's point.
2. Entitlement to Refund of Excise Duty:
The petitioner sought a mandamus for the refund of excise duty paid from 1962-63 to the date of the writ petition. The court noted that the respondents' memo acknowledged that 'flush doors' were not dutiable under Tariff Item 16-B. Therefore, the court focused on the petitioner's claim for a refund and the defenses raised by the respondents. The court cited principles from Bhailal Bhai's and Vallabh Glass Work's cases, emphasizing that the exercise of discretion under Article 226 of the Constitution involves considering delay and the nature of the claim.
3. Plea of Limitation:
The respondents argued that the petitioner's claim was barred by limitation, as there was a delay of more than three years and eight months in approaching the court after the Government's final order. The court upheld this plea, noting that even in the exercise of extraordinary jurisdiction under Article 226, the plea of limitation cannot be ignored. The court rejected the petitioner's claim for periods prior to 1-1-1978 as barred by time, stating that the explanation for the delay was neither satisfactory nor convincing.
4. Impact of Respondents' Memo:
The respondents' memo clarified that 'flush doors' should be assessed under Tariff Item 68, which was consistent with a decision by the High Court of Delhi and the Supreme Court's dismissal of a related Special Leave Petition. This concession significantly impacted the court's decision, as it acknowledged that the initial assessment under Tariff Item 16-B was incorrect. Consequently, the court declared that the petitioner was entitled to a refund of the difference in excise duty paid from 1-1-1978 onwards.
Conclusion:
The court made the following orders and directions:
1. The petitioner is entitled to a refund of the difference in excise duty paid from 1-1-1978 onwards under Tariff Item 16-B, compared to the duty payable under Tariff Item 68.
2. The respondents are directed to compute and refund the difference in excise duty for the period from 1-1-1978, with the option to adjust the refund against any amounts due from the petitioner under the Act, within four months from the date of the order.
3. The petitioner's claim for refund for periods prior to 1-1-1978 is dismissed as barred by time.
4. Each party is to bear its own costs.
The writ petition was disposed of in these terms, balancing the petitioner's partial success with the respondents' legitimate defenses.
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1985 (3) TMI 62
Whether the plywood manufactured by the Respondent and utilised by the respondent in manufacturing plywood circles to be used as component parts of packing material for wires and cables is exigible to excise duty under the Central Excises and Salt Act, 1944?
Held that:- Item 16B makes it clear that plywood in sheets, blocks, boards or the like attracts excise duty. A special provision by way of exception is made only in the case of plywood for tea-chests when cut to size in panels or shooks and packed in sets. The provision in Item 16B that plywood in sheets, blocks and board or the like, which attracts duty is indeed in very broad terms and the expression `like' does necessarily include circles. There is nothing to indicate in this item that plywood must be trimmed or sanded. Plywood is manufactured as soon as it comes out of the press, though the same may not be trimmed or sanded out of which circles are to be produced. There is nothing to indicate that plywood in panel stage, not trimmed and not sanded, is not known in the market as plywood. Plywood when it comes out of the press at the panel stage, therefore, clearly falls within Item 16B of the First Schedule, and the authorities concerned were, therefore, justified in seeking to levy duty on plywood at the panel stage. We are, therefore, of the opinion that the High Court was in error in allowing the writ petition and in quashing the said two Notices. We must, therefore, allow the appeal and set aside the judgment of the High Court holding that the two notices issued which were quashed by the High Court, are valid and lawful.
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1985 (3) TMI 61
Whether a female who inherits a share in a joint family property by reason of the death of a male member of the family ceases to be member of the family?
Held that:- This case has to be treated as an authority for the position that when a female member who inherits an interest in the joint family property under section 6 of the Act files a suit for partition expressing her willingness to go out of the family, she would be entitled to get both the interest she has inherited and the share which would have been notionally allotted to her as stated in Explanation I to section 6 of the Act.
In the instant case, the theory that there was family settlement is not pressed before us. There was no action taken by either of the two females concerned in the case to become divided from the remaining members of the family. It should, therefore, be held that notwithstanding the death of Sham Rao, the remaining members of the family continued to hold the family properties together though the individual interest of the female members thereof in the family properties had become fixed. Narayan Rao, Sulochanabai and Gangabai alias Taibai were together entitled to retain only one unit of ceiling area. In the result, the judgment of the High Court is set aside and the order passed by the Sub-Divisional Officer which was affirmed by the Tribunal is restored. Appeal allowed.
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1985 (3) TMI 60
Whether or not a clear allegation of entrustment and misappropriation of properties was made by the appellant in her complaint?
Whether the High Court justified in quashing the complaint at that stage?
Held that:- The allegations of the complainant in this appeal and the appeals before the Allahabad and the Punjab and Haryana High Court show that it is not so but is pure figment of the High Courts' imagination as a result of which the High Courts completely shut their eyes to the fact that the husband could also be guilty under s. 405/406, IPC, in view of the clear allegations made in the complaint. In other words, the High Courts simply refuse to believe that there can be any such entrustment and even if it is so, no offence is committed. Such an approach amounts to a serious distortion of the criminal law, resulting in perpetrating grave and substantial miscarriage of justice to the wife at the hands of the High Courts. We cannot countenance such a wrong and perverse approach.
For the reasons given above, we are satisfied that as the complaint prima facie disclosed an offence of criminal breach of trust, as defined in s. 405/406 of the Indian Penal Code, the High Court was not justified in quashing the complaint. Appeal allowed, set aside the judgment of the High Court and restore the complaint filed by the appellant and direct that the accused may be summoned, if not already summoned, and put on trial in accordance with law.
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1985 (3) TMI 59
Issues Involved:
1. Maintainability of the application for stay of reassessment proceedings.
2. Jurisdiction and inherent powers of the High Court under Section 27 of the Wealth-tax Act.
3. Scope of the High Court's advisory jurisdiction.
4. Powers under Article 227 of the Constitution.
5. Impact of the pending reference on reassessment proceedings.
Issue-wise Detailed Analysis:
1. Maintainability of the application for stay of reassessment proceedings:
A preliminary objection was raised regarding the maintainability of the application for stay of reassessment proceedings. It was argued that the High Court, while hearing a reference under Section 27 of the Wealth-tax Act (W.T. Act), acts only in an advisory jurisdiction and cannot issue an order of stay or injunction as an interim measure. The court concluded that it does not have the inherent power to grant such relief while exercising its advisory jurisdiction.
2. Jurisdiction and inherent powers of the High Court under Section 27 of the Wealth-tax Act:
The court examined whether it has inherent power while hearing a reference under Section 27 of the W.T. Act. It was clarified that the High Court does have inherent power, as established in cases like Jaipur Mineral Development Syndicate v. CIT and Lakshmi Industries & Cold Storage Co. (P.) Ltd. However, this inherent power is limited to procedural matters and passing orders ancillary or incidental to the advice the court proposes to give while answering the questions referred to it.
3. Scope of the High Court's advisory jurisdiction:
The court reiterated that its jurisdiction under Section 27 of the W.T. Act is purely advisory, as held in several Supreme Court cases such as CIT v. Scindia Steam Navigation Co. Ltd., Venkataraman & Co. (P.) Ltd. v. State of Madras, and Sarathy Mudaliar v. CIT. The High Court does not exercise appellate or revisional jurisdiction over the Tribunal but acts in an advisory capacity to answer the questions referred to it.
4. Powers under Article 227 of the Constitution:
The court considered whether it could exercise its powers under Article 227 of the Constitution to grant the stay. It concluded that the power of superintendence under Article 227 is to be exercised sparingly and only to ensure that subordinate courts function within their authority. It would not be a proper exercise of discretion to direct the Wealth-tax Officer (WTO) not to pass a fresh order of assessment when he is obligated to do so by the order of remand passed by the Appellate Assistant Commissioner (AAC) and affirmed by the Tribunal.
5. Impact of the pending reference on reassessment proceedings:
The court addressed the concern that the reference might become infructuous if the WTO passes a fresh order of assessment. It was clarified that any decision by the WTO in pursuance of the order of remand would be subject to the result of the opinion of the High Court. The reference will not become infructuous because the Tribunal will have to decide the appeal in light of the High Court's answers to the questions referred.
Conclusion:
The court dismissed the application for stay of reassessment proceedings, concluding that it does not have the jurisdiction to grant such relief while exercising its advisory jurisdiction under Section 27 of the W.T. Act. The inherent power of the High Court is confined to procedural matters and passing orders ancillary to the advice it proposes to give. The power under Article 227 of the Constitution is limited to ensuring that subordinate courts function within their authority and does not extend to granting stays in such cases. The reassessment proceedings will not render the reference infructuous, as any decision by the WTO will be subject to the outcome of the reference.
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1985 (3) TMI 58
Issues Involved:
1. Allowability of expenditure incurred on the foreign tour of the wife of a senior partner u/s 37(1) of the I.T. Act, 1961.
2. Validity of the Appellate Tribunal's finding based on the materials and reasonableness of the view.
Summary:
Issue 1: Allowability of Expenditure u/s 37(1) of the I.T. Act, 1961
The primary issue was whether the expenditure incurred on the foreign tour of the wife of a senior partner was allowable as a business expense u/s 37(1) of the I.T. Act, 1961. The assessee, a firm of five partners, claimed the expenses under "Export promotion expenses" for the assessment year 1972-73. The ITO disallowed the claim for the expenses related to the partner's wife, deeming them personal. On appeal, the AAC allowed the expenses, recognizing the modern trend of top executives' wives accompanying them on business trips and the partner's wife's training in modern designs, which purportedly aided the business. The Tribunal upheld the AAC's decision, emphasizing the business purpose of the wife's role as a "nurse" due to the partner's diabetes and the resultant increase in export sales.
However, the High Court disagreed, stating that the partner's diabetes was a personal issue unrelated to business activities. The expenses for availing the wife's services, even if necessary for health reasons, were deemed personal. The court cited precedent cases, including State of Madras v. Coelho [1964] 53 ITR 186 (SC) and Bombay Mineral Supply Co. Private Ltd. v. CIT [1985] 153 ITR 437 (Guj), emphasizing that personal expenses cannot be allowed as business expenses. The court concluded that the expenses incurred were personal and not wholly and exclusively for business purposes, thus not qualifying for allowance under s. 37(1) of the Act.
Issue 2: Validity of the Tribunal's Finding
The second issue was whether the Tribunal's finding was based on valid and proper materials and was a reasonable view. The High Court found that the Tribunal's conclusion, which endorsed the AAC's statement about the wife's training in modern designs and the resultant business growth, was not supported by evidence. The court emphasized that findings based on imagination or without evidence are not sustainable. Citing CIT v. Jain [1973] 87 ITR 370 (SC), the court highlighted that findings based on no evidence or inconsistent with the evidence justify interference. The court noted that the Tribunal's statement about the wife's role in business growth was not based on any material evidence, rendering the finding unsustainable.
The High Court also addressed the Tribunal's reasoning that the foreign tour was productive of increased business, pointing out that the wife's presence on the tour did not involve any business activity. The court referred to Halsbury's Laws of England, stating that indirect advantages are too remote to permit expense deductions. The court concluded that the expenses, being personal or for a dual purpose, did not qualify for allowance under s. 37(1) of the Act.
Conclusion:
The High Court answered the questions in the negative, ruling in favor of the Revenue. The expenses incurred on the foreign tour of the wife of the senior partner were deemed personal and not allowable under s. 37(1) of the I.T. Act, 1961. The Tribunal's finding was also found to be unsupported by evidence and thus unsustainable. The assessee was ordered to pay the costs of the reference to the Department, with counsel's fee set at Rs. 500.
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1985 (3) TMI 57
Issues Involved:
1. Whether the ratio of CIT v. Anwar Ali [1970] 76 ITR 696 (SC) still holds the field despite the deletion of the word "deliberately" from s. 271(1)(c) of the I.T. Act, 1961, and the insertion of an exhaustive Explanation thereto by the Finance Act No. 5 of 1964.
2. Correctness of the Tribunal's decision in deleting the penalty of Rs. 12,000 levied by the Inspecting Assistant Commissioner u/s 271(1)(c) read with the Explanation.
Summary:
Issue 1: Applicability of CIT v. Anwar Ali [1970] 76 ITR 696 (SC) Post-Amendment
The focal question was whether the ratio of CIT v. Anwar Ali still applies after the deletion of the word "deliberately" from s. 271(1)(c) of the I.T. Act, 1961, and the insertion of the Explanation by the Finance Act of 1964. The court held that the legislative intent in deleting the word "deliberately" and adding the Explanation was to shift the burden of proof from the Department to the assessee in cases where the returned income is less than 80% of the assessed income. The Explanation raises three rebuttable presumptions against the assessee:
(i) that the assessed income is the correct income,
(ii) that the failure to return the correct income was due to concealment, and
(iii) that the failure was due to furnishing inaccurate particulars.
The court concluded that the ratio of Anwar Ali's case is no longer applicable to the amended s. 271(1)(c).
Issue 2: Correctness of Tribunal's Decision on Penalty
The Tribunal had deleted the penalty of Rs. 12,000 imposed by the IAC, despite the fact that the assessee's explanation for the discrepancy between the returned and assessed income was categorically rejected by the Income-tax Officer, the Appellate Assistant Commissioner, and the Tribunal itself. The court observed that once the Explanation to s. 271(1)(c) is attracted, the burden of proof shifts to the assessee to rebut the presumptions. The Tribunal's decision to delete the penalty was found to be unwarranted as the burden of proof remained undischarged by the assessee. The court answered the question of law in the negative, in favor of the Revenue and against the assessee.
The judgment emphasized that penalty proceedings are civil in nature and distinct from criminal proceedings, and that the burden of proof on the assessee can be discharged by preponderance of evidence, not necessarily by leading fresh evidence but possibly by existing material on record. The court also highlighted the necessity for the authorities to record clear findings on whether the assessee has discharged the onus to rebut the presumption raised by the Explanation.
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1985 (3) TMI 56
Issues:
1. Valuation of property under Section 269C of the Income Tax Act.
2. Consideration of auction sales in determining fair market value.
3. Validity of splitting a single transfer into multiple transactions.
4. Admissibility of unregistered agreement in determining fair market value.
Valuation of Property under Section 269C:
The case involved the sale of a property where the fair market value determined by the Valuation Officer was higher than the apparent consideration, triggering acquisition proceedings under Section 269C of the Income Tax Act. The Competent Authority relied on the valuation report and reasons to believe that the consideration was understated to facilitate tax evasion. The Tribunal's decision to exclude auction sale rates in determining fair market value was deemed erroneous by the High Court, as auction sales are indicative of market value and should have been considered.
Consideration of Auction Sales:
The High Court criticized the Tribunal for disregarding auction sale rates of neighboring properties that were higher than the determined fair market value of the disputed property. The court emphasized that auction sales reflect market value and should have been factored into the valuation process. The Tribunal's failure to consider these rates was considered a legal error warranting the setting aside of its judgment.
Validity of Splitting a Single Transfer:
The Tribunal's decision to split a single property transfer into multiple transactions was challenged by the Revenue. The High Court agreed with the Revenue's contention, stating that the transfer of the property to multiple parties through a single deed did not negate the fact that it was a single transfer. The court noted that the consideration for different shares was interconnected, leading to the conclusion that there was one sale deed executed for a price below fair market value.
Admissibility of Unregistered Agreement:
The High Court highlighted the importance of registered agreements in determining fair market value under Section 269F(9) of the Income Tax Act. In this case, the Tribunal's consideration of an unregistered agreement dated September 19, 1972, was deemed improper. The court emphasized that unregistered agreements cannot be relied upon to explain differences in consideration, and thus, the Tribunal erred in considering such evidence.
In conclusion, the High Court set aside the Tribunal's judgment, emphasizing the importance of considering auction sales, the invalidity of splitting a single transfer, and the inadmissibility of unregistered agreements in determining fair market value under the Income Tax Act. The case was remanded to the Tribunal for a fresh decision in accordance with the law, with no order as to costs.
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1985 (3) TMI 55
Issues Involved:
1. Validity of reopening assessment proceedings under section 147(b) of the Income Tax Act, 1961.
2. Validity of reopening assessment proceedings under section 8 of the Surtax Act for the assessment years 1965-66 and 1966-67.
Issue-wise Detailed Analysis:
1. Validity of reopening assessment proceedings under section 147(b) of the Income Tax Act, 1961:
The primary issue was whether the Income Tax Officer (ITO) validly reopened the assessment proceedings under section 147(b) of the Income Tax Act, 1961 for the assessment years 1965-66 and 1966-67. The ITO had originally allowed a rebate under section 84 by including half the profits accrued during the respective years in the capital computation. Following an audit inspection, the ITO concluded that this inclusion was incorrect and reopened the proceedings to reduce the rebate.
The Tribunal held that the case involved merely an interpretation of sub-rule (5) of rule 19 of the Income Tax Rules and that information regarding a position of law had to come from a person vested with the authority to decide questions of law. The Tribunal concluded that an audit note could not be considered "an authority on law or on a proper interpretation of the legal provisions" and thus, there was no valid information for reopening the proceedings under section 147(b).
The Tribunal's decision was supported by the Supreme Court's ruling in Indian & Eastern Newspaper Society v. CIT [1979] 119 ITR 996, which stated that an audit party's opinion on a point of law could not be regarded as "information" enabling the ITO to initiate reassessment proceedings under section 147(b). The Tribunal found that the audit note merely pointed out an error in the application of rule 19(5), which was a matter of legal interpretation and not new factual information.
2. Validity of reopening assessment proceedings under section 8 of the Surtax Act for the assessment years 1965-66 and 1966-67:
The reopening of the surtax assessments was based on the same grounds as the reopening under section 147(b) of the Income Tax Act. The Tribunal referred to the statement of the case under the Income Tax Act proceedings and noted that the surtax proceedings were reopened solely because the regular assessment proceedings were reopened.
The Tribunal's supplementary statement of the case included extracts from the ITO's records, showing that the ITO initially contemplated rectification proceedings under section 154 but later decided to reopen the proceedings under section 147(b). The audit report indicated that the ITO had granted excess relief under section 84 due to errors in the computation of capital, which necessitated recomputation for surtax purposes as well.
The Tribunal concluded that the audit note pointed out an error in the application of sub-rule (5) of rule 19, which could not be treated as information for the purpose of section 147(b). The Tribunal's decision was consistent with the Supreme Court's ruling in Indian & Eastern Newspaper Society v. CIT, which emphasized that an error discovered on reconsideration of the same material does not constitute fresh information.
Conclusion:
The High Court upheld the Tribunal's view, agreeing that the audit note's indication of an error in the application of rule 19(5) was a matter of legal interpretation and not fresh factual information. Consequently, the reopening of the assessments under section 147(b) of the Income Tax Act and section 8 of the Surtax Act was deemed invalid. The questions referred to the court were answered in the affirmative and in favor of the assessee, with costs awarded to the assessee.
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1985 (3) TMI 54
Issues: Assessment of income tax, claim for export markets development allowance under s. 35B, admissibility of additional grounds for claims under section 35B raised before the Tribunal.
Analysis:
The case involved the assessment of income tax for the assessee, a registered firm, for the assessment year 1971-72. The assessee claimed weighted deduction for export markets development allowance under s. 35B of the Income Tax Act, 1961. Initially, the claim was rejected by the Income Tax Officer (ITO) due to lack of evidence provided by the assessee. Subsequently, the assessee appealed to the Appellate Assistant Commissioner (AAC) and produced evidence of incurring traveling expenses in connection with exporting jute and tea to foreign countries. The AAC accepted the evidence and directed the ITO to allow the deduction under s. 35B as claimed.
The assessee further appealed to the Income-tax Appellate Tribunal, seeking to raise additional grounds for claiming further weighted deduction under s. 35B for other expenditures related to the export business. The Tribunal allowed the petition of the assessee to introduce additional items of expenditure, even though specific claims for those amounts were not made before the ITO or the AAC. The Tribunal remanded the matter to the ITO for examination and necessary orders in accordance with the law.
The main issue in the judgment was whether the Tribunal was justified in admitting the additional grounds raised before it for claims under section 35B, which were not presented before the ITO or the AAC. The High Court reframed the question to determine if the Tribunal's decision to allow the introduction of additional items of claims under s. 35B was appropriate. The court noted that the assessee had initially claimed relief under s. 35B, and the additional items of expenditure were introduced to enhance the existing claim, not to make an entirely new claim.
The court considered relevant legal precedents, including decisions of the Supreme Court and various High Courts, to analyze the admissibility of additional grounds for claims under s. 35B. Referring to a judgment delivered by the Bench in a similar case, the court concluded that the Tribunal's decision to admit the additional grounds for claims under s. 35B was justified in favor of the assessee. The court also refused the Revenue's oral application for a certificate for leave to appeal to the Supreme Court, as the matter was already concluded by a decision of the Supreme Court.
In conclusion, the High Court upheld the Tribunal's decision to admit the additional grounds for claims under s. 35B and remand the matter to the ITO for examination, ruling in favor of the assessee.
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1985 (3) TMI 53
Issues Involved:
1. Whether the Tribunal was right in law in refusing to admit the two additional grounds of appeal raised by the applicant.
2. Whether the Tribunal was right in law in not admitting the additional ground No. 2 which did not require consideration of material not already on record.
Summary:
Issue 1: Refusal to Admit Additional Grounds of Appeal
The Tribunal refused to admit the two additional grounds of appeal raised by the assessee, stating that these grounds were not raised before the ITO or the AAC and did not arise out of the AAC's order. The Tribunal also found no evidence or material on record to prove that the expenditure referred to in the additional grounds was laid out wholly or exclusively by way of export expenditure or covered by clauses (i) to (ix) of s. 35B(1)(b) of the Act. The Tribunal relied on the Supreme Court decision in Addl. CIT v. Gurjargravures P. Ltd. [1978] 111 ITR 1, which held that new claims not made before the ITO cannot be raised for the first time before the Tribunal.
Issue 2: Non-Admission of Additional Ground No. 2
The Tribunal did not admit additional ground No. 2, which involved claims for expenditures such as printing and stationery, rent and taxes, salary and wages, telephone charges, West Bengal sales tax & surcharge, and bank interest. The assessee argued that these items were supported by evidence on record and that the claims were not new but an enhancement of the original claim under s. 35B of the I.T. Act, 1961. The Tribunal, however, maintained that there was no material or evidence on record to support such claims.
Court's Analysis:
The Court analyzed various precedents, including Hukumchand Mills Ltd. v. CIT [1967] 63 ITR 232 (SC), CIT v. Mahalakshmi Textile Mills Ltd. [1967] 66 ITR 710 (SC), CIT v. Nelliappan [1967] 66 ITR 722 (SC), and others. The Court noted that the subject matter of the appeal before the Tribunal was the claim under s. 35B, and the assessee was only seeking to enhance or expand its original claim by including new items supported by evidence on record. The Court distinguished the present case from Gurjargravures' case [1978] 111 ITR 1 (SC), stating that the additional grounds were part of the same claim under s. 35B and supported by the statement of accounts filed before the ITO.
Judgment:
The Court held that the Tribunal erred in refusing to admit the additional grounds of appeal. The subject matter of the appeal was the claim under s. 35B, and the assessee was entitled to include new items in this claim. Therefore, the Court answered question No. 1 in the negative and in favor of the assessee. Consequently, question No. 2 did not require an answer.
Conclusion:
The Tribunal's refusal to admit the additional grounds of appeal was incorrect. The assessee's claim under s. 35B was valid, and the additional items were supported by evidence on record. The Court ruled in favor of the assessee, allowing the inclusion of new items in the claim under s. 35B.
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1985 (3) TMI 52
Issues Involved:
1. Whether sales tax refund and sums realized for payment to Indian Sugar Syndicate Ltd. are trading receipts of the assessee.
Summary of Judgment:
The High Court of PATNA considered whether sales tax refund and sums collected for the Indian Sugar Syndicate Ltd. were trading receipts of the assessee. The assessee, a sugar factory, had collected sales tax from dealers and deposited it in the Government treasury u/s 14A and 20A of the Bihar Sales Tax Act. Subsequently, the Supreme Court declared these sections ultra vires, leading to the refund of the tax collected. The assessee had to refund this amount to dealers, and a portion remained with the assessee. Similarly, the amount collected for the Indian Sugar Syndicate remained under dispute. The Tribunal initially ruled in favor of the assessee, considering these amounts as liabilities. However, the Department disagreed and sought a reference to the High Court.
The High Court referred to the Supreme Court's decision in Chowringhee Sales Bureau (P.) Ltd. v. CIT, emphasizing that amounts realized as sales tax must be treated as trading receipts. The Court also cited other cases supporting this view. Despite the assessee's arguments based on other judgments, the Court held that both the sales tax refund and the amount collected for the Indian Sugar Syndicate should be considered trading receipts of the assessee. The Court answered both questions in the affirmative, against the assessee and in favor of the Department, settling the matter based on established legal principles.
Therefore, the High Court concluded that the sales tax refund and the sum collected for the Indian Sugar Syndicate were indeed trading receipts of the assessee, aligning with the Supreme Court's precedents and other relevant legal decisions.
The judgment was delivered by UDAY SINHA J., with agreement from NAZIR AHMAD J.
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1985 (3) TMI 51
Issues:
1. Whether the Tribunal was justified in directing the Commissioner of Income-tax (Appeals) to decide the question of status afresh when the assessee did not file a separate appeal against the refusal of registration to the firm?
2. Whether the Tribunal was justified in deciding two issues, the question of status, and disallowances of expenses in one appeal filed by the assessee?
Analysis:
The case involved a reference made by the Income-tax Appellate Tribunal regarding the status of an assessee-firm earning income from the sale of tendu leaves. The firm failed to file a declaration in Form No. 12 for continuation of registration benefits, leading to the Income Tax Officer (ITO) treating the firm as unregistered. The Commissioner of Income-tax (Appeals) rejected the assessee's appeal and refused to grant registration benefits. The Tribunal remanded the matter back to the Commissioner for a fresh decision, which was challenged by the Revenue.
Regarding the first issue, the Tribunal's direction to the Commissioner of Income-tax (Appeals) to decide the status afresh was deemed justified. The Tribunal found that the Commissioner had wrongly rejected the assessee's application for adjournment, indicating sufficient reasons for a rehearing. Therefore, the Tribunal's decision to remand the matter for a fresh decision was upheld.
Concerning the second issue, it was acknowledged by both parties that if the Tribunal's direction for a rehearing was maintained, the question of deciding two issues in one appeal became redundant. The Tribunal's observation that there was no separate appeal against the refusal of registration benefits was contested by the assessee, stating that the matter was not decided on merits. As a result, the second part of the first question did not arise from the Tribunal's order and was deemed unnecessary to answer.
In conclusion, the High Court affirmed the Tribunal's decision to remand the case for a fresh decision on the status issue. The redundant nature of the second question rendered it unnecessary to address. The reference was answered accordingly, with each party directed to bear their own costs.
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