TMI Blog1979 (8) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... for the redress of any injury or alleged injury suffered by the petitioner by the issue of the notice, which may subsequently lead to orders of reassessment, cannot be entertained in view of the existing cl. (3) of art. 226. But cl. (3) of art. 226 of the Constitution has been deleted and art. 226 has been restored to its position as it was before the Constitution (Forty-Second Amendment) Act, 1976, by the Constitution (Forty-Fifth Amendment) Act, 1978, just assented to by the President after ratification of it by the States was completed. We are, therefore, considering this preliminary question in a wider and permanent context. The question is whether and when the High Court should exercise its discretionary jurisdiction under art. 226 of the Constitution to entertain a writ petition for a relief based on grounds other than the unconstitutional or ultra vires nature of any legal provision when the grounds for such relief can be considered by statutory authorities and adequate relief also can be granted by them under the relevant statutory provisions. The usual ground on which such writ petitions are presented is that action taken by the administrative or quasi-judicial authoriti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e pros and cons, S. K. Das, K. C. Das Gupta and N. Rajagopala Ayyangar JJ. held a writ petition challenging the reopening of the assessment as maintainable, while Hidayatullah and Shah JJ., held to the contrary. The compromise between the opposing views suggested by the majority has been the basis for subsequent decisions. At pp. 207, 208, Das Gupta J., speaking for the majority, observed as follows : " Where such action of an executive authority acting without jurisdiction subjects or is likely to subject a person to lengthy proceedings and unnecessary harassment, the High Courts, it is well settled, will issue appropriate orders or directions to prevent such consequences ...... The existence of such alternative remedy is not however always a sufficient reason for refusing a party quick relief by a writ or order prohibiting an authority acting without jurisdiction from continuing such action ...... When the Constitution confers on the High Courts the power to give relief it becomes the duty of the courts to give such relief in fit cases and the courts would be failing to perform their duty if relief is refused without adequate reasons. " A general tendency to extend the scope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee to urge all that he has to say against the notice is thus not applicable to notice under s. 148(1). Had it been a mere show-cause notice, the assessee would not have been justified in coming to this High Court because the very purpose of a show-cause notice is to invite objections against the proposed action. The second is the averment by the assessee on affidavit that no material existed on which the ITO could have " reason to believe " within the meaning of s. 147 that the income of the assessee has escaped assessment. Such averment by the assessee cannot be based on his personal knowledge. For, under s. 148(1), the ITO has only to record his reasons on the file before issuing notice under s. 148(1). But, as pointed out by the Supreme Court in S. Narayanappa v. CIT [1967] 63 ITR 219, 223 (SC): "There is no requirement in any of the provisions of the Act or any section laying down as a condition for the initiation of the proceedings that the reasons which induced the Commissioner to accord sanction to proceed under section 34 of the Income-tax Act, 1922 (corresponding to section 147 of the Act of 1961) must also be communicated to the assessee." We understand t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ground that either branch of the condition precedent does not exist, but an investigation whether the inferences raised by the Income-tax Officer from the information are correct or proper cannot be made. Counsel for the Commissioner is, therefore, right in contending that the High Court entered upon an investigation of matters which were not within their competence." In Kantamani Venkata Narayana and Sons v. First Addl. ITO [1967] 63 ITR 638, 644 (SC), the same view was expressed by the Supreme Court in the following words: "The High Court in appeal, after referring to the judgment in Calcutta Discount Co.'s case [1961] 41 ITR 191 (SC), observed: `. ...... without the enquiry being held by the concerned Income-tax Officer it is not possible, on the material on record, to decide whether or not the assessee omitted to or failed to disclose fully and truly all material facts necessary for his assessment for the respective years.' The High Court has pointed out that no final decision about failure to disclose fully and truly all material facts bearing on the assessment of income and consequent escapement of income from assessment and tax could be recorded in the proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the jurisdiction to determine the jurisdictional conditions for the exercise of their own jurisdiction. Since s. 147 of the I.T. Act is such a provision the, jurisdiction to take the provisional decision that there is " reason to believe " has to be exclusively of the ITO who has the exclusive jurisdiction to do so. In spite of the intention of the Legislature to give such exclusive jurisdiction to the ITO, cases have arisen and will arise when such provisional decisions were made by the particular ITO without the existence of material on which such opinion could be formed. This is why the compromise suggested in the Calcutta Discount Co.'s case [1961] 41 ITR 191 (SC) had to be arrived at by the Supreme Court between the amplitude of art. 226, on the one hand, and the particular application of s. 147, on the other. The guidelines for the understanding of this compromise are these: 1. If an assessee would be put to lengthy proceedings and unnecessary harassment the High Court would intervene. 2. This would be so particularly if the remedy to be given by the High Court would be a quick remedy as contrasted to the dilatoriness of the statutory remedy. 3. While, normally the stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mer makes the assessment. It is then only that the petitioner can contend that the said material could not form the basis of " reason to believe " within the meaning of s. 147. These reasons or materials can then be placed by the assessee before the court in a writ petition under art. 226 to invite the decision of the court whether such material can form the basis of exercise of the jurisdiction of having " reason to believe " by the ITO under s. 147. It would not be proper for the assessee without filing the return to ask this court to call for the reasons recorded by the ITO. If the Supreme Court has held that reasons need not be furnished with the notice, the decision of the Supreme Court would be stultified if this court were nevertheless to call for the reasons recorded by the ITO for the benefit of the assessee without the latter submitting the return. This would be virtually compelling the ITO to disclose his reasons along with the notice issued under s. 148(1), though, according to the Supreme Court, this was not obligatory for the ITO to do. We hold, therefore, that after the receipt of the notice under s. 148(1), the assessee must file a return of his income as per the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ampur Distillery and Chemical Co. Ltd. v. Company Law Board [1970] 40 Comp Cas 916; AIR 1970 SC 1789. One general distinction may be made. When the error of law is apparent on the face of the record this court under art. 226 of the Constitution is more likely to entertain the writ petition because, following the guidelines laid down in Calcutta Discount Co.'s case [1961] 41 ITR 191 (SC), a quick remedy would be given to the petitioner by deciding the obvious question of law and avoiding lengthy proceedings and harassment of the petitioner before the statutory authorities. For instance, when on the face of the record the time limit for reassessment fixed by s. 153(2) or for the issue of s. 148 notice laid down by s. 151 are apparently not complied with, this court may like to entertain the writ petition to avoid unnecessary proceedings before the departmental authorities, since the court can decide a question of law on undisputed facts quickly. On the other hand, whenever questions of facts are involved, this court would be slow to consider them with a view to opine whether or not the facts amount to the existence of material for " reason to believe " under s. 147. The difficulty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment Authority v. Smt. Lila D. Bhagat [1975] 1 SCC 410; AIR 1975 SC 495 the Supreme Court in paragraph 10 of the judgment held that this court should not entertain a writ petition under art. 226 even when the alleged lack of jurisdiction could be decided by the interpretation of the master plan in the light of the facts and circumstances of the case. The court observed (p. 498): "It was neither expedient nor possible for the High Court or this court to arrive at a definite conclusion one way or the other on the reading and interpretation of the master plan alone. It was primarily and essentially within the domain of the criminal court where the prosecutions were pending to arrive at its own conclusion on appreciation of the entire evidence placed before it." The learned counsel for the petitioner argued that in some cases the Supreme Court had considered the question whether material existed for reason to believe under s. 147 and, therefore, this court should do so without considering the preliminary question whether the petitioner should be first asked to avail himself of the statutory remedies. It is unnecessary to cite these decisions of the Supreme Court because the prelimi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. The reasons recorded under s. 148 for reopening the assessment under s. 147 are as follows: " Copy of letter No. CIT/D. I/B-2 (103)/77-78, dated 31st March, 1978, from C.I.T., Delhi-II, New Delhi, received today from the I.A.C., Range-IIA, New Delhi, personally. As directed, the case is reopened under section 147(b) for the assessment year 1973-74 in view of the opinion of the Ministry of Law regarding taxation of interest credited to suspense account in the Bank's case, their accounts being maintained on mercantile basis. In view of the information received from the CIT, I have reason to believe that the income has been under assessed. Issue notice under section 148." The letter is not reproduced fully, but Shri B. N. Kirpal, learned counsel for the respondents, has filed a copy of the letter from the CBDT to the Commissioner of Income-tax at Delhi. It is this instruction which has been communicated by them to the ITOs. " F. N. 201/7/78-ITA-II-Please review cases of all banks where interest credited to suspense account has not been taxed and get 1973-74 assessments reopened u/s. 147(b) by 31-3-78. As per opinion of Ministry of Law such interest is taxable if accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on bad debts in its separate suspense account, could not escape the levy of income-tax on the said interest as the accounts were maintained by it on an accrual basis, that is to say, according to the mercantile system. This view was correct in the opinion of the Law Ministry. The CBDT, therefore, reversed the view of law which apparently formed the basis of its previous circulars directing the ITOs not to levy income-tax on interest shown as accruing in the suspense accounts of money-lenders on what they regarded as bad debts. The view of the Board now was that if such money-lenders follow the mercantile system of accounting then even the interest credited to the suspense account was chargeable to income-tax even though the reason for opening the suspense account was that the debts were regarded as bad debts by the money-lenders. The question is whether this direction by the Board, conveyed to the ITOs by the respective Commissioners, is information consequent to the receipt of which the ITO can be said to have " reason to believe " that income of the assessee had escaped assessment because the interest on bad debts credited to the suspense account in 1973-74 had not been taxed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the suspense account is to be charged to income-tax, provided that the accounts were maintained by the assessee on mercantile basis. Secondly, it was argued that the ITO merely accepted the direction of the Commissioner and did not apply his mind to the direction and hence the ITO did not have the reason to believe that the income of the assessee had escaped assessment. If the direction of the Board conveyed through the Commissioners is binding on the ITOs under s. II 9 of the Act, the ITOs cannot be expected to independently apply their mind to the direction of the Board as to whether the direction is correct or not. The application of mind by them is rather to understand what exactly the direction is and whether it applies to the case of the assessees, before them. It cannot be disputed that the ITO has understood the direction and has also applied it to the case of the assessee. Thirdly, it was said that the information was too vague and it could not be applied to the facts of the present case except mechanically by obeying the directive of the Board. Reliance was placed on the observation of Shah J. in Calcutta Discount Co.'s case [1961] 41 ITR 191 (SC), that the expres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Practice of Income Tax, Vol. 17th Edn., p. 902, foot-note 4). If so, it cannot be disputed that the Board was the higher authority whose direction was binding on the ITO under s. 119 of the Act. This is sufficient to dispose of the question in the present case. But it will also be observed that even the Ministry of law is a higher authority whose opinion is binding on the Board itself and, therefore, on the ITO also. As pointed by this court in Vashist Bhargava v. ITO [1975] 99 ITR 148, 155 (Delhi): " Under article 74 of the Constitution, the President exercises his functions on the aid and advice of the Council of Ministers. Under article 77(3), the President has made rules for the more convenient transaction of the business of the Government of India and for the allocation among Ministers of the said business. Under the said rules the function of advising the Government on all questions of law is given to the Ministry of Law. In his executive capacity, an Income-tax Officer is a part of the Government. The Ministry of Law has therefore, the power and/or duty to give advice on questions of law for the guidance of the income-tax department. The opinion of the Ministry of Law bec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... courts to mean " served " is to be understood in the light of the legislative history which has been explained by the Full Bench of the Punjab High Court speaking through C. Chinnappa Reddy J. in Jai Hanuman Trading Co. Pvt. Ltd. v. CIT [1977] 110 ITR 36. Briefly, because s. 34(1) of the Indian I.T. Act, 1922, laid down the limitation for the notice being " served ", the word " issued " used in s. 4 of the I.T. (Amend.) Act was construed to mean served ". But this did not mean that everywhere the word issued would mean " served ". As contrasted with 34(1) of the Indian I.T. Act, 1922, s. 149(1) of the I.T. Act, 1961, uses s. the word " issued " in relation to limitation. In s. 148 reference is made to notice which is to be served on the assessee, but this reference is not in relation to limitation. We have, therefore, to conclude that notice to be issued under s. 149 within the prescribed period of limitation of four years has to be served under s. 148 after such issue. No limitation is prescribed for the service of the notice. There is no illegality, therefore, in the issue of the notice on 31st March, 1978, and its service beyond that date. Policy considerations : In para. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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