Antonitto vs Tax Recovery Officer and Another

K. Sreedharan, J.—The petitioner was ordered to be arrested and detained in civil prison under Rule 76 of Schedule II to the Income Tax Act, 1961. That order is under challenge on the ground that no enquiry as contemplated by Rule 74 was held before ordering the detention subsequent to to the filing of the original petition, exhibit P-4 order was passed, as contemplated by Rule 76 of Schedule II to the Income Tax Act. It was passed in pursuance of the direction issued by the Commissioner of income tax. In the counter-affidavit, it is stated that the Commissioner directed the defaulter to pay at least 50% of the demand to avoid the rigour of detention under the proviso to Rule 76 and that instead of making payment, he has approached this hon''ble court. Since the Commissioner has taken such a view as is evident from the counter-affidavit, learned counsel appearing for the petitioner submits that exhibit P-4 order if challenged in appeal as contemplated by Rule 86(1)(c) will be an empty formality. On this basis, the petitioner challenges the order passed by the Tax Recovery Officer.

It is the admitted case that tax for the assessment years 1976-77 and 1977-78 is outstanding from the petitioner. The amount of tax for the said period comes to Rs. 2,36,448. Since the petitioner did not remit the said tax, a certificate was issued by the Income Tax Officer on March 17, 1981, to the Tax Recovery Officer for realising that amount. The Tax Recovery Officer issued a notice under Rule 73 of Schedule II to the Income Tax Act. In pursuance of that notice, the petitioner appeared before the Tax Recovery Officer with his counsel on February 28, 1985. On that day, according to learned counsel appearing for the petitioner, the Tax Recovery Officer ordered the arrest of the petitioner without holding an enquiry. This fact is disputed by learned counsel representing the Revenue. Consequently, I requested Sri N. R. K. Nair, learned counsel representing the Revenue, to make available to me the entire files relating to the action taken against the petitioner. Accordingly, the files were produced before me. The files contained the following entry which was made on February 28, 1985.

" Sri Antonitto along with his advocate, Sri K. K. Gangadharan, appeared. Sri Antonitto has come in response to the notice in ITCP No. 25.

The Income Tax Officer, Special Circle, who issued the certificate is also present.

Sri Antonitto argued that:

(1) he has no means to pay; and

(2) the demands are still disputed in appeal before the Income Tax Appellate Tribunal, Cochin.

The Income Tax Officer countered these arguments :

The defaulter has movables which can be easily realisable in cash to the tune of Rs. 4,50,000, apart from several immovable properties of his own and those devolved on him on the death of his father, Sri Columbus, in 1982. He led the evidence on the basis of the wealth-tax records of the defaulter and his late father.

The appeal is by the Department. The defaulter will'' not get any reduction on conclusion of appeal. On the contrary, there is every chance for the tax demands to go up when the appeals reach a finality.

From these arguments, it is evident that there is a prima facie case against the defaulter that he has neglected and refused to pay the tax demands certified against him.

Even at this stage, the defaulter has not offered any worthwhile scheme to clear his tax dues.

Therefore, on the basis of the evidence led by the Income Tax Officer, I am satisfied that the extreme measure of arrest of the defaulter is unavoidable in this case.

Issue a warrant of arrest in ITCP No. 26 in favour of Sri A. D. Jose, Inspector, to arrest and produce the above defaulter before me."

After making the above record, an endorsement is seen on the left hand side of the file which reads :

" Warrant executed in the presence of two constables whose names have been mentioned overleaf of the ITCP No. 26. The defaulter has been produced before the Tax Recovery Officer.

It is seen signed by A. D. Jose on the same day, namely, February 28, 1985. On the same day, the petitioner was released on the basis of an undertaking furnished by M/s. Dominic Presentation and Sri K. K. Gangadharan at 4-40 p.m. The endorsement is seen signed by many and one signature has been admitted by learned counsel appearing for the petitioner as that of Sri K. K. Gangadharan, counsel for the petitioner, Who appeared before the Tax Recovery Officer. From the files, the following facts emerge. Notice under Rule 73 was issued to the petitioner. The petitioner appeared before the Tax Recovery Officer. He submitted his case for not issuing arrest and detention. The Income Tax Officer who issued the certificate was also present before the Tax Recovery Officer. He let in evidence to substantiate the case for personal execution against the petitioner. After appreciating the materials placed before the Tax Recovery Officer, he came to the conclusion that the petitioner has to be arrested and detained in civil prison. Consequently, warrant was issued to Sri A. D. Jose, Inspector of Income Tax. He effected the arrest of the petitioner. Later, he was released. From the above circumstances which are borne out from the file, I find it difficult to hold that the Tax Recovery Officer did not conduct an enquiry contemplated by Rule 74 of Schedule II to the Income Tax Act before ordering the arrest of the petitioner.

Rules 73 to 76 of Schedule II to the Income Tax Act are the relevant rules with which I am concerned in this case. Before ordering the arrest and detention of the defaulter, the Tax Recovery Officer has to issue a notice under Rule 73(1) calling upon the defaulter to show cause why he should not be committed to civil prison. The Tax Recovery Officer should have come to a satisfaction regarding the existence of the conditions mentioned in Sub-clause (a) or (b) of Rule 73(1) for issuing the notice. On receipt of the notice, when the defaulter appears under Rule 74, the Tax Recovery Officer should hear the Income Tax Officer and take evidence produced by him in support of execution by arrest. The defaulter should be given an opportunity to show cause why he should not be committed to civil prison. Rule 75 relates to the custody of the defaulter pending enquiry under Rule 74. After the conclusion of the above enquiry, an order under Rule 76 has to be passed.

The fact that the petitioner received the notice under Rule 73(1) and that he appeared before the Tax Recovery Officer along with his advocate are admitted before me. The file shows that the Tax Recovery Officer held an enquiry as contemplated by Rule 74. The Income Tax Officer adduced evidence in the presence of the defaulter. The defaulter put forward his defence. After considering the rival contentions, the Tax Recovery Officer came to the conclusion that the defaulter has to be arrested and passed the order under Rule 76. Then the defaulter was arrested. Thereafter, as per the provisions of the proviso to Rule 76, the defaulter was released for 15 days. On the expiry of that period, exhibit P-4 order was passed and its operation kept in abeyance on account of the pendency of this original petition.

Learned counsel for the petitioner challenges the enquiry on the ground that the entire proceedings were completed in one day. According to counsel, the enquiry should have taken more time and the defaulter should have been given sufficient number of days to let in evidence to rebut the case made out by the Income Tax Officer. Since such an opportunity was not afforded, learned counsel submits that there was no proper enquiry under Rule 74. I find it difficult to accept this argument. The Tax Recovery Officer can conduct the enquiry and complete the same in one day itself. The only requirement is that the officer should afford sufficient opportunity to the defaulter to rebut the evidence of the Income Tax Officer. When the petitioner appeared in pursuance of the notice under Rule 73(1), he was aware of the purpose for which he was summoned. He should have had all the evidence ready with him to substantiate his case for the non-issue of an order of arrest and detention.

In the instant case, the petitioner appeared before the Tax Recovery Officer in pursuance of the notice under Rule 73(1) with his counsel. They submitted their case. The evidence of the Income Tax Officer was adduced in their presence. In these circumstances, I hold that the Tax Recovery Officer conducted the enquiry as contemplated by Rule 74 and that it is not open to challenge on any of the grounds now urged.

On the basis of the materials placed before the Tax Recovery Officer, he came to the conclusion that the petitioner, right from the moment the demand was created, has been having means to pay the tax arrears. But he has refused to pay and neglected to pay. That finding of fact arrived at by the Tax Recovery Officer cannot be challenged in a proceeding under Article 226 of the Constitution.

The Tax Recovery Officer issued a formal order under Rule 76 of Schedule II to the Income Tax Act on March 16, 1985, because the petitioner was released on February 28, 1985, on the specific understanding that he will appear after 15 days but he failed. That order is appealable under Rule 86(1)(c) of Schedule II to the Income Tax Act. No appeal has been filed challenging the correctness of exhibit P-5. The ground stated for not preferring an appeal is the following averment contained in the counter-affidavit. " The Commissioner directed the defaulter to pay at least 50% of the demand to avoid the rigour of detention under the proviso to Rule 76. " According to counsel appearing for the petitioner, this shows that the Commissioner has taken a decision on the issue and any appeal will be an empty formality. I cannot agree with this argument. If the petitioner had filed the statutory appeal, it would have been disposed of by the Commissioner in a judicial manner. The failure of the petitioner to resort to the statutory appeal before approaching this court under Article 226 of the Constitution is a matter to be taken note of by this court.

In view of what has been stated above, I find no merit in this original petition. It is accordingly dismissed. No costs.