Golam Momen vs Deputy Commissioner of Income Tax and Others

Dilip Kumar Seth, J.

Submission on behalf of the petitioner :

On a premise of preferring an appeal against an order of assessment, the petitioner had prayed for stay of operation of the demand by an application made on February 4, 2002, being annexure "P-5". This was rejected by an order dated March 8, 2002, on the ground that appropriate opportunity was given to the petitioner u/s 158BC of the Income Tax Act, 1961, at the time of assessment. This order has since been challenged on the ground that the petitioner has not been given any opportunity of hearing and that the opportunity given at the time of assessment and the opportunity to be given for the purpose of staying the demand till the disposal of appeal are something different. The Income Tax Act does not provide for any provision under which stay could be obtained from the appellate authority. Therefore, according to Mr. Bhattacharya, under the provision of Section 220(6) of the Income Tax Act, the petitioner should be given proper opportunity. He had referred to various decisions to which we shall refer at the appropriate stage. He then contends that since the order rejecting the stay cannot be sustained the subsequent action taken u/s 226(3) of the Income Tax Act for resorting to garnishee proceeding can also not be sustained. He has also challenged the validity of the search and seizure u/s 132 on the ground that the ingredients on the basis whereof Section 132 can be resorted to, have not been satisfied.

Submission on behalf of the respondents :

Mr. Ghosh, on the other hand, points out that so far as the search and seizure is concerned, no interim order could be granted. It is a matter to be decided on appeal. So far as Section 226(3) is concerned, the power is conferred on the respondent to resort to such proceeding, if the demand is not stayed and there is a default on the part of the assessee or stay was refused. Therefore, there is no absence of jurisdiction in resorting to Section 226(3). According to him, the order has already taken effect and as such the same cannot be stayed. The other contention he has raised is that so far as Section 220(6) is concerned, it does not contemplate the making of any application and as such it is not a regular judicial proceeding, in which the assessee can claim right of hearing. If it does not postulate any right on the assessee to make any application, he cannot claim that before passing an order an opportunity of hearing is to be given. Section 220(6) gives discretion to the Assessing Officer. If he has exercised such discretion, the court is not supposed to judge the sufficiency of reasons for exercising discretion one way or the other. Therefore, no interim order at this stage could be asked for. He prays for time to file affidavit-in-opposition.

Search and seizure :

After having heard learned counsel for the parties on the question of interim order, it seems that so far as the search and seizure is concerned, no interim order could be granted at this stage. The question depends on the basis of the material that will be produced before the court or the appropriate forum. Therefore, no interim order is called for in respect of search and seizure at this stage.

Scope of ambit of Section 220(6) :

So far as the question of refusal to grant stay u/s 220(6) is concerned, it seems that this provision empowers the Assessing Officer with a discretion to stay the demand for a period till the appeal is disposed of. But it qualifies the said discretion as subject to such condition as the Assessing Officer may deem fit for granting such stay. The only authority is given that it will not consider the default of the demand of the amount in dispute to be a default till the appeal is disposed of. Admittedly, it does not provide for making any application. But this is a right, which an assessee can avail of. Such right has to be obtained on the basis of certain prayer to be made by the assessee, In fact this right is a right given to the assessee, who may not be treated as in default, even on account of the non-payment of the demand during the pendency of the appeal. Therefore, it cannot be said that this right is an absolute discretion given to the Assessing Officer. Such discretion has to be exercised judiciously. It gives not only the power to stay but also to impose condition as it may deem fit and proper on the basis of the facts and circumstances of the case. The giving of opportunity at the time of assessment is something other than what can be contemplated under Sub-section (6) of Section 220. The giving of opportunity of Section 158BC is in relation to the assessment. It has nothing to do with the questions which arise after the assessment is made. The situation contemplated under Sub-section (6) of Section 220 is a situation where assessment is made and the demand is to be stayed. It is completely a different consideration. Therefore, when a discretion is conferred upon such an officer and when he is called upon to exercise such discretion judiciously, it is implied that if any application is made, the same is to be decided judiciously. Since it relates to a right which the assessee can invoke by invoking Section 220(6), then it implies that he should be given an opportunity of hearing, which is implicit in the provision itself. Therefore, the reason, on which the right was refused as given by the Assessing Officer in the impugned order, cannot be sustained. The discretion is to be exercised having regard to the facts and circumstances of the case as to whether the demand is to be stayed or whether what condition is to be imposed. Such a question can be decided only after opportunity is given to the assessee, who will be affected by any order that might be passed u/s 220(6). Therefore, the giving of opportunity is implicit under the said provision.

Under Sub-section (6), the Assessing Officer in his discretion may treat the assessee as not being in default in respect of the amount in dispute in the appeal presented by the assessee u/s 246, even though the time for payment has expired, till the appeal is disposed of. But such discretion may be exercised subject to such conditions as the Assessing Officer may think fit to impose on the assessee in the circumstances of the case. The treating of an assessee as not being in default, in effect and sense amounts to stay of collection of the amount in dispute K.M. Rahmath Bibi Vs. First Income Tax Officer, Nagapattinam, and VETCHA SREERAMAMURTHY Vs. THE Income Tax OFFICER VIZIANAGARAM, AND ANOTHER., . The discretion, referred to in Section 220(6) conferred on the Assessing Officer where the assessee prefers an appeal, is a judicious discretion coupled with a duty to exercise in a proper manner when occasion calls for it. Inappropriate exercise of discretion is not an exercise of discretion at all. In such a case, he can be compelled to discharge his duties in the form of exercise of discretion. Such view finds support in various decisions of different High Courts including our High Court. We may refer to LADHURAM TAPARIA Vs. B. K. BAGCHI., ; VETCHA SREERAMAMURTHY Vs. THE Income Tax OFFICER VIZIANAGARAM, AND ANOTHER., ; Aluminium Corporation of India Ltd. Vs. Mr. C. Balakrishnan and Others, ; Behari Lal Baldeo Prasad, Commission Agents Vs. Commissioner, Jhansi Division and Others, and KASHIRAM AGARWALLA Vs. COLLECTOR OF 24-PARGANAS AND OTHERS., .

Discretion means according to the rules of reason and justice, not according to private opinion, but according to law and not humour. It is not to be arbitrary, vague and fanciful, but legal and regular to be exercised, not capriciously but on judicial grounds and for substantial reasons. If an authority cast with a public duty of exercising discretion takes into account matters which the court considers to be improper for guidance of the discretion, then in the eye of law, it is an improper exercise of the discretion.

We may find support for the above proposition in Maxwell on Interpretation of Statutes, tenth edition, page 123, and Saurashtra Cement and Chemical Industries Ltd. Vs. Commissioner of Income Tax, Gujarat, . Every discretionary power vested, even in the executive, is to be exercised in a just, reasonable and fair manner. This is the essence, the rule of law, as was held in Aeltemesh Rein, Advocate, Supreme Court of India Vs. Union of India (UOI) and Others, . Such discretion is to be exercised judiciously and not arbitrarily depending upon the facts and circumstances of each case ( Jagdish Singh Vs. Lt. Governor Delhi and others, ). The discretion is to be exercised with circumspection, consistent with justice, equity and good conscience, keeping always in view the given facts and circumstances of the case ( Hindalco Industries Ltd. Vs. Union of India (UOI) and Others, ).

When a statute confers a power, it pre-supposes that it was conferred to achieve some object. Such power, therefore, is to be exercised for achieving the object. Such authority while exercising such power is to be guided by a consideration as to whether such exercise would advance the object sought to be achieved by the enactment. As soon as such power is vested in an authority, it is implicit therein that such power is to be exercised reasonably and in a reasonable manner for the purpose for which it was conferred Wood Polymer Ltd., In re and Bengal Hotels Private Limited, In re In Re: Wood Polymer Limited; In Re: Bengal Hotels Pvt. Ltd., . The Legislature never intended to grant an absolute uncontrolled and arbitrary discretion, but to impose upon the authority the duty of considering the facts and circumstances of a particular case and then to come to an honest judgment as to whether the case calls for exercise of the power ( VETCHA SREERAMAMURTHY Vs. THE Income Tax OFFICER VIZIANAGARAM, AND ANOTHER., . It implies necessarily that all these circumstances are to be taken into account and an appropriate order is to be passed having regard to the facts of the case. Exercise of such power cannot be summarily rejected on the basis that the power is with the officer, but he is not bound to exercise it ( M. L. M. Mahalingam Chettiar Vs. Third Income Tax Officer, City Circle I, Madras, and another., and K.M. Rahmath Bibi Vs. First Income Tax Officer, Nagapattinam, .

Though, it is described as a discretion, but, in fact, an assessee has a right to invoke such discretion. When such discretion is invoked, the Assessing Officer has to exercise the discretion having regard to the facts and circumstances of the case judiciously and in the process, it may exercise the discretion either in favour or against the assessee. From the plain language used in the section, it can be contended that the Assessing Officer may exercise the discretion suo motu. But such discretion can be exercised only where an appeal is preferred. Such information can be brought within the notice of the Assessing Officer by the assessee. In the process, it is up to the assessee to make an application seeking to invoke the discretion. Therefore, an application is not forbidden or prohibited. The expression used in this sub-section makes it clear that the scope of making an application is implicit in the section.

When such discretion is invoked, the authority has to exercise this discretion guided by certain considerations. The consideration which may form guidance for exercising the discretion may be summarised thus : (1) Whether there is a prima facie case in favour of the assessee; (2) the amount to tax and penalty involved in the appeal ; (3) the capacity of the assessee of pay the amount; (4) undue hardship to the assessee; and (5) nature of security offered by the assessee. While considering the above aspects, the authority must have also in mind the adverse effect that may ensue on the public revenue in case stay is granted, though, it may not be the primary concern. In The Siemens Engineering and Manufacturing Co. of India Ltd. Vs. The Union of India (UOI) and Another, ; Travancore Rayon Ltd. Vs. Union of India (UOI), ; Associated Tubewells Ltd. Vs. R.B. Gujarmal Modi, , it was held that the order should ex facie disclose the reason for decline or grant of stay and that such exercise of discretion is a quasi-judicial function and, therefore, it has to be exercised fairly and reasonably and not arbitrarily or capriciously.

Since the power is quasi-judicial in nature, it implies that an opportunity is " to be given to the assessee when it seeks to invoke such discretion. The opportunity of hearing is implicit in the provision. Support may be drawn from the decisions cited above. In Mool Chand Mahesh Chand Vs. Commissioner of Income Tax and Another, and Mrs. N. Savithri Sam Vs. Income Tax Officer, , it was held that such exercise of discretion is a quasi-judicial function.

Relying on the case of Dwarka Prosad Agarwalla Vs. Director of Inspection, , Mr. Bhattacharya submitted that Section 132 was under consideration. But the same cannot be gone into at this stage since it is to be decided on the basis of affidavits. In Dunlop India Limited (No. 2) Vs. Assistant Commissioner of Income Tax and Others, , such question was raised. There the Calcutta High Court had held that such discretion must be exercised as a reasonable man and the Tribunal or authority must be in a position to know after going through the order why, how and in what manner such discretion has been exercised assuring that the reason that has been given does not seem to be unreasonable. Mr. Bhattacharya has also relied on R.P. David and Others Vs. Agricultural Income Tax Officer and Another, , where a view was taken that normally once an officer is satisfied that an appeal has been filed, he has to treat the assessee as not being in default. Though the proviso does not indicate in what cases denial of discretion will be justified, the fact that the assessees are financially sound and in a position to pay is not in itself a ground for refusing to exercise the discretion under the proviso. Therefore, this discretion is to be exercised judiciously. In SETH GOPALDAS PALIWAL Vs. WEALTH-TAX OFFICER AND ANOTHER., , where the Madhya Pradesh High Court has held that it is a quasi-judicial function and is to be exercised fairly and reasonably and not arbitrarily or capriciously. The Income Tax Officer is supposed to give reason and also hear the assessee having gone through the relevant material, if any, but when the question is that stay is declined an opportunity is to be given.

Applying the above tests and the ratio discussed in the present case on the face of the order impugned, it appears that those tests are not satisfied. The exercise of discretion by the Assessing Officer amounts to non-exercise of discretion. The reason given does not justify the exercise of discretion in proper manner.

Order :

In these circumstances, the impugned order contained in annexure P-6 dated March 8, 2002, as discussed above, cannot be sustained. The Assessing Officer shall decide the question of stay after giving opportunity to the petitioner in accordance with law and exercise his discretion, accordingly by passing a fresh order having regard to the facts and circumstances of this case, if it is satisfied that appeal has since been preferred, taking all facts into account. It may be noted that I have not gone into the merits of the case. It will be open to the Assessing Officer to pass an appropriate order according to his discretion.

In view of the above order, the garnishee proceeding, however, shall remain stayed and the amount demanded in respect of the respective account, if not already withdrawn, shall remain attached until a fresh order is passed by the Assessing Officer in respect of the stay of the demand. He will pass fresh order if he so needs with regard to the garnishee proceedings, as he may deem fit and proper, or the garnishee proceedings shall remain in abeyance to that extent which shall be subject to the result of further order that may be passed by the Assessing Officer.

This writ petition is, thus, disposed of in so far as the question of stay and garnishee proceeding is concerned. However, it will proceed with regard to the question relating to Section 132 after the affidavits are exchanged.

Affidavit-in-opposition is to be filed by June 17, 2002, reply, if any, by June 24, 2002. Let the matter appear on June 24, 2002.

The pendency of this writ petition, in relation to the question u/s 132 before this court, will not prevent the appellate authority from disposing of the appeal, in the mean time, in accordance with law. The appellate authority shall decide the appeal, if possible, within a period of three months from the date of communication of this order.

All parties are to act on a signed xerox copy of this dictated order on the usual undertaking.