Himal Enterprises (P.) Ltd. vs Union of India (UOI) and Others

Anup Deb, J.—The petitioner-company filed an application for stay dated November 18, 1996, along with Writ Petition No. 42 of 1996. In the aforesaid application for stay, the petitioner-company prayed for stay of operation of three notices being annexures P4, P5 and P6 filed along with the writ petition. Annexure P4 is a notice dated August 12, 1996, issued by the Deputy Commissioner of Income Tax, Jalpaiguri Range, respondent No. 3, to the principal officer of the petitioner-company u/s 148 of the Income Tax Act, 1961 (hereinafter referred to as "the I. T. Act"), asking the petitioner to submit a return for the assessment year 1990-91 within 30 days. This notice was issued as respondent No. 3, the Assessing Officer had reason to believe that the petitioner''s income chargeable to tax for the assessment year 1990-91 had escaped assessment within the meaning of Section 147 of the Income Tax Act. Annexure P5 is a notice dated July 22, 1996, u/s 17 of the Wealth-tax Act, 1957, by which the petitioner was asked to submit a return within 35 days on receipt of the notice. This notice was issued as the Assessing Officer had reason to believe that the petitioner''s net wealth chargeable to tax for the assessment year 1990-91 had escaped assessment within the meaning of Section 17 of the Wealth-tax Act. Annexure P6 is a notice dated July 22, 1996, by which the petitioner was asked to prepare a true and correct return of income of the petitioner in respect of which the petitioner was assessable under the Income Tax Act during the previous year relevant to the assessment year 1993-94. Further, the petitioner was informed that the return should be in the appropriate form as prescribed in rule 12 of the Income Tax Rules, 1962, and a blank return form was also enclosed. The petitioner was asked to produce the accounts and/or documents before respondent No. 3, on August 9, 1996.

Vide order dated November 22, 1996, the learned single judge of this court passed an order staying the operation of all the aforesaid three notices. The main grounds for granting stay by the learned single judge were that Writ Petition No. 1 of 1993-S. P. Wangdi v. Union of India; Writ Petition No. 9 of 1994-Nandu Thapa v. Union of India and Writ Petition No. 23 of 1994--T. R. Sharma v. Union of India involving similar questions were pending in this court and the learned single judge was of the view "Heaven would not fall if the Income Tax authorities wait for some time more to see the out come of the writ petitions." In other words, stay was granted pending decision in the aforesaid writ petitions. The relevant portion of the order dated November 22, 1996, is as follows :

"In the three writ petitions pending in this court the enforceability of the provisions of the Income Tax Act within the State of Sikkim is under scrutiny. In this writ petition also the same contention has been made. If the Act itself is ultimately found to have no force within this State, the petitioner would also get the benefit. If the decision is otherwise the petitioner and other assessees may be assessed and charged for any subsequent period. It would be too harsh to shut the door of the court in front of the petitioner only on the ground that the petitioner filed returns and responded to the calls of the Income Tax authorities at Jalpaiguri."

The operative part of the order reads as follows :

"Considered the submissions of both the sides. If the notices are given effect to even for the purpose of scrutiny and that too at a far away place in a different State, the petitioner would definitely be put to inconvenience. Heaven would not fall if the Income Tax authorities wait for some time more to see the out come of the writ petitions. Hence, the operation of the impugned notices is stayed till the disposal of the writ petition."

Vide order dated March 29, 1997, the order dated November 22, 1996, was modified as follows :

"... that the respondents may continue with the assessment proceedings but would not raise any demand in pursuance of the said assessment till the disposal of the writ petition. This order will modify all the interim orders made in this connection in this writ petition earlier."

Respondent No. 3 filed C. M. A. No. 38 of 1999 on March 15, 1999, praying for vacating the stay orders, which was disposed of on March 20, 1999. Interim order was again modified on March 20, 1999, on the undertaking supported by an affidavit signed and filed by the managing director of the company. The relevant portion of the order is as follows :

"The managing director or any other person authorised to operate the bank accounts of the said petitioner-company shall not make drawal exceeding Rs. 1,000 daily till March 24, 1999 . . .

It is open to the Income Tax authorities to approach this court for modification or vacation of this order, if so advised."

Thereafter vide order dated April 20, 1999, the interim order dated March 20, 1999, was extended till the disposal of the writ petition. The typographical error which occurred in the order dated April 20, 1999, was corrected vide order dated July 19, 2000.

The Additional Commissioner of Income Tax, Special Range, Jalpaiguri, who is holding the charge of erstwhile Assessing Officer, i.e., Deputy Commissioner of Income Tax, Jalpaiguri Range, respondent No. 3, filed Miscellaneous Application No. 99 of 2000 on April 17, 2000, praying for vacating the order of stay dated March 29, 1997, and modification of the order dated March 20, 1999. The Additional Commissioner of Income Tax in paragraphs 7 and 8 of the application has stated as follows :

"7. That in the meantime the petitioner-company had filed a copy of its audited balance-sheet up to March 31, 1998, and particulars of bank account up to March 22, 1999. The amounts shown in the fixed deposits is only Rs. 66,26,212 while the amount in different bank accounts is not even rupees one lakh.

That the respondents want to communicate the assessment order and its tax liability to the petitioner-company with demands to pay the tax and to recover the revenue. Unless the order dated March 29, 1997, is vacated, the respondents cannot claim tax from the petitioner-company worth Rs. 18,40,21,364 (rupees eighteen crores forty lakhs twenty one thousand three hundred sixty four) and hence cannot recover the same. Consequently, the Department will suffer great injury and losses."

In the aforesaid application, the prayer has been made as under :

"It is, therefore, prayed that this court may be pleased to vacate the order of stay passed on March 29, 1997, and to kindly modify the order dated March 20, 1999, suitably ; allowing the respondents to communicate the assessment order, raise demand and initiate steps for recovery of the tax amounting to Rs. 18,40,21,364 (rupees eighteen crores forty lakhs twentyone thousand three hundred sixty four) from the petitioner-company."

Mr. G. P. Roy, the learned advocate appearing for the petitioner, argued that the Income Tax Act, 1961, has not been implemented and enforced in the State of Sikkim and the Income Tax authority has not filed reply with regard to queries made vide order dated December 2, 1999, in the Civil Miscellaneous Application No. 228 of 1999. Mr. Roy requested that the stay application should be kept pending till such time replies to the queries made vide order dated December 2, 1999, are filed or till the disposal of the writ petition. Mr. Roy further submits that the petitioner has paid Income Tax under the Sikkim Income Tax Manual, 1948. His last argument is, that, since the jurisdiction of the Central Income Tax authority has been challenged the order of stay should continue till the disposal of the writ petition. Mr. Roy further submitted that the petitioner also filed appeal before the Commissioner of Appeals and got refund of tax.

Mr. Moulik, learned counsel appearing for respondents Nos. 1 to 5, submits that in case the writ petition succeeds the Income Tax authority will refund the tax paid with interest, but if the writ petition fails, the Income Tax authority will not be in a position to recover the amount of rupees eighteen crores forty lakhs twentyone thousand three hundred sixty four with interest and the balance of convenience lies in favour of the Income Tax authority. The questions of implementation, enforcement of the Income Tax Act in Sikkim and of jurisdiction are pending before this court for adjudication, but, these, by themselves, do not entitle the petitioner for an order of stay, and the respondents, should not be restrained from recovering the taxes and, therefore, the orders of stay should be vacated.

In paragraphs 3, 4 and 5 of the writ petition, the petitioner stated that the petitioner had filed Income Tax returns for the assessment years 1990-91 to 1993-94 in the month of June, 1994, before the Assistant Commissioner of Income Tax, Siliguri, Circle I, under the Jalpaiguri Range, West Bengal, and the assessment order was passed on July 29, 1994. The petitioner-company moved an application u/s 154 of the Income Tax Act, 1961, claiming rectification in respect of the assessment and the prayer was allowed by the order dated March 2, 1995. The petitioner-company filed Income Tax return for the assessment year 1994-95 before the said authority at Siliguri, West Bengal. It is stated in paragraph 10 of the writ petition that the petitioner-company received notice dated August 12, 1996, u/s 148 of the Income Tax Act, 1961, from respondent No. 3 with a direction to submit the return for the assessment year 1990-91.

In the counter-affidavit, the Income Tax Department has, inter alia, stated that the petitioner-company filed returns for the assessment years 1990-91 to 1993-94 voluntarily at Siliguri. It is further stated that on July 24, 1990, one Shri Dandekar, a chartered accountant of the petitioner-company had written a letter to the Commissioner of Income Tax, West Bengal-I, Calcutta, to know as to where assessees residing in Sikkim should deposit the tax by filing returns, etc. In response thereto, the Income Tax Officer, Hqrs. WB-1, Calcutta, asked him to contact the Assistant Commissioner of Income Tax, Circle-I, Siliguri, for all matters concerning the filing of tax returns, issue of challans, etc. Thereafter Shri Dandekar appeared before the tax authorities at Siliguri where notices u/s 148 of the Act was served upon him for the petitioner-company and ultimately the returns were filed. It is further stated in the counter-affidavit that the assessment order passed on July 29, 1994, was not factually correct. In fact, an intimation u/s 143(1)(a) of the Income Tax Act, 1961, was issued by the Assistant Commissioner of Income Tax, Circle-I, Siliguri, and no assessment order so far has been issued. As the petitioner-company had ultimately claimed losses in the respective returns, the assessment made/intimation issued u/s 143(1)(a) was rectified by order dated March 2, 1995, by the Assistant Commissioner of Income Tax, Circle-I, Siliguri. As a result, the petitioner-company did not deposit any tax for the said assessment years 1990-91 to 1993-94. In the counter-affidavit, it is stated that the petitioner-company had filed the Income Tax return for the assessment year 1994-95 at Siliguri. The assessment shall be taken up against the return for the assessment year 1994-95 after due consideration of the materials supplied in the return, vis-a-vis those returns which are already on record and against which notices u/s 148 have already been issued. The Income Tax authority in their counter-affidavit further stated in paragraph 2 (xiii) that once the petitioner had submitted to the jurisdiction of the Income Tax authorities at Siliguri by submitting returns, etc., it cannot now be permitted to turn round and say that the Income Tax Act has not been enforced in Sikkim and that respondent No. 3 has no jurisdiction to issue any such notices. However, the assessment was completed on November 30, 1998.

The main ground on which the writ petition rests and the main ground of granting stay vide order dated November 22, 1996, was pendency of three writ petitions, viz., Writ Petition No. 1 of 1993--S. P. Wangdi v. Union of India ; Writ Petition No. 9 of 1994-- Nandu Thapa v. Union of India and Writ Petition No. 23 of 1994--T.R. Sharma v. Union of India which were withdrawn on April 23, 1998, August 19, 1997, and November 17, 1995, respectively. With the disposal of the aforesaid three writ petitions, the interim order dated August 22, 1995 (annexure P 3) passed in these petitions, stood vacated.

In the instant case, the petitioner has not challenged the notices straightaway. Before filing the writ petition, the petitioner voluntarily filed Income Tax returns at Siliguri under Jalpaiguri Range in the State of West Bengal and took the benefit of rectification of the assessment order. When the notice for escapement of assessment u/s 147 of the Income Tax Act, etc., was issued, the petitioner approached this court. Otherwise the petitioner would have continued to pay the taxes with the Central Income Tax authority, Siliguri, under the Jalpaiguri Range. Thus questions of implementation and enforcement and jurisdiction will be of no help while disposing of the stay application and all these questions will be determined at the final hearing of the main writ petition.

The Supreme Court, in the case of Siliguri Municipality and Others Vs. Amalendu Das and Others, held, that, normally, the High Court should not in proceedings under article 226 grant any stay of recovery of tax, thereby blocking the source of revenue, on the mere asking of the party challenging the tax. The grant of stay in such matters should be an exception and not a rule. The relevant portion is extracted below (page 625) :

"2. We are constrained to make the observations which follow as we do feel dismayed at the tendency on the part of some of the High Courts to grant interlocutory orders for the mere asking. Normally, the High Court should not, as a rule, in proceedings under Article 226 of the Constitution grant any stay of recovery of tax save under very exceptional circumstances. The grant of stay in such matters, should be an exception and not the rule."

In the case of Assistant Collector of Central Excise, Chandan Nagar, West Bengal Vs. Dunlop India Ltd. and Others, , the Supreme Court observed as follows (page 178) :

"5. We repeat and deprecate the practice of granting interim orders which practically give the principal relief sought in the petition for no better reason than that a prima facie case has been made out, without being concerned about the balance of convenience, the public interest and a host of other relevant considerations."

In the case of State of West Bengal and Others Vs. Calcutta Hardware Stores and Others, , the Supreme Court observed in paragraph 6 as follows (page 615) :

"6. In somewhat similar circumstances, Chinnappa Reddy J., speaking for the court in Dunlop India Lid''s case, after referring to the earlier decisions in Siliguri Municipality and Others Vs. Amalendu Das and Others, ; Titaghur Paper Mills Co. Ltd. and Another Vs. State of Orissa and Others, , Union of India (UOI) and Others Vs. Oswal Woollen Mills Ltd. and Others, , Union of India v. Jain Shudh Vanaspati Ltd. (C. A. No. 11450 of 1983) and Samarias Trading Co. Pvt. Ltd. Vs. S. Samuel and Others, , administered strong admonition deprecating the practice of the High Court of granting ad interim ex parte orders which practically have the effect of the grant of the main relief in the petition under Article 226 of the Constitution, and observed :

''We have come across cases where the collection of public revenue has been seriously jeopardised and budgets of Governments and local authorities affirmatively prejudiced to the point of precariousness consequent upon interim orders made by courts. In fact, instances have come to our knowledge where Governments have been forced to explore further sources for raising revenue, sources which they would rather well leave alone in the public interest, because of the stays granted by courts. We have come across cases where an entire service is left in a state of flutter and unrest because of interim orders passed by courts, leaving the work they are supposed to do in a state of suspended animation. We have come across cases where buses and lorries are being run under orders of court though they were either denied permits or their permits had been cancelled or suspended by transport authorities. We have come across cases where liquor shops are being run under interim orders of court. We have come across cases where the collection of monthly rentals payable by excise contractors has been stayed with the result that at the end of the year the contractor has paid nothing but made his profits from the shop and walked out. We have come across cases where dealers in food grains and essential commodities have been allowed to take back the stocks seized from them as if to permit them to continue to indulge in the very practices which were to be prevented by the seizure. We have come across cases where land reform and important welfare legislations have been stayed by courts. Incalculable harm has been done by such interim orders. All this is not to say that interim orders may never be made against public authorities. There are, of course/ cases which demand that interim orders should be made in the interests of justice. Where gross violations of the law and injustices are perpetrated or are about to be perpetrated, it is the bounden duty of the court to intervene and give appropriate interim relief. In cases where denial of interim relief may lead to public mischief, grave irreparable private injury or shake a citizen''s faith in the impartiality of public administration, a court may well be justified in granting interim relief against a public authority. But since the law presumes that public authorities function properly and bona fide with due regard to the public interest, a court must be circumspect in granting interim orders of far-reaching dimensions or orders causing administrative burdensome inconvenience or orders preventing collection of public revenue for no better reason than that the parties have come to the court alleging prejudice, inconvenience or harm and that a prima facie case has been shown. There can be and there are no hard and fast rules. But prudence, discretion and circumspection are called for. There are several other vital considerations apart from the existence of a prima facie case. There is the question of balance of convenience. There is the question of irreparable injury. There is the question of the public interest. There are many such factors worthy of consideration''."

In the case of Siliguri Municipality and Others Vs. Amalendu Das and Others, , it is held by the Supreme Court as follows (page 626) :

"3. It is needless to stress that a levy or impost does not become bad as soon as a writ petition is instituted in order to assail the validity of the levy. So also there is no warrant for presuming the levy to be bad at the very threshold of the proceedings. The only consideration at that juncture is to ensure that no prejudice is occasioned to the rate payers in case they ultimately succeed at the conclusion of the proceedings. This object can be attained by requiring the body or authority levying the impost to give an undertaking to refund or adjust against future dues, the levy of tax or rate or a part thereof, as the case may be, in the event of the entire levy or a part thereof being ultimately held to be invalid by the court without obliging the taxpayers to institute a civil suit in order to claim the amount already recovered from them."

In the instant case, the assessment order cannot be said to be bad at this stage simply because the extension and enforceability of the Income Tax Act with respect to Sikkim and also because the jurisdiction of the Central Income Tax authorities located at Jalpaiguri have been challenged. On a consideration of all the facts and the position of law, we are inclined to vacate the orders of stay and modification dated November 22, 1996, March 29, 1997, March 20, 1999, April 20, 1999. As such we allow Civil Miscellaneous Application No. 99 of 2000 and vacate all the orders of stay and modifications. This order is passed without prejudice to the rights and contentions of the parties available at the time of hearing of the main writ petition and shall not be deemed as expression of opinion on the merits of the main writ petition. In case the petitioner succeeds in the writ petition, the entire amount along with interest as admissible under law shall be refunded by the Income Tax authorities to the petitioner. It is clarified that it will now be open to the Income Tax authorities to communicate the assessment order, raise demand and initiate steps for recovery of tax due in accordance with law.