Lalji Haridas vs R.H. Bhatt And Anr.

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Not extracted

Decision Date: 5 August, 1964

Coram: P.B. Gajendragadkar, J.C. Shah, K.N. Wanchoo, M. Hidayatullah, N. Rajagopala Ayyangar

In this matter, the Supreme Court recorded that the case titled Lalji Haridas versus R. H. Bhatt and another was listed on 5 August 1964, and that the bench comprised Justice P. B. Gajendragadkar, Justice J. C. Shah, Justice K. N. Wanchoo, Justice M. Hidayatullah and Justice N. Rajagopala Ayyangar. The appeal before the Court arose on the basis of special leave granted against a writ petition that the appellant, Lalji Haridas, had filed in the High Court of Gujarat invoking article 226 of the Constitution. In that petition he sought a writ of certiorari against respondent No 1, the Income‑tax Officer, Ward D, Jamnagar, and against respondent No 2, the Union of India, with the purpose of annulling two notices issued by the Income‑tax Officer on 14 April 1960 and on 7 July 1960. He also requested that the assessment order dated 17 December 1958, which had been passed by the Income‑tax Officer, be set aside. The High Court dismissed the petition on a preliminary ground without issuing notice to the respondents. Following that dismissal the appellant applied for and obtained special leave to appeal to this Court, and the appeal therefore came before the Supreme Court for final disposal.

After hearing counsel for the appellant, the Court concluded that the appeal lacked any substantive ground and ordered its dismissal with costs. The Court observed that the proceedings exemplified a situation in which a taxpayer could extend the tax assessment process by invoking the judicial remedies available under the law, thereby creating an indefinite postponement of the final determination by the tax authorities. The factual background disclosed that the appellant, a resident of Jamnagar, had an assessment order dated 17 December 1958 that assessed tax on the amount of Rs 4,74,046. Prior to that assessment, a notice had been issued to the appellant on 20 December 1957 under section 46(1)(a) of the Saurashtra Income‑tax Ordinance, 1949, a provision that corresponds to section 34(1)(a) of the Indian Income‑tax Act. It appeared that respondent No 1 had learned that for the assessment year 1949‑50 a substantial portion of the appellant’s income had escaped assessment, prompting the issuance of the notice requiring the filing of a return for that year. The appellant subsequently filed a return that showed an income of Rs 46 for the relevant year. Respondent No 1, however, discovered that several sums had been credited in the appellant’s account books and appeared to represent his income. For example, on 24 October 1948 two sums of Rs 1 lakh each were credited in the names of M/s Bhagirath Madangopal & Co., Bombay, and Mulji Manilal Kamdar respectively; the latter amount was later transferred to the account of another firm, M/s Bhagirath Kasat & Co. Further, on 7 March 1949 another sum of Rs … (the record continues).

The amount of one lakh eighty thousand rupees was transferred to the company that had been cited. In addition, further credits of seventy‑four thousand rupees and twenty thousand rupees were discovered. When filing his return, the appellant asserted that these sums did not constitute his income and described them as “benami” transactions that he had entered into on behalf of other persons. The respondent was not satisfied with this explanation and therefore confirmed the assessment order that had previously been mentioned.

The appellant challenged that assessment by filing an appeal before the Appellate Assistant Commissioner of Income‑tax in Rajkot. Before that appellate authority, the appellant contended that none of his witnesses had been permitted to be examined by the respondent and that some of the evidence offered by his witnesses had not been properly recorded. The appellate authority gave partial approval to this contentions and, by an order dated 3 September 1959, remanded the matter back to the respondent, directing the respondent to submit a report after examining the witnesses that the appellant wished to call. While making the remand order, the Appellate Assistant Commissioner observed that the appellant seemed determined to employ dilatory tactics and to delay the final disposal of the proceedings against him for as long as possible.

Following the remand, the respondent issued two letters, dated 13 April 1960 and 7 July 1960, requiring the appellant to appear and give evidence. Instead of complying with those requisitions, the appellant filed a writ petition before the Gujarat High Court on 9 July 1960. He also appears to have filed an appeal against the remand order to the Income‑tax Appellate Tribunal. The High Court summarily dismissed the writ petition, and the appellant subsequently brought the matter before this Court.

The petition for special leave indicates that, at the time of its admission, the appellant apparently urged that the Saurashtra Income‑tax Ordinance under which the present proceedings had been instituted was invalid. That argument formed one of the grounds in the petition for special leave. Counsel for the appellant, Mr Pathak, frankly acknowledged that he was not in a position to justify or substantiate that contention, and therefore the only ground that prima facie appeared to raise a point of law or jurisdiction was not pressed further. Meanwhile, the proceedings that had been remanded to the respondent were stayed, and in that respect the appellant’s objective in filing the present appeal had essentially been accomplished.

Counsel for the appellant then attempted to argue that the notice issued against him was, on its face, invalid because it was barred by limitation. The Court did not permit counsel to develop this argument further, holding that such a plea should ordinarily be raised before the respondent itself. The jurisdiction conferred on the High Court under article 226 is not intended to supplant the authority of the income‑tax officers to consider the merits of all contentions raised by assessors, and consequently it would be inappropriate to allow an assessee to approach the High Court under article 226 and claim that a notice is time‑barred. That determination is left to the income‑tax authorities, who must examine the matter in light of the relevant evidence. Moreover, the plea of limitation was not specifically articulated in the writ petition as required, and one of the grounds raised in that petition was that the Appellate Assistant Commissioner, instead of treating the assessment order as a nullity and setting it aside, had improperly remanded the case back to the respondent.

In this case the Court observed that a challenge based on limitation had to be presented to respondent No. 1, the Income‑tax Officer, rather than to the High Court. The jurisdiction granted to the High Court under article 226 was not intended to replace the authority of Income‑tax Officers to examine the merits of every contention that an assessee might raise, and therefore it would have been wholly inappropriate to allow an assessee to invoke article 226 in order to argue that a notice issued against him was barred by the limitation period. The Court explained that such a question of limitation belonged to the income‑tax authorities, who were required to consider it on the basis of the relevant evidence.

Beyond that principle, the Court noted that the limitation plea raised by counsel had not been specifically pleaded in the writ petition filed before the High Court. One of the grounds in the writ petition alleged that the Assistant Commissioner, instead of treating the assessment order as a nullity and setting it aside, had improperly remanded the case back to the Income‑tax Officer in order to save limitation. The Court pointed out that, at most, this ground suggested that the remand order was intended to preserve limitation, but it did not address the counsel’s claim that the original notice was time‑barred. Since a plea of that nature could not be entertained in writ proceedings, the Court refused permission to develop the point further.

The Court further explained that counsel had sought to argue that, for the transactions under dispute, other persons had already been taxed and that an order passed by respondent No. 1 on 17 December 1958 amounted to a protective assessment and therefore should be set aside. The Court held that this issue also had to be raised before the Income‑tax Officer and could not be pursued before the High Court under article 226. Moreover, the Court found the pleading to be extremely vague; the appellant had not even sworn that other persons had actually paid assessment on the transactions that respondent No. 1 considered to be his. The writ petition merely stated that the appellant understood that the amounts proposed for inclusion in his assessment had already been identified by the Bombay income‑tax department as the income of Mulji Manilal Kamdar and that those amounts had been assessed by the Sixth Income‑tax Officer.

Consequently, the Court concluded that the appeal could not succeed. It dismissed the appeal, ordered costs against the appellant, and recorded that the appeal was dismissed.