1963 (10) TMI 27 - HC - Income Tax

Court Quashes Order, Upholds Jurisdiction for Income Tax Assessments Under Section 34

SB. ADITYAN AND OTHERS Versus FIRST INCOME-TAX OFFICER, MADRAS

The court quashed the Income-tax Officer's order dated November 6, 1961, due to extraneous influence, finding it not an independent decision. However, the ... - Issues Involved:1. Validity of the Income-tax Officer's order dated November 6, 1961.2. Jurisdiction of the Income-tax Officer to proceed with assessments under section 34 of the Indian Income-tax Act.3. Applicability of section 4(3)(i) of the Indian Income-tax Act regarding the exemption of the trust's income from taxation.Detailed Analysis:1. Validity of the Income-tax Officer's Order dated November 6, 1961:The petitioners challenged the order of the First Income-tax Officer, City Circle IV, dated November 6, 1961, which refused their claim for exemption under section 4(3)(i) of the Indian Income-tax Act. The court found that the order was not a result of the Income-tax Officer's deliberations but was influenced by the Central Board of Revenue. The court emphasized that 'Certiorari lies to quash the proceedings of a statutory authority which has erred in failing to conform to the statute.' The court held that the order was vitiated by extraneous influence and was not an independent decision of the Income-tax Officer. Therefore, the order was quashed.2. Jurisdiction of the Income-tax Officer to Proceed with Assessments under Section 34 of the Indian Income-tax Act:The petitioners sought to restrain the Income-tax Officer from proceeding with assessments under section 34 of the Act for the years 1955-56 to 1961-62. The court held that the jurisdiction of the Income-tax Officer to start proceedings under section 34 on the alleged ground of escaped assessment cannot be doubted. The fact that the petitioners claimed exemption under section 4(3)(i) would not defeat the jurisdiction of the officer but would only enable the petitioners not to be assessed if the officer ultimately held that the income of the trust was exempt. The court stated, 'It cannot therefore be said that the officer has transgressed his jurisdictional limits either in the matter of his having issued notices under section 34 or in his attempt to hold an enquiry as regards the true character of the income of the petitioners.'3. Applicability of Section 4(3)(i) of the Indian Income-tax Act Regarding the Exemption of the Trust's Income from Taxation:The petitioners claimed that the income of the Thanthi Trust was exempt from taxation under section 4(3)(i) of the Act. The court examined the conditions required for exemption under this section, which include that the property should be held under trust for religious or charitable purposes, and the income should be applied or accumulated for such purposes. The court noted that the applicability of section 4(3)(i) could not be determined merely by the terms of the trust deed but required an investigation into the actual application of the income. The court stated, 'The Income-tax Officer is not bound to confine himself only to the terms of the trust deed and to preclude himself from holding an enquiry into the matter on the question whether the declared charitable purpose as found in the instrument is really a charitable purpose and whether the whole or part of the income is to be excluded from tax and whether the purpose stated in the instrument is the real purpose.' The court concluded that the Income-tax Officer had the jurisdiction to conduct such an enquiry and that the petitioners' writs of prohibition were unsustainable.Conclusion:The court allowed Writ Petition No. 1393 of 1961, quashing the Income-tax Officer's order dated November 6, 1961. However, the court dismissed Writ Petitions Nos. 276 to 282 of 1963, holding that the Income-tax Officer had the jurisdiction to proceed with the assessments and enquiries under section 34 of the Act. There was no order as to costs in any of the petitions.