1947 (2) TMI 18 - HC - Income Tax

Privy Council upholds dismissal of tax suit, reinforcing internal challenge mechanisms over civil suits.

RALEIGH INVESTMENT CO., LTD. Versus GOVERNOR-GENERAL IN COUNCIL

RALEIGH INVESTMENT CO., LTD. Versus GOVERNOR-GENERAL IN COUNCIL - [1947] 15 ITR 332 (PC) Issues Involved:1. Whether the impugned provision of the Income-tax Act was ultra vires the Indian Legislature.2. Whether the High Court in its ordinary civil jurisdiction was precluded from entertaining the suit by virtue of Section 226 of the Government of India Act, 1935, and Section 67 of the Indian Income-tax Act, 1922.3. Whether the appellant could claim repayment of the tax paid under an allegedly ultra vires provision.Detailed Analysis:1. Ultra Vires Provision:The appellant, a joint stock company, contended that Explanation 3 to Section 4(1) of the Indian Income-tax Act, 1922, which allowed for the assessment of dividends declared and paid outside British India to non-residents, was ultra vires the Indian Legislature. The High Court initially held that the provision was indeed ultra vires, but the Federal Court later expressed the view that it was not ultra vires. However, the Privy Council did not provide a definitive opinion on this matter, as it was not necessary for the resolution of the appeal.2. Jurisdiction of the High Court:The respondent argued that the High Court was precluded from entertaining the suit due to Section 226 of the Government of India Act, 1935, and Section 67 of the Indian Income-tax Act, 1922. The High Court had initially held that it had jurisdiction to entertain the suit, but the Federal Court reversed this decision, holding that Section 226 barred the suit. The Privy Council focused on Section 67, which states: 'No suit shall be brought in any Civil Court to set aside or modify any assessment made under this Act.' The Privy Council concluded that the suit was barred by Section 67, as the assessment was made under the Act, regardless of whether the provision applied was ultra vires. The presence of effective machinery within the Income-tax Act to challenge the validity of provisions and assessments further supported this conclusion.3. Claim for Repayment:The appellant sought repayment of Rs. 4,35,290-5-0, arguing that the assessment was illegal due to the ultra vires provision. The Privy Council noted that the relief claimed was essentially to modify or set aside the assessment, which is barred by Section 67. The machinery provided by the Income-tax Act allowed for the review of assessments, including questions of law regarding the validity of taxing provisions. Thus, the appellant's claim for repayment could not proceed in a civil suit.Conclusion:The Privy Council dismissed the appeal, upholding the Federal Court's decision that the suit was barred by Section 67 of the Indian Income-tax Act, 1922. The appellant was ordered to pay the costs of the appeal. The judgment emphasized that the proper avenue for challenging the validity of tax assessments and provisions was through the mechanisms provided within the Income-tax Act itself, not through a civil suit.