1956 (6) TMI 14 - HC - Income Tax

Court rules protective assessments allowed but not recoveries based on potential error. Discretionary relief denied under Article 226.

The court held that while protective assessments are permissible under the Indian Income-tax Act, protective recoveries are not allowed. The court ... - Issues Involved:1. Validity of Protective Assessment under the Indian Income-tax Act.2. Legality of Protective Recovery.3. Relief under Article 226 of the Constitution.Detailed Analysis:1. Validity of Protective Assessment under the Indian Income-tax Act:The primary issue for consideration was whether the Indian Income-tax Act permits the concept of a protective assessment. The Income-tax authorities had previously determined that the firm 'Jagannath Hanumanbux' was actually a benami business of 'Ladhuram Taparia'. However, to safeguard against potential adverse findings from the Supreme Court, the authorities made a 'protective assessment' for the year 1945-46. The Court acknowledged that while there is no specific provision for protective assessments in the Indian Income-tax Act, the concept has been borrowed from English law and practice. The Court referenced the case of Attorney-General v. Aramayo & Others, where an alternative assessment was made to ensure that the correct party was assessed. The Court held that under Indian law, it is permissible to make a protective assessment to prevent the assessment from being barred by limitation, stating, 'Thus, I must hold that under the Indian law it is permissible to make a protective assessment.'2. Legality of Protective Recovery:While protective assessments were deemed permissible, the Court differentiated between assessment and recovery. The Court stated, 'But while a protective assessment is permissible, I do not see that a protective recovery is to be allowed.' The Income-tax authorities cannot proceed to recover taxes based on an assessment they themselves consider potentially incorrect. The Court emphasized that it is against the spirit and tenor of the Income-tax Act to proceed with recovery based on a professedly wrong assessment. The notices issued to various parties to pay money were thus deemed defective.3. Relief under Article 226 of the Constitution:The petitioner sought relief under Article 226, arguing that the Income-tax authorities' actions were not allowable in law. The Court noted that relief under Article 226 is discretionary and should not be exercised to defeat a lawful claim, especially one concerning state revenue. The Court recorded an undertaking from the Income-tax authorities that any monies recovered would be kept in a suspense account until the Supreme Court decided the matter, and there would be no double recovery. The Court concluded, 'While I cannot hold that a protective recovery is permissible in law, I do hold that on the facts and circumstances of the cases, this Court ought not to come to the aid of the petitioner under article 226 of the Constitution.'Conclusion:The rule was discharged, and the Court recorded the undertaking from the Income-tax authorities. There was no order as to costs, and interim orders were discharged. The Court's decision highlights the permissibility of protective assessments but restricts protective recoveries, emphasizing the need to adhere strictly to the provisions of the Income-tax Act.