2015 (11) TMI 25 - HC - Income Tax

Court dismisses suit for lack of jurisdiction under Income Tax Act Section 293; plaintiff's failure to challenge order led to dismissal.

Vishwanath Khanna Versus Chief Commissioner of Income Tax-Delhi VIII & Another

The Court dismissed the suit as it lacked jurisdiction under Section 293 of the Income Tax Act, following the precedent set in Commissioner of Income Tax, ... Entitlement for interest on the amount claimed along with future interest - Bar of suits in civil courts. - inetrest on what rate and from what date? - Whether the plaintiff is entitled for decree of the sum as prayed in suit against the defendants jointly and severally? - Jurisdiction of court - Held that:- It is not disputed on behalf of the plaintiff that when this Order was passed on 20.9.2005 (or even on 27.9.2004 as argued on behalf of the plaintiff), plaintiff was aware of the fact that the three bank drafts totaling to ₹ 30,50,000/- were not encashed by the defendants and plaintiff had a right to claim interest on these bank drafts in the proceedings under Section 245(D)(6) of the Income Tax Act, inasmuch as, by June/August 2004, plaintiff had encashed the pay orders totaling to the amount of ₹ 30,50,000/-. The computation being done of amounts; payable for and against the plaintiff; and for and against the defendants, very much had to be and was the subject matter of the Order dated 20.9.2005 (or 27.9.2004) and all these were aspects with respect to the recovery from the plaintiff of the Income Tax dues payable by the plaintiff pursuant to the search and seizure operations in the premises of the plaintiff on 4.2.1995 and refund to the plaintiff on account of excess amount lying with the defendants. The plaintiff thus ought to have raised but did not raise the claim of the amount which is the subject matter of the present suit before the Income Tax Officer who passed the computation vide Order dated 20.9.2005/27.9.2004 or if the plaintiff did make the claim with respect to interest payable on three drafts, then the same stood denied in terms of the aforesaid Order dated 20.9.2005/27.9.2004. As asked the counsel for the plaintiff a specific question, as to whether the plaintiff had raised this claim which is the subject matter of the present suit being the interest payable on account of monies of the plaintiff lying dormant in suspense accounts with the banks as the three bank drafts/pay orders were not encashed by the defendants, but counsel for the plaintiff could not answer this query of the Court one way or the other in spite of taking instructions from the plaintiff. Therefore, looking at the matter from any angle, if this issue was raised and the claim was denied by the ITO or the issue was not raised at all, the claim of the plaintiff definitely stood merged in the Order dated 20.9.2005/27.9.2004 being the claim of the plaintiff with respect to interest on the amount of ₹ 30,50,000/-. If the case of the plaintiff is that the Order dated 20.9.2005/27.9.2004 wrongly disallows the claim, then plaintiff had appropriate remedy to challenge the said order in an appeal but the plaintiff failed to do so. This suit in view of Section 293 of the Income Tax Act however is not the remedy and the only remedy of the plaintiff was to challenge the Order dated 20.9.2005/27.9.2004 in the appropriate forum and which the plaintiff failed to do. The ratio of the judgment of the Supreme Court in the case of Parmeshwari Devi Sultania (1998 (3) TMI 3 - SUPREME Court) clearly applies that with respect to any claim which is made in a civil suit against the Income Tax department which will result in modification of proceedings under the Income Tax Act, then the cognizance of such a civil suit cannot be taken by a civil court in view of the categorical bar contained in Section 293 of the Income Tax Act. In Parmeshwari Devi Sultania’s case (supra), the Supreme Court has referred to a judgment of the Privy Council in Raleigh Investment Co. Ltd. Vs. Governor General-in Council [1947 (2) TMI 18 - PRIVY COUNCIL] wherein a similar issue was decided. It is settled law that under Section 9 of the Code of Civil Procedure, 1908 a suit is not maintainable once there is an express or implied bar to the suit. Section 293 of the Income Tax Act is an express bar to the present suit in view of the judgment of the Supreme Court in the case of Parmeshwari Devi Sultania (supra). In view of the above, since this Court has no inherent jurisdiction to try this suit in view of the bar contained in Section 293 of the Income Tax Act, the suit is therefore dismissed, leaving the parties to bear their own costs. Issues Involved:1. Entitlement of the plaintiff to interest on the amount claimed.2. Entitlement of the plaintiff to a decree for the sum prayed in the suit.3. Jurisdiction of the Court in view of Section 293 of the Income Tax Act, 1961.Detailed Analysis:1. Entitlement of the Plaintiff to Interest:The plaintiff sought recovery of Rs. 29,22,692/- from the defendants with interest, arising from a search and seizure operation conducted by the Income Tax Department on 4.2.1995, during which 7003.859 kgs of silver and Rs. 49,86,500/- in cash were seized. The plaintiff had filed a writ petition (CWP No. 4767/1998) for the return of the silver bars, resulting in a court order dated 08.10.1998 directing the release of the silver upon payment of its value. The plaintiff made payments in installments, but the dispute centered around three pay orders totaling Rs. 30,50,000/- deposited on 05.04.2000, which were not encashed by the defendants. The plaintiff claimed interest on these amounts from the date of deposit until their encashment in June/August 2004.2. Entitlement to Decree for the Sum Prayed:The plaintiff discovered the non-encashment of the pay orders through a letter dated 12.09.2003 from the Indian Overseas Bank. Upon further inquiry, it was confirmed that the pay orders totaling Rs. 30,50,000/- were lying dormant in the bank's suspense accounts. The plaintiff encashed these pay orders in June/August 2004 and subsequently filed the suit claiming interest on the dormant amount.3. Jurisdiction of the Court:During the final hearing, a legal issue arose regarding the Court's jurisdiction to try the suit due to the bar under Section 293 of the Income Tax Act, 1961. Although this issue was not initially framed, it was considered crucial as it questioned the Court's inherent jurisdiction. Section 293 states, 'No suit shall be brought in any civil court to set aside or modify any proceeding taken or order made under this Act.' The Supreme Court's judgment in Commissioner of Income Tax, Bhubaneswar vs. Parmeshwari Devi Sultania and Others (1998) 3 SCC 481 was referenced, which established that civil suits against the Income Tax Department regarding dues claimed under the Act are barred.The Court examined whether the suit was barred under Section 293. It was noted that the plaintiff's dues were determined by the Income Tax Settlement Commission's order dated 7.7.2003, followed by the computation of income by the Income Tax Officer under Section 245(D)(6) on 20.9.2005. This order included all amounts payable and refundable, including interest. The plaintiff was aware of the non-encashment of the pay orders by June/August 2004 and could have claimed interest under the proceedings of Section 245(D)(6). The plaintiff did not raise this claim or challenge the computation order, leading to the conclusion that the claim merged with the order dated 20.9.2005/27.9.2004.The Court emphasized that under Section 9 of the Code of Civil Procedure, 1908, a suit is not maintainable if there is an express or implied bar. Section 293 of the Income Tax Act was deemed an express bar to the present suit based on the Supreme Court's judgment in Parmeshwari Devi Sultania's case.Conclusion:The Court concluded that it lacked inherent jurisdiction to try the suit due to the bar under Section 293 of the Income Tax Act. Consequently, the suit was dismissed, with each party bearing its own costs.