1977 (9) TMI 8 - HC - Income Tax

Court upholds tax calculation, rejects Article 14 claim, directs revenue authorities to provide detailed tax dues statement

The court dismissed the petitioner's main contention regarding the interpretation of Section 220(7) of the Income Tax Act, 1961, upholding the calculation ... Applied To, Average Rate Of Tax, Foreign Income, Relief In Respect Issues Involved1. Interpretation of Section 220(7) of the Income Tax Act, 1961.2. Validity of Circular No. 25 dated July 25, 1969, issued by the CBDT.3. Applicability of Article 14 of the Constitution of India.4. Res Judicata and maintainability of the writ petition.5. Principles of natural justice and procedural fairness.Detailed Analysis1. Interpretation of Section 220(7) of the Income Tax Act, 1961The main contention revolved around the interpretation of Section 220(7) of the I.T. Act, 1961, which states:'Where an assessee has been assessed in respect of income arising outside India in a country the laws of which prohibit or restrict the remittance of money to India, the Income-tax Officer shall not treat the assessee as in default in respect of that part of the tax which is due in respect of that amount of his income which, by reason of such prohibition or restriction, cannot be brought into India, and shall continue to treat the assessee as not in default in respect of such part of the tax until the prohibition or restriction is removed.'The court held that the tax must be calculated on the total income, including foreign income, and the average rate of tax applicable to the total income should be applied to the Indian income. The court rejected the argument that the tax should be calculated separately on Indian income as if it were the total income.2. Validity of Circular No. 25 dated July 25, 1969, issued by the CBDTThe petitioner argued that the CBDT Circular No. 25, which granted relief to assessees with income accruing in Pakistan, should be extended to him. The court found that the circular was contrary to the statutory provisions and could not be supported by any provision under the Act or Rules. The court stated, 'We fail to understand how the Board issued such a circular.'3. Applicability of Article 14 of the Constitution of IndiaThe petitioner claimed that the circular violated Article 14 of the Constitution by discriminating against him. The court held that the equality clause does not mean equality in illegality. The court stated, 'No one can contend before us in proceedings under art. 226 of the Constitution that the wrong act must be extended to him as well in order to satisfy the provisions of art. 14.'4. Res Judicata and Maintainability of the Writ PetitionThe revenue raised a preliminary objection that the writ petition was barred by res judicata due to an earlier writ petition (W.P. No. 3223 of 1969). The court found that no specific plea of res judicata was put forward in the pleadings and decided to address the merits of the case, stating, 'We do not think, therefore, that it would be proper or just to dismiss this petition.'5. Principles of Natural Justice and Procedural FairnessThe court emphasized the need for procedural fairness and natural justice. It directed the Tax Recovery Officer (TRO) to issue a detailed communication to the petitioner, stating the tax due for each year, payments made, and the balance remaining. The court stated, 'The assessee must be given further opportunity before his properties are sold and coercive steps taken to collect the very large amounts claimed to be due.'ConclusionThe court dismissed the main contention of the petitioner regarding the interpretation of Section 220(7) and upheld the method of calculating tax on the total income. The court also rejected the claim under Article 14 and found the CBDT circular to be contrary to statutory provisions. However, the court emphasized procedural fairness and directed the revenue authorities to provide the petitioner with a detailed statement of tax dues and afford him an opportunity to present his case. The writ petition was disposed of with directions for both parties to bear their respective costs.