Inherent power to stay tax recovery during income-tax reference upheld, with conditional relief granted on security.

In an income-tax reference, the High Court retains inherent power to stay recovery of tax in a proper case, because the statutory rule that tax remains payable notwithstanding a reference does not by itself bar discretionary interim relief. On the facts, stay was justified since the same income had already been taxed and paid in the karta's individual assessment, and immediate recovery from the Hindu undivided family would cause hardship while the revenue could be protected by security. Recovery of the disputed demand was therefore stayed on terms, subject to furnishing adequate security.

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Issues: (i) Whether, in a reference under section 66(1) of the Indian Income-tax Act, 1922 or section 256(1) of the Income-tax Act, 1961, the High Court has inherent jurisdiction to stay recovery of tax pending disposal of the reference. (ii) Whether the assessee was entitled to stay of recovery on the facts of the case.

Issue (i): Whether, in a reference under section 66(1) of the Indian Income-tax Act, 1922 or section 256(1) of the Income-tax Act, 1961, the High Court has inherent jurisdiction to stay recovery of tax pending disposal of the reference.

Analysis: The reference jurisdiction of the High Court is advisory or consultative for deciding the questions referred, but that character does not exclude the High Court's separate existence as a court with inherent powers. Section 151 of the Code of Civil Procedure does not confer such power, but preserves powers already inherent in the court. The scheme of the Income-tax Acts, including the provisions that tax remains payable notwithstanding a reference, does not expressly or by necessary implication prohibit a stay order in a proper case. The provision that tax shall be payable means only that liability is not automatically suspended by the mere making of a reference.

Conclusion: The High Court has inherent jurisdiction to stay recovery of tax in a proper case pending disposal of a reference.

Issue (ii): Whether the assessee was entitled to stay of recovery on the facts of the case.

Analysis: It was undisputed that the tax on the same income had already been paid in full by the karta in his individual assessment for the relevant years. Requiring the Hindu undivided family to pay again before the references were decided would cause serious hardship, while the revenue's interest could be protected by requiring security.

Conclusion: Stay of recovery was granted subject to the assessee furnishing adequate security within the time fixed by the Court.

Final Conclusion: The preliminary objection was rejected and the recovery of the disputed tax demand was stayed on terms, thus granting the assessee conditional interim relief pending the references.

Ratio Decidendi: A High Court hearing an income-tax reference retains inherent power as a court to grant stay of tax recovery in a proper case, and the statutory declaration that tax remains payable notwithstanding reference does not bar such discretionary relief.

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