Tax recovery restraints on property dealings and arrest provisions upheld where notice, means, and obstructive conduct were shown.

Rule 16(1) of the Income-tax Rules was treated as a recovery measure that restricts a defaulter from mortgaging, charging, leasing, or otherwise dealing with property after notice, without preventing the carrying on of business, so it was held to be a reasonable restriction and not a violation of Article 19(1)(g). The Court also rejected reliance on Article 358 because the action concerned pre-existing tax dues. Under Rule 73(1), the recorded material, including post-notice dealings and non-payment despite available means, was held sufficient to support the inference of obstruction and to satisfy the statutory conditions for arrest and detention.

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Issues: (i) Whether the restriction on a defaulter dealing with property under rule 16(1) of the Income-tax Rules infringed the fundamental right under article 19(1)(g) of the Constitution of India. (ii) Whether the requirements for arrest and detention under rule 73(1) of the Income-tax Rules were satisfied on the facts.

Issue (i): Whether the restriction on a defaulter dealing with property under rule 16(1) of the Income-tax Rules infringed the fundamental right under article 19(1)(g) of the Constitution of India.

Analysis: Rule 16(1) did not prohibit carrying on business; it only disabled the defaulter from mortgaging, charging, leasing, or otherwise dealing with property without permission after service of notice. The restraint was treated as part of the lawful machinery for recovery of tax dues and not as a general prohibition on trade or occupation. The Court held that the provision operated as a reasonable restriction and that no violation of article 19(1)(g) arose. The argument based on emergency and article 358 was also rejected because the recovery action related to pre-existing tax dues and was not the kind of executive action covered by that article.

Conclusion: The challenge under article 19(1)(g) failed and the restriction under rule 16(1) was upheld.

Issue (ii): Whether the requirements for arrest and detention under rule 73(1) of the Income-tax Rules were satisfied on the facts.

Analysis: Rule 73(1) required notice and satisfaction, for recorded reasons, either that the defaulter had dishonestly transferred, concealed, or removed property with the object or effect of obstructing execution, or that he had means to pay the arrears or a substantial part and refused or neglected to pay. Reading rule 73 with rule 16, and treating the admitted transactions and withdrawals after service of notice as relevant material, the Court held that the defaulter had dealt with property in breach of the prohibition and had not applied available funds towards the admitted tax liability. The Court further held that the Tax Recovery Officer could draw a reasonable inference from the admissions and surrounding circumstances, and that the material on record was sufficient to satisfy both clauses of rule 73(1). Rule 73 was also treated as analogous to the corresponding execution provisions in the Code of Civil Procedure.

Conclusion: The order of arrest and detention under rule 73(1) was valid and was properly sustained.

Final Conclusion: The recovery machinery under the Income-tax Rules was held applicable on the facts, the constitutional challenge failed, and the detention order was sustained as a valid mode of tax recovery.

Ratio Decidendi: After service of notice under the recovery rules, a defaulter cannot privately deal with property subject to the recovery process, and admitted dealings inconsistent with that restraint may justify an inference of obstruction and support arrest and detention under rule 73 where the statutory conditions are otherwise shown by the record.

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