High Court clarifies privilege claim under Income-tax Act, directs further proceedings

The High Court set aside the lower court's order upholding the privilege claim under section 137(1) and (2) of the Income-tax Act, clarifying that a party can be asked about specific assets or income in their income-tax return under Order XI, Civil Procedure Code. The respondent cannot claim statutory privilege to avoid answering such questions. The court directed further proceedings, emphasizing that inferences drawn from the respondent's response would depend on the case's circumstances.

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Issues:
Interpretation of section 137(1) and (2) of the Income-tax Act in relation to interrogatories served on a party to a suit under Order XI, Civil Procedure Code.

Analysis:
The judgment involves a revision proceeding concerning the interpretation of section 137(1) and (2) of the Income-tax Act in the context of interrogatories served on a party to a suit under Order XI, Civil Procedure Code. The respondent in the case refused to answer a specific question regarding the disclosure of a particular amount in his income-tax return for a specific year, citing privilege. The court below upheld the privilege claim, but the High Court found this decision to be based on a misconception. The High Court clarified that privileges of parties in legal proceedings are primarily governed by the Indian Evidence Act, and there is no provision therein preventing a person from being asked about the inclusion of assets or income in their income-tax return.

The privilege claimed by the respondent was based on section 137(1) and (2) of the Income-tax Act and certain judicial observations. However, the High Court determined that such privilege claims were erroneous as section 137(1) protects public servants from disclosing the contents of income-tax returns and section 137(2) imposes an obligation on public servants not to reveal such particulars. The court emphasized that there is nothing in section 137 that prevents a party from being asked about the inclusion of specific assets or income in their income-tax return. Previous judicial decisions, including Sivagami Achi v. Ramanathan Chettiar, highlighted that section 137 does not create an obligation, privilege, or right for parties in litigation.

The High Court further clarified that the respondent can be asked the question regarding the inclusion of a particular asset or income in their income-tax return under Order XI, Civil Procedure Code, and cannot claim statutory privilege to avoid answering. The respondent may choose to reply as they see fit, but if the reply suppresses a material fact, the opposing party can request the court to draw inferences from that response. The judgment also addressed the potential scenario where the respondent denies including the asset and the revision petitioner seeks to produce the original document. This situation would involve the rights and obligations of income-tax authorities under the Income-tax Act.

In conclusion, the High Court set aside the lower court's order upholding the privilege claim and directed further proceedings under Order XI, Civil Procedure Code. The judgment clarified that the respondent can be asked the relevant question without any statutory privilege exemption. The decision also emphasized that the court's assessment of any inference drawn from the respondent's reply would depend on the overall circumstances of the case.

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