1970 (12) TMI 6 - HC - Income Tax

Court emphasizes proper exercise of discretion in tax matters, stays realisation until appeal disposal

The court found that the Income-tax Officer did not properly exercise discretion in granting and extending the stay of realisation for the ... Petitioner preferred an appeal before the AAC - in the meantime ITO forwarded a certificate to the Tax Recovery Officer - held that when the assessee had already been granted a stay without imposing any condition, the Income-tax Officer cannot exercise his discretion any further unless there is anything in the conduct of the assessee which disentitled him to further stay till the disposal of appeal Issues:1. Proper exercise of discretion by the Income-tax Officer in granting stay of realisation.2. Interpretation of sub-section (6) of section 220 of the Income-tax Act, 1961.3. Judicial review of administrative discretion.Analysis:In this case, the petitioner-company submitted a return for the assessment year 1962-63, including certain loans alleged to have been obtained. The Income-tax Officer assessed these alleged loans as income from undisclosed sources, leading to an appeal by the petitioner before the Appellate Assistant Commissioner. During this process, the Income-tax Officer forwarded a certificate to the Tax Recovery Officer, who issued a notice for recovery. The petitioner sought a stay of realisation until the appeal's disposal, which was partially granted until a specified date. Subsequently, the petitioner requested an extension of the stay, which the Income-tax Officer did not act upon, prompting the petitioner to file a writ petition under Article 226 of the Constitution.The central issue revolved around whether the Income-tax Officer properly exercised his discretion in granting and extending the stay of realisation. The court examined sub-section (6) of section 220 of the Income-tax Act, 1961, which provides the Income-tax Officer with the discretion to treat the assessee as not in default regarding the disputed amount until the appeal is resolved. The court emphasized that the discretion must be exercised judiciously, without being arbitrary or capricious. The Income-tax Officer's failure to extend the stay and the initial grant of stay until a specific date were deemed improper exercises of discretion, as they did not align with the Act's requirement to keep the demand in abeyance as long as the appeal is pending.The judgment referenced the Supreme Court's stance on interfering with administrative discretion, highlighting the need for proper exercise of discretion without arbitrariness. The court distinguished the present case from relevant precedents, emphasizing the Income-tax Officer's failure to address the application for extension as indicative of the improper exercise of discretion. Ultimately, the court decided to maintain the stay of realisation until the appeal's disposal, with the petitioner's security remaining intact. Any dues post-appeal would enable the income-tax department to proceed against the secured property for realisation.In conclusion, the court held that while the rule was made absolute, the Income-tax Officer needed to reconsider the application. The judgment underscored the importance of exercising administrative discretion judiciously and in accordance with statutory provisions, ensuring fairness and adherence to legal principles in tax matters.