1972 (2) TMI 20 - HC - Income Tax

Court quashes summons under Income-tax Act, allows fresh discovery. Stay granted for 8 weeks.

New Central Jute Mills Co. Limited Versus Dwijendralal Brahmachari And Others.

The court quashed and set aside the summons issued under section 131 of the Income-tax Act, 1961, restraining the respondents from enforcing it. The court ... Petitioner challenges in this petition under article 226 of the Constitution the summons dated 6th June, 1969, issued by the Income-tax Officer under section 131 of the Income-tax Act, 1961 - Whether an omnibus summons issued by the Income-tax Officer without the knowledge of the contents of the documents would be valid Issues Involved:1. Validity and propriety of the summons issued under section 131 of the Income-tax Act, 1961.2. Relevance of the seized documents for pending assessments.3. Allegations of mala fide exercise of power.4. Application of mind by the Income-tax Officer in issuing the summons.5. Custody of documents held by the Registrar of Companies under court orders.Detailed Analysis:1. Validity and Propriety of the Summons Issued Under Section 131 of the Income-tax Act, 1961:The petitioner, New Central Jute Mills Ltd., challenged the summons dated 6th June 1969, issued by the Income-tax Officer under section 131 of the Income-tax Act, 1961. The summons required the Registrar of Companies to produce all seized documents. The petitioner contended that the summons was invalid as all assessments for the assessment years up to 1964-65 had been completed, and the seized documents were irrelevant for any pending assessment. The court examined whether the summons was issued for the purposes of the Income-tax Act and whether the Income-tax Officer had jurisdiction to issue such a summons.2. Relevance of the Seized Documents for Pending Assessments:The petitioner argued that the seized documents related to periods before July 1964 and were irrelevant for any pending assessment as all assessments for those periods had been completed. The court noted that the purpose of the Income-tax Act is not only to make assessments but also to conduct investigations to determine whether reassessment is necessary. The Income-tax Officer stated that there were allegations of concealed income and that the documents were relevant for both completed and future assessments. The court held that the documents could be relevant for the purpose of the Act, including investigations for reassessment.3. Allegations of Mala Fide Exercise of Power:The petitioner alleged that the Income-tax Officer had issued the summons to facilitate an investigation by the Company Law Board, which had been prevented by court orders. The Income-tax Officer denied this allegation, stating that the summons was issued for the purposes of the Income-tax Act and that there were pending assessments and appeals. The court held that the mere receipt of information from another department does not establish mala fide conduct. It must be shown that the summons was issued solely for an ulterior purpose, which was not established in this case.4. Application of Mind by the Income-tax Officer in Issuing the Summons:The petitioner contended that the Income-tax Officer had not applied his mind to the relevancy of the documents as he had no knowledge of their contents. The court referred to the Supreme Court decision in Barium Chemicals Ltd. v. A. J. Rana, which emphasized the need for due care and attention in considering the necessity of documents. The court observed that the omnibus nature of the order indicated non-application of mind. The Income-tax Officer's lack of knowledge about the contents of the documents and the broad scope of the summons suggested that he had not considered their relevancy. Consequently, the court held that the summons was beyond the power under section 131 of the Income-tax Act, 1961.5. Custody of Documents Held by the Registrar of Companies Under Court Orders:The petitioner argued that the documents were in the custody of the court pursuant to its directions, and the order to produce them was not proper without the court's leave. The court found this objection to be of little substance, stating that the order in substance meant the same as the order considered by the Supreme Court. However, the court quashed the summons on the grounds of non-application of mind, not on the custody issue.Conclusion:The court quashed and set aside the summons dated 5th June 1969, issued under section 131 of the Income-tax Act, 1961, and restrained the respondents from giving effect to the summons. The court clarified that this order would not prevent the respondents from taking fresh steps for discovery and inspection of documents in compliance with section 131 of the Income-tax Act, 1961. The documents were to be handed over to the petitioner-company subject to any order of the court in any other pending matters. The court also ordered a stay of the operation of this order for eight weeks.