Income Tax Appellate Tribunal - Madras
Security And Detective Bureau Ltd. vs Assistant Commissioner Of Income-Tax on 20 November, 1992
Equivalent citations: [1993]44ITD452(MAD)
ORDER
T.N.C. Rangarajan, Vice-President
1. By this petition, the assessee seeks stay of recovery of disputed taxes.
2. The assessee is a company. For the assessment year 1989-90, the assessee filed a return showing an income of Rs. 19,55,413. The assessment was made on 28-2-1992 determining the total income at Rs. 92,44,310 resulting in a demand of Rs. 62,62,670. The appeal of the assessee was partly allowed by the appellate order dated 21-9-1992. As on date of the application for stay, it is stated that an amount of Rs. 42,09,337 being the disputed tax, Rs. 18,82,844 being interest under Section 234B and interest of Rs. 1,70,489 under Section 234C, totalling Rs. 62,62,670 is outstanding. It is also stated that the Income-tax Officer has recovered a sum of Rs. 2,60,369 from the Indian Overseas Bank, two sums of Rs. 1,91,330 and Rs. 43,800 from the Indian Bank by garnishee orders. It is further stated that when the assessee approached the Commissioner of Income-tax for stay of the disputed taxes, a letter dated 9-11-1992 was issued by the Assistant Commissioner (Head Quarters) stating as under :
I am desired by the Commissioner of Income-tax, Central-II, Madras, to inform you that your request for stay of collection of tax for Assessment year 1989-90 has not been acceded to. You are requested to pay the taxes immediately.
According to the assessee, it has been advised of fair chance of success in the appeal which is pending and it does not have any liquid funds apart from that required to pay salaries to employees for meeting the demand. It is also stated in the petition that the assessee had offered to pay a sum of Rs. 5 lakhs and had also requested the Income-tax Officer to adjust the refunds due for the earlier years amounting to Rs. 5.5 lakhs. It was submitted that in the circumstances the rejection of the assessee's request for stay of collection of tax and the attachment of the bank accounts had caused undue hardship. On the other hand, it was submitted on behalf of the Revenue that once the appeal of the assessee has been disposed of by the CIT(A), there is no question of granting any stay and further that the Commissioner was only giving administrative instructions as if the assessee was making a complaint against the Income-tax Officer and, therefore, there is no need to consider the various aspects stressed by the assessee for making a speaking order.
3. We have considered the submissions of both sides and we have perused the provisions of the Act and the relevant decisions of the courts. It has been the practice of this Tribunal to insist that the assessee approach the Department for redress in the first instance and to entertain stay petitions only in really deserving cases. The present situation is that while the assessee has to pay interest at the rate of 2% for every month (equivalent to 24% per annum) for which the taxes are outstanding, the Revenue pays interest only at 15% per annum. At the same time, due to heavy backlog of cases, the assessees may have to wait for a couple of years or more before the appeals are disposed of. In cases where heavy demands are made which are likely to be reduced on appeal to the Tribunal, it is obvious that the assessees are put in a disadvantageous situation. No doubt, the Revenue has a duty to collect the taxes but then it has always been understood that it need not be a painful exercise. This is the reason why the Act itself enables the Income-tax Officer not to treat the assessee as in default under certain conditions.
4. Chapter XVII-D lays down the procedure relating to collection and recovery of taxes. Section 220 enables the Income-tax Officer to issue a notice demanding payment. Sub-section (3) provides that on the application of the assessee, the assessing officer may extend the time for payment or allow payment by instalments subject to such conditions as he thinks fit to impose in the circumstances of the case. Sub-section (6) provides that where an assessee has filed an appeal, the assessing officer may in his discretion and subject to such conditions as he may think fit to impose, treat the assessee as not being in default until the disposal of the appeal. The Revenue now assumes that because of this provision, as soon as an appeal is disposed of the assessee has to be treated as in default. We are unable to accept this proposition because Sub-section (6) is a specific provision relating to the period when the first appeal is pending for disposal. But the provisions of Sub-section (3) still remain even after the first appeal is disposed of and an appeal is pending in the Tribunal. That is the reason why the Tribunal usually requires the assessees to approach the Income-tax Officers first before coming up with an application for stay.
5. If the assessing officer has treated the assessee as in default, the Tax Recovery Officer may proceed to collect the taxes in a manner prescribed in the Second Schedule. Here again, Section 225 provides that it shall be lawful for the Tax Recovery Officer to grant time and stay recovery of such tax. Thus the assessing officer and the Tax Recovery Officer have powers to keep the collection in abeyance while an appeal is pending before the Tribunal.
6. If these officers do not properly respond to the assessee's application, naturally he has to approach the Commissioner of Income-tax who had the power under Section 119(3) to guide and instruct them in the exercise of their powers. No doubt, Sub-section (3) of Section 119 has been deleted by the Taxation Laws (Amendment) Act, 1987 with effect from 1-4-1988. But this was because of the insertion of the new Section 118 by which the Board was empowered to declare the Income-tax Officer and the Tax Recovery Officer as subordinates of the CIT. In other words, what was a statutory provision has been substituted by a notification. Still the position that remains is that administratively the Income-tax Officer and the Tax Recovery Officer are under the control of the Commissioner of Income-tax who has the power to guide them properly. That is the reason why the assessees approach them. When an application is made to the CIT for instructions to the Income-tax Officer or the Tax Recovery Officer, it is expected that the CIT will follow the rules of natural justice, give an adequate opportunity of being heard to the assessee and make a speaking order particularly when his application is rejected so that he knows why his request has not been acceded to. It was submitted on behalf of the Revenue that since the CIT was exercising only an administrative power, he was not bound to follow the rules of natural justice or make a speaking order. We are afraid we are unable to accept this view of the matter. Even though the CIT may be exercising an administrative function, as long as he is interfering with the judicial discretion of the Income-tax Officer or the Tax Recovery Officer, he is bound to follow the principles of natural justice. It is well settled that wherever a judicial discretion is involved, it is subject to the principles of natural justice and such discretionary power is always coupled with a duty to be fair (See de Smith's Judicial Review of Administrative Action - page 283). If however, it is the view of the Revenue that the CIT is not exercising a judicial discretion, then it would mean that he should refrain from interfering with the exercise of the powers of stay by the ITO and the Tax Recovery Officer altogether. We are sure that it is not the policy of the Department to make the office of the Commissioner of Income-tax redundant. Therefore, as long as they exercise superintendence over the ITO and the Tax Recovery Officer, they are expected to exercise their judicial discretion properly.
7. It was next contended that the CIT was not acting as a subordinate to theTribunal and, therefore, the Tribunal cannot give directions to the CIT. Here again, there appears to be a misconception of the position. Though the appeal has been filed before the Tribunal by the Income-tax Officer as directed by the CIT under Section 253, it is the CIT who is the real respondent to the appeal. The Appellate Tribunal has when it is seized of the appeal all the powers to see that the appellant is assured of the fruits of success in case he succeeds in the appeal. In order to do so, the Appellate Tribunal has the power to direct the respondent, which is the CIT, to conduct the litigation appropriately which includes a direction to refrain from collecting the taxes. That again includes a direction to enquire into the facts presented by the assessee for seeking a stay and report to the Tribunal as to the claim of the assessee regarding paucity of funds or the difficulty in satisfying the demand immediately pending the appeal.
8. In this connection, we have to refer to the following observations of the Supreme Court in the case of Asstt. CCE v. Dunlop India Ltd. [1985] 154 ITR 172:
But since the law presumes that public authorities function properly and bona Fide with due regard to the public interest, a court must be circumspect in granting interim orders of far reaching dimensions or orders causing administrative, burdensome inconvenience or orders preventing collection of public revenue for no better reason than that the parties have come to the court alleging prejudice, inconvenience or harm and that a prima facie case has been shown. There can be and there are no hard and fast rules. But prudence, discretion and circumspection are called for. There are several other vital considerations apart from the existence of a prima facie case. There is the question of balance of convenience. There is the question of irreparable injury. There is the question of the public interest. There are many such factors worthy of consideration.
We may also recall the observations of the Supreme Court in the case of ITO v. M.K. Mohammed Kunhi ([1969] 71 ITR 815:
It will be only when a strong primajacie case is made out that theTribunal will consider whether to stay the recovery proceedings and the stay will be granted in most deserving and appropriate cases where the Tribunal is satisfied that the entire purpose of the appeal will be frustrated or rendered nugatory by allowing the recovery proceedings to continue during the pendency of the appeal.
It is only in order to maintain the standards expected by the Supreme Court that the Appellate Tribunal requires that the application for stay should first be processed by the Revenue so that the Tribunal has on record a clear picture about the financial position of the assessee to consider whether it is a deserving case for grant of stay. If the Revenue were simply to reject every application of assessees forcing them to file applications before the Tribunal, it is only a ploy to shift the burden to the Tribunal and later claim that stay is granted by the Tribunal in a large number of cases. There is no reason why we should be dealing with an application for stay in a case like the present one, where the ITO or the Tax Recovery Officer could well have considered the proposal of the assessee to pay the outstanding amounts in instalments.
9. In the circumstances, we consider this application to be premature and we leave it to the assessee to approach the CIT once again and we expect the CIT to pass a speaking order on the lines given by the Madras High Court in T. Gurunathanv. Addl Collector of Customs ([1989] 175 ITR 429. We have no doubt that the assessee will not be treated as an assessee in default until the assessee's application before the Commissioner is properly disposed of. This petition is dismissed as premature.