Full Judgment Text
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PETITIONER:
THIRD INCOME-TAX OFFICER, MANGALORE
Vs.
RESPONDENT:
M. DAMODAR BHAT
DATE OF JUDGMENT:
06/09/1968
BENCH:
RAMASWAMI, V.
BENCH:
RAMASWAMI, V.
SHAH, J.C.
GROVER, A.N.
CITATION:
1969 AIR 408 1969 SCR (2) 29
CITATOR INFO :
RF 1969 SC 701 (5)
R 1970 SC 778 (14)
RF 1971 SC 95 (4)
RF 1977 SC1871 (7)
RF 1986 SC 293 (9,10)
RF 1991 SC2278 (9)
ACT:
Income-tax Act, 1961, ss. 226(3), 297(2)(j)-Scope of-
Whether provisions of s. 226(3) available for recovery of
tax assessed under the Income-tax Act, 1922.-If assessee
must be "in default" before a notice under s. 226(3) can
issue.-Effect of s. 297(2)(j)-After notice of demand under
s. 156 whether tax "due from the assessee" to enable notice
under s. 226(3) to be issued.
HEADNOTE:
By a writ petition under Article 226 of the Constitution the
respondent challenged the validity of a notice under s. 226(
3 ) of the Income-tax Act, 1961, in respect of tax due from
him for the four assessment years from 1960-61 to 1963-64
and penalty for the assessment year 1962-63.
For the assessment year 1961-62 the assessment
proceedings against the respondent were taken and concluded
under the Income-tax Act, 1922, and as a result of an
appeal filed by the respondent, the tax liability was
reduced by the Appellate Assistant Commissioner. The I.T.O.
thereafter issued a notice to the respondent on December 11,
1963, under s. 156 of the 1961 Act requiring him to make
payment within 35 days. This period expired on January 22,
1964. The impugned notice under s. 226(3) was issued much
later on April 23, 1965. It was contended on behalf of the
respondent that both the assessment order as well as the
appellate order having been made under the 1922 Act, the
provisions of s. 226 of the 1951 ’Act were not applicable.
As regards the. penalty sought to be recovered under the
impugned notice for the assessment year 1962-63 and tax for
1963-64, it was contended by the respondent that as notices
of demand had been served on him for payment of the two sums
and the time given in the notice was due to expire on May
21, 1965, the impugned notice dated April 23, 1965 issued
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prior to the expiry of the time given to him was illegally
issued; furthermore, the amount of tax must be "due to be
paid by the assessee before a notice can be issued under s.
225(3)of the 1961 Act. In respect of the assessment for
1960-61, it was contended before the High Court that the
I.T.O. did not properly exercise the statutory discretion
vested on him in issuing the impugned notice when there was
an appeal pending against the order of assessment before the
AppeLlate Assistant Commissioner.
The High Court allowed the petition and accepted all the
respondent’s contentions. It also held that action under s.
226 of the 1961 Act was possible only in the case of an
assessee who was "in default" and that in the case of an
assessment under the 1922 Act, no notice under s. 156 of the
new Act was possible and there was no way of taking
advantage of the provisions for the ’recovery and collection
of tax contained in ss. 220 to 234 of the new Act.
On appeal to this Court,
HELD: The impugned notice under s, 226(3) was valid
and the writ petition must be dismissed.
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(i) The Income-tax Officer had authority to issue the.
notices under s. 156 and s. 226(3) of the new Act with
respect to the liability of the respondent under the old
Act. The High Court was therefore in error in holding that
the impugned notice was inoperative in regard to the
amount to be recovered for the assessment year, 19’51-62.
[37 D]
The High Court had wrongly based its opinion on the
premise that all recoveries are possible "only when the
stage mentioned in s. 220(4) was reached, namely, that the
assessee had become or deemed to have been an assessee "in
default" and the action under s. 226 could be taken only
when an assessee was in default. The effect of the
reasoning adopted by the High Court on this point is that
the provisions of s. 297(2) of the new Act are nullified and
an interpretation of s. 226(3 ) of the new Act which leads
to such a startling result should be avoided as it is
opposed to all sound canons of interpretation. [37 E-G]
In a case falling within s. 297(2)(j) of the new Act, for
example in a proceeding for recovery of tax and penalty
imposed under the old Act, it not required that all the
sections of the new Act relating to recovery and collection
should be literally applied but only such of the sections
will apply as are appropriate in the particular ease and
subject, if necessary, to suitable modifications. In other
words, the procedure of the new Act will apply to the cases
contemplated by s. 297(2)(j) of the new Act routatis
mutandis. [37 H--3-8 A]
Kalawati Devi Harlalka v.C.I.T. West Bengal, 66 I.T.R. 680;
referred
to.
The assessments of tax and penalty for 1962-63 and
1963-64 had been made against the respondent and the demand
notices had also been issued under s. 156 of the new Act.
It was not therefore possible to contend that the amount of
tax and penalty were not ’,due from the assessee" on April
23, 1965 when the impugned notice under s. 226(3) was
issued. [38 H, 3,9 B-C]
Kesoram Industries & Cotton Mills Ltd. v. Commissioner
of Wealthtax (Central), Calcutta, [1966] 2 S.C.R. 688,
referred to.
(iii)The finding of the High .Court that the Income-tax
Officer was not shown to have applied his mind to any of the
facts relevant to’ the proper exercise of his discretion in
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relation to the assessment for the year 1960-61 could not
be Upheld as the respondent had. not alleged any specific
particulars in his writ petition in support of his case
that the I.T.O. had exercised his discretion in an arbitrary
manner. [39 F]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1654 of1967.
Appeal from the judgment and. order dated February
1, .1967 of the Mysore High Court in Writ Petition No. 846
of 1965i .
B. Sen, R. Gopalakrishnan, R.N. Sachthey and B.D. Bharma
for the appellant.
K. Srinivasan, M.K. Ramamurthi, Vineet Kumar and
Shyamala Pappu, for he respondent.
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The Judgment of the Court was delivered by
Ramaswami, J. This appeal is brought by certificate on
behalf of the II1 Income Tax Officer, Mangalore from the
judgment of the Mysore High Court dated February 1, 1967 in
Writ Petition No. 846 of 1965 holding that the notice under
s. 226(3) of the Income Tax Act, 1961, hereinafter called
the ’new Act’, bearing No. 770-d/60-61, 61-62, 62,-63 and
63-64 issued by the III Income Tax Officer to M/s.
Rajarajeswari Motor Service, Mangalore, produced as Ex. VIII
with the writ petition was invalid and inoperative in
respect of the following items of tax and penalty included
therein :--
1. Tax for the assessment year 1960-61, Rs.
7,056.50
2. Tax for the assessment year 1961-62, Rs.
485.55
3. Penalty for 1962-63 Rs.
1,890.00
4. Tax for the assessment year 1963-64 Rs.
64,307.00
and quashing the notice to that extent.
The impugned notice was issued under s. 226( 3 ) of the
new Act. The respondent, Sri M. Damodar Bhat was in arrears
in respect of income-tax and penalty levied on him in
respect of three or four assessment years. The total amount
shown as due in the notice was Rs. 74,086.02 and was made up
as follows:
1. Tax for the assessment year
1960-61; Rs. 7,056.15
2. Tax for the assessment year
1961-62; Rs. 485.55
3. Balance of tax for the assess-
ment year 1962-63; Rs. 346.42
4. Penalty for assessment year
1962-63 Rs. 1,890.00
5. Tax for the assessment year
1963-64 Rs. 64,307.90
Rs, 74,086;02
It is necessary at this. stage to set out the relevant
provisions of the Income Tax Act, 1961 (Act 43 of 1961 ) and
of the Income Tax Act, 1922 (Act 11 of 1922), hereinafter
referred to as the ’old Act’. Section 156 of the new Act is
to.the following effect:
"Notice of demand.--When any tax, interest,
penalty, fine or any other sum is payable in consequence
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of any order passed under this Act, the
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Income-tax Officer shall serve upon the
assessee a notice of demand in the prescribed
form specifying the sum so payable."
Sections 220, 221 and 222 of the new Act
provide,:
"220. When tax payable and when assessee
deemed’ in default.--( 1 ) Any amount,
otherwise, than by way of advance tax
specified as payable in a notice of demand
under Section 156 shall be paid within thirty
five days of the service of the notice at the
place and to the person mentioned in the
notice:
(2 ) If the amount SpeCified in any
notice of demand under Section 156 is not paid
within the period limited’ under sub-section
(1 ), the assessee shall be liable to pay
simple interest at nine per cent per annum
from the day commencing after the end of the
period mentioned in sub-section ( 1 ):
(4) H the amount is not paid within the
time limited under sub-section (1 ) or
extended’ under subsection (3 ), as the case
may be, at the place and to the person
mentioned in the said notice the assessee
shall be deemed to be in default.
(6) Where an assessee has presented an
appeal under Section 246 the Income-tax
Officer may, in his discretion, and subject to
such conditions as he may think fit to impose
in the circumstances of the case, treat the
assessee as not being in default in respect of
the amount in dispute in the appeal, even
though the time for payment has expired, as
long as such appeal remains undisposed of.
221. Penalty payable when tax in
default.--( 1 ) When an assessee is in default
or is deemed to be in default in making a
payment of tax, he shall’, in addition to the
mount of the arrears and-the mount of interest
payable under sub-section (2) of Section 220,
be liable to pay ,by way of penalty, an mount
which, in the case of a continuing default,
may be increased from time to time, so,
however, that the total mount of penalty does
not exceed the amount of tax in arrears:
Provided that before levying any such penalty
the.
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assessee shall be given a reasonable
opportunity of being heard.
(2 ) Where as a result of any final
order the amount of tax, with respect to the
default in the payment of which the panalty
was levied, has been wholly reduced, the
penalty levied shall be cancelled and the
amount of penalty paid shall be refunded.
222. Certificate to Tax Recovery
Officer.--(1) When an assessee is in default
or is deemed to be in, default in making.a
payment of tax, the Income-tax Officer may
forward to the Tax Recovery Officer
certificate under his signature specifying the
amount of arrears due from the assessee, and
the Tax Recovery Officer on receipt of such
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certificate, shall proceed to recover from
such assessee the amount specified thereto by
one or more of the modes mentioned below, in
accordance with the rules laid down in the
Second Schedule---
(a) attachment and sale of the assessee’s
movable property;
(b) attachment and sale of the
assessee’s immovable property;
(c) arrest of the assessee and his
detention in prison;
(d) appointing a receiver for the
management of the assessee’s movable and
immovable properties.
(2) The Income-tax Officer may issue a
certificate under sub-section (1 ),
notwithstanding that proceedings for recovery
of the arrears by any other mode have been
taken."
Section 226 states as follows:
"226. Other modes of recovery.--( 1 )
Notwithstanding the issue of a certificate to
the Tax Recovery Officer under Section 222,
the Income-tax Officer may’ recover the tax by
any one or more of the modes provided in this
section.
( 3 ) ( i ) The Income-tax Officer may, at
any time or from time to time, by notice in
writing require any person from whom money is
due or may become due to the assessee or any
person who holds or may, subsequently hold
money for or on account of the assessee, to
pay to the Income-tax Officer either
forthwith upon the
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money becoming due or being held or at or
within the time specified in the notice (not
being before the money becomes due or is
held), so much of the money as is sufficient
to pay the amount due by the assessee in
respect of arrears or the whole of the money
when it is equal to or less than that mount.
(ii) A notice under this sub-section may
be issued to any person who holds or may
subsequently hold any money for or on account
of the assessee jointly with any other person
and for the purposes of this sub-section, the
shares of the joint-holders in such account
shall be presumed, until the contrary is
proved to be equal.
(iii) A copy of the notice shall we
forwarded to the assessee at his last address
known to the Income-tax Officer, and in the
case of a joint account to all the joint-
holders at their last addresses known to the
Income-tax Officer.
(iv) Save as otherwise provided in this sub-
section, every person to whom a notice is
issued under this sub section shall be bound
to comply with such notice, and, in
particular, where any such notice is issued to
a post office, banking company or an insurer,
it shall not be necessary for any pass book
deposit receipt, policy or any other document
to be produced for the purpose of any entry,
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endorsement or the like being made before
payment is made withstanding any rule,
practice or requirement to the contrary.
(v) Any claim respecting any property in
relation "to which a notice trader this sub-
section has been issued rising after the date
of the notice shall be void as against any
demand contained in the notice.
(x) If the person to whom a notice under
this subsection is sent fails to make payment
in pursuance thereof to the Income-tax
Officer, he shall be deemed to be an assessee
in default in respect of the amount specified
in the notice and further proceedings may be
taken against him for the realisation of the
amount as it were an arrear of tax due from
him, in the manner provided in Sections 222 to
225 and the notice shall have the same effect
as an attachment of a debt by the Tax Recovery
Officer in exercise of his powers under
’Section 222.
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Section 297 provides as follows:
"297. Repeals and savings.--( 1 )
The Indian Income-tax Act, 1922 (11 of 1922),
is hereby repealed.
(2) Notwithstanding the repeal of
the Indian Income-tax Act, 1922 ( 11 of 1922
), (hereinafter referred to as the repealed
Act),--
(g) any proceeding for the imposition
of a penalty in respect of any assessment for
the year ending on the 31st day of March,
1962, or any earlier year, which is completed
on or after the 1st day of April, 1962, may be
initiated and any such penalty may be imposed
under this Act;
(j) any sum payable by way of income-
tax, supertax, interest, penalty or otherwise
under the repealed Act may be recovered under
this Act, but without prejudice to any action
already taken for the recovery of such sum
under the repealed Act;
....................................
Section 29 of the old Act reads:
"When any tax, penalty or interest is
due in consequence of any order passed under
or in pursuance of this Act, the Income-tax
Officer shall serve upon the assessee or other
person liable to pay such tax, penalty or
interest a notice of demand in the prescribed
form specifying the sum so ’payable."
Section 6 of the General Clauses Act, (Act 10
of 1897) states:
"Effect of repeal.-Where this Act, or
any Central Act or Regulation made after
the commencement of this Act, repeals any
enactment hitherto made or hereafter to be
made, then, unless a different intention
appears, the repeal shall not--
(a) revive anything not in force or
existing at the time at which the repeal takes
effect; or
(b) affect the previous operation of.
any enactment so repealed or anything duly
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done or suffered thereunder; or
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(c ) affect any right, privilege,
obligation or liability acquired, accrued or
incurred under any enactment so repealed; or
(d) affect any penalty, forfeiture or
punishment incurred in respect of any
offence committed against any enactment
so. repealed; or
(e) affect any investigation, legal.
proceeding or remedy in respect of any such
right , privilege, obligation, liability,
penalty, forfeiture, or punishment as
aforesaid;
and any such investigation, legal proceeding
or remedy may be instituted, continued or
enforced, and any such penalty, forfeiture or
punishment may be imposed as if the repealing
Act or Regulation had not been passed."
As regards the second item in the impugned notice, viz.,
tax in respect of assessment year 1961-62 to the extent of
Rs. 485.55 the material facts are as follows: The
assessment proceedings were taken and concluded under the
old Act and tax of Rs. 2,947.56 was imposed and demanded.
Thereafter, the respondent preferred an appeal to the
Appellate Assistant Commissioner. In appeal the tax
liability was reduced to Rs. 485.55. Thereupon the Income
Tax Officer issued a notice to the respondent dated December
11, 1963 purporting to be under s. 156 of the new Act. The
limit of 35 days for payment of the amount expired on
January 22, 1964. The impugned notice under s. 226(3) was
issued nearly two years thereafter on April 23, 1965. The
argument on behalf of the respondent was that both the
assessment order as well as the appellate order having been
made under the old Act, the provisions of s. 226 of the new
Act were not applicable. The High Court has. accepted this
contention of the respondent and has held that the notice
was invalid to the extent it included the tax of Rs. 485.55
for the assessment year 1961-62. The contention of the
appellant is that the High Court was in error in holding
that action under s. 226 of the new Act was possible only in
the case of an assessee who was "in default" and that in the
case of an assessment under the old Act, no notice under
s. 156 of the new Act was possible and there was no way of
taking advantage of the provisions for recovery and
collection of tax contained in ss. 220 to 234 of the new
Act. In our opinion, the argument on behalf of the
appellant is well-founded and must be accepted as correct.
In the first place, it is necessary to notice that s. 220(4)
of the new Act mentions in what circumstances the assessee
shall be deemed to be in default and s. 222 provides that
when an assessee is in default or is deemed to be in default
in making payment of tax, the Income Tax ’Officer may
forward to the Tax RecOvery Officer a certificate under
his signature
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specifying the amount of arrears. due from the assessee, and
the Tax Recovery Officer on receipt. of such certificate,
shall proceed to. recover from the assessee the amount
specified therein by one or more of the modes mentioned in
the section. Section 226, however, provides for other
methods of recovery and there is no reference in s. 226(3)
to any default on the part of the assessee. Section 226(3)
merely states that the Income Tax Officer may, "at any time
or from time to time,"by notice in writing require any
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person from whom money is due or may become due to the
assessee or any person who holds or may, subsequently
hold money for or on account of the assessee, to pay to the
Income ’Tax officer either forthwith so much of the money as
is sufficient to pay the amount due by the assessee in
respect of arrears or the whole of the money when it is
equal to or less than that amount. In a proceeding under s.
226( 3 ) of the new Act therefore it is not necessary that
the assessee should be in default or should be deemed to be
in default and no such condition or limitation is imposed by
the language of that sub-section. We are accordingly of the
opinion that the Income Tax Officer had authority W issue
the notice dated December 11, 1963 under s. 156 of the new
Act with respect to the tax liability of Rs. 485.55 incurred
by the respondent under the old Act. The High Court has
expressed the view that "in the case of an assessment under
the old Act no notice under s. 156 of the new Act was
possible", and "there was no way of taking advantage of the
provisions for recovery and collection of tax contained in
ss. 220 to 234 of the new Act". The High Court has based
its opinion on the premise that all recoveries are possible
"only when the stage mentioned in s. 220(4) was reached,
namely, that the assessee had become or deemed to have been
an assessee in default" and the action under s. 226 could be
taken only when an assessee was in default. In our opinion,
the reasoning adopted by the High Court and the conclusion
reached by it is not correct in law. The effect of the
judgment of the High Court on this point is that the
provisions of s. 297(2)(j) of the new Act are nullified and
declared to be of no consequence. An interpretation of s.
226(3) of the new Act which leads to such a starting result
should be avoided as it is opposed to all sound canons of
interpretation. As we have already stated, there is
nothing in the language of s. 226(3 ) of the new Act to
warrant the conclusion that the assessee should be in
default or should be deemed to be in default before the
issue of the notice under that sub-section. It is true that
the group of sections from s. 220 to s. 232 of the new Act
are placed under the heading "Collection and recovery". But
in a case falling within s. 297(2)(j) of the new Act, for
example in a proceeding for recovery of tax and penalty
imposed ,under the old Act, it is not required that all the
sections of the new Act relating to recovery and collection
should be literally applied but only such
38
of the sections will apply as are appropriate in the
particular case and subject, if necessary, to. suitable
modifications. In other words, the procedure of the new
Act will apply to the cases contemplated by s. 297(2)(j) of
the new Act mutatis mutandis. In this connection it is
relevant to refer to the decision of this Court in Kalawati
Devi Harlalka v.C.I.T., West Bengal(1), in which it was
pointed out that s. 6 of the General Clauses Act will not
apply in respect of those matters where Parliament had
clearly expressed its intention to, the contrary by making
detailed provisions for similar matters mentioned in that
section. For these reasons we are of opinion that the
Income Tax Officer had authority to issue the notices under
s. 156 and s. 226(3) of the new Act with respect to the
liability of the respondent under the old Act. The High
Court was therefore in error in holding that the impugned
notice was inoperative in regard to the amount of Rs.
485.55 for the assessment year 1961-62.
As regards items 4 and 5 for the assessment years 1962-63
and 1963-64 the argument of the respondent is that the
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impugned notice issued on April 23, 1965 was not legally
valid as notices of demand were served on the respondent for
payment of these sums and time given in this notice was due
to expire on May 21, 1965. The impugned notice was issued
on April23, 1965, nearly a month before that date. As the
tax and penalty covered by the notice were not due till May
21, 1965 it was’ said that notice of attachment under s.
226(3) of the new Act could not legally ., be issued on
April 23, 1965. In our opinion, there is no warrant for
this argument. As we have already observed, there is
nothing in the language of s. 226(3 ) of the new Act to
suggest that the assessee must be in default before a notice
under that subsection could be issued. It-is. true that s.
220 of the new Act deals with the question as to when the
tax is payable and when the assessee is .deemed to be in
default but so far as s. 226(3) of the new Act is concerned,
the question of any default of the assessee is irrelevant.
It was argued by Mr. Srinivasan on behalf of the respondent
that the amount of tax must be "due to be paid" by the
assessee before a notice can be issued under s. 226(3) of
the new Act. It is not disputed in this case that the
notices of demand under s. 156 of the new Act were served on
the respondent before the issue of the notice under s.
226(3) of the new Act. As pointed out by this Court in
Kesoram Industries & Cotton Mills Ltd. v. Commissioner of
Wealth-Tax (Central), Calcutta (a), the liability to pay
income-tax is a present liability though the tax becomes
payable after it is quantified in accordance with
ascertainable data ’and therefore the amount of the
provision for payment of income-tax and super-tax in respect
of the year of account ending March 31, 1957 in that case,
was a "debt owed" within the
(1) 66 I.T.R. 680. (2) (1966)2 S.C.R.
688.
39
meaning of s. 2(m) of the Wealth Tax Act and was as such
deductible in computing the net wealth. It was further
observed in that case that there was a perfected debt at any
rate on the last date of the accounting year and not a
contingent liability. In the present case, there is the
additional circumstance that the assessments of tax and
penalty have been made against the respondent and demand
notices have also been issued under s. 156 of the new Act.
It is therefore not possible to argue that the amount of tax
and penalty for the assessment’ years 1962-63 and 1963-64
were. not "due by the assessee" on April 23, 1965 when the
notice under s. 226(3) of the new Act was issued. We are
accordingly of the opinion that Mr. Srinivasan is unable to
make good argument on this aspect of the case. It follows
therefore that the impugned notice dated April 23, 1965 was
validly issued as regards items 4 & 5, viz., Penalty for
assessment year 1962-63 i.e., Rs. 1,890/- and tax for the
assessment year 1963-64 i.e.. Rs. 64,307.90.
We proceed to consider the next question arising in this
appeal, viz., whether the High Court was right in taking the
view that the Income Tax OffiCer did not properly exercise
the statutory discretion in issuing the impugned notice with
regard to the first item, viz., tax for the assessment year
1960-61 amounting to ]Rs. 7,056.15. It was argued on
behalf of the respondent that there was an appeal pending
with the Appellate Assistant Commissioner against the order
of assessment and therefore it was incumbent upon the Income
Tax Officer to exercise the statutory discretion properly
under s. 220 (6) of the new Act in treating the assessee as
being in default. The finding of the High Court is that the
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Income Tax Officer "was not shown to have applied his mind
to any of the facts relevant to the proper exercise of his
discretion". In our opinion, the finding of the High Court
cannot be upheld, because the respondent has not alleged in
his writ petition any specific particulars in support of
his, case that the Income Tax Officer has exercised his
discretion in an arbitrary manner. In paragraph 12(b) of
the writ petition the respondent had merely said that "the
order of the Income Tax Officer made under s. 220 was
arbitrary and capricious". No other particulars were given
by the respondent in his writ petition to show in what way
the order was arbitrary or capricious. In the counter-
affidavit the allegations of the respondent have been denied
in this respect. We are of opinion that in the absence of
specific particulars by the respondent in his writ petition
it is not open to the High Court to go into the question
whether the Income Tax Officer has arbitrarily exercised his
discretion. In the result we hold that the respondent is
unable to substantiate his case that the impugned notice is
in any way defective with regard to item no. 1 i.e., tax for
the assessment year 1960-61 amounting to Rs. 7,056.15.
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For the reasons expressed we set aside the judgment of
the Mysore High Court dated February 1, 1967 and order that
the writ petition no. 846 of 1965 filed by the respondent
should be dismissed. We accordingly allow this appeal with
costs.
R.K.P.S. Appeal allowed.
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