JUDGMENT This is a writ petition under article 226 of the Constitution directed against the requisition of the Income-tax Officer, A-Ward, Meerut, dated the 12th July, 1962, requiring the petitioners to deposit a sum of Rs. 2,61,378, in the Government Treasury on or before the 25th July, 1962, and the subsequent requisition dated the 7th September, 1962, from the same Income-tax Officer, after the representation made by the petitioners to the Commissioner of Income-tax, Lucknow, had been rejected requiring them to pay the aforesaid amount of Rs. 2,61,378 on or before the 26th September, 1962.
The facts leading up to this petition are these : The petitioners are the four sons of Late Rai Bahadur Multani Mal Modi. Their cases along with the case of their late father were referred to the Investigation Commission under section 5 of the Taxation on Income (Investigation Commission) Act, 1947. The father of the petitioners died on the 23rd October, 1957, and the petitioners are his heirs and legal representatives. On the 27th September, 1951, the Investigation Commission made a report and a settlement was effected with the Central Government under section 8A of the said Act of 1947. By this settlement the tax liability of Rs. 44,06,672 was agreed. The amount of Rs. 16,06,672 was paid, but there was still Rs. 28,00,000 outstanding against the petitioners. This settlement was subsequently declared to be invalid pursuant to a decision of the Supreme Court.
Thereafter, five notices were issued to the petitioners under section 34(1A) of the Income-tax Act, 1922 (hereinafter referred to as the Act). In response to the aforesaid notices the petitioners and their father applied to the Central Board of Revenue on the 8th September, 1955, under section 34(1B) of the Act, to have the matter relating to their assessment settled. In this application the petitioner had made the offer similar to the one made earlier to the Investigation Commission, to the Central Board of Revenue. It was thereby conceded that the escaped and concealed income computed in the manner set out in the said offer was Rs. 65,05,053, and that such concealed income had been invested mostly in shares of public companies. It was further suggested that the aforesaid escaped income of Rs. 65,05,053 may be deemed to relate to the period April 1, 1940, to March 31, 1946, the period covered by section 34(1A) of the Act. A concession was claimed that as the said escaped income, which was invested in the shares of companies, had on the date of the settlement depreciated in value by Rs. 4,45,603 as per the details furnished, it should be reduced by the depreciation of Rs. 4,45,603 and the balance only of Rs. 60,59,450 should be taxed. It was further claimed by way of concession that only 2/3 of Rs. 60,59,450 should be taxed and this tax worked out to Rs. 44,06,672. A further concession was asked for and that was that out of the said sum of Rs. 44,06,672 the sum of Rs. 16,06,672 had already been paid, the balance now remaining was Rs. 28,00,000 and this be permitted to be spread over the next seven years at the rate of Rs. 4 lakhs per year, the last instalment of Rs. 4 lakhs to be paid on or before September 30, 1961. In view of these concessions having been agreed to by the Central Board of Revenue, clause (7) of the settlement dated November 15, 1955, was inserted. This provided :
"It was further agreed that depreciation allowance of Rs. 4,45,603 having been granted in respect of the shares specified in clause (3) supra the assessee shall be liable to pay to the Government a further sum equal to 2/3 of the net and overall appreciation if any that may take place in the market value of the shares over the value adopted for the purpose of this settlement before the entire sum of money payable under the present settlement has been paid off by the assessee. Provided, however, if the value of the aforesaid shares and appreciations after the same had been bona fide sold off in accordance with the provisions of this settlement such subsequent appreciation shall not be taken into account for the purpose of imposing a further liability."
The Central Board of Revenue accepted the said offer made on the 19th November, 1955. It was stated therein that the application made under section 34(1B) of the Act had been approved by the Central Government and the Central Board of Revenue was, therefore, accepting the said terms. The operative portion of the order, however, referred to the settlement of the escaped income at Rs. 65,05,053 and agreed to the outstanding tax of Rs. 44,06,672 of which a sum of Rs. 16,06,672 having already been collected, the balance of money payable, jointly and severally by the petitioners, was Rs. 28,00,000 and this amount was directed to be paid in instalments as per the offer made. There was, however, no specific mention in this order of the Central Board of Revenue regarding the aforesaid clause (7) of the offer, probably for the reason that the amount had to be determined in accordance with the offer made after the last instalment, which was due on the 30th September, 1961, had been paid.
The petitioner has now by this petition sought to take advantage of the omission of a direct reference to clause (7) of the proposal for settlement made by the petitioners in the order of the Central Board of Revenue, dated the 19th November, 1955. As there is no reference to this clause the attempt of the Central Board of Revenue to claim the net overall appreciation in the shares of Rs. 3,92,069 and 2/3 tax thereon at Rs. 2,61,378 against the depreciation of Rs. 4,45,603 allowed to the petitioners at the time of the settlement is resisted on various technical grounds to be noticed more fully hereinafter.
Now to continue with the narration of events. A demand notice under section 34(1B) read with rule 49 of the Income-tax Rules was issued for the payment of Rs. 28,00,000 by seven yearly instalments of Rs. 4,00,000 each, the last instalment to be paid on or before the 30th September, 1961. The last instalment having been paid and there being an overall appreciation in the shares, the Income-tax Officer, A-Ward, Meerut, addressed the following letter to the petitioners :
"Re. Settlement under section 34(1B) - Modi Gujar Mals case-Questions of calculation of appreciation in the value of shares, instructions regarding.
You were liable to pay to the Government a further sum equal to 2/3rd of the net and overall appreciation, if any, that may take place in the market value of the shares over the value adopted in the settlement before the entire sum of money payable under the settlement was paid off. As per calculations attached as annexure A the overall appreciation in the value of shares works out to Rs. 3,92,069 and 2/3rd tax thereon works out to Rs. 2,61,378. A chalan for this amount is enclosed, which may please be deposited in Government Treasury by July 25, 1962."
It may be noticed that the exact working of the appreciation in the value of the shares was duly furnished by the Income-tax Officer to the petitioners as an appendix to the aforesaid notice.
Prior to the issue of the said requisition to deposit the tax on the appreciated value of the shares, the petitioners had on the 1st June, 1962, submitted a representation to the Central Board of Revenue. In this representation only the technical plea was put forward that as the order of the Board of Revenue dated the 19th November, 1955, had only specified the amount of escaped income of Rs. 65,05,053 and nothing was stated in the order about the future appreciation of shares, as mentioned in clause (7) of the agreement, therefore, the amount of the net overall appreciation in the value of the shares could not be claimed by the Government against the petitioners. Further, that as the amount of Rs. 28,00,000, specified in the notice of demand issued to the applicant on January 4, 1956, in the form prescribed in rule 49 was only Rs. 28,00,000, no further amount was due or payable by the petitioners on account of clause (7) of the settlement made by them. It was, therefore, requested that the shares of the value of Rs. 3,00,290 which were still lying with the Commissioner as security be directed to be returned to the petitioners. It was further requested in this representation that an opportunity be given to the petitioners to represent their case through their representative or counsel.
On the 21st July, 1962, i.e., more than nine days after the Income-tax Officer had asked the petitioner to deposit the sum of Rs. 2,61,378, a notice was served on him informing him that a representation had been made to the Central Board of Revenue regarding the tax liability on account of appreciation of shares and requesting him to keep the demand in abeyance till the matter was decided by the Central Board or Revenue. The Central Board of Revenue by its letter dated 25/30th July, 1962, informed the petitioners that the representation made to them had been forwarded to the Commissioner of Income-tax, Lucknow, for disposal who could be approached in the matter. Thereupon, on 2nd of August, 1962, the petitioners wrote to represent their case through a representative or counsel. By a letter dated the 30th August, 1962, the Commissioner replied as under :
"Please refer to your letter No. C.O./1639/814 dated August 2, 1962.
2. Your application dated June 1, 1962, has been carefully considered but the Commissioner of Income-tax is unable to agree with the contention raised that, under the settlement, the assessee is not liable to pay anything more than what was specified in the original demand notice. The application has, therefore, been rejected.
3. As regards the request for an interview made in your letter C.O./1639/814, dated August 2, 1961, I am to inform you that the Commissioner of Income-tax does not consider that any useful purpose would be served by a discussion of the matter."
The representation having been rejected, the Income-tax Officer again requested the petitioner to deposit the aforesaid sum of Rs. 2,61,378 by the 26th September, 1961. The present writ petition was filed on the 27th November, 1962.
The first contention raised in this writ petition is that the amount of Rs. 2,61,378 which the petitioners were requested to deposit by the Income-tax Officer cannot be computed and is not at all recoverable. For this proposition reliance is placed on the provisions of section 34(1B) and (1C) of the Act, read with rule 49 of the Income-tax Rules. Section 34(1B) requires an offer to be made for a settlement by the petitioners to the Central Board of Revenue which after considering the terms of settlement proposed may accept the terms offered and thereafter is required to make an order in accordance with the terms of such settlement. There is no provision whereby the Central Board of Revenue can make an order which is not in accordance with the terms settled. One of the essential terms of the settlement was that contained in clause (7) reproduced hereinabove, which specifically provided for the net overall appreciation in shares, if any, to be brought to assessment after the last instalment on the 30th September, 1961, was paid. This clause was an integral part of the settlement arrived at and it could no have been omitted, but there was no alternative as section 34(1B) required that, among other things, the sum payable by the petitioners should be specified and at that time it was impossible for the appreciation in shares to have been specified, for such appreciation was to be computed after seven years on or after the 30th September, 1961. The petitioners, therefore, are asking for the impossible if they want to escape their liability under clause (7) of their offer in respect of the appreciation of shares on the technical ground that the quantum of such appreciation in the shares was not specified in the order of the Central Board of Revenue dated the 19th November, 1955. Having taken advantage of the depreciation of shares to the extent of Rs. 4,45,603 under the settlement arrived at with the Central Board of Revenue it does not lie in the mouth of the petitioners, at least by way of a writ petition, to urge that though they have taken that advantage they will not suffer the disadvantage of having to pay tax on the net overall appreciated value of the shares as per clause (7) of the settlement offered by them. In any event, the interpretation of section 34(1B) and (1C) is one which is not free from difficulty and upon which it cannot be said that two opinions are not possible. That apart, no demand notice as such has yet been issued, nor has any attempt been made to enforce the liability under section 34(1B) read with rule 49 of the Income-tax Rules and as such the petition is certainly premature.
The next ground urged was that in no event could the Income-tax Officer have passed an order holding that the appreciation of shares was more than the total income which had escaped assessment. According to the learned counsel for petitioners, there was an inherent limitation placed on the powers of the Income-tax Officer in his respect by the provisions of the Income-tax Act according to which the total chargeable income of the petitioners was to be determined and in no circumstance, according to him, could the demand be made for an amount larger than the total income which had escaped assessment. He referred to the definition of total income as contained in section 2(15) and sections 34(1A), (1B) and (1C) of the Act. In order to elucidate his point he took by way of example the first of the shares mentioned in the said offer of settlement :
Name of company Name of company No. of shares No. of shares Cost per share Cost per share Price adopted for purposes of settlement Price adopted for purposes of settlement Depreciation rate Depreciation rate Amount of depreciation allowed Amount of depreciation allowed Rs. A. P.
Rs. A. P.
Rs.
Rs.
Rs. A. P.
Rs. A. P.
Rs.
Rs.
Modi Sugar Mills Ltd.
113 6 0 67 46 6 0 1,81,931 The value of each of these shares, according to the Income-tax Officer, and this fact has not been contradicted in the writ petition or in the representation made to the Central Board of Revenue, on the 30th September, 1961, was Rs. 125. The depreciated price taken in the settlement made on the 19th November, 1955, for each of these shares was Rs. 67. The overall net appreciation of all shares held worked out to Rs. 3,92,069 and 2/3 tax thereon at Rs. 2,27,534. The said overall net appreciation has duly taken into account the depreciation on some of the shares so held. Now, the contention of learned counsel is that as the purchase price of Modi shares was only Rs. 113-6-0, therefore, under no circumstances, can the appreciation be worked out at Rs. 125 which was the market price on the 30th September, 1961. He contends that the maximum of total income which can be said to have escaped assessment is the difference between the price taken in the settlement at Rs. 67 per share and the purchase price of Rs. 113-6-0. This contention is untenable. No such claim was made at any time before the Central Board of Revenue or the Commissioner. In any event there is no force in the contention for the simple reason that each shareholding cannot be dealt with separately and piecemeal in the manner claimed. It is the "total income" which has to be taken into consideration. The total income which had escaped assessment was, admittedly, Rs. 65 lakhs and only Rs. 60,59,450 was brought to assessment on an agreed basis. The balance was admittedly allowed as a concession to the petitioners on account of the depreciation in the then value of the shares which benefit was to be returned if any, when, the last instalment was paid on 30th September. In 1961 there was found to be a net overall appreciation in the value of the shares. So long as the total income which has admittedly escaped assessment is not exceeded the petitioner cannot possibly have any legitimate grievance against the additional demand made on the basis of the net overall appreciation which has resulted in the value of such shares.
In the present case, as already observed, the petitioners had received by way of depreciation of shares an allowance of Rs. 4,45,603 at the time of the settlement in 1955, and the tax thereon which the petitioners were not called upon to pay because of the concession was about Rs. 3,00,000. Against that, the requisition now made for payment on account of appreciation of the shares is only Rs. 2,61,378. Manifestly, the order of the Income-tax Officer requiring the assessee to pay Rs. 2,61,378 is not an order which leads to any substantial injustice to the petitioner. The petitioner having got an advantage of about rupees three lakhs by way of tax at the time of the settlement cannot now legitimately ask this court to exercise its extraordinary jurisdiction in its favour so as to quash the requisition for payment of Rs. 2,61,378. No substantial injustice having been perpetrated I would, on this ground also, decline to interfere.
There is yet another serious obstacle in the way of the petitioners and that is that in substance their claim is for quashing a term of the settlement voluntarily made, which was arrived at on the basis of an offer made by the petitioners and accepted by the Central Board of Revenue. Such a settlement was of a contractual nature. It was a voluntary one, which had the effect of completely bypassing the normal procedure provided in the Income-tax Act for assessment, levy of penalty and the rates at which the income was to be assessed under the relevant Finance Act. By agreement the parties could fix not only the quantum of the escaped income but also the rate at which the tax was to be levied and also whether penalty would be exigible or not. Once the normal procedure has been given the go-by and the dispute is of a contractual nature, it is well settled that the court will not interfere in the exercise of its extraordinary jurisdiction in such disputes. Not only is this dispute of a contractual nature but it also involves the interpretation of clause (7) of the settlement which it would not be open for this court to undertake in a writ petition. The Supreme Court in Dewan Bahadur Seth Gopal Das Mohta v. Union of India and in Baburao Narayanrao Sanas v. Union of India has laid down that article 32 is not intended for relief against voluntary actions of a person. It was observed by their Lordships of the Supreme Court :
"In our judgment this petition is wholly misconceived. Whatever tax the petitioner has already paid, or whatever is still recoverable from him, is being recovered on the basis of the settlement proposed by him and accepted by the Central Government. Because of his request for a settlement no assessment was made against him by following the whole of the procedure of the Income-tax Act. In this situation unless and until the petitioner can establish that his consent was improperly procured and that he is not bound thereby he cannot complain that any of his fundamental rights has been contravened by which he can claim relief under article 32 of the Constitution. Article 32 of the Constitution is not intended for relief against the voluntary actions of a person. His remedy, if any, lies in other appropriate proceedings."
This view was reiterated in Baburao Narayanrao Sanas v. Union of India. The Supreme Court in a later case, Basheshar Nath v. Commissioner of Income-tax, had occasion to refer to their earlier decisions in Seth Gopal Das Mohta and Baburao Narayanrao Sanas but they did not express any dissent from the view expressed therein. Before the Bombay High Court in Radheshyam Makhanlal v. Union of India, reliance was placed on Seth Gopal Das Mohtas case, for resisting the writ petition filed by the petitioners in that case claiming a refund of the security money deposited pursuant to a settlement arrived at with the Central Board of Revenue. A contention on behalf of the petitioners in that case was raised that Gopal Das Mohtas case was a case under article 32 of the Constitution and the ratio of that case would, therefore, not be applicable to a writ petition under article 226 of the Constitution. In repelling this contention, it was observed :
"If the Supreme Court is incompetent in a petition under article 32 to issue a writ directing refund of the amount paid by an assessee under a voluntary settlement, the High Court is equally incompetent to entertain a petition under article 226 of the Constitution for a similar relief."
I am in respectful agreement with these observations. In substance, the claim of the petitioners, in the present case, is also for a refund of the security deposited in respect of the voluntary settlement made. In the said representation to the Central Board of Revenue, as already observed, an express prayer was made that the balance of the share of the value of Rs. 3,00,290 which was deposited as security for the fulfilment of the settlement arrived at, be directed to be refunded to the petitioners. On this ground also, inasmuch as the writ petition in substance attacks the validity of the settlement made which is of a contractual nature, a writ petition would not be the appropriate remedy. In Pt. Govind Ram Sharma v. State, a Division Bench of this court held that the High Court had consistently declined to entertain disputes of a contractual nature in the exercise of its jurisdiction under article 226 of the Constitution.
Lastly, it was contended that the principles of natural justice have been violated in this case, inasmuch as the Commissioner of Income-tax did not give the petitioners an opportunity of establishing what the correct appreciation in the value of the shares was. In the representation to the Central Board of Revenue it was never suggested that an opportunity should be given to establish the appreciation in value of shares. Only technicalities were pleaded and it was claimed, as already stated, that under the provisions of section 34(1B) and 34(1C) of the Act read with rule 49 no amount whatsoever was due under clause (7) of the offer made by the petitioners themselves. It was never, in the alternative, claimed that even if some amount was due an opportunity should given to establish the correct appreciation in the value of the shares which had taken place. Further, no such ground was taken in this writ petition. The order of the Income-tax Officer was not challenged on the ground that it was passed without the petitioner having been afforded an opportunity of being heard. These are technical grounds on which the department is entitled to rely, and has relied, but I do not rest my decision thereon but on the larger ground that, prima facie, no substantial injustice or prejudice has been caused particularly when there is not even a whisper of any prejudice caused by the Commissioners failure to give a hearing. When pressed to state what the possible prejudice could have been, all that could be said was that the last instalment of Rs. 4,00,000 was not paid on the 30th September, 1961, as required by the said settlement with the Central Board of Revenue but on the 3rd October, 1961, and, therefore, the appreciation of the shares on the latter date may well have been different from the valuation which prevailed on the 30th September, 1961, as taken by the Income-tax Officer. No attempt, however, was made to show that the value of the shares had in fact fluctuated within the period of three days or that the rate was any different from the rate taken by the Income-tax Officer, as prevailing on September 30, 1961. In any event, the petitioners cannot take any advantage from their own laches in making the late payment of the last instalment by three days. The last instalment of Rs. 4 lakhs was required to be paid on the 30th September, 1961, and that was therefore the relevant date for computing the net overall appreciation in the shares, if any. There has thus been no miscarriage of justice.
For the reasons given above the petition is dismissed with costs. The fee of the learned counsel for the department is assessed at Rs. 400.
Petition dismissed.