RAJA JAGDAMBIKA PRATAP NARAIN SINGH versus CENTRAL BOARD OF DIRECT TAXES & ORS.

RAJA JAGDAMBIKA PRATAP NARAIN SINGH

CENTRAL BOARD OF DIRECT TAXES & ORS. July 17, 1975

[V. R, KRISHNA !YER, R. S. SARKARIA AND A. C. GUPTA, JJ .j

. ('onstiturion of India-Article 226-Delay-Article 136-lnterference by Supreme Court with exercise of discretion by High Court-income Tax Act 1922 Sec. 4(3), Sec. 30-Agricultural lncdme-Appeal to A.A.C.-Condoffa-!lafl of dclay-Fitwlity of illegal assessn1ent orders.

The appellant an owner of mango grove has been deriving income by way Of fruits and fallen trees. In the year 1939-40 he c1ain1cct this incon1e to be agricultural income and therefore immune to income ta,x. The Assessing Au-thorities neRatived the _claim of the appellant. The High Court in the year 1963 held the income to be agricultural income and therefore exempt from income tax. The State did not challenge the decision of the High Couft. The appellant did not challenge the orders of the Assessing Authorities for the subsequent years i.e. 1940 to 1962 in t11e hope that if ultin1ate]y the High Court upheld his contention for one year the Tax Authorities would give effect to that holding for all the years. The appellant thereafter awroached the Central Board of Revenue for refund of the tax paid by the appellant .i.n respect of the subsequent vem. The Central Board reiected the petition in 1968. The llDoellant moved the High Court under article 226. The High Court refused to interfere both on the ground of delay as well as on the ground that the assessment orders for the relevant years had become final, the assessec not having taken advantage of his remedy provided for in the statute. The High Court, however, made an observation !hat if so advised the appellant might file a~peals under section 30_ of the Income Tax Act, 1922 and pray !or ~ndonat1on of delay u~der section 30(2) of the said Act. On appeal by -'rectal leave to thrn Court, it was contended by the appellctnt ·. ·

( 1) Since various assessment orders were void the State was bound to refund what had been illegally levied.

(2) The Central Board should have exercised its power to give appro-priate directions for refund.

(3) Regardless of statutory remedies and rules of limitation, the High Court had power under Art. 226 to quash the illegal orders and to prevent unjust enrichment by the State.

The respondents contended :

(I) The appellant is guiltv of ]aches. High Court has rightly cxctctscd its discretion. This Court nlay not interfere with it.

(2) The a<;sessn1ent orders have become final.

C~) The Central Board of Direct Taxes has no statutory duty to grant refund evi_:n in cases where orders of asse"'sment, though illegal, have been allowed to become final hy wilful default of the assessee.

' Dismi35ing the appeal, , ' HELD : ( 1)

HELD : ( 1) The impo'>ition of tax on agricultural income is beyond the legislative competence of Parliament and altogether outs;de the jurisdiction of the Income Tax Officer. It may well be contended that the impost is u/trc, 1·ires, its powers. and therefore. nullity. We need not consider thi1: asr~ct ,speci>llY since the writ petition itself is bad for unexplained delay. [54C-El

5-L7!4SupCl/75

(2) The writ jurisdiction is not measured by statutory finality to orders regardless of their illegality. If the levy io illegal the constitutio,.l n:me<IY l!Oes into action. However, Art. 226 is not blanket power regardleos of temporal and discretionary reotrainL If party is inexplicably and unduly delayed due to !aches the Court may ordinarily deny redress. If the High Court has exerc:sed its discretion to refuse the redress, this Court declines to disturb &uch e:xercise unless the ground ~ too untenable. The High Court in refusing relief on ground Of )aches did not exercise its discretion arbitrarily <>r improperly. [55B, D-E]( 3) It is doubtful if the Central Board can exercise any judicial power and direct refund. Even so, it is always open to the State where the justice of the case warrants reconsideration of the levy of tax illegally imposed, 10 view the situation from an equitable standpoint arid direct refund wholly or in part. Jn th;• ca.'le liberal approach may well be justified. The Appellaw :Authority if moved under section 30(2) wiH give due r~trard to the happen., togs in be'ween exercising its power of oondonation of delay in filin~ appeals an4 no observations made in this judgment or in the High Court judgment 1hat1 be taken into account to the prejudice of the appellant while considering the condonation of delay by the appropriaw authority. [55G-56C)

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2166 of 1970. of 1970

From the Judgment and Order dated the 31st October, 1968 of the Allahabad High Court in W.P. No. 3233 of 1968.

S. C. Manchanda and A. G. Ratanaparkhi, for the appellant.

T. A. Ramachandran, for the respondent.

The Jndgment of the Court was delivered by

KRISHNA IYER, J .-The freak but few facts of this appeal appear to highlight an issue of morality versus legality. But clo5er scrutiny whittles down this conflict and induces us to dismiss the appeal, sub-ject to certain observations warranted by the circumstances of the case. We may proceed straight to miniaturised statement of the circumstances givil:ig rise to the controversy before us.

The appellant has been the owner of mango grove of long ago from which he boas been deriving income by way of fruits and fallen trees. Way back in 1939-4-0 he claimed this income to be agricul-tural and therefore immune to Central income-tax. His plea was over-rnled by the Income-tax officer, but adverse orders notwithstand-ing, the assessee reached the High Court undaunted by the disappoint-ment be met with as he steered through the statutory spiral of autho-rities. Unfortunately, on account of the zigzag course of this litiga-tion which had its deck-by-deck slow motion, more than two decades passed before the High Court could pronounce at long last in favour of the appellant holdi11g that the income in dispute was agricultural income and therefore could not be taxed.

The State did not carry the case further to this Court and thus the decision of the Allahabad High Court rendered on March 21, 1963 became final. As proposition of law, on the facts of the case the ruling was that such income as arose from mango fruits and fallen trees was agricultural income and therefore outside the pale of the

Income-tax Act (vide s. 4(3) of the Income-tax Act). We have no reason to disagree with this view and proceed to dispose of this writ appeal which has come to us by certificate under Art. 133 (1) (a) of the Constitution on the footing that for all the assessment years with which we are concerned as will be explained presently-what has been taxed and is in dispute is agricultural income.

Some more facts are necessmy to bring out the real grievance of the appellant. We have already mentioned that although the first assessment related to the year 1939-40, the final pronouncement by the High Court came only in 1963. During this protracted pendency, years rolled on and, at the boase, the tax officer was busy ritually re-peating annually, by his orders, the tax impost on similar income accruing year after year treating it as 'llon-agricultural income. In-c deed, the assessee had been assessed to tax for 21 years on this as-sumption but he filed appeals ouly for 8 years, and even that only upto the Appell&te Assistant Commissioner's level where he left it off appa-rently in the hope that if ultimately the High Court upheld his con-tention for one year, the tax authorities would give effect to that holding for all the years-not flmtastic assumption if Government were virtuous litigant.

At this stage we may state that for the years 1940-41, 1941-42, 1947-48, 1949-50, 1950-51 and 1958-59 to 1961-62 appeals had been preferred most of which were dismissed although in one year or so the appellate authority gave relief accepting the plea of agricul-tural income. So far as the Income-tax Officer was concerned, he uniformly adopted the hostile line of treating the income as non-E agricultural and, except for the years referred to above, the assessee did not think it necessary-was it wise or otherwise the sequel· proves -to challenge these assessment orders. But when the High Court held in his favour in 1963 for the assessment year 1939-40, he applied tor refund to the Central Board of Direct Taxes of the tax paid by him for the other years on the glib ground that, limitation apart, the income having been found by the High Court to be agriculturnl, had to be excluded from the tax. The Central Board of Revenue, how-ever, declined to oblige him and when on May 11, 1968 his petition was rejected, the assessee moved the High Court under Art. 226 seeking many reliefs including direction to the Central Board to issue 'necessary instructions to the Income-tax Officer, Faizabad, .. for the purpose of passing finoal assessment orders for the assessment years 1940-41 to 1961-62 and for another writ 'quashi,1g the order of the Central Board of Direct Taxes dated 11th May 1968 wherein the Board declined to intetiere in the matter in dispute'. Division Bench of that Court dismissed the writ petition on two grounds: (a) that the assessment orders for the relevant years had become final, the assessee not having taken adv~1tage of his remedy provided for m the statute; (b) that several years had lapsed between the last im-pugned order which related to the oassessment year 1961-62 and the writ petition which was filed in September 1968. However, the Court made an observation that if so advised, the petitioner may file appeals under s. 30 of the Indian Income-tax Act, 1922 and pray for condo-nation of delay under s. 30(2) of the said Act. Sorely discomfited,

the assessee has come up to this Court hopefully and urged that the various assessment orders were void, that the State was bound to re-fund what had been illegally levied, that the Central Board should have exercised its power to give proper directions for refund and that in any case justice should be dO'ae to the party who . should not be penalised for not having filed appeals and second appeals a'ad references to the High Court year after year-a repeat performance which would add to the totality of avoidable litigation since the High Court was seised of the identical point between the same parties.

At the first flush it may seem that the assessec's agricultural in-come having been taxed illegally, refund was obligatory and the fmatical rasistence on the legal 'pound of flesh' based on limitation and finality was not to be expected from party like the State. In-deed, one might go to the extent of quoting the cynical words of the ancient legal wit: "Law and equity are two things which God hath joined, but which Man has put asunder". We have to exaµiine the . merits of the case in the light of the facts we have set out above and of the pri.,1ciples settled by this Court in regard to the exercise of the writ jurisdiction of the High Court.Shri Manchanda, alive to the spinal weakness of his case in Jaw in that his client had, by option for inaction, permitted the impugned order to become final and listless by lapse of limitation period, played upon judicial sensitivity to justice, equity and good conscience. He argued that regardless of statutory remedies and rules of limitation, the High Court had power under Art 226 to quash orders loudly illegal, deprivatory of property and promoting unjust enrichment by the State. He also urged that the assessment orders were void and the routine challenges through prescribed channels could be by-passed and frdatal attack made under Art. 226 in such extraordinary situations. Sri Ramachandran, appearing for the Revenue, scouted the supplicant plea for equity as unavailable in court of law. He also insisted that the orders of assessment having become conclusive could not be invaded by the back-door, that the orders were not nul-lities but good until set aside through the regular statutory processes and that the alleged jab o'a the face of justice is imaginary, the party himself having been guilty of gross !aches. We will examine these pleas, not in the general terms set out but within the confines of the particular facts of the present case.

We must pause to state one important aspect of the assessment orders since that oxygen•ates Sri Manchanda's submission o'.1 equity. The Income-tax Officer, aware of the pendency in the High Court of the precise question confronting him about the agricultural character of the income, had in some years (e.g. 1952-53) recited in his order under s. 23 (3) of the Act, words which kindled hope in the assessec somewhat in the following terms :

"Income from Mango gul Mahuwa and Katha! have been exclnded from the total income and treated as agricultural income by the learned Appellate Asstt. Commissioner of In-come Tax Banaras in this very case but this very point is

already under consideration before the Hon'ble High Court of Judicature at Allahabad. However with respects to the learned A.A.C. and pe.1ding the decision of the Hon'ble High Court on this point the sum of Rs. 7,960/- is being added back."

But the palliative is absent in the orders reJ>ating to many other years and, above all, the orders are all made under s. 23(3 ), which means final assessments-neither provisional assessments being under s. 23 (3) nor conditional assessments, such orders being unknown to the scheme of the Act.

The points in controversy may be briefly formulated :

(!) Are the orders of assessment, which h·ave not been assailed, amenable to challenge under Art. 226 of the Constitution, or is such jurisdiction inhibited because the regular statutory remedies have not been pursued?

(2) Is the appelia'at guilty of !aches to such an extent that the extra-ordinary remedy in writ jurisdiction should not be exercised in his favour?

(3) Are the orders of assessments nullities since they are taxes levied on agricultural income, and if so, is the appellant entitled to claim refund ?

(4) Is the Central Board of Direct Taxes charged v,:ilh any statutory duty to grant refunds even i\1 cases where orders of assessment, though illegal, ll'ave been allowed to become final by the wilful aefault of the assessee ?

(5) If justice is on the side of the assessec but law against him, can he seek redressal in Court on that footing?

We may deal with these points more or less as package submission but not in the order in which. they have been itemised.

Counsel has placed considerable stress on the last point which we deal with first. It is trne that two stark facts generate some consi-derations of conscience in favour of the assessee. The High Court having declared this kind of income which was taxed by the Income-tax Officer, 'agricultural income', it is not liable to tax under the Income-tax Act (s. 4(8)). In any case, after the Constitution of India came into force, the Union List in the Seventh Schedule expres-sly excluded agricultural income as forbidden zone for the Centre, so much so it would be an unconstitutional levy if taxing authority imposed tax on agricultural income purporting to act under the In-come-tax Act. It may, therefore, well be argued that all the assess" ments, notwithstanding that no appeals were filed, were void being beyond the jurisdiction of the officer to tax. There is basic diffe-rence between the decision in Comm. of I.T. v. ·Tribune· Trust,

Lahore(1) cited by Sri Ramachandran and the present case. There, one of the exemptions statutorily provided in favour of income deriv-ed from property held under trust wholly for religious or charitable purpO>es, feU for consideration. The Judicial Committee held that such assessments, regularly made, which failed to give the exemption claimed, were not nullities :

"The assessments were duly made, as they were bound to be made, by the Income-tax Officer in the proper exercise of his duty ... It does not appear to their Lordships that they were 'nullity' in any other sense than that if they had been challenged in due time they might have been set aside."

True, mere exemptions from taxation of income otherwise compe-tently taxable fell wholly within the jurisdiction of the officer for deter-mination. There is fundamental difference where the claim is that agricultural income is beyond the legislative competence of Parlia-ment to enact and l!lltogether outside the iurisdiction of the Income-tax Officer. It may well be contended that the impost is ultra vires his powers and therefore nullity. Merely because an order has been passed by the Officer and has not been appealed against, it does not become legal and final if otherwise it is void; for instance, if there is flagrant violation of natural justice, the order by Tribunal may be nullity. However, we need not explore this penumbra! area be-cause we are satisfied, for reasons to be set out below, that the writ petition itself is misconceived and is ood for unexplained delay. Even so we may state that the levies for the various years would have undoubtedly been set aside and refund ordered if only the assessee had been diligent enough to make annual appeals to higher authori-ties. In that sense there is some justice on his side. What is more, in some of the orders, as earlier indicated, the Income-tax Officer himself has stated that he is making the assessments finally but he takes note of the pendency of the identical question before the High Court. · He has vaguely quickened wishful thinking in the assessee that in the event of his winning in· the High Court he may somehow g.et refund. We have set out what Mr. ManchaQda h'as pressed be-fore us as the 'justice' of his case. Assuming for moment that 'justice' is on his side, law is against him because the assessment orders are now unassailable except perhaps under Art. 226 or Art. 32 with which we will deal separately. Can court over-ride law to effectuate what it conceives to be justice ?Any legal system, especially one evolving in developing coun-try, may permit judges to play creative role 'and innovate to ensure justice without doing violence to the norms set by legislation. But to invoke judicial activism to set at nought legislative judgment is subversive of the constitutional harmony and comity of instrumentali-ties. So viewed, the appeal of Sri Manchanda, for relief in the name of justice must fuil. If the statute speaks on the subject the judge has to be silent and stop. In contest between morality a'nd legality. the court, in clear cases has no option. Here, both sides agree that

I) .16 I. T. R. 214, 223.

the assessments are final, that limitation has long ago run out, that the Central Board has no judicial power to upset what has been decided by lesser mblllllliS. Not bemg tnnge area for JUdic1al activism to· play the submission must suffer rejection.

The surviving issue of aome moment is whether the writ jurisdiction iii muzzled by statutory finality to orders regardless of their illegality. We tlwll: not. If the levy is illegal, the constitutional remedy goei into acuon. The Privy Council ruling does not contradict this rule of law because for one thmg there the case was mcume taxable bu. «ir lltatutory exemption; here the income is agricultural and beyond tho <Xbit of the Income-tax Act. For another, the Judicial Committee wu not cons1dermg the sweep of the constitutional remedy de hors ~tatu-tory chllllgt:i but waa colliltrUing the plea of 'nullity' with reference to 1111 order passed, erroneously mav be but within jurisdiction anid im-pugned before the statutory tribunals.

Even so, the journey of the appellant is beset with insurmountable hurdles. Art. 226 is not blanket power, regardless of temporal and discretionary restraints. If party is inexplicably insouciant and un-duly belated due to !aches, the court may ordinarily deny redress. And · if the High Court has exercised its discretion to refuse, this Court de-clines to disturb such exercise unless the ground is too untenable. To awaken this Court's special power gross injustice and grievous depar-ture from well-established criteria in this jurisdiction, have to be made out. In the present case, long years have elapsed not only after the impugned orders but even after the High Court held the taxed income agricultural_ The reason for the inaction is stated to be an illusory expectat10n of suo moto modification of assessment orders on represen-tation by the party. The High Court has examined and dismissed the. plea and consequentially refused relief. We do not think that in so refusing relief on ground of !aches the High Court exercised its discre-tioo arbitrarily or improperly. And the oorry story must thus cl011e.

When at the end of the legal tether, the appellant made plaintive plea foc considerateness based on good conscience. No doubt, we feel this is case where, had the party not been optimistically asleep but had diligently appealed, the tax could not have been recovered by the State. We equally see some compassionate merit in his comnlaint that few of the assessment ocders made misleading reference to the pendency of the High Court being seised of the identical legal issue. But it is no good alibi in expiation of the sin of gross delay in corning to the Hieh Court. It is doubtful if the Central Board can exercise llllY judicial power and direct refund. Nor is there statutory duty e11st on it to consider applications for refund and so writ of mantfnmus conld not issue from the Court. Even so, it is always open to the State, where the justice of the case warrants reconsideration of the levy of tax illegally imposed, to view the situation from an equitablO 11 standnnint and rlirect refund. whollv or in part. This. oerham is case where liberal approach may well be justified. The Court bas, howover, juM!iction only when there is statutory duty_ There beingnone, the issuance of writ h<t!dly arises. We endorse the observa-tions of the High Court that, despite inordinate delay, the appellate authority, if moved under s. 30(2), will give due regard to the happen-ings in between, in exercising its power of condonation of delay in filing appeals. We also make it clear that no observation made in this judgment with regard to delay on the part of the assessee in mov-ing the High Court under Art. 226 shall be taken into account to the prejudice of the assessee while considering the condonation of the <je)ay .on his part in preferring the appeal/appeals, if any, filed by him to the appropriate authority under the Act.

The appeal fails and is dismissed. The circumstances are such that tlfo parties may appropriately be directed to bear their respective costs, W,e :<Iirect accordingly.

Appeal dismissed.