P.R. Gokulakrishnan, C.J.
1. Rule : Mr. R. P. Bhatt waives service of rule on behalf of respondents Nos. 1 to 4.
2. By consent of the parties, this special civil application is taken up for final hearing and arguments were heard. This special civil application is to quash and set aside the mere show cause notive issued under rule 73 of the Second Schedule to the Income-tax Act whereby the petitioner is called upon to show cause as to why a warrant of arrest should not be issued. The said notice is at annexure 'A' to the special civil application. There are further prayers to the effect that to quash and set aside the demand notice dated April 3, 1989, demanding payment of Rs. 10,50,952 plus costs and interest and the same is at annexure 'B' to the special civil application; that to quash and set aside the notice of demand to defaulter bearing No. TRO-IV/121/A/88 dated May 31, 1988, issued by the Tax Recovery Officer under rule 2 of the Second Schedule to the Act dated May 31, 1988, which is at annexure 'E' to the special civil application and that to quash and set aside the income-tax assessment order passed by respondent No. 3 dated March 5, 1986, for the dissolved firm of Jagatbhai Punjabhai for the assessment year 1980-81.
3. The short facts of the case for the purpose of discussion are that the petitioner is one of the partners of the partnership firm called 'Messrs. Jagatbhai Punjabhai'. This firm consists of three persons by name Mr. Vikrambhai Punjabhai Palkhiwala, Mr. Jagatbhai Punjabhai Palkhiwala and Mr. Punjabhai Mohanlal Palkhiwala. The dispute relates to the assessment year 1980-81. On March 30, 1983, the Income-tax Officer passed an assessment order holding that the said firm has from unexplained investment interest income of Rs. 1,31,050 and an expenditure of Rs. 3,715. The Income-tax Officer determined the taxable income at the Rs. 8,55,391. Aggrieved by this order, the petitioner herein filed Income-tax Appeal No. 323-I/4-G/assessment year 1980-81 for the firm of Messrs. Jagatbhai on April 2, 1983. The petitioner also moved an application under section 146 of the Income-tax Act. This was accepted and a fresh assessment order was passed in this case. Since the petitioner did not appear in spite of the notice to partnership firm, an expert assessment order came to be passed on March 5, 1986. On May 31, 1988, the petitioner received a notice of demand under rule 2 of the Second Schedule to the Act from the Tax Recovery Officer demanding Rs. 10,50,952. This demand notice is marked as annexure 'E' to the special civil application. A letter was also sent by the Income-tax Officer pointing out that the assessment order was served on the partner of the firm of Messrs. Jagatbhai Punjabhai and in view of the said service, the demand is payable by the petitioner. The copy of the said letter is annexed as annexure 'G' to the special civil application. It transpires from the correspondence that the assessment order was made after hearing Jagatbhai Punjabhai on March 5, 1986. On receipt of the said letter and the assessment order, the petitioner preferred an appeal before the Commissioner of Income-tax (Appeals) on October 19, 1988. It is the case of the petitioner that the notice served upon Jagatbhai Punjabhai is not a valid one since this partner and the petitioner are fighting against each other by filling more than 20 suits in the City Civil Court at Ahmedabad. It is also seen from the facts of the case that a petition for rectification of the expert assessment order for the assessment year 1980-81 under section 154 of the Act has been filed by the Officer concern. Even against this order of rejection, the petitioner has preferred an appeal before the Commissioner of Income-tax (Appeals) and the same is at annexure 'O' to this special civil application. Thus, it is clear from the abovesaid facts that the petitioner has filed appeals both against the assessment order and also against the refusal to rectify as prayed for by the petitioner by virtue of section 154 of the Income-tax Act.
4. It is after all these proceedings that the impugned show cause notice dated April 12, 1986, which is at annexure 'A' was issued under rule 73 of the Second Schedule of the Income-tax Act, 1961, to show cause as to why a warrant of arrest should not be issued by respondent No. 1. In view of these facts, the petitioner states that as the Income-tax assessment order dated March 5, 1986, is passed without giving an opportunity to the petitioner of being heard and the said order is ex facie contrary to the facts, the said order is required to be quashed and set aside and all consequential notices issued for recovery of the tax, such as notice of demand under rule 2 dated May 31, 1988 (annexure 'E' to the petition), notice to recover Rs. 10,50,952 dated April 3, 1989 (annexure 'B' to the petition), and notice under rule 73 of the Second Schedule of the Ace dated April 12, 1989, to show cause why warrant of arrest should not be issued, are consequentially required to be quashed and set aside.
5. The respondents have filed an affidavit-in-reply refuting all these allegations and asserting that the assessment order was legally passed after proper service of notice on the partnership firm and the petitioner is bound and liable to pay the tax dues, that the writ proceeding under article 226 is not maintainable inasmuch as the petitioner has effective and efficacious remedy by way of appeal, which remedy the petitioner has already resorted to and that there is no violation of any statutory provisions in issuing the notice under rule 73 of the Second Schedule of the Income-tax Act, 1961, much less any violation of section 220(6) of the Act. Mr. Vakil, after repeating the above said facts raised in the special civil application, contended that the assessment order has to be set aside. This argument of Mr. Vakil need not detain us very much since the petitioner himself has filed appeals against the assessment order and also against the order passed in the rectification application under section 154 of the Income-tax Act. The narration of the facts stated cannot be disputed since those facts are taken only from the averments made by the petitioner in his special civil application which clearly reveal the fact of the petitioner filing appeals before the appellate authorities. When such an effective remedy under the provisions of the Income-tax Act has been taken, a prayer for quashing the assessment order cannot be entertained on the facts and circumstances of this case by exercising the extraordinary jurisdiction under article 226 of the Constitution of India.
6. The main thrust of the argument of Mr. Vakil is in respect of the show cause notice issued under rule 73 of the Second Schedule of the Income-tax Act, 1961. Mr. Vakil states that the notice issued is defective since is has not spelt out as to under which clause and for what reasons and purpose such a notice was issued. Unless the show cause notice specifically mentions the grounds on which such a notice is issued, Mr. Vakil submits that it is not possible for the petitioner to make representations and, as such, the said show cause notice cannot be sustained and the same has to be quashed. According to Mr. Vakil, the condition precedent for issuing a notice is that such a notice should specify as to which of the mandates provided under rule 73(1) (a) or (b) has been violated. Mr. Vakil, further contended that the show cause notice is not for roving and fishing enquiries but it must be specific as regards the reason for which such a notice is issued and such a vague notice, according to Mr. Vakil, has to be quashed. In this connection, Mr. Vakil cited the decision in the case of Calcutta Discount Co. Ltd. v. ITO : [1961]41ITR191(SC) . This is case which arose under section 34 of the old Act corresponding to section 147 of the new Act. If the Income-tax Officer has reason to believe that income, profits or gains chargeable to income-tax have been underassessed and that such underassessment has occurred by reason of either :
(i) omission or failure on the part of an assessee to make a return of his income under section 22, or
(ii) omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for that year;
he can reassess such income. Thus, the abovesaid two conditions are conditions precedent for resorting to section 34 and there must also be satisfaction of the officer concerned that there are reasons to believe that the abovesaid conditions are not violated. Speaking for the majority view (Justice S. K. Das, Justice Das Gupta and Justice N. Rajagopala Ayyangar), Justice Das Gupta observed in the above-said decision as follows (at p. 207) :
'Under section 34, both the conditions, (i) the Income-tax Officer having reason to believe that there has been underassessment and (ii) his having reason to believe that such underassessment has resulted from non-disclosure of material facts, must co-exist before the Income-tax Officer has jurisdiction to start proceedings after the expiry of 4 years. In proceedings under article 226, the High Court can investigate into the existence of one of these conditions, viz., that the Income-tax Officer has reason to believe that underassessment has resulted from non-disclosure of material facts. '
7. Even in the dissenting judgment, Mr. Justice J. C. Shah observed (p. 217) :
'If the conditions precedent do not exist, the jurisdiction of the High Court to issue high prerogative writs under article 226 to prohibit action under the notice may be exercised. But if the existence of the conditions is asserted by the authority entrusted with the power and the materials on the record prima facie support the existence of such conditions, an enquiry whether the authority could not have reasonably held the belief which he says he had reason to hold and he did hold, is barred. '
8. Pressing this decision into service, Mr. Vakil, learned counsel appearing for the petitioner, submitted that the condition precedent for issuing the notice is spelling out the reasons for issuance of such notice as provided under rule 73(1) (a) and (b) and since those things are not spelt out in the notice under questions, the notice impugned has to be quashed.
9. Mr. R. P. Bhatt, learned counsel appearing for the respondents, submitted that the notice under rule 73 is a procedural notice and there is no need to spell out the reasons to the said notice. As far as section 34, corresponding to section 147 of the present Act, is concerned, it is a substantive section and the officer concerned must get satisfied with regard to the facts mentioned in section 34 corresponding to section 147 as observed by the Supreme Court in the abovesaid decision. Mr. R. P. Bhatt also submits that the notice at annexure 'A' is clear enough to spell out the default committed by the petitioner herein for which the notice under rule 73 has been issued. The show-cause notice which is at annexure 'A' issued under rule 73 clearly states that the petitioner has failed to pay the amount of arrears specified in certificate No. nil dated May 5, 1988, for warded by the Income-tax Officer, VIII-Division, Ahmedabad, and that it is proposed to execute the above certificate by arrest and imprisonment of the petitioner. The said notice further states that the petitioner must appear before the Tax Recovery Officer, VI, Ahmedabad, on April 19, 1989, at 11.00 a.m. for the purpose of showing cause as to why he should not be committed to civil prison in execution of the said certificate.
10. Rule 73 of the Second Schedule to the Income-tax Act reads as follows :
'73. (1) No order for the arrest and detention in civil prison of a defaulter shall be made unless the Tax Recovery Officer has issued and served a notice upon the defaulter calling upon him to appear before him on the date specified in the notice and to show cause why he should not be committed to the civil prison, and unless the Tax Recovery Officer, for reasons recorded in writing, is satisfied -
(a) that the defaulter, with the object or effect of obstruction the execution of the certificate has, after the drawing up of the certificate by the Tax Recovery Officer, dishonestly transferred, concealed or removed any part of his property, or
(b) that the defaulter has, or has had since the drawing up of the certificate by the Tax Recovery Officer the means to pay the arrears or some substantial part thereof and refuses or neglects or has refused or neglected to pay the same.
(2) Notwithstanding anything contained in sub-rule (1), a warrant for the arrest of the defaulter may be issued by the Tax Recovery Officer if the Tax Recovery Officer is satisfied, by affidavit or otherwise, that with the object or effect of delaying the execution of the certificate, the defaulter is likely to abscond or leave the local limits of the jurisdiction of the Tax Recovery Officer.
(3) Where appearance is not made in obedience to a notice issued and served under sub-rule (1), the Tax Recovery Officer may issue a warrant of the arrest of the defaulter.
(3A) A warrant of arrest issued by a Tax Recovery Officer under sub-rule (2) or sub-rule (3) may also be executed by any other Tax Recovery Officer within jurisdiction the defaulter may for the time being be found.
(4) Every person arrested in pursuance of a warrant of arrest under this rule shall be brought before the Tax Recovery Officer issuing the warrant as soon as practicable and in any event within twenty-four hours of his arrest (Exclusive of the time required for the journey.);
Provided that, if the defaulter pays the amount entered in the warrant of arrest as due and the costs of the arrest to the officer arresting him, such officer shall at once release him. '
11. Rules 73 to 81 prescribe the procedure for the arrested person in a civil prison for default in payment of income-tax. Rule 73(1) clearly states that no order for the arrest and detention in civil prison of a defaulter shall be made unless the Tax Recovery Officer, for reasons recorded in writing, is satisfied. The issue of a show-cause notice under rule 73 is clearly to the effect that it is only procedural safeguard before any order of arrest or detention in civil prison is passed. A reading of rule 73(1) makes it clear that as a condition precedent for arrest and detention in civil prison of a defaulter, the Tax Recovery Officer must find out that whether the conditions mentioned in rule 73(1) (a) and (b) have been satisfied. At the time of issuing a notice, it has been made clear that the said notice is issued under rule 73 of the Second Schedule and the same has been issued since the assessee has failed to pay the amount of arrears specified in the certificate. The notice also is specific to the effect that by the said notice under rule 73, the assessee has to show cause before the Tax Recovery Officer. It is a procedural safeguard for the assessee concerned and this rule clearly satisfies the principles of natural justice before issuance of an order of arrest and detention. When the rule itself has been mentioned in the notice, the assessee concerned is informed under what rule the notice is issued and the rule clearly spells out the ground on which the Tax Recovery Officer has to get satisfied. It is not as if this notice issued under rule 73 straightaway authorises the officer concerned to arrest and detain the assessee as if the reasons mentioned in rule 73(1) (a) and (b) are there for the officer to order the arrest and detention. The notice which is at annexure 'A' to the special civil application clearly spells, out that such a notice is issued since the assessee has failed to pay the amount of arrears specified in the certificate. Such a show-cause notice, as we have stated above, is a procedure adopted by the Department and that is why rules 73(3), 73(4) and 74 make it clear that the Department is particular to have the defaulter present before the Officer to show cause. Rules 75 deals with the custody of the assessee, pending hearing. These rules have nothing to do with the power of the officer to arrest and detain the defaulter in civil prison but they are intended to see that the defaulter appears before the officer concerned for giving an explanation as to why an order of arrest and detention in civil prison should not be passed. Rule 76 reads as follows :
'76. (1) Upon the conclusion of the inquiry, the Tax Recovery Officer may make an order for the detention of the defaulter in the civil prison and shall in that event cause him to be arrested if he is not already under arrest;
Provided that in order to give the defaulter an opportunity of satisfying the arrears, the Tax Recovery Officer may, before making the order of detention, leave the defaulter in the custody of the officer arrest of any other officer for a specified period not exceeding 15 days, or release him on his furnishing security to the satisfaction of the Tax Recovery Officer for his appearance at the expiration of the specified period if the arrears are not so satisfied.
(2) When the Tax Recovery Officer does not make an order of detention under sub-rule (1) he shall, if the defaulter is under arrest, direct his release. '
12. Reading this rule, it is clear that the notice issued under rule 73 is a procedural one and the decision is to be taken by the Tax Recovery Officer only after the defaulter appears before the Officer concerned and after hearing the party and the Officer getting satisfied as to the advisability of the arrest and the defaulter in civil prison.
13. Mr. Vakil next contended that an appeal under section 220(6) is pending and, as such, the assessee should not be treated as a defaulter by issuing the notice under dispute. Section 220(6) reads as follows :
' (6) Where an assessee has presented an appeal under section 246, the Assessing 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. '
14. In this connection, Mr. Vakil points to a circular which is a annexure 'V' to the special civil application for the purpose of getting stay so issuance of the notice. The circular reads as under :
'Stay in cases of harsh assessments. - It seems that the Government has agreed, and has sent instructions to the Commissioners that, in cases of harsh assessments, the Income-tax Officer should, normally, grant stay on application made under section 220(6). That is clear from the proceedings of the Lok Sabha dated 11th December, 1970, when in reply to unstarred question No. 4289, the Minister for Revenue and Expenditure assured : ' (a) and (b), suitable instructions (to the effect that where the income determined on assessment was substantially higher than the returned income, say, twice the latter amount or more, the collection of the tax in dispute should be held in abeyance till the decision of the appeals, provided there were on lapse on the part of the assessee) have been issued by the Central Board of Direct Taxes to all Commissioners of Income-tax in view of the recommendation made by the informal Consultative Committee of the Ministry. '
15. In this connection, Mr. Vakil also cited the decision in the case of Hindusthan Rubber Works Ltd. v. ITO : [1971]81ITR397(Cal) . In that case, the Calcutta High Court observed (headnote) :
'Under section 220(6) of the Income-tax Act, 1961, the Income-tax Officer should keep a demand in abeyance 'so long as the appeal remains undisposed of'. The Income-tax Officer has discretion, for good reasons, not to grant any stay at all, he has also the power to impose such conditions as he considers necessary, for example, security might be required or diligence on the part of the assessee in the prosecution of the appeal might be insisted upon. But arbitrarily to grant a stay up to a period, and not so long as 'the appeal remains undisposed of' is not a proper exercise of discretion by the Income-tax Officer under section 220(6) of the Income-tax Act, 1961.
The assessee preferred an appeal before the Appellate Assistant Commissioner against the order of the Income-tax Officer. In the meantime, the Income-tax Officer had forwarded a certificate to the Tax Recovery Officer and Tax Recovery Officer had issued a notice to the assessee under rule 2 of Schedule II of the Income-tax Act, 1961. The assessee had also made a prayer to the Income-tax Officer for grant of stay of realisation of the tax until the disposal of the appeal before the Appellate Assistant Commissioner. The Income-tax Officer granted stay of the certificate up to a certain period. Since the appeal before the Appellate Assistant Commissioner still remained undisposed of, the assessee applied again to the Income-tax Officer for extension of the stay granted and on that application the Income-tax Officer did not pass any order. It was contended for the assessee that the Income-tax Officer had failed to exercise his discretion by not extending the order of stay already granted.
Held, that when there was a subsequent application for extension of time and when the petitioner has already been granted stay without imposing any condition, it was not open to the Income-tax Officer not to exercise his discretion any further unless there was anything in the conduct of the petitioner which disentitled him to further stay till the appeal was disposed of. '
16. Considering the abovesaid circular and decision cited by learned counsel, we can usefully look into the facts of the case. This has a chequered career in respect of assessing the firm. An ex part assessment demanding the tax on the assessed income of Rs. 8,55,390 was set aside, There was a fresh order of assessment dated March 5, 1986. On January 19, 1988, the Income-tax Officer gave a show-cause notice to the petitioner. To this, the petitioner replied on March 19, 1988. Subsequently, the Income-tax Officer, on March 31, 1988, issued notice to the firm and it was returned unserved. It is also factually ascertained that the petitioner met the Income-tax Officer on June 1, 1988 and subsequent to that, the Tax Recovery Officer served the notice of demand on August 23, 1988. The assessment order in this case seems to have been served on October 3, 1988. In the appeal, it is stated by the petitioner that the order for stay under section 220(6) has been prayed for. On this factual aspects, the petitioner submits that when a request has been made under section 220(6) and the same is pending, a notice under rule 73 is not justified. To complete the facts, it is seen that a stay petition filed by the petitioner was rejected. Taking into consideration all these aspects of the case, we do not find that there is anything is section 220(6) debarring the officer concerned from refusing grant of stay. The mere filing of an appeal or an application for stay in such a appeal will not ipso facto grant stay of further proceedings in a tax recovery matter. The decision cited above, Hindusthan Rubber Works Ltd. v. ITO : [1971]81ITR397(Cal) , does not take away the right of the officer concerned to reject the stay application. On the other hand, that decision only states that since the officer has granted the stay originally under section 220(6), he cannot, without sufficient-cause refuse to continue the same. In those circumstances, the court held that such an order is bad. Hence, we do not think that the said decision can have any application to the facts and circumstances of this case, more especially as the stay asked for has been rejected at the threshold itself. As we have already observed, rule 73 notice is only a procedural show-cause notice and cannot be equated with the recovery proceedings under a substantive section of the Income-tax Act. Under rule 73, the procedure is to find out and get an explanation as to the advisability of executing and enforcing the tax recovery by detention in civil prison. There is absolutely no dispute that section 156 demand has been served on the petitioner and the present notice under rule 73 is not a jurisdictional notice as contemplated under section 148 of the Income-tax Act. Considering all these aspects of the case as submitted by Mr. R. P. Bhatt in his argument and also taking into account the affidavit-in-reply, we do not find any point for granting the prayers made by the petitioner herein. For all these reasons, this special civil application is dismissed. Rule discharged.