R. Laxmichand And Co. And Others v. Union Of India And Others.

1. The petitioners are carrying on their business in tendu leaves. The petitioners have challenged the vires of sections 44AC and 206C of the Income-tax Act, 1961 (for short "the Act"), as inserted by the Finance Act, 1988. An incidental prayer in the petition is to restrain respondent No. 7, Orissa Forest Corporation Limited, from recovering the amount of income-tax pursuant to the provisions contained in sections 44AC and 206C of the Act.

2. The petitioners purchased tendu leaves from respondent No. 7, Orissa Forest Corporation Limited, the principal office of which is situated at Bhuvneshwar (Orissa) and which carries on its activity within the territory of the State of Orissa or, at any rate, the action of respondent No. 7 deducting income-tax at source as per the provisions contained in sections 44AC and 206C of the Act does not take place within the territory of Gujarat. Respondents Nos. 1 to 6 are the Union of India and other income-tax authorities. By order dated December 1, 1989, this court (coram : R. C. Mankad, Actg. C.J., and R. A. Mehta J.) has issued rule and granted ad interim relief. Today, the matter has come up before us for hearing as to interim relief.

3. Prima facie, we are of the opinion that no part of the cause of action has arisen within the jurisdiction of this court as far as the prayers against respondent No. 7, Orissa Forest Corporation Limited, is concerned. The Orissa Forest Corporation Limited being outside the territorial limits of Gujarat and the action of deducting the tax at source having taken place at Bhuvaneshwar or at any rate outside the territory of Gujarat, it is very doubtful that this court will have jurisdiction to issue a writ against respondent No. 7. Simply because the petitioners are being assessed to income-tax within the territory of Gujarat, it cannot be said that any cause of action arises against respondent No. 7, Orissa Forest Corporation Limited, within the territory of the State of Gujarat. In the petition. Nowhere it is averred that any of the actions or activities of respondent No. 7 which give rise to the cause of action to the petitioners has taken place within the territory of Gujarat. Moreover, the only submission made by learned counsel for the petitioners is that since the petitioners are being assessed to income-tax within the territory of Gujarat, this court will have jurisdiction even against respondent No. 7. This submission cannot be accepted. Prima facie, we are of the opinion that the petition against respondent No. 7, Orissa Forest Corporation Limited, is not maintainable in this High Court.

4. Learned counsel for the petitioners has relied upon a decision of this High Court in M. D. Juvekar v. Modern bakeries (India) Ltd. [1987] 2 GLR 1375 and another decision of this High Court in Modern Food industries (India Ltd. v. M. D. Juvekar [1988] 1 GLR 481. The earlier decision was carried in Letters Patent Appeal which is reported in a subsequent decision. Hence, both the decisions arise out of the same case. In that case, the petitioner was communicated with the impugned order within the territory of Gujarat and, therefore, the court held that this court had jurisdiction. In the instant case, the entire transaction of deducting the amount of tax at source has taken place outside the territory of Gujarat. On this point there is no dispute. It is not pointed out to us that any of the activities or actions of respondent No. 7 has taken place within the territory of Gujarat. Therefore, the aforesaid decisions have no relevance and are of no help to the petitioners.

5. Here, reference may be made to the decision of the Supreme Court in Union of India v. Oswal Wollen Mills Ltd. [1986] 154 ITR 135. In that case, the legality and validity of an order proposed to be passed under clause 8B of the Import (Control) Order was challenged. One of the interim reliefs sought before the High Court was in respect of a consignment of been tallow which arrived at the Calcutta Port and, probably for that reason, the petitioners filed a petition in the Calcutta High Court. In that case, the Supreme Court observed that one would have expected the writ petition to be filed either in the High Court of Punjab and Haryana or in the Delhi High Court. Thereafter, the Supreme Court observed as follows (at p. 137) :

"An inevitable result of the filing of the writ petitions elsewhere that at the place where the concerned offices and the relevant records are located is to delay prompt return and contest. We do not desire to probe further into the question whether the writ petition was filed by design or accident in the Calcutta High Court, when the office of the company is in the State of Punjab and all the principal respondents are in Delhi. But we do feel disturbed that such writ petitions are often deliberately filed in distant High Courts, as part of a maneuver in a legal battle, so as to render it difficult for the officials at Delhi to move applications to vacate stay where it becomes necessary to file such applications."

6. In the facts of the present case, the principal place of business of the petitioners is within the territory of Gujarat. But, as far as the alleged illegal action of deduction of tax at source by respondent No. 7 is concerned, the entire transaction has taken place outside the territory of Gujarat. At this stage, it is respondent No. 7 who will be vitally affected by the interim relief. Of course, the money that may be collected by respondent No. 7 may be required to be credited to the appropriate account head of the Central Government. But the question to be examined is whether any part of the cause of action against respondent No. 7 has arisen within the territory of Gujarat, it is very doubtful to say that the petition against respondent No. 7 would be maintainable in this High Court. To elucidate the point, we may take an example of deduction of tax at source while paying interest on debentures by a public limited company situated at Calcutta or at Bombay. The tax deduction certificate is issued and served upon the payee at Calcutta or at Bombay. However, on account of the fact that the payee has his principal place of business at Ahmedabad, he is being assessed to income-tax in the State of Gujarat. Even so, by no stretch of reasoning can it be said that, in respect of the tax deducted at source by the company having its office at Calcutta or at Bombay, it will be amenable to the jurisdiction of a civil court at Ahmedabad because no part of the cause of action arises at Ahmedabad. Thus, even in respect of a civil dispute for such deduction, the civil court at Ahmedabad will have no jurisdiction, similarly, the High Court while exercising writ jurisdiction under article 226 of the Constitution also will have no jurisdiction to entertain such a petition because no part of the cause of action as far as respondent No. 7 is concerned arises within the State of Gujarat. This is our prima facie view on the basis of the record of the petition at this stage and on the basis of the submission made at the time of hearing as to interim relief.

7. Now the principal question-Should the petitioners be granted interim relief by which the respondents and particularly respondent No. 7 should be restrained from deducting tax as provided under the provisions of sections 44AC and 206C of the Act ? In short, the effect of the interim relief prayed for would be to stay the operation and implementation of the aforesaid provisions of law. Simply because a petition is filed and the vires of certain provisions of the stature is challenged, the petitioners are not entitled to interim relief which would virtually amount to repeal of the statutory provisions. It must be noted that a provision of law is presumed to be constitutionally valid unless otherwise proved. Simply because an arguable point is raised and the petition is admitted, the presumption of constitutionality of the statutory provisions does not stand displaced. In taxation matters, ordinarily, an interim relief staying the recovery of amount of tax should not be granted. This is the view taken by the Supreme court in the case of Siliguri Municipality v. Amalendu Das [1985] 146 ITR 624. The supreme court has observed as follows (at page 625) :

"Normally the High Court should not, as a rule, in proceeding under article 226 of the Constitution grant of stay, in such matters, should be an expection and not the rule."

8. The petitioner have not pointed out any expectional circumstance which would entitle them to special treatment. The petitioner have not made out any "exceptional" case so as to call for departure from the normal rule laid down by the supreme court.

9. The aforesaid principle has been reiterated by the supreme court in the case of Union of India v. Oswal Wollen mills Ltd. [1985] 154 ITR 135. The Supreme Court has observed as follows (p. 138) :

"It is, therefore, necessary for the court to be circumspect in the matter of granting interim relief, more particularly so where the interim relief is directed against order or actions of public officials acting in discharge of their publicity duty and in exercise of statutory powers."

10. These observation are made by the Supreme Court because the grant of interim relief is likely to lead to divesting consequence leaving no way for undoing the mischief which may be caused on accounts of the interim order that may be passed. Moreover, as indicated hereinabove, the statutory provision are presumed to be constitutionally valid. So is the case with regard to the order or action of public official in discharge of public duty and in exercises of statutory powers.

11. After referring to the aforesaid two decision, the supreme court has again retreated the same note of caution of the grant of interim relief in taxation matters and supreme court has also deprecated the same in the case of Assistant Collector of Central Excise v. Dunlop India Ltd. [1985] 154 ITR 172 (SC), the Supreme Court observed as follows (at p. 178) :

"We repeat and deprecate the practice of granting interim orders which paractially give the principle relief sought in the petition for no better reason than that a prima facie case has been made out, without being concerned about the balance of convenience, the public interest and a host of other relevant considerations."

12. In view of there being a presumption of the constitutional validity of the statutory provision under challenge and the presumption that the action taken and fact that the orderrs passed by the public officals in discharge of their statutory duty are also presumed to be legal and valid, interim relief cannot be granted unless, of course, the petitioner make out a case to depart from the ordinary rule which is laid down by the Supreme court. No such case is made out by the petitioners in the instant case.

13. Learned counsel for the petitioners has relief upon the interim orders passed by a learned single judge of the Bombay High Court and by a learned single judge of the Calcutta High. It is true that the learned judges of the aforesaid high Courts have, granted interim relief and stayed the deduction of tax at sourc. However, on going through the orders passed by the learned single judges of aforesaid two High Courts, it become evident that no reference to the Supreme Court decision has been made. It may be so, because the aforesaid decision of the supreme Court might not have been brought to the notice of the court. Moreover, no reason are assigned as to how the learned judges were persuaded to divest from the normal rule of not granting interim relief recovery of amounts of tax. Be it noted that this normal rule is laid down by the Supreme Court. With utmost respect to the learned judges of the Bombay and Calcutta High Court, we do not find any reason to deviate from normal rule of not granting stay against recovery of amount of tax. Moreover, in the instant case, as indicated hereinabove, we are of the opinion that the petition is not even maintainable in this High Court against respondent No. 7, Orissa Forest Corporation Limited.

14. In the modern democratic set up, the Government-local, state and central-are modified version of "service corporation" of which all the people in the community are members and the principle object of the Governments is to serve the people. In our country, the principle object of the Government would be to achieve the goal of establishing an egalitarian society as envisaged by the constitution. Under our constitution, there is no crown and there is no "subject". "We the people" are sovereign, and when a law is enacted to impose a certain tax, in the ultimate analysis, it is the people decision to tax the community for the benefit and welfare of the community.

15. In the courts, the Governments-local state and central-merely represent the community. In taxation matters, ordinarily, the Government has not to plead its own case. In such cases, it pleads the case of the community. In some cases, the Government might be defending the action or decision of a particular officer affecting certain individuals or class of individuals. But the case in which the Government itself has to protect the interest of the community and in which the Government has to plead the interest of the community stand on a different footing. This difference is vital and courts cannot be oblivious of this difference.

16. The cases pertaining to taxation and particularly question with regard to recovery of amounts of tax, and that too at interim stage, are question wherein directly the interest of the community at large will be affected. In such cases, the question that the court decides is not in favor or against the Govermnent. It is in favor or against the community which is represented in court through Government. Therefore, as laid down by the supreme court, ordinarily, in taxation matters, at the interim stage, if the recovery of tax is stayed, the interest of the community will suffer as against the temporary hardship of some individuals businessman or an industrialist or a manufacturer.

17. In many cases, grant of stay against recovery of amount of tax at the interim stage is likely to make the operation of legal system itself conductive to the creation of an unjust and unequal socio-economic order That is one of the most important reason why, as an ordinary rule, stay against recovery of amounts of tax should not be granted at the interim stage.

18. For the aforesaid reasons, the interim relief as prayed for is refused. Ad interim relief granted earlier on December 1, 1989, stands vacated.