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Sagarmal Spinning And Weaving Mills Ltd. v. Central Board Of Direct Taxes And Others
Factual and Procedural Background
Two writ petitions under Article 226 of the Constitution of India were filed challenging an order dated August 3, 1968, issued by the first respondent. This order transferred cases pending against the petitioners at Indore to the Income-tax Officer in Bombay. Prior to the transfer order, the first respondent issued a show cause notice dated May 16, 1968, citing "facility of investigation" as the reason for transfer and calling upon the petitioners to show cause why the cases should not be transferred. The petitioners replied on May 30, 1968. The transfer order itself did not state reasons for the transfer, nor were reasons recorded independently. The petitioners contended that the transfer order was invalid for failure to comply with statutory requirements under section 127 of the Income-tax Act, 1961.
Legal Issues Presented
- Whether the order of transfer under section 127(1) of the Income-tax Act, 1961, is valid in the absence of recorded reasons for the transfer.
- Whether the petitioners were given a reasonable opportunity of being heard before the transfer order was passed, as mandated by section 127(1) of the Income-tax Act, 1961.
- Whether the transfer order is of a purely administrative nature or has a quasi-judicial character requiring compliance with principles of natural justice.
Arguments of the Parties
Petitioners' Arguments
- The two essential requirements of section 127(1) of the Income-tax Act must be complied with: (a) a reasonable opportunity of being heard; and (b) recording of reasons for the transfer.
- The petitioners were neither given a reasonable opportunity of being heard nor were reasons disclosed either in the show-cause notice or the transfer order.
- Therefore, the order of transfer is vitiated and non-compliant with the statutory provisions.
Respondents' Arguments
- The order of transfer is administrative in nature, and factors such as convenience of parties are relevant.
- Reference was made to a decision of the Allahabad High Court (Firozabad Glass and Chemical Industries Ltd. v. Income-tax Officer) where the reason "facility of investigation" mentioned in the show-cause notice was held to be sufficient.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Bhagat Raja v. Union of India & Others | Quasi-judicial nature of powers under rule 55 of the Mineral Concession Rules, 1960, requiring speaking orders recording reasons. | Supported the view that transfer orders under section 127 of the Income-tax Act are quasi-judicial and require recording of reasons. |
| Pragdas Umar Vaishya v. Union of India | Judicial exercise of revisionary powers under rule 55 of the Mineral Concession Rules, 1960, mandating recording and communication of reasons. | Reinforced the necessity of recording reasons and giving parties an opportunity to be heard in quasi-judicial functions. |
| Firozabad Glass and Chemical Industries Ltd. v. Income-tax Officer, Agra | Validity of transfer orders where reasons were mentioned in the show-cause notice and order passed by a single Member of the Board. | The court respectfully disagreed with the reasoning that a vague reason in the show-cause notice suffices, emphasizing strict compliance with section 127(1). |
Court's Reasoning and Analysis
The court analyzed the statutory requirements of section 127(1) of the Income-tax Act, 1961, which mandates that before transferring any case, the Commissioner must give the assessee a reasonable opportunity of being heard and record reasons for the transfer. The court held that these requirements are not merely administrative formalities but reflect the quasi-judicial nature of the power conferred. The court emphasized that the reasonableness of the opportunity to be heard is justiciable and not at the discretion of the authority alone. Similarly, recording reasons is essential to prevent arbitrary decisions.
The court distinguished the respondents' reliance on the Allahabad High Court decision, noting that a vague reason such as "facility of investigation" mentioned only in the show-cause notice, without reasons in the transfer order itself, does not satisfy the statutory mandate. The court observed that the reason disclosed later in the writ proceeding—that the petitioner was suspected of operating interconnected firms and that transferring the cases to Bombay would facilitate investigation—would have been adequate if given at the time of the order. However, since this was not done, the transfer order failed to comply with section 127(1).
On this basis, the court found the impugned transfer order infirm and in contravention of the mandatory statutory provision, warranting its quashing.
Holding and Implications
The court's final decision is to allow the writ petitions and quash the impugned order of transfer dated August 3, 1968, in each case.
The petitioners are entitled to costs of the court, with the counsel's fee fixed at Rs. 100 if certified. Additionally, the outstanding amount of security deposit is to be refunded to the petitioners.
No new precedent was set beyond the direct effect of invalidating the transfer orders that did not comply with the mandatory requirements of section 127(1) of the Income-tax Act, 1961.
- This order shall also govern the disposal of Misc. Petition No. 432 of 1968 - (Bedmutha and Co. v. Central Board of Direct Taxes, New Delhi).
These two writ petitions under article 226 of the Constitution of India have been filed against the order of the first respondent, dated August 3, 1968 (petitioners annexure "C", in each case) transferring the cases pending against the respective petitioner at Indore to the Income-tax Officer, Bombay.
The first respondent issued a show cause notice, dated May 16, 1968 (petitioners annexure "A"), calling upon the petitioner to show cause as to why the cases pending at Indore should not be transferred to Bombay under section 127 of the Income-tax Act, 1961. The reason mentioned in the show-cause notice was "facility of investigation".
To that show-cause notice, the petitioner sent a reply, dated May 30, 1968 (petitioners annexure "B"), and thereafter the first respondent passed the order of transfer on August 3, 1968. The order of transfer itself does not give any reason as to why the case has been transferred from Indore to Bombay. It is pertinent to note at this stage that it is not the contention of the respondents that reasons for transfer have been recorded independently of the said order of transfer. Hence, this writ petitions challenging the said order of transfer.
In this connection it may be relevant to note the provisions of section 127 of the Income-tax Act 1961, which is as follows :
"127. (1) The Commissioner may, after giving the assessee a reasonable opportunity of being heard in the matter, wherever it is possible to do so, and after recording his reasons for doing so, transfer any case from any Income-tax Officer or Income-tax Officers subordinate to him to any other Income-tax or Income-tax Officers also subordinate to him and the Board may similarly transfer any case from any Income-tax Officer or Income-tax Officer :
Provided further that where any case has been transferred from any Income-tax Officer or Income-tax Officers to two or more Income-tax Officers, the Income-tax Officers to whom the case is so transferred shall have concurrent jurisdiction over the case and shall perform such functions in relation to the said case as the Board or the Commissioner (or any Inspecting Assistant Commissioner authorised by the Commissioner in this behalf) may, by general or special order in writing, specify, for the distribution and allocation of the work to be performed.
(2) The transfer of a case under sub-section (1) may be made at any stage of the proceedings, and shall not render necessary the reissue of any notice already issued by the Income-tax Officer or Income-tax Officers from whom the case is transferred.
Explanation. - In this section and in section 121, 123, 124 and 125 the word case in relation to any person whose name is specified in any order or direction issued thereunder, means all proceedings under this Act in respect of any year which may be pending on the date of such order or direction or which may have been completed on or before such date, and includes also all proceedings under this Act which may be commenced after the date of such order or direction in respect of any year."
It was urged by the learned counsel for the petitioner that the two essential ingredients of sub-section (1) of section 127 of the Act ought to be complied with before the Board or the Commissioner passes any order of transfer. The first one is that a reasonable opportunity of being heard ought to be given wherever it is possible to do so, and the second ingredient is that the authority passing the order of transfer should record its reasons for doing so. It is urged that the petitioner was neither given a reasonable opportunity of being heard, nor was any reason disclosed either in the show-cause notice or in the order of transfer. therefore, it is contended that the said order of transfer is vitiated and is not in compliance with the requirements of section 127 of the Income-tax Act, 1961.
As against this, the contention of the learned counsel for the respondents is that such orders of transfer are of an administrative nature and, as such, the authorities passing the orders of transfer have to take into consideration other factors as well, such as the convenience of parties and so on. On a plain reading of the said section, it is clear that the power conferred on the Commissioner or the Central Board of Revenue is not purely of administrative nature, but is also of a quasi-judicial nature, inasmuch as a reasonable opportunity of being heard is required to be reasonable, the matter, in our opinion, will be justiciable and it will not depend on the sweet will of the authority concerned. The question whether the opportunity given is reasonable or not will be a matter for interpretation by the court and not by the authority itself. Similarly, the other aspect relating to the recording of reasons would clearly indicate that it has to be an order in the sense of a quasi-judicial nature and it cannot be an arbitrary order where no reasons need be disclosed. From this point of view, we have no doubt that an order of transfer to be passed under section 127 of the Act can certainly be said to be an order of a quasi-judicial nature, if not wholly of a judicial nature and it is incumbent on the authority passing the order of transfer to strictly comply with the two requirements mentioned by the said section. If there be no compliance, the matter will be justiciable and a court of law would be able to interfere with an order which does not comply with the requirements of the section.
In this connection we might advert to the pronouncement of their Lordships of the Supreme Court in Bhagat Raja v. Union Of India & Others, wherein their Lordships laid down that the Central Government while exercising its powers of revision under rule 55 of the Mineral Concession Rules, 1960, which are framed under the Mines and Minerals (Regulation and Development) Act, 1957, would be performing the functions which are quasi-judicial in nature and, therefore, their Lordships laid down that where such quasi-judicial functions are performed by an authority, it would always be proper to pass a speaking order recording reasons.
We may further advert to the pronouncement of their Lordships of the Supreme Court in Pragdas Umar Vaishya v. Union of India, wherein with reference to the power exercisable by the Central government under rule 55 of the Mineral Concession Rules, 1960, their Lordships laid down that the power has to be exercise judicially and in disposing of revisions under the said rule, the Central Government must always record it reasons and communicate those reasons to the parties affected thereby.
We may observe that the following of that procedure would be absolutely necessary where the statute casts a duty on the authority to act in a quasi-judicial manner and any violation of the statutory provision or of the principles of natural justice cannot be permitted, especially in view of the specific requirements of section 127 of the Income-tax Act, 1961.
However, the learned counsel for the respondents invited our attention to the pronouncement of a division Bench of the Allahabad High Court in Firozabad Glass and Chemical Industries Ltd. v. Income-tax Officer, Agra. In that case the main grievance of the petitioner was that the order of transfer had not been passed by the Members of the Central Board of Revenue collectively, but it had been passed by one Member only. therefore, the order of transfer was challenged by the petitioner in that case on that ground mainly. Their Lordships of the Allahabad High Court negatived that contention and dealt with the further argument of the learned counsel that the order of transfer was bad inasmuch as reasons had not been recorded. In that case their Lordships felt the difficulty as they had not got before them the whole of the order of the Member of the Board of Revenue, but had before them only an extract contained in a letter sent by the Secretary of the Central Board of Direct Taxes to the petitioner. However, their Lordships thought that the reason had been mentioned in the show-cause notice, namely, facility of investigation. their Lordships negatived the contention of the learned counsel for the petitioner that the order suffered from any illegality. We may observe that, as the full order of transfer was not before their Lordships, some difficulty may have been felt and the matter had to be decided only on the basis of the letter sent respect to the observations of their Lordships that facility of investigation might be a sufficient reason for transfer of the case and its mention in the show-cause notice would be enough, we, with due respect to their Lordships, beg to differ. As already indicated by us, on a plain reading of section 127 of the Income-tax Act, 1961, two things are absolutely necessary namely, a reasonable opportunity of being heard in the matter wherever it is possible to do so and, secondly, the recording of reasons for transferring a case. In the absence of these two requirements being fulfilled, it is not possible to support an order of transfer and especially with such a vague observation that the transfer is proposed for facility of investigation. We might observe that facility of investigation would not connote anything. But, if some particulars are given, an assessee might be able to give a proper reply as to why a case should not be transferred. Moreover, the requirement is that the reason should be given in the order of transfer and merely giving some vague reason in the show-cause notice proposing a transfer of a case would not at all be in compliance with the requirements of section 127 of the Act.
In the present case the reason is made clear in the return filed in this court, wherein it has been stated that it is suspected that the petitioner firm has been carrying on businesses under different names and those firms are all inter-connected. Therefore, it was thought proper by the departmental authorities that the cases should be tried at Bombay where other cases are being tried. That will facilitate the task of investigation into the matter whether the petitioner has been guilty of evasion of taxes. If that had been given as the reason in the order of transfer, probably there would have been no occasion for interfering with the said order. But giving of some reason at the stage of filing a return in the writ proceeding would not be in strict compliance with the requirements of section 127 of the Income-tax Act, 1961. For these reasons, we are of opinion that the impugned order of transfer (petitioners annexure "C") suffers from an infirmity, inasmuch as it is in contravention of the mandatory provision of section 127(1) of the Income-tax Act, 1961. Therefore, it deserves to be quashed.
Accordingly, we allow these writ petitions and quash the impugned order in each case. The petitioner shall be entitled to its costs of this court. Counsels fee in this court shall be Rs. 100, if certified. The outstanding amount of security deposit shall be refunded to the petitioner.
Petitions allowed.
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