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Shivajirao Angre v. Commissioner Of Income-Tax
Structured Summary of the Opinion
Factual and Procedural Background
The petitioner filed a writ petition under Article 226 of the Constitution of India seeking quashing of an order/notification (annexure E-1) and various notices (annexures D, D-1 to D-5), and for a direction restraining respondents from giving effect to the transfer of the petitioner's income-tax cases from Ujjain to Gwalior under Section 127 of the Income-tax Act, 1961.
The petitioner resides in Ujjain since 1949; his income is from agricultural lands in villages Panbihar and Bhitri (Ujjain district). He is assessed as the karta of a Hindu undivided family by the Income-tax Officer, 'C' Ward, Ujjain. Assessments under the Income-tax Act were completed for 1965–66, with subsequent years pending; wealth-tax assessments were completed up to 1974–75 with later years pending before the Ujjain officer.
On May 21, 1982 the petitioner received a notice dated May 19, 1982 from the Commissioner of Income-tax, Bhopal (respondent No. 1), proposing transfer of his cases from the Income-tax Officer, Ujjain to the Income-tax Officer (S.I.C.), Gwalior for "detailed and co-ordinated investigation" and calling for written objections by June 15, 1982. The petitioner submitted objections and sought a personal hearing on June 15, 1982, but due to the sudden death of his grandson on June 13, 1982 he could not attend and sent a telegram intimating his inability to appear. He received no information about any adjournment or the result of that telegram.
On September 21, 1982 the petitioner received notices (dated September 17, 1982) from the Income-tax Officer (S.I.C.), Gwalior (respondent No. 3) calling him to attend Gwalior on October 14, 1982 for assessments for several years. The petitioner then learned his cases had been transferred though he alleges he had not been properly informed of the transfer order. He sent a telegram to respondent No. 3 seeking adjournment because of illness and contended respondent No. 3 lacked jurisdiction.
The respondents, in their returns, stated that intimation and a copy of the order of transfer under Section 127 had been communicated to the petitioner and later contended that the petitioner's cases were centralized in Gwalior because the petitioner was directly related to the Angre Group and centralisation was necessary for "detailed and co-ordinated investigation."
Legal Issues Presented
- Whether the transfer of the petitioner's income-tax and wealth-tax cases under Section 127 of the Income-tax Act, 1961 is valid where the reasons for transfer were not recorded in writing and/or not communicated to the assessee.
- Whether the petitioner was afforded a reasonable opportunity of being heard before the transfer, as required for transfers under Section 127.
- Whether a notice that states only "detailed and co-ordinated investigation" constitutes adequate reasons for transfer under Section 127.
- Whether the Income-tax Officer (S.I.C.), Gwalior had jurisdiction to proceed with the petitioner's cases after the challenged transfer.
Arguments of the Parties
Petitioner's Arguments
- The order of transfer under Section 127 was bad in law, illegal and without jurisdiction because no reasons for transfer were reduced to writing and recorded, and no reasons so recorded were communicated to the petitioner (the assessee).
- No adequate opportunity was given to the petitioner before transferring the cases; the petitioner had sought a personal hearing but could not attend due to a family bereavement and sent a telegram informing respondent No. 1.
- The notice's statement "detailed and co-ordinated investigation" is vague and general; it is a conclusion rather than reasons and does not meet the statutory requirement for recording and communication of reasons.
- The petitioner argued relevant facts (his illness, residence and properties situate in Ujjain, and the expense/inconvenience of attending Gwalior) were not taken into account before transfer.
- Reliance was placed on precedent authorities (Pannalal Binjraj v. Union of India; Ajantha Industries v. CBDT; Sagarmal Spinning and Weaving Mills Ltd. v. CBDT) to show requirement of recorded reasons and opportunity to be heard.
Respondents' (Revenue's) Arguments
- The respondents asserted that intimation of the order of transfer under Section 127 and a copy of the order had been communicated to the petitioner.
- For the first time in the returns, respondents stated the petitioner was directly related to the Angre Group of Gwalior, and that centralisation of the petitioner's and Angre Group's cases with one Income-tax Officer in Gwalior was necessary for detailed and co-ordinated investigation to prevent evasion of taxes.
- The Revenue contended that the petitioner was aware of the reasons and therefore a detailed statement of reasons in the notice was unnecessary; additionally, counsel for the Revenue argued that the words used in the notice amounted to reasons for transfer.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Pannalal Binjraj v. Union of India [1957] 31 ITR 565 (SC) | Observations that, where circumstances permit, principles of natural justice should be followed before an order of transfer is made; notice should be given and a reasonable opportunity to represent should be afforded; reasons of the order should be reduced, however briefly, to writing. | Cited to support the proposition that recording reasons and giving an opportunity to be heard are necessary safeguards; used to establish that such procedure assists both the assessee in understanding the order and the court in testing bona fides of transfer orders. |
| Ajantha Industries v. Central Board of Direct Taxes [1976] 102 ITR 281 (SC) | Held that requirement of recording reasons under Section 127(1) is mandatory and non-communication of reasons to the assessee is not cured by reasons existing in the file; recording and disclosure are not mere formalities and non-communication renders the order invalid. | Applied as binding authority that non-communication of recorded reasons is a serious infirmity. The court relied on this to conclude the impugned transfer was invalid for lack of communicated reasons. |
| Sagarmal Spinning and Weaving Mills Ltd. v. CBDT [1972] 83 ITR 130 (MP) | Held that two essentials for a transfer under Section 127(1) are (a) a reasonable opportunity of being heard where possible, and (b) the recording of reasons for transfer; facility of investigation alone is not a sufficient reason; merely mentioning investigation in a show-cause notice does not comply. | Relied upon to reinforce that both opportunity to be heard and recording of reasons are mandatory; applied to hold the impugned transfer unsupportable where these requirements were not met. |
Court's Reasoning and Analysis
The court considered the pleadings, the record and the authorities cited. It observed that the issues raised by the petitioner were conclusively addressed by the cited authorities. The reasoning followed this sequence:
- The court referred to Pannalal Binjraj to underscore the prudence and desirability of following principles of natural justice—where feasible—before making an order of transfer, including giving notice, an opportunity to represent, and reducing reasons to writing.
- The court noted that provisions were incorporated in the Income-tax Act, 1961 (Section 127) to include express words addressing recording of reasons.
- The Supreme Court decision in Ajantha Industries was treated as establishing the mandatory nature of recording and communicating reasons under Section 127(1); non-communication could not be cured by showing reasons existed in the file.
- The Division Bench decision in Sagarmal reinforced that two things are "absolutely necessary": (a) a reasonable opportunity to be heard wherever possible, and (b) recording of reasons; mere mention of "facility of investigation" does not satisfy the statutory requirements.
- The court considered the Revenue's contention that the phrase "detailed and co-ordinated investigation" in the notice amounted to reasons. The court found the Revenue's argument unpersuasive and concluded the words in the notice did not constitute adequate reasons as required by Section 127.
- On this basis, and applying the cited precedents, the court concluded the impugned transfer order suffered from the defects recognized as fatal in the authorities and therefore could not be sustained.
The court confined its analysis to the statutory requirements and the precedent authorities; it did not accept the Revenue's after-the-event explanations in the returns as compliance with the statutory mandate.
Holding and Implications
Holding: The petition is allowed. The impugned order transferring the petitioner's income-tax and wealth-tax cases from Ujjain to Gwalior is quashed and set aside. It is held that the Income-tax Officer (S.I.C.), Gwalior, has no jurisdiction to decide the petitioner's cases. Counsel's fee ordered: Rs. 200.
Implications:
- Direct effect: The transfer order is invalidated and the Gwalior officer is held to lack jurisdiction over the petitioner's matters; the matters remain with the original assessing officer in Ujjain (as implied by quashing the transfer).
- The decision follows and applies established precedent requiring recording and communication of reasons and a reasonable opportunity to be heard before transfers under Section 127; the court relied on existing authorities rather than creating a new precedent.
- The opinion does not purport to lay down any novel rule beyond the application of the cited authorities; it enforces the mandatory procedural safeguards recognized in the precedents.
1. The petitioner has filed this petition under Article 226 of the Constitution of India in the matter of Section 127 of the Income-tax Act, 1961, with a prayer to quash the impugned order/notification (annexure E-1) and also to quash the impugned notices (annexures D, D-1 to D-5) and also for a direction restraining the respondents from giving effect to the order of transfer of the income-tax cases of the petitioner from Ujjain to Gwalior.
2. According to the petitioner, he is residing in his own house in Ujjain since 1949, and his source of income is agriculture from the lands situated in villages Panbihar and Bhitri, in Ujjain district. This is a joint family property consisting of himself, his wife and his son and is being managed and looked after by him as manager and karta of the joint Hindu family. Further, according to the petitioner, he is being assessed to income-tax and wealth-tax in the status of a karta of the joint Hindu family consisting of himself, his wife and son by the Income-tax Officer, 'C' Ward, Ujjain. The assessment of the Hindu undivided family under the Income-tax Act has been completed for the year 1965-66 and assessments for the years thereafter are pending. The assessment of the Hindu undivided family under wealth-tax has been completed up to the assessment year 1974-75 and assessments for the years thereafter are pending before respondent No. 2, the Income-tax Officer, 'C' Ward, Ujjain.
3. On May 21, 1982, the petitioner received a notice dated May 19, 1982, from respondent No. 1, the Commissioner of Income-tax, Bhopal, intimating him that the Commissioner of Income-tax, Bhopal, proposes to transfer his cases from the Income-tax Officer, Ujjain (MP), to the Income-tax Officer (S.I.C.). Gwalior, as such transfer was considered necessary for the purpose of detailed and co-ordinated investigation. By the said notice, the petitioner was called upon to file his objections to the proposed transfer in writing on or before June 15, 1982 (annexure A).
4. The petitioner submitted his objections and prayed for personal hearing on the date fixed, i.e., June 15, 1982, vide annexure B, which were received by respondent No. i on May 24, 1982. However, on account of the sudden death of his grandson on June 13, 1982, the petitioner could not personally attend the hearing fixed on June 15, 1982. He, therefore, sent a telegram to respondent No. 1 intimating him about his inability to attend the hearing. Despite the receipt of the telegram, the petitioner did not receive any information about any orders having been passed on the said telegram or about whether the hearing was adjourned to any other date.
5. However, on September 21, 1982, the petitioner received a number of notices dated September 17, 1982, from the Income-tax Officer (S.I.C.), Gwalior, respondent No. 3, calling upon the petitioner to remain present before him at Gwalior on October 14, 1982, for his income-tax assessment for the years 1970-71, 1971-72, 1976-77, 1977-78 and 1978-79. It is on this basis that the petitioner came to know that his cases have been transferred to Gwalior though he did not receive any intimation to that effect regarding transfer of his cases from Ujjain to Gwalior, from respondent No. 1.
6. According to the petitioner, therefore, as no order of transfer of his cases was communicated to him, he sent a telegram to respondent No. 3 for adjourning his cases, because of his illness. Further, according to him, respondent No. 3 had no jurisdiction. It is in these circumstances that the petitioner has filed this petition, as, according to him, the order of transfer made by respondent No. 1 in exercise of his powers under Section 127 of the Income-tax Act, 1961, transferring the income-tax and wealth-tax cases of the petitioner from the Income-tax Officer, C-Ward, Ujjain, to the Income-tax Officer (S.I.C.), Gwalior, is bad in law, illegal and without jurisdiction mainly on the ground that before making the order of transfer, no reasons for making such order were reduced to writing and recorded nor the reasons so recorded were communicated to the petitioner, namely, the assessee ; that no adequate opportunity was given to the petitioner before transferring the cases ; that in the notice sent by respondent No. 1, no reasons were given for transferring the cases, except stating the words "detailed and co-ordinated investigation" which are very vague and general and do not constitute a valid reason for the 'transfer of the cases, as in fact this was a conclusion reached by him, which could not be said to be the reasons for the transfer; that without considering the fact regarding the illness of the petitioner coupled with the fact that all his properties are situated in the district of Ujjain, besides the fact that the petitioner will have to undergo unnecessary expenditure for going to Gwalior which would cause him further inconvenience; and that respondent No. 1 has not at all taken all these relevant facts into consideration before passing the impugned order of transfer.
7. The respondents in their returns have submitted that in response to the letter sent by the petitioner, intimation of the order of transfer under Section 127 of the Income-tax Act, 1961, was communicated to the petitioner along with the copy of the order of transfer of the cases. Besides, it is for the first time stated in the returns that as the petitioner is directly related to the Angre Group of Gwalior and, therefore, all the cases of the petitioner and his Angre Group had to be centralised with one Income-tax Officer for the purpose of detailed and co-ordinated investigation so that there cannot be evasion of taxes ; that it was for this reason that it became necessary to transfer the cases and that admittedly this reason was known to the petitioner and, therefore, the same was not mentioned in the notice given to the petitioner regarding the proposed transfer of his cases from Ujjain to Gwalior.
8. The learned counsel for the petitioner submitted that according to the provisions of Section 127 of the Income-tax Act, 1961, it is absolutely necessary for the Commissioner of Income-tax to give reasons why the cases are to be transferred and it is also necessary for him to communicate the same to the petitioner concerned which has not been done in the present case and in support of these submissions, he placed reliance on the decisions in Pannalal Binjraj v. Union of India [1957] 31 ITR 565 (SC), Ajantha Industries v. Central Board of Direct Taxes [1976] 102 ITR 281 (SC) and Sagarmal Spinning and Weaving Mills Ltd. v. Central Board of Direct Taxes [1972] 83 ITR 130 (MP) and also submitted that there has been no application of mind by respondent No. 1 before transferring those cases.
9. On the other hand, the learned counsel for the Revenue submitted that reasons have been given in the notice proposing transfer of the cases about which the petitioner was fully aware and consequently he having not taken a specific plea in his objections to that effect, the petitioner now cannot be allowed to urge that no reasons were recorded or communicated to him as such.
10. After hearing the learned counsel and after going through the record as also the case law cited, we are of the opinion that this petition deserves to be allowed as the points raised on behalf of the petitioner have been fully concluded by the decisions referred to above. In the decision in Pannalal Binjraj v. Union of India [1957] 31 ITR 565 (SC), which arose under the provisions of the old Income-tax Act of 1922, relating to the question of transfer of cases, it has been observed in p. 589 as under;
"We may, however, before we leave this topic, observe that it would be prudent if the principles of natural justice are followed, where circumstances permit, before any order of transfer under Section 5(7A) of the Act is made by the Commissioner of Income-tax or the Central Board of Revenue, as the case may be, and notice is given to the party affected and he is afforded a reasonable opportunity of representing his views on the question and the reasons of the order are reduced however briefly to writing. It is significant that when any question arises under Section 64 as to the place of assessment and is determined by the Commissioner or Commissioners or by the Central Board of Revenue, as the case may be, the assessee is given an opportunity under Section 64(3) of representing his views before any such question is determined. If an opportunity is given to the assessee in such case, it is all the more surprising to find that, when an order of transfer under Section 5(7A) is made transferring the case of the assessee from one Income-tax Officer to another irrespective of the area or locality where he resides or carries on business, he should not be given such an opportunity. There is no presumption against the bona fides or the honesty of an assessee and normally the Income-tax authorities would not be justified in refusing to an assessee a reasonable opportunity of representing his views when any order to the prejudice of the normal procedure laid down in Section 64 (1) and (2) of the Act is sought to be made against him, be it a transfer from one Income-tax Officer to another within the State or from an Income-tax Officer within the State to an Income-tax Officer without it, except of course where the very object of the transfer would be frustrated if notice was given to the party affected. If the reasons for making the order are reduced however briefly to writing, it will also help the assessee in appreciating the circumstances which make it necessary or desirable for the Commissioner of Income-tax or the Central Board of Revenue, as the case may be, to transfer his case under Section 5(7A) of the Act and it will also help the court in determining the bona fides of the order as passed if and when the same is challenged in court as mala fide or discriminatory. It is to be hoped that the Income-tax authorities will observe the above procedure wherever feasible."
11. It is thereafter that the new Income-tax Act, 1961, was brought into force wherein suitable words have been introduced in Section 127 thereof.
12. In the Supreme Court decision in Ajantha Industries v. Central Board of Direct Taxes [1976] 102 ITR 281, it has been held that (headnote):
"The requirement of recording reasons under Section 127(1) of the Income-tax Act, 1961, for the transfer of a case from one Income-tax Officer to another, is a mandatory direction under the law and non communication thereof to the assessee is not saved by showing that the reasons exist in the file although not communicated to the assessee. Recording of reasons and disclosure thereof are not a mere idle formality. When law requires reasons to be recorded in a particular order affecting prejudicially the interests of any person, who can challenge the order in court, it ceases to be a mere administrative order and the vice of violation of the principles of natural justice on account of omission to communicate the reasons is not expiated.
Non-communication of the reasons in the order passed under Section 127(1) was a serious infirmity and the order was invalid."
13. Similar view has been taken by a Division Bench of this court in the decision in Sagarmal Spinning and Weaving Mills Ltd. v. CBDT [1972] 83 ITR 130 (MP), wherein also it has been held that (headnote):
"For ordering the transfer of a case under 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 the case. In the absence of these two requirements, it is not possible to support an order of transfer.......
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. If there be no compliance with the two requirements mentioned by the section, the order will be justifiable.
Facility of investigation would not be a sufficient reason for transfer of a case; and the mention of that reason in the show-cause notice proposing a transfer of the case would not be in compliance with the requirements of Section 127. Nor would the giving of some reason in a return filed before the High Court in the writ proceeding be in compliance with the section.
The impugned order of transfer in the instant case, which did not give the reason for the transfer of the case in the order, was in contravention of the mandatory provision of Section 127(1) of the Act and had to be quashed."
14. The learned counsel for the Revenue was unable to persuade us that the words used in the notice given to the petitioner amount to reasons. Therefore, in our opinion, the view taken in the authorities cited by the petitioner fully applies to the facts of the present case and, consequently, the petition deserves to be allowed. It is, accordingly, allowed with costs. The impugned order transferring the cases of the petitioner from Ujjain to Gwalior is quashed and set aside. Consequently, it is also held that the Income-tax Officer (S.I.C.), Gwalior, has no jurisdiction to decide the cases of the petitioner. Counsel's fee Rs. 200.
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