MOHAMMAD IBRAHIM KHAN Vs. UNION OF INDIA

JUDGEMENT

(1.) This is a petition for the issuance of an appropriate writ, order or direction, directing the 3rd respondent, i.e., ITO, A-Ward, Special Investigation Circle-II, Hyderguda, Hyderabad, to issue an income-tax clearance certificate under s. 230A(1) of the I.T. Act, 1961, to enable the petitioner to execute a registered lease deed in respect of a newly constructed premises at Punjagutta Cross-roads, Hyderabad. According to the petitioner, best judgment assessment was made against him for the assessment years 1978-79, 1979-80 and 1980-81. The total amount of tax due was determined at Rs. 37,38,450. Appeals have been preferred against the orders of assessment, which are now pending. The petitioner constructed a building with a cellar at the Punjagutta Cross-roads, Hyderabad. When it was nearing completion, he entered into an agreement with one Damodar Ramchandra Shanbhag, for leasing out the said premises for a period of ten years on a monthly rent of Rs. 7,625 and obtained an advance of Rs. 50,000. Since the lease deed has to be registered according to law and because an income-tax clearance certificate is a prerequisite for such registration, he applied to the 3rd respondent for such a certificate. He sought to convince the 3rd respondent about the reasonableness of the rent and also wrote and also wrote a letter on 23/04/1983, undertaking to remit the entire monthly rent towards the tax arrears. He deposited the sum of Rs. 50,000 received from the tenants as advance towards the said arrears. The petitioner says that the 3rd respondent directed him to obtain a No Objection endorsement from the 4th respondent, i.e., Tax Recovery Officer. When he applied to the Tax Recovery Officer for such an endorsement, the latter opined that he does not come into the picture, nor is there any occasion for granting a no-objection endorsement under rule 16(2) of the Second Schedule to the Act. In such a situation, the petitioner says, he approached the Commissioner of Income-tax, Survey & Investigation, Hyderabad (2nd respondent), requesting him to direct the 3rd respondent to issue the income-tax clearance certificate. He also filed a copy of the proposed lease deed, and also an undertaking from the proposed tenant, undertaking to vacate the premises within a period of six months from the date of receipt of a notice to that effect from the ITO, or at the end of a period of five years, whichever is later. The petitioner complains that, in spite of all this, he was served with a letter from the 3rd respondent refusing the certificate. The said refusal is impugned as arbitrary, illegal and without jurisdiction, and as being contrary to the provisions of the I.T. Act.

(2.) A counter-affidavit has been filed by the ITO, on behalf of the respondents, stating that a search was conducted on the business and residential premises of the assessee on 2/08/1980, which revealed that the petitioner had earned substantial income in a number of land deals and that, in spite of service of several notices, he did not co-operate with the authorities in the matter of assessment of his income. In the circumstances, best judgment assessments were made for the aforesaid three assessment years. The petitioner filed an application under s. 146 of the Act for reopening the assessment, which was rejected by the ITO on 26/06/1982. The said order has become final. The appeals preferred by the petitioner against the best judgment assessments, are, however, pending. It is further submitted that a certificate under s. 222 of the Act was issued to the Tax Recovery Officer to attach the immovable properties of the petitioner, including the premises concerned herein, and they were attached on 1/10/1982. Further proceedings for sale could not, however, be taken because of the orders of the Commissioner of Income-tax (Investigation) not to bring the properties to sale till the disposal of the appeals preferred by the petitioner. While admitting that the petitioner has deposited a sum of Rs. 50,000 said to have been received by him by way of advance from the tenant, it is submitted that the agreement for lease entered into by the petitioner subsequent to the attachment, is void according to law and, hence, the Commissioner had directed that no clearance certificate can be issued to the petitioner. With respect to the petitioners application under rule 16(2) of the Second Schedule, while denying that he every directed the petitioner as alleged, it is submitted that such an order can be made only where the Tax Recovery Officer is satisfied that the defaulter is capable of raising funds for payment of the tax outstanding. It is also submitted that the amount of rent to be received by the petitioner cannot even meet 25% of the interest payable on the outstanding tax. It is further submitted that assessments for the years 1972-73 to 1977-78 as also for 1981-82 are still pending, which are also likely to result in huge arrears of tax. The filing of an undertaking by the tenant is admitted, but it is submitted that, inasmuch as the petitioner has not made satisfactory provision for payment of all existing liabilities as required by s. 230A(1)(a) of the Act, he is not competent to lease or otherwise deal with the property, and no clearance certificate can be issued to him until he makes such satisfactory arrangement.

(3.) Mr. M. M. Firdos, the learned counsel for the petitioner, submitted, firstly, that the lease not being a transfer of property within the meaning of rule 16(2) of the Second Schedule to the Act, the prohibition contained in the said rule does not apply and, hence, the authorities were in error in not issuing a certificate under s. 230A. He submitted further that the impugned order is totally devoid of reasons and is, therefore, violative of the principles of natural justice. Counsel brought to our notice that, pending the appeals, the petitioner had applied for stay of recovery of tax, which was refused ; that, against the said refusal, he approached this court by way of a writ petition and that the matter has been remitted back to the ITO for reconsideration, where it is now pending.