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Kapurchand Shrimal Vs. Tax Recovery Officer, Hyderabad, and Others. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAndhra Pradesh High Court
Decided On
Case NumberWrit Appeal No. 166 of 1965 (Writ Petition No. 1274 of 1965)
Reported in[1967]64ITR1(AP)
AppellantKapurchand Shrimal
RespondentTax Recovery Officer, Hyderabad, and Others.
Excerpt:
- maximssections 2(xv) & 3(1) & (3): [v.v.s. rao, n.v. ramana & p.s. narayana, jj] ghee as a live stock product held, [per v.v.s. rao & n.v. ramana, jj - majority] since ages, milk is preserved by souring with aid of lactic cultures. the first of such resultant products developed is curd or yogurt (dahi) obtained by fermenting milk. dahi when subjected to churning yields butter (makkhan) and buttermilk as by product. the shelf life of dahi is two days whereas that of butter is a week. by simmering unsalted butter in a pot until all water is boiled, ghee is obtained which has shelf life of more than a year in controlled conditions. ghee at least as of now is most synthesized, ghee is a natural product derived ultimately from milk. so to say, milk is converted to dahi, then butter......manohar pershad c.j. - this writ appeal is directed against the judgment of our learned brother, jaganmohan reddy j., dismissing writ petition no. 1274 of 1965, filed by the appellant herein seeking to prohibit the respondents, viz., the tax recovery officer, the joint-collector, hyderabad, and the income-tax officer, central circle, hyderabad, from giving effect to the order of the first respondent, dated august 10, 1965, as confirmed by the joint-collector, hyderabad, by his order, dated september 3, 1965, to arrest and detain him in civil prison as a defaulter, under rule 73 of the income-tax rules (hereinafter called 'the rules') in schedule ii to the income-tax act (xliii of 1961) (hereinafter called 'the act').it will be appropriate to refer to the various averments and allegations.....
Judgment:

MANOHAR PERSHAD C.J. - This writ appeal is directed against the judgment of our learned brother, Jaganmohan Reddy J., dismissing Writ Petition No. 1274 of 1965, filed by the appellant herein seeking to prohibit the respondents, viz., the Tax Recovery Officer, the Joint-Collector, Hyderabad, and the Income-tax Officer, Central Circle, Hyderabad, from giving effect to the order of the first respondent, dated August 10, 1965, as confirmed by the Joint-collector, Hyderabad, by his order, dated September 3, 1965, to arrest and detain him in civil prison as a defaulter, under rule 73 of the Income-tax Rules (hereinafter called 'the Rules') in Schedule II to the Income-tax Act (XLIII of 1961) (hereinafter called 'the Act').

It will be appropriate to refer to the various averments and allegations made in the affidavits of the parties in so far as they are relevant for the determination of the contentions urged before us.

The appellants was originally assessed for the year 1955-56 to a tax of Rs. 2,95,540.19 and for the year 1956-57 to Rs. 10,70,643.13. A certificate was issued to the Collector for the recovery of the tax and the Collector, pursuant to the said certificate, attached all the immovable properties of the assessee in July, 1959. The Income-tax Officer also issued a notice under section 46(5A) of the Act restraining the tenants of the property from paying rents of nearly Rs. 1,200 per mensem to the petitioner; and since July, 1959, onwards, the Income-tax Officer himself has been collecting the rents directly from the tenants.

Against the assessment orders, appeals were preferred to the Appellate Assistant Commissioner, wherein the assessment for 1955-56 was set aside and remanded and the assessment for 1956-57 was reduced to Rs. 1,72,159. There was no appeal by the department against the order for 1956-57. After remand, the assessment for 1955-56 was completed by the Income-tax Officer and a tax of Rs. 77,738.22 was levied, against which an appeal was preferred by the appellant to the Appellant Assistant Commissioner on May 10, 1963, and it is stated that the appeal is still pending. For the years 1957-58, 1958-59 and 1959-60, the Income-tax Officer levied tax demands of Rs. 3,25,912.92, Rs. 3,15,489 and Rs. 2,62,307.66 respectively. It is stated that appeals were also preferred against these assessments but the appeals have not been disposed of and are still pending at the first appellate stage. It is also stated by the appellant that the Income-tax Officer and the Special Deputy Collector have initiated coercive measures by issuing notices to the various debtors restraining them from making repayments of the debts due from them, by freezing all the bank account, by issuing notices to various companies prohibiting them from transferring the shares held by him in the companies and by issuing notices to banks prohibiting them from delivering the shares and securities lying with them against overdrafts granted to him. It is further averred that the Income-tax Officer, accompanied by the Special Deputy Collector, raided the business premises and the residential house of the appellant in December, 1959, and seized all the shares and securities lying in his possession, of the value of more than Rs. 2,00,000, which, according to him, represented the stock-in-trade, and thus he was disabled from dealing with any of his movable as well as immovable properties. Immediately after these shares and securities were seized, it is stated by the appellant, he made representation to the income-tax department to sell the shares and securities lying in their possession and realise the proceeds thereof and adjust the same against the tax due from him; that he had even told the concerned officials that he would co-operate with them in the matter of bringing buyers to purchase the shares and securities at the prevailing market rates; but the department did not pay any heed nor did they act according to his request. As a result, he suffered loss as the shares have now fallen very much in the market. According to the appellant, although the admitted tax payable by him is only Rs. 4,00,000 and the properties attached are of considerable value, the Income-tax Officer and the Special Deputy Collector insisted on his paying the entire tax arrears on the alleged ground that they were not concerned with the non-disposal of the appeals by the Appellate Assistant Commissioner. Thereupon, he requested the Income-tax Officer and the Special Deputy Collector to bring to sale the immovable property under attachment and to realise the tax arrears; but these properties also have not been sold and no action has been taken against them on account of some claims put in by third parties. Though the claims were rejected by the Special Deputy Collector and it is possible to sell the properties under law and realise the tax arrears, the properties have not been notified for sale so far. Ultimately, the Special Deputy Collector issued a notice under rule 73 of the Rules, calling upon the appellant to show cause why the certificate issued by the Income-tax Officer on June 16, 1959, should not be executed by arresting and committing him to prison. The appellant then filed a petition challenging the validity of the certificate on the ground that the conditions precedent for the issue of such an order against him under rule 73 were not satisfied. The Income-tax Officer in his counter contended that the assessee had sold certain shares without the prior approval of the Special Deputy Collector, and also failed to deposit the proceeds realised on the shares with the Special Deputy Collector, that he had realised certain debts but failed to pay the same against his tax arrears and that he had neglected to pay the tax arrears, even though he had substantial means to pay the same.

The Special Deputy Collector again issued another notice dated July 27, 1965, calling upon the appellant to show cause why he should not be arrested and committed to prison in execution of the certificate issued by the Income-tax Officer for the assessment years 1955-56, 1957-58, 1958-59 and 1959-60. The appellant filed a reply; but the Tax Recovery Officer rejected all his contentions and passed an order on August 10, 1965, that he was liable to be arrested and detained in a civil prison under rule 73 giving him time to pay the amounts mentioned in the certificate till August 25, 1965, failing which it was ordered that a warrant of arrest would be issued and he would be committed to civil prison.

The appellant preferred an appeal to the Joint-Collector, under rule 86. This appeal was dismissed on September 3, 1965.

The Income-tax Officer, Special Investigation Circle, in his counter pleaded that with respect to the assessment years 1955-56, 1956-57 and 1957-58, a settlement was arrived at. In pursuance of the said settlement, the assessment for the assessment year 1956-57 was modified and the tax was reduced to Rs. 1,72,159; and as a consequence of the revision of assessment for 1955-56 after remand by the Appellate Assistant Commissioner, the demand of Rs. 1,04,417 was made. Intimations regarding the modification of the demand in respect of the above two years were given to the Tax Recovery Officer, which is in conformity with the requirements of section 3(1)(b)(ii) of the Taxation Laws (Continuation and Validation of Recovery Proceedings) Act, 1964. Subsequently, the assessments for the years 1957-58, 1958-59 and 1959-60 were completed and further demands to the tune of Rs. 9,11,265 were made. The assessment for 1957-58 was made on the basis of a settlement subject to certain additions being allowed to be agitated on appeal, and inasmuch as the tax was not paid as per the demands made on him, certificates under section 222 of the Act were issued and forwarded to the Tax Recovery Officer. The total demand thus made on the appellant for these years comes to Rs. 11,97,341, and what little was collected was only due to the coercive process taken by the authorities and not to the voluntary payments made by the appellant towards the discharge of the same. It is further stated that the raiding of the premises of the appellant showed that, with the fraudulent intention of defeating and delaying the recovery proceedings, the appellant had created several nominal and benami alienations in favour of his wife, brother, relations and friends in respect of most of his properties; that the appellant had made a settlement in favour of his wife in respect of a house worth Rs. 1,00,000 situated in Sultan Bazar, Hyderabad, without any consideration, which is void and unenforceable in law; that a mortgage was created by the appellant in favour of his brother, Kesarichand Bhora, who was residing in Delhi, by a deed, dated February 21, 1959, for Rs. 60,000, which is also nominal and collusive; and that he had also entered into nominal and collusive transactions without consideration with some of his friends and relations residing in Bombay. As the appellant did not pay the arrears of tax, the Tax Recovery Officer had to attach the properties belonging to him and bring the same to sale. The proclamation of sale was issued on August 4, 1964, and the auction was fixed to take place on October 19, 1964. Thereupon a number of claimants filed claim petitions before the Tax Recovery Officer claiming that they were entitled to the property in some cases and in other cases claiming priority on the ground that they were secured creditors as there were mortgages in their favour. The wife, in whose favour the settlement was made, subsequently died leaving an alleged will, settling the properties on her husband and her sons and daughters. The Tax Recovery Officer, after hearing the objections, found that the claims put forward were invalid and not binding on the department. Against the decision of the Tax Recovery Officer, appeals were preferred to the District Collector and the same are said to be still pending.

With respect to the seizure of the share certificates, etc., consequent on the raid of the appellants business premises and residential house, it was stated that, though the appellant said that he was willing to co-operate in selling the same, in fact he was making every effort to see that the sale of the shares was not completed; that the banks were putting forth some practical difficulties in view of the non-co-operative attitude of the appellant and the companies were unwilling to transfer the shares in favour of the buyers. At any rate, the share certificates and securities, it was stated, would not fetch more than Rs. 90,000 and it was not correct to say that they were worth Rs. 2,00,000. It was further averred by the Income-tax Officer that, after the receipt of the certificates by the Tax Recovery Officer, the appellant sold, removed, transferred or realised the following assets, which were shown in the balance-sheet as on 17th October, 1965 :

1. De Soto car valued at Rs. 11,250 sold away.

2. Life Insurance Corporation Policy No. 64093333 for Rs. 25,000 was discounted prematurely and a sum of Rs. 24,497 was realised.

3. 1,400 shares worth Rs. 10,340 in Mysore Paper Mills were transferred in the names of his daughter and daughter-in-law.

4. Two sums of Rs. 4,500 and Rs. 800 were withdrawn from the Bank of India.

5. Rs. 250 was withdrawn from the Indian Bank in the name of the appellant and his wife.

Apart from this, it is stated by the Income-tax Officer that the appellant has collected :

(a) From the Bombay Light House, Secunderabad, Rs. 50,816;

(b) Y. V. Anjaneyulu, Rs. 4,000;

(c) R. B. Lobo, Rs. 1,500;

(d) Raja Dhanrajgiriji, Rs. 500;

(e) J. R. Moti Shah, Rs. 4,617;

Thus, in all, it is averred, that the appellant has collected or realised or withdrawn amounts to the tune of Rs. 1,13,090. It is further pleaded that the allegation of the appellant that there was no dishonest transfer or removal of any property existing on June 16, 1959, the date of the certificate, with the object of obstructing execution, is untrue and untenable.

It may at this stage be noted that the appellant did not deny either before the Tax Recovery Officer or the Joint-Collector about any of the amounts realised by him, but while admitting all the said facts, he stated that the aforesaid dealings were made by him in due course of business but not dishonestly. The Income-tax Officer denied the allegation of mala fides and also the allegation that the admitted liabilities were only Rs. 4,00,000 while the disputed liability was about Rs. 7,00,000 and that the appeals were postponed with a view to harass the appellant. While it is stated that the department is willing to dispose of the appeals, it is contended that the pendency of the appeals does not give an automatic stay for the recovery of the huge arrears of tax by the assessee to the Government, and further, the appellant has not even paid the admitted amount, assuming that it is only Rs. 4,00,000. It is also stated in the affidavit of the Income-tax Officer, Special Investigation Circle, that the appellant has earned huge profits and that the amounts used by him in the business subsequent to 1959 really belonged to him, though shown nominally in the names of his friends and relations as if he had borrowed from them. The allegation that the amounts shown in the accounts for the subsequent years were borrowed by him for the purpose of his business and that the appellant was making a small profit, it is stated, is not correct, but that the moneys really belonged to him and with a view to evade the payment of income-tax and to screen the assets beyond the reach of the income-tax authorities, the appellant showed the same nominally in the names of others.

The appellant, in his reply affidavit, apart from denying several allegations made by the Income-tax Officer in his affidavit and affirming the averments made by him in his earlier affidavit, stated that he did not set up the creditors nor was there any evidence in support of those allegations, which were totally unfounded. He also stated that the amounts lent to Bombay Light House did not belong to him as his account books fully bear out this contention and he gave details of the persons from whom the amounts were borrowed. It was also alleged that out of the admitted amount of Rs. 4,00,000, a sum of Rs. 77,897 had been realised by the Income-tax Officer.

On these averments, the following arguments were advanced by Shri D. Narasaraju, the learned counsel for the petitioner, before our learned brother, Mr. Justice Jaganmohan Reddy :

'(1) That the officer who passed the order under rule 73 is not an officer under section 2, sub-section (44), and, as such, the order passed by him and the appellate order are without jurisdiction and are null and void'.

(2) Instances given in the order of the appellate authority as well as the original order under appeal are instance of the assessee carrying on transactions and business with borrowed money and repayment of loans and that, in these circumstances, it cannot be said that he has dishonestly transferred, concealed, or removed his property nor have any of the assets of the assessee seized or attached been transferred or dealt with. As he has no means to pay, there is no refusal to pay, and as such it cannot be said that he had means to pay the arrears or some substantial part thereof or that he has refused or neglected to pay the tax. In these circumstances, the conditions prescribed in rule 73 have not been fulfilled. Inasmuch as there has also been no evidence, as the department has failed to adduce either before the Deputy Collector or at the appellate stage before the Joint-Collector, the impugned order cannot be passed.

On the first question of jurisdiction, it was contended by the 3rd respondent that the petitioner had submitted to the jurisdiction of the 1st respondent and had, in fact, contested the proceedings under rule 73 of the rules and lost his case on merits; that he had not raised any objection relating to the jurisdiction of the 1st respondent to initiate the proceedings in question, either at the initial stage of the show cause notice, or even at any stage of the enquiry conducted by him; and, as such, the petitioner could not be allowed to raise this question for the first time in the writ petition during the course of arguments, particularly when the facts, upon which the question of jurisdiction depended, required further investigation. At any rate, it was submitted that the 1st respondent had ample jurisdiction and power to pass the impugned order.

On the second question, it was contended by the respondent-department that from the facts admitted by the petitioner himself, if was clear that he had dishonestly transferred, concealed or removed his property and the instances of the assessee carrying on transactions in business with borrowed moneys and repayment of loans were not true, and that they were not bona fide transactions; and that, in these circumstances, the conditions prescribed in rule 73 had been fully satisfied.

On the question of jurisdiction our learned brother, Mr. Justice Jaganmohan Reddy, found that the objection to the Special Deputy Collector not having jurisdiction under the provisions of the Income-tax (Certificate Proceedings) Rules, 1962, was without any merit. Holding so, our learned brother observed that, in the circumstances, he did not propose to consider the other question, namely, whether submission, acquiescence or consent disentitled the petitioner to raise the question of jurisdiction before him.

On the question whether the requirements of rule 73 of the Rules were satisfied in the passing of the order of arrest and detention, our learned brother found that the conditions were satisfied to invoke the provisions of rule 73 of the Rules. Our learned brother also held that nearly a lakh of rupees had been dealt with by the petitioner in spite of the interdiction. In the result, our learned brother dismissed the writ petition. Hence, the petitioner has now come up in appeal.

Shri D. Narasa Raju, the learned counsel for the appellant, has stated before us that though the appellant had raised the question of jurisdiction the writ petition, he does not press that point in this appeal.

His main contention is that the requirements of rule 73 of the Rules were not satisfied before the passing of the order of arrest and detention. In order to appreciate the contention of the learned counsel, we have to refer to the relevant rules contained in the Second Schedule to the Act, relating to the procedure for recovery of tax.

Rule 2 provides :

'When a certificate has been received by the Tax Recovery Officer from the Income-tax Officer for the recovery of arrears under this Schedule, the Tax Recovery Officer shall cause to be served upon the defaulter a notice requiring the defaulter to pay the amount specified in the certificate within fifteen days from the date of service of the notice and intimating that in default steps would be taken to realise the amount under this Schedule'.

Rule 4 relates to the mode of recovery and it enjoins :

'If the amount mentioned in the notice is not paid within the time specified therein or within such further time as the Tax Recovery Officer many grant in his discretion, the Tax Recovery Officer shall proceed to realise the amount by one or more of the following modes :

(a) by attachment and sale of the defaulters movable property;

(b) by attachment and sale of the defaulters immovable property;

(c) by arrest of the defaulter and his detention in prison;

(d) by appointing a receiver for the management of the defaulters movable and immovable properties'.

Rule 6(1) says that where property is sold in execution of a certificate, there shall vest in the purchaser merely the right, title and interest of the defaulter at the time of the sale, even though the property itself be specified.

According to rule 6(2), where immovable property is sold in execution of a certificate, and such sale has become absolute, the purchasers right, title and interest shall be deemed to have vested in him from the time when the property is sold, and not from the time when the sale becomes absolute.

Rule 10 refers to property exempt from attachment. It reads :

'(1) All such property as is by the Code of Civil Procedure, 1908 (V of 1908), exempted from attachment and sale in execution of a decree of a civil court shall be exempt from attachment and sale under this Schedule.

(2) The Tax Recovery Officers decision as to what property is so entitled to exemption shall be conclusive'.

Rule 16, which makes private alienations void in certain cases, consists of two clauses.

Clause (1) reads :

'(1) Where a notice has been served on a defaulter under rule 2, the defaulter or his representative-in-interest shall not be competent to mortgage, charge, lease or otherwise deal with any property belonging to him except with the permission of the Tax Recovery Officer, nor shall any civil court issue any process against such property in execution of a decree for the payment of money'.

Clause (2) of rule 16 enjoins :

'(2) Where an attachment has been made under this Schedule, any private transfer or delivery of the property attached or of any interest therein and any payment to the defaulter of any debt, dividend or other moneys contrary to such attachment, shall be void as against all claims enforceable under the attachment'.

Rule 73, which falls under Part V, 'Arrest and detention of the defaulter', reads thus :

'(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 or 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 obstructing the execution of the certificate, has, after the receipt of the certificate in the office of 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 receipt of the certificate in the office of 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 :

Provided that, if the defaulter pays the amount entered in the warrant of arrest as due and costs of the arrest to the officer arresting him, such officer shall at once release him'.

Rule 77 says :

'(1) Every person detained in the civil prison in execution of a certificate may be so detained, -

(a) where the certificate is for a demand of an amount exceeding two hundred and fifty rupees - for a period of six months, and

(b) in any other case - for a period of six weeks :

Provided that he shall be released from such detention -

(i) on the amount mentioned in the warrant for his detention being paid to the officer-in-charge of the civil prison, or

(ii) on the request of the Income-tax Officer who has issued the certificate or of the Tax Recovery Officer on any ground other than the grounds mentioned in rules 78 and 79 :

Provided that where he is to be released on the request of the Income-tax Officer, he shall not so be released without the order of the Tax Recovery Officer.

(2) A defaulter released from detention under this rule shall not, merely by reason of his release, be discharged from his liability for the arrears; but he shall not be liable to be rearrested under the certificate in execution of which he was detained in the civil prison'.

A reading of these provisions together would go to show that as soon as a certificate is received by the Tax Recovery Officer and he issues a notice calling upon the defaulter to pay, the defaulter or his representative-in-interest is not competent to make any alienation, mortgage, charge, lease or otherwise deal with any property belonging to him, except with the permission of the Tax Recovery Officer, and such alienation or transfer shall be void as against all claims enforceable under the attachment, and the civil courts are prohibited from issuing any process against such property in execution of a decree for the payment of money. If the Tax Recovery Officer is satisfied that the defaulter, with the object or effect of obstructing the execution of the certificate has, after the receipt of the certificate, in the office of the Tax Recovery Officer, dishonestly transferred, concealed or removed any part of his property, or that the defaulter has, or has had since the receipt of the certificate in the office of 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, he is given a discretion to issue a warrant for the arrest of the defaulter after serving a notice upon him 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.

It is the admitted case of the parties that the movable and immovable properties of the appellant had been attached and the companies had been informed that they should not recognise any transfer of the shares nor pay out the moneys. The appellants case is that he has not transferred or alienated any of his properties attached, after the receipt of the notice or after the attachment was made. The department does not contend that the appellant has transferred or alienated any of the properties attached, but what the department says is that the appellant has not disclosed all the sources of his wealth or the amounts due to him, and as such they were not in a position to attach such of those properties as have been dealt with by the defaulter. It is appropriate to note at this stage that in the Civil Procedure Code there is no provision similar to rule 16(1), though section 64 of the said Code is analogous to rule 16(2).

The question, therefore, is whether, as a matter of fact, the appellant has failed to disclose all the sources of his wealth or the amounts due to him, thus contravening rule 16(1).

The department in order to attract the provisions of the Income-tax Rules, relied on the following circumstances :

(1) The sale of 1,400 shares in Mysore Paper Mills for Rs. 10,340.

(2) A life insurance policy of Rs. 25,000 was discounted for Rs. 24,497.

(3) A sum of Rs. 50,860 was received from the Bombay Light House.

(4) Two sums of Rs. 4,500 and Rs. 800 were withdrawn from the Bank of India Limited on October 20, 1964 and October 23, 1964, respectively.

(5) A sum of Rs. 4,000 was paid to Sri Anjaneyulu, advocate.

(6) The De Soto car was sold for Rs. 11,250.

The appellant, in paragraph 6 of his reply to the counter filed by the Income-tax Officer before the Tax Recovery Officer, stated thus with regard to item No. (1), i.e., the sale of 1,400 shares of Mysore Paper Mills :

'The 1,400 shares of Mysore Paper Mills were not in any way dishonestly transferred, concealed or removed by the petitioner. The shares were sold on July 8, 1964, for a sum of Rs. 10,500 and the sales were effected at the prevailing market rate. It may be stated that the petitioner is a dealer in shares and his day-to-day business consists in the purchases and sale of shares. It is submitted that the sale of shares in the course of the petitioners business for valuable and adequate consideration does not amount to dishonestly transferring, concealing or removing any part of the petitioners property'.

With regard to the second item, i.e., life insurance policy for Rs. 25,000, he stated :

'The proceeds realised on the maturity of the life insurance policy have not been dishonestly transferred, concealed or removed by the petitioner. The insurance policy was assigned in favour of petitioners wife. When the proceeds were realised from the insurance company in August, 1963, the amount was duly credited by the petitioner in a joint account opened in the Indian Bank and the sum of Rs. 24,997 was credited to the joint account on August 12, 1963. Necessary entries were passed by the petitioner in his account books. The amounts were drawn from the bank on September 17, 1963, September 18, 1963, and September 19, 1963, and used for legitimate business requirements of the petitioner. Full and complete particulars have been recorded in the petitioners account books, whenever amounts were drawn from the bank and utilised in the course of business. These facts would clearly establish that the petitioner had not the slightest intention to dishonestly transfer, conceal or remove the proceeds realised on the maturity of the insurance policy. They are fully recorded in the account books'.

As regards the Bombay Light House affair, it was stated thus :

'So far as the amount due to the petitioner from the Bombay Light House is concerned, the petitioner states that at the beginning of the Diwali year 1963-64, the amount due was Rs. 50,885. A copy of the account of the said debtor as appearing in the books of the petitioner is annexed. It will be seen from this copy that there are numerous business transactions during the accounting year 1963-64 and by June 15, 1964, the debtor had completely paid off the sums due from him. The amounts paid by the debtor from time to time are duly recorded in the petitioners account books. The amounts realised are used for legitimate business purposes. The petitioner, therefore, respectfully submits that there is no truth in the respondents allegation that the petitioner has in any way been guilty of realising the above money from the debtor and concealing the same from the notice of the Tax Recovery Officer with a view to evade payment of tax'.

As to the withdrawing of the amount from the Bank of India Limited, the appellant stated that the sum of Rs. 4,500 drawn on October 20, 1964, from the bank had been duly recorded in his account books and it was utilised for the following purposes :

Rs.

P.

'Payment of electricity bill

77

50

Payment of telephone bill

218

96

Payment of office rent to Central Bank of India

63

12

Payment of money due to Mrs. R. B. Lobo against a/c remitted by draft on State Bank of India, Panjim, Goa

3,000

00

Commission and postage charges on the above

4

50

Amount paid to J. R. Moti Shah & Co., on the purchase of 10 shares of Indian Detonators (paid to Central Bank of India Limited)

1,070

00'

He further stated :

'From the above particulars it will be seen that the petitioner had not dishonestly transferred, concealed or removed any part of the sum of Rs. 4,500 drawn from the Bank of India. Similarly, out of the sum of Rs. 800 drawn from the Bank of India on October 23, 1964, the petitioner had paid into the Punjab National Bank a sum of Rs. 500 and the balance was held in cash. The account books of the petitioner bear complete testimony to the above facts. The petitioner respectfully contends that there is no merit in the allegation that the petitioner has surreptitiously drawn the amounts from the bank and concealed the same from the knowledge of either the income-tax department or the Tax Recovery Officer. The petitioner had made no such attempt as fully borne out by the above facts'.

As to the payment of Rs. 4,000 to Sri Anjaneyulu, it was stated by the appellant that the sum was adjusted by the advocate towards his fees due from him, that it was actually an amount paid on account and did not represent any loan and that there was no dispute about the fact that the amount was adjusted by the advocate towards his fees and nothing was due to him.

As to the sale of the De Soto car, the appellant admitted having sold the car.

Thus it would appear that the facts relied upon by the department have all been accepted by the appellant. His explanation is that all these amounts were used for his legitimate business purposes and that he had not dishonestly transferred, concealed or removed any part of his property and that the allegation that he had not complied with the provisions of rule 16 was totally baseless.

Sri D. Narasa Raju, the learned counsel for the appellant, contended that the amount realised from the sale of 1,400 shares in the Mysore Paper Mills was utilised to discharge the amount of Rs. 10,000 borrowed for the purchases of those shares. But it may be noted that such a plea was not taken before the Tax Recovery Officer in the reply to the counter filed by the petitioner and his only case was that, he being a dealer in shares, his day-to-day business consisted in the purchase and sale of shares and that the sale of shares was done in the course of his business.

As regards the life insurance policy for Rs. 25,000, discounted for Rs. 24,997, the contention of Sri. D. Narasa Raju is that this amount was utilised for discharging debts, whereas in the reply to the counter, the appellants statement was that the amount was withdrawn from the bank on various dates and used for legitimate business requirements.

As regards the sum of Rs. 50,860, the amount said to have been received from the Bombay Light House, it is contended by Sri D. Narasa Raju, the learned counsel for the appellant, that the assessee, who is a broker in shares, had borrowed this amount and when he got this amount, he repaid the same to the Bombay Light House. But this contention of the learned counsel does not appear to be correct on a perusal of the account. Annexure I contains the account of the Bombay Light House, Secunderabad, for the year 1963-64. A perusal of this account would go to show that the relationship between the appellant and the Bombay Light House was that of a creditor and debtor and it shows various advances made by the appellant and payments made by the company.

As regards the other two items, viz., the withdrawal of moneys from the banks and the sale of the De Soto car, it is contended by Sri D. Narasa Raju, the learned counsel, that these amounts were utilised for the appellants business and for the maintenance of his family. While admitting the payment of Rs. 4,000 (four thousand), it is stated by the learned counsel that this amount was paid to the lawyer. It is further contended by him that it was not enough for the department to merely rely on the admission but it ought to have enquired into the matter as to whether these amounts realised were utilised for the business or they were amounts borrowed for furtherance of business. We do not agree with Sri D. Narasa Raju, the learned counsel. As stated earlier, it had never been the case of the appellant that the sale of 1,400 shares related to the borrowing of Rs. 10,000 and the payment of the same, that the life insurance amount was utilised for discharging debts, or that the amount of Rs. 50,860 was only brokerage and commission. When that was not the plea, we fail to understand how it can be agitated here that the department ought to have made further enquiries into that matter.

From the above discussion it becomes clear that nearly a lakh of rupees have been dealt with by the appellant in spite of the interdiction. To our minds it does not make any difference whether he has credited these amounts and also debited the expenditure in his account books, whether the purchased shares with borrowed moneys or with his own money. We, are, therefore, of the view that once a notice has been served and, as a matter of fact, even before any attachment is made, the defaulter cannot deal with his properties in any manner. If there is any dealing with the property, whether movable or immovable, after the receipt of the notice, the defaulter would be contravening the provisions of rule 16. Any such private alienation made would be void in certain cases as is clear from the marginal note of rule 16 (1) :

'Private alienation to be void in certain cases'.

Sub-rule (2), which is in similar language to section 64 of the Civil Procedure Code, makes the transfer or delivery of the property after the attachment void but it is only void against all claims enforceable under the attachment. To our minds, even the dealing with property under sub-rule (1) would appear to be void because, when a person is not competent to deal with the property, those transactions are void as against claims enforceable under the demand. This is made clear by a further provision in sub-rule (1) prohibiting civil courts from issuing any process against such property in execution of a decree for payment of money.

The contention of Sri D. Narasa Raju, the learned counsel, is that this prohibition would fetter the right to carry on business or to hold property and would be repugnant to the fundamental rights guaranteed under article 19(1)(g) of the Constitution. We do not agree with the learned counsel. There is no prohibition under rule 16(1) for a defaulter to do business. What is prohibited is that the defaulter shall not dispose of his property without the permission of the Tax Recovery Officer. By this restriction it cannot be said that the appellant is totally prohibited from carrying on the business. The restriction placed under the rule is a reasonable restriction. The contention of Sri. D. Narasa Raju is that the restriction does not seem to be reasonable but is most unreasonable as the prohibition is indefinite, not restricted to any period, and there is no standard laid down when the permission is to be given and the authority has an absolute and uncontrolled power. From the mere fact that the prohibition is indefinite and some restriction are placed on dealing with the properties under this rule, it cannot be said that absolute and uncontrolled power is given to the authorities, when it has clearly laid down how and in what manner the power has to be exercised. Further, article 19(1)(g) refers to practicing any profession or carrying on any occupation, trade or business, and it is only if those rights are interfered with, the question of affecting the fundamental rights would arise. Rule 16(1) only refers to the competency of the defaulter in mortgaging or creating a charge, leasing or otherwise dealing with property belonging to him. There is, therefore, no question of the fundamental rights guaranteed under article 19(1)(g) being affected. Further, it may be noted that the right to carry on trade or to hold property or to do business is subject to the liability to pay the debts incurred by the persons, whether in the course of the business or otherwise. To hold that property cannot be attached or transfers cannot be interdicted by operation of law or by order of a court under any law intended for the protection of the rights of the creditors, would amount to conferring a new fundamental right, viz., freedom from discharging debts and obligations, which certainly could not have been envisaged by the framers of the Constitution. Take the case of an insolvent. Under section 28 of the Provincial Insolvency Act all the property of the insolvent vests in the official receiver who holds it for the benefit of the creditors. Can the insolvent challenge it on the ground that he, by the process of the property vesting in the official receiver, is not able to do his business or hold the property, and thus his fundamental rights are affected Our answer is that he cannot challenge. Take another instance. On the allegation of a party to a litigation that the man in possession is committing waste a receiver is appointed under Order 40, rule 1, and he dispossesses the person in possession. Can the person dispossessed complain that by this process of the property being taken away by the receiver, his fundamental right of carrying on his business or occupation is affected So also can a person against whom an injunction is issued under Order 39, rule 1, Civil Procedure Code, complain in a like manner Our answer is a simple 'no'. Similarly, in execution of a decree, where property is attached by a court for its discharge, it will be too much to say that by so doing the fundamental right to the property is affected. The provisions contained in rule 16 are of a similar nature. The defaulter under the above rule is not prohibited from carrying on the business. What is prohibited is that he shall not dispose of his property without the permission of the Tax Recovery Officer when the demand is outstanding. As long as he meets these demands from out of the property, there is no question of imposing any fetter on his business or trade. What rule 16 enjoins is that, during the subsistence of these demands, the defaulter should not deal with property without the permission of the Tax Recovery Officer. In the view we are taking, we cannot accept the contention of the learned counsel, Sri. D. Narasa Raju, that rule 16 imposes an unreasonable restriction.

Sri Kondaiah, the learned counsel for the respondents, relying on the proclamation of emergency under the Defence of India Act, 1962, and articles 358 and 359 of the Constitution of India, contended that, in view of these provisions, the operation of article 19 of the Constitution during the emergency would stand suspended and the appellant cannot invoke the provisions of article 19. We do not agree with the contention of Sri Kondaiah. Article 358 refers to the power of the State to make any law or to take any executive action which the State would but for the provisions contained in that Part be competent to make or to take. The proceedings in the instant case relate to the recovery of income-tax dues and these dues are prior to the declaration of emergency; and the action now taken is not an executive action of the State as contemplated under article 358 of the Constitution.

The other question that arises now is whether rule 16 has any relation to rule 73. This depends upon the interpretation to be put to rule 73. Rule 73 is in analogous terms to the proviso to section 51, Civil Procedure Code. These provisions are shown below :

Rule 73

Proviso to section 51, C. P. C.

(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

Provided that where the decree is for the payment of money, execution by detention in prison shall not be ordered unless, after giving the judgment-debtor an opportunity of showing cause why he should not be committed to prison, the court, for reasons recorded in writing, is satisfied

(a) that the defaulter, with the object or effect of obstructing the execution of the certificate, has, after the receipt of the certificate in the office of the Tax Recovery officer, dishonestly transferred, concealed, or removed any part of his property, or

(a) that the judgment- debtor with the object or effect of obstructing or delaying the execution of the decree,......

(ii) has, after the institution of the suit in which the decree was passed, dishonestly transferred, concealed, or removed any part of his property, or committed any other act of bad faith in relation to his property; or

(b) that the defaulter has, or has had, since the receipt of the certificate in the office of 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'.

(b) that the judgment - debtor has, or has had, since the date of the decree, the means to pay the amount of the amount of the decree or some substantial part thereof and refuses or neglects or has refused or neglected to pay the same.....

A comparison of the provisions of the Civil Procedure Code would show that they are in pari materia with the relevant provisions contained in rule 73 of the Rules. Section 51, Civil Procedure Code, was amended in 1935 by a bill which originally intended to have a limited effect, viz., to protect industrial workers from arrest and imprisonment for a debt but the legislature thought that the protection should be applied to all persons. It is appropriate at this stage to refer to the Statement of Objects and Reasons :

'The Bill seeks to amend the Civil Procedure Code of 1908 so as to protect honest debtors of all classes, and not of the industrial worker class only, from detention in a civil prison and to confine such detention to debtors proved to be recalcitrant for fraudulent. It provides, inter alia, that no order for execution by detention in prison shall be issued unless the debtor has been given opportunity of showing cause why he should not be committed to prison, and the court is satisfied for the reasons recorded in writing that, (i) the debtor is likely to leave the local limits of the jurisdiction of the court, or has, after the institution of the suit, fraudulently disposed of his property, and (ii) that he is liable to pay the amount of the decree otherwise than from protected assets'.

The object to be achieved by the provisions of section 51 of the Civil Procedure Code would, therefore, equally be applicable to the relevant provisions relating to arrest and detention of a defaulter under the Income-tax Act. A reading of rule 73 shows that certain conditions have to be satisfied before an order of arrest or civil imprisonment of a defaulter can be made just as in the case of section 51 of the Civil Procedure Code. Under rule 73, before an order for the arrest and detention in civil prison of a defaulter is made, the Tax Recovery Officer has to issue a notice on him calling upon him to appear before him on a particular date and to show cause why he should not be committed to civil prison. Secondly, the Tax Recovery Officer has to be satisfied, after recording the reasons in writing, that the defaulter, with the object of effect of obstructing the execution of the certificate, has dishonestly transferred, concealed or removed a part of his assets after the receipt of the notice; or, thirdly, that he has, since the receipt of the certificate, means to pay the arrears or some substantial art thereof and has refused or neglected to pay the same. It follows, therefore, that if the Tax Recovery Officer is satisfied that the defaulter has committed a breach of the second or the third condition or both of the two condition, the order for the arrest and detention in civil prison of the defaulter can be made. It may be noted that it is not necessary that the Tax Recovery Officer must satisfy both the conditions, namely, that the defaulter has dishonestly transferred, concealed or removed any part of his property and also, having the means to pay the arrears or some substantial part thereof, refuses or neglects to pay the same. It follows, therefore, that if the Tax Recovery Officer is satisfied that the defaulter, with the object of obstructing the execution of the certificate, has transferred, sold or removed any part of his property, an order can be passed, even though the requirement in clause (b) of that rule has not been established. In determining whether the defaulter has committed any act specified in rule 73(1)(a), viz., that he has dishonestly transferred, concealed or removed any part of his property, whether attached or not, rule 16, in our opinion, will have relevance because it prohibits the alienation by way of lease, mortgage, or creating a charge or otherwise dealing with any property belonging to him. It is true that if the defaulter privately alienated the property or created a charge or mortgaged the property, it would not naturally be presumed that he had dishonestly transferred, concealed or removed any part of the property as enjoined in rule 73(1)(a). But, of course, his conduct in stealthily dealing with the property would, in our opinion, not only lead to the inference that he has dishonestly transferred, concealed or otherwise dealt with the property so as to attract the provisions of rule 73(1)(a), but that the defaulter had intended to obstruct the execution of the certificate, unless he is in a position to rebut that presumption.

The contention of Sri Narasa Raju is that rule 16 has nothing to do with rule 73. The purpose of rule 73, he urges, is to preserve the property and to prevent alienation and it does not apply to a case where a person borrows money for the purpose of family maintenance, carrying on business or paying other creditors. We are not prepared to agree with the contention of the learned counsel. Rules 16 and 73 are both connected to the extent stated above. Rule 73 only provides the mode of recovery which is evident if we read this rule along with rule 77, which relates to detention and release from prison.

It is next urged by the learned counsel, Sri Narasa Raju, that if it is thus construed, the arrest under rule 73 would amount to a punishment. This argument has no substance. As discussed above, the purpose of arrest under rule 73 is not a punishment but it is one of the modes of execution.

It is next urged that the dealing contemplated under rule 73 must have some reasonable relation to the amount that is sought to be recovered. If that is not so, the order of arrest and detention would amount to a punishment. This argument has no substance. In a case where rule 73(1)(a) is attracted, what is necessary is not the proof of the defaulter dishonestly transferring, selling or removing a substantial part of the property but only a part of his property. This question of the defaulter dishonestly selling, transferring or removing a substantial portion of the property would arise only if rule 73(1)(b) is attracted. To accept the contention of Sri Narasa Raju would amount to importing the words 'substantial portion of the property' in rule 73(1)(a), which does not seem to be the intention of the framers of the rule. The intention of the framers seems to be very clear that, in cases coming under rule 73(1)(a), any dishonest transfer, concealment or removal of any part of the property, would be sufficient to attract that provision, and in cases where rule 73(1)(b) is attracted, since it relates to the means of the defaulter, it has insisted on the dishonest sale, transfer or concealment of a substantial portion of the property.

In view of the above discussion, it is very difficult to accept the contention that such a construction would amount to punishment. The mode of arrest, it may be noted, is no more than a mode for recovery of the amount due and it is not for any offence committed or a punishment for defaulting in any payment, as has been observed by their Lordships of the Supreme Court in the case of collector of Malabar v. Erimmal Ebrahim Hajee.

Relying on the case of Harpal Singh v. Hira Lal, it is contended by Sri Narasa Raju, the learned counsel, that meeting other demands would not amount to neglect or refusal to pay, as provided in rule 73. As a general proposition of law, this argument may hold good. If the facts of the case disclose that the debtor had other claims to satisfy or other necessities to meet, and aspect the money on such purposes, in those cases it could be said that his conduct would not amount to neglect or refusal to pay. But the instant case is not one of that type. Here, even after the movable and immovable properties of the defaulter were attached and companies and banks were informed not to deal with him, the defaulter secretly purchased shares, withdrew amounts from the bank, sold his motor car and received moneys and, in spite of the fact that he had to pay the income-tax dues, he has not made any attempt to at least pay a portion of the dues, and there is no reliable evidence that he had to satisfy other claims or other necessities to meet. In these circumstances, it is difficult to accept that rule 73 would not be attracted. In the case relied upon by the learned counsel, there was no evidence to suggest that, when the judgment-debtor had the means, a request was made by the decree-holder and he refused to pay.

It is next contended by Sri Narasa Raju that there was not sufficient material before the authorities concerned to invoke the provisions of rule 73. It may be stated that the satisfaction whether the requirements of rule 73(1)(a) or (b) or both are complied with is that of the Tax Recovery Officer and is a matter entirely dependent on the evidence and the materials on record upon which the officer has to base his finding. It is not the province of this court in the exercise of its writ jurisdiction to review the material on record and to come to a different conclusion. This court is not sitting in appeal over the decision of the Tax Recovery Officer and so it cannot approach the matter as if it is an appellant court. Of course, if there is no evidence at all or if the evidence is such that no reasonable person could arrive at the conclusion which the Tax Recovery Officer has arrived at, then it will be a case of illegal or improper exercise of jurisdiction, and this court can, in the exercise of its writ jurisdiction, quash that order. Further, the Tax Recovery Officer cannot take any action under rule 73 before adopting the procedure laid down in rule 73, which is analogous to Order XXI, rule 40, of the Civil Procedure Code. Under rule 74, it is obligatory on the part of the Tax Recovery Officer to hear the Income-tax Officer and to take all such evidence as may be produced by him in support of execution by arrest and then give the defaulter an opportunity of showing cause why he should not be committed to civil prison. What emerges from the above discussion is that arrest and detention of a defaulter can be ordered only when the conditions set out in rules 73 and 74 are strictly satisfied, the burden of proving which lies on the Income-tax Officer. Both under rule 73 and section 51, Civil Procedure Code, it is necessary to give the defaulter an opportunity of showing cause why he should not be committed to prison. If the defaulter, in spite of notice being served on him, does not appear and show cause, still the Tax Recovery Officer or the court, as the case may be, has to record reasons in writing for ordering his arrest on the material placed before it by the Income-tax Officer or the decree-holder after being satisfied that the defaulter had or has had, since the date of the issue of the certificate or the decree, dishonestly transferred, concealed or removed any part of the property or had the means to pay the arrears or a substantial part thereof and refused or neglected to pay.

Panchapakesa Ayyar J., while considering the scope of the proviso to section 51, Civil Procedure Code, in K. V. Muthu Pathar v. R. S. Mani Rao, at page 582, observed thus :

'...... whether the judgment-debtor appears or not, the court has to record the reasons for ordering his arrest, and has to be satisfied positively, in cases like this, that the judgment-debtor has or has had since the date of the decree the means to pay the amount of the decree or some substantial part thereof and has refused or neglected to pay the same'.

Raghubar Dayal J. (as he then was) in Harpal Singh v. Hira Lal, while considering the procedure prescribed in Order XXI, rule 40, Civil Procedure code, corresponding to rule 73 of the Rules, observed thus :

'The judgment-debtor may or may not$file any written reply. It is for the decree-holder to lead his evidence in the presence of the judgment-debtor. Such evidence should be in support of his application for execution and should have reference to the grounds which, according to the decree-holder, would justify the arrest of the judgment-debtor in execution of the decree, and which should be one of the grounds mentioned in clauses (a) to (c) to the proviso to section 51. It is when the decree-holder has led prima facie evidence in support of his application that the judgment-debtor has to be give an opportunity of showing cause why he should not be committed to the Civil prison'.

The other question that arises is whether it is necessary for the decree-holder to give strict proof of the allegations made by him. In the case of V. P. Madhavan Nambiar v. Chaldean Syrian Bank Ltd., an identical question had come up. Mack J., delivering the judgment of the Bench consisting of himself and Basheer Ahmed Sayeed J., observed at page 410 :

'It is true that in this case the decree-holder has not been able to point precisely to any particular dishonest transfer or concealment, or to specific money in possession of the judgment-debtor out of which he could have paid the decretal amount since the date of the decree. If courts were to insist on specific evidence of this description, which amounts to positive proof, it would mean that judgment-debtors by skilful concealment of their assets and resourceful evasion will defeat decrees against them......

In my view it is perfectly open to a court to apply a judicial corrective to the extreme lengths to which the onus which Act IX of 1935 casts on decree-holders is sought to be taken by adopting the view that it is perfectly open to an executing court on all the material placed before it to come to an inference as regards the statutory findings required by provisos (a)(ii) and (b) of section 51, Civil Procedure Code. It is no doubt true that the onus rests on the creditor to prove the debtors liability to pay, and mere disbelief of the latters statement that he had no means to pay is not sufficient. Where, however, there is sufficient material shown to warrant an inference, as in the present case, that the judgment-debtor has actually been in possession of substantial assets a few months prior to the suit, an inference is perfectly justifiable that he has since the institution of the suit dishonestly concealed them, and furthermore, that he has since the date of the decree means to pay a substantial portion of it from assets he is concealing from the court'.

It is not, however, essential that the decree-holder should be required to give strict proof that there has been a dishonest transfer or a concealment of assets in some other manner or that the judgment-debtor had in his actual possession a sum of money out of which he could have paid a substantial portion of the decree. What is required is only prima facie evidence.

A perusal of the above judgments would show that the decree-holder must place some evidence or material on record from which an inference could be drawn that the judgment-debtor had transferred, concealed or removed any part of his property dishonestly or that he had means to pay the amount or a substantial part thereof, and refuses or neglects or had refused or neglected to pay the same. If there is no such material, it is not open to the court to call upon the judgment-debtor to give evidence to prove the negative. The requirements of the section are mandatory and the court cannot, ignoring those provisions, pass an order of arrest or detention. These principles, in our opinion, equally apply to the provisions of rules 73 and 74 of the Rules.

In the light of these observations, it is necessary for us to examine whether there are any such materials on record upon which the Tax Recovery Officer passed the impugned order which was subsequently confirmed in appeal. From the order of the Special Deputy Collector it appears that the Income-tax Officer (Special Investigation Circle), through his letter No. GIR 101-K dated 26th April, 1965, stated that the petitioner, after the receipt of the certificate by the Tax Recovery Officer, had dishonestly transferred, concealed and removed a part of his property and requested for the arrest of the petitioner. He also cited various instances where the defaulter had been refusing or neglecting to pay the arrears or some substantial part thereof. On receipt of this letter, notices were issued and, in answer to those notices, the defaulter appeared and submitted a petition on July 24, 1965. The Income-tax Officer filed a counter to this, to which the defaulter filed a reply on August 5, 1965. To the notice, dated July 27, 1965, under rule 73 by the Tax Recovery Officer, asking the defaulter to show cause why he should not be arrested and committed to civil prison, the petitioner by his objection petition, dated August 5, 1965, showed cause and adopted the objections contained in his verified petition dated July 24, 1965, and his reply dated August 5, 1965. In the objection petition, apart from the legal points urged by him as to the validity of the notice issued by the Tax Recovery Officer, he stated, without prejudice to the above contentions, that the condition precedent to the issue of the notice had not been satisfied. He denied having transferred, concealed or removed any part of his property, much less dishonestly, after the receipt of the notice of the Tax Recovery Officer and the second condition that he had the means to pay the amount or a substantial part of the same or had refused or neglected to pay the same. He stated that the first condition was also not satisfied. Even with respect to the second condition, he denied that he ever neglected or refused to pay the same. He reiterated all the facts that had been stated in the affidavit filed in support of the writ petition and contended that if all of his property was attached or sold, the respondents would have realised the taxes due. He also denied that he ever withdrew any amount from the accounts to conceal the same from the reach of the income-tax authorities. He stated that every transaction was duly recorded in the account books and amounts were withdrawn by him as would appear from the account books for only domestic expenses.

The counter filed by the department sets out the several transfers and collections made by the defaulter after the receipt of the notice, which have already been referred to in the earlier part of our judgment. We have also referred to the reply of the defaulter admitting all these items relied upon by the department and giving his explanation that all this was done during the course of his business, and denying that there was any dishonest concealment or transfer. Thus the defaulters stand was that all these amounts were used for his legitimate business purposes and that he had not in any way dishonestly transferred, mortgaged or charged any of his properties and that the allegation that he had not complied with the provisions of rule 16 was totally baseless.

So far as the allegations made by the Tax Recovery Officer in his counter and the admission of the petitioner in his reply thereto are concerned, both of which are signed and verified by the respective parties, they can properly be taken into consideration as admissions in the case. What inferences can be drawn from these admissions is no doubt left to the Tax Recovery Officer. In considering these, regard must be had to rule 16 which inhibits the defaulter from mortgaging, charging, leasing or otherwise dealing with his property except with the permission of the Tax Recovery Officer. It cannot be said that merely because the defaulter dealt with the properties for legitimate business purposes or that the moneys were brought to account before they were expended, he is absolved from the duty to discharge the demands made on him under the certificate. As discussed above, the defaulter was not competent to deal with any of the funds which he had dealt with, without the permission of the Tax Recovery Officer, after the receipt of the notice under rule 16 requiring him to pay the amount within fifteen days from the date of the notice. So the dealing with the several moneys, admitted to have been made by him, was in spite of the inhibition contained in the rule. At no stage did he make an attempt to pay any of these amounts towards the discharge of even the admitted liability of Rs. 4,00,000, which was a first and paramount charge; but, instead, on his own showing, preferred other creditors and spent the moneys as he liked under the guise of doing legitimate business. If, from the admitted facts, the Tax Recovery Officer drew the inference that the defaulter had acted dishonestly with a view to obstruct execution, we cannot say that such an inference does not reasonably arise and that he has committed an error of jurisdiction or of law in coming to that conclusion. We are, therefore, satisfied that the requirements of rule 73(1)(a) have been complied with.

As regards the requirements of rule 73(1)(b), on the admitted facts, it is also established that the defaulter had the means to pay a substantial amount of the arrears. This requirement also, in our opinion, appears to be fully satisfied.

What emerges from the above discussion is this : The appellant had to pay heavy income-tax dues. A certificate was issued to the Collector for recovery of the dues, and the Collector, pursuant to the said certificate, attached all the immovable properties of the assessee. The companies and banks were requested not to deal with him. It appears that, in spite of all this, the defaulter secretly dealt with some of his properties. The department came to know of this. Accordingly, the Special Deputy Collector issued a notice under rule 73 of the rules calling upon the defaulter to show cause why the certificate issued by the Income-tax Officer should not be executed by arresting and committing him to prison. The appellant challenged this but, having regard to the admission made by him, the Tax Recovery Officer was satisfied that the defaulter, with the object or effect of obstructing the execution of the certificate, had dishonestly transferred, concealed or removed his properties, and also that he had the means to pay the arrears or some substantial part thereof and refused or neglected or had refused or neglected to pay the same, and passed an order for the arrest of the defaulter and his detention in civil prison. In view of the above discussion, we think that the Tax Recovery Office was justified in taking that action. Our learned brother, Mr. Justice Jaganmohan Reddy, accepted the finding of the Tax Recovery Officer and refused to exercise the discretion vested under article 226 of the Constitution; and we do not think that there is anything wrong to call for our interference in this appeal.

The appeal is, therefore, dismissed with costs. Advocates fee : Rs. 250.

The appellant should surrender himself, as per his undertaking given in this court on December 23, 1965.

Appeal Dismissed.


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