Table of Content
- Article 366 – Definitions
- Role of Constitutional Courts
- What can be challenged
- Vires Challenge
- Basics
- Unappealable Orders
- Jurisdiction
- Principles of Natural Justice
- Situations – Illustrative
- Writ & Alternate Remedy
- Direct challenge to order u/s 148A(d) read with notice u/s 148 of the Act
- Rule of Law
American jurist Oliver Wendell Holmes Jr., way back in 1927 famously observed that
“taxes are what we pay for civilized society.”
[Compañia General de Tabacos de Filipinas vs. Collector of Internal Revenue 275 U.S. 87, 100 (1927)]. Almost 50 years later, in the Indian context, Justice H R Khanna echoed the same sentiment:
“It has been said that the taxes are the price that we pay for civilization.”
[Parashuram Pottery Works Co. Ltd. vs. Income-tax Officer (1977) 106 ITR 1 (SC)]
No tax shall be levied or collected except by authority of law – Art.265. Taxes on income other than agricultural income – Art. 246 read with 7th Schedule, List I-Union List, Entry 82.
- Subject of tax
- Person liable to pay tax
- Rate of taxation
- Measure or value on which the rate is to be applied
1. Article 366 – Definitions
In this Constitution, unless the context otherwise requires, the following expressions have the meanings hereby respectively assigned to them, that is to say—
(28) “taxation” includes the imposition of any tax or impost, whether general or local or special, and “tax” shall be construed accordingly;
(29) “tax on income” includes a tax in the nature of an excess profits tax;
2. Role of Constitutional Courts
Constitutional Courts (CC) in India play a dual role – Appellate and Constitutional.
CC can be directly approached when there is no alternate efficacious remedy and issue is wrt enforcement of a fundamental right, breach of the principles of natural justice, the order or proceedings being wholly without jurisdiction; or the vires of a legislation under challenged.
CC plays a supervisory role and help in maintaining rule of law within their territorial jurisdiction.
An essential and independent check on abuse of power.
However, CC are flooded with writs and therefore a thorough overhaul of the system is needed.
3. What can be challenged
Vires of a statutory provision, Rule, Circular, Notification
Orders where appeal is not provided
Any action or inaction, order, direction, notice that is issued without jurisdiction, illegal and/or against the express provisions of law.
Any action or inaction, order, direction, notice that is in breach of principles of natural justice
Any action or inaction in maintaining rule of law.
4. Vires Challenge
4.1 Constitutional Validity of provisions & amendments
- Competence to tax (Art.265, Art.246, List I: Entry 82)
- Fundamental Rights (Art.14, 19(1)(g) subject to 19(6)) [equality, arbitrary, unreasonable, manifestly arbitrary, confiscatory, right to practice any profession, carry on any business, trade or occupation]
- Penalty & high tax rate in nature of penalty (Art. 20)
- Retrospectivity [CIT vs Vatika Township (P.) Ltd. ([2014] 49 taxmann.com 249/227 Taxman 121/367 ITR 466 (SC))]
- Reading Down
4.2 Constitutional Remedies
- High Court: Art.226
- Supreme Court: Art.32
- Writs: Mandamus, Prohibition, Certiorari, Quo warranto, Habeas
5. Basics
Fiscal statutes vs civil rights – greater latitude
Presumption in favour of the Constitutionality
When two views – view in favour of Constitutionality to be preferred.
6. Unappealable Orders
- S. 119 – CBDT’s order
- S. 127 – Transfer of cases
- S. 132 – Validity of search
- S. 132B – Release of assets seized during searched/requisitioned u/s 132A
- S. 132(3) – Prohibitory order
- S. 132(9B) – Provisional attachment post search
- S. 142(2A) – Special Audit
- S. 148A(d) & 148 – Reassessment
- S. 179 – Liability of directors
- S. 220 – Order rejecting application for stay of demand
- S. 226(3) – Recovery order/Bank attachment
- S. 264 – Revision order
- S. 279 – Order sanctioning prosecution
- S. 281B – Provisional attachment
- VsV and other such tax schemes
7. Jurisdiction
- Authority of law
- Territorial jurisdiction
- Limitation
- Assessing Officer
8. Principles of Natural Justice
Justice must not only be done but should manifestly be seen to be done
Audi Alteram Partem – no person be condemned unheard;
Assessment proceedings are quasi-judicial proceedings and therefore, the “principles of natural justice” are always to be observed in assessment proceedings;
No adverse order must be passed against any person unless such person is afforded a reasonable opportunity of being heard;
S. 144B supports this principle as at each stage, opportunity is provided to the Assessee to rebut;
Opportunity must not be illusionary or a mere eyewash; it should be real, effective and practical.
Broadly, principles culled out from various decisions can be summarized as under:
- Rule against bias
- Notice be given to the other side and also the evidence being relied upon in support of the notice be made known to the other side;
- Reasonable time to respond
- Right to be heard – Personal hearing be given to the affected party;
- An order be passed with reasons i.e. speaking order;
An “order” which infringes principles of natural justice, passed in violation of Audi Alteram Partem, is a nullity/illegality/irregularity in the eye of law.
9. Situations – Illustrative
- SCN issued – before compliance date AO is framed;
- SCN issued – adjournment sought – without dealing with adjournment application, AO is framed;
- SCN issued – adjournment sought and denied – AO is framed immediately;
- No SCN/draft AO issued before framing of final AO;
- SCN issued – reply filed but not considered in AO;
- SCN issued – reply filed but AO framed in few hours after reply is uploaded;
- SCN issued – reply filed – VC asked for – AO framed w/o granting VC;
- SCN issued – reply filed – VC asked for – but due to technical snags VC could not be joined or availed off – AO framed w/o VC;
- SCN issued – reference to VO requested – without any further information to assessee – AO framed.
When an order is passed in gross violation of principles of natural justice or not in accordance with law or the same is patently bad, illegal and without jurisdiction, Hon’ble High Court under Article 226, can certainly entertain writ petition even if alternate remedy of appeal is available.
Reference: Calcutta Discount Co. vs ITO [[1961] 41 ITR 191 (SC) @ 207-208, para 26-27-28] & Whirlpool Corporation vs Registrar of Trade Marks [(1998) 8 SCC 1, para 14 & 15].
10. Writ & Alternate Remedy
Ordinarily, orders can only be challenged in further appeal, if so provided, therefore Writ is not maintainable when there is an alternate remedy.
Exceptions to the rule of alternate remedy (Radha Krishan Inds v. State of HP [2021] 127 taxmann.com 26/48 GSTL 113/86 GST 665 (SC) & Whirlpool Corporation v/s Registrar of Trade Marks (1998) 8 SCC 1):
(a) the writ petition has been filed for the enforcement of a fundamental right protected by Part III of the Constitution;
(b) there has been a violation of the principles of natural justice;
(c) the order or proceedings are wholly without jurisdiction; or
(d) the vires of a legislation is challenged
Taxpayer could not be made to go thru the entire gamut of appellate proceedings when an order is inherently illegal and without jurisdiction, the alternate remedy thus, is not an efficacious remedy.
11. Direct challenge to order u/s 148A(d) read with notice u/s 148 of the Act
Since order u/s 148A(d) is not an appealable order, only writ can be filed against such order if assessee is aggrieved by such order and consequential notice u/s 148 of the Act.
In many cases, assessees challenged the said notices once again before High Court on the following amongst other grounds:
- Limitation;
- Escaped income not represented in the form of assets, expenditure or book entry;
- Escaped income below 50 lacs when reopening is beyond 3 years;
- Information not falling in the defined heads;
- Sanction is not by the proper authority;
- Change of opinion;
- No escapement at all.
- Reasons lack validity
12. Rule of Law
- Orders against settled position in law
- Binding jurisdictional judgments/orders
- Transfer of cases
- Refund
- Stay
- Non-disposal
- Any other action/inaction
Success is not final; failure is not fatal: it is the courage to continue that counts — Winston S. Churchill
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