G. MOHANDAS vs COMMISSIONER OF INCOME TAX

The petitioner in the writ petition in W.P. No. 17218 of 1999 who is the assessee on the file of the first respondent has filed the above writ

petition seeking to quash the proceedings in C. No. 1514-A/99-2000 dated 23-9-1999, issued by the 1st respondent.

The petitioner in the writ petition in W.P. No. 17919 of 1999, who is the wife of the petitioner in W.P. No. 17218 of 1999, has filed the writ

petition in W.P. No. 17919 of 1999 to quash the proceedings issued by the Ist respondent in C. No. 15 14-A/99-2000, dated 23-9-1999.

The facts are common in both the writ petitions. The petitioners claim that they were carrying on business originally at Trivandrum in Kerala. On

the basis that they proposed to shift the entire business activities to Chennai, in the State of Tamil Nadu, and as they have already shifted the

permanent residence from Trivandrum to Chennai, the petitioners made an application on 25-11-1996 to the Director General of Income Tax

(Investigation), Madras, to transfer the assessment files from Trivandrum to Chennai. On 8-8-1997, the Ist respondent passed the order

transferring the assessment files from Trivandrum office to Chennai. The said transfer took effect from 11-8-1997. This order was passed

exercising powers u/s 127 of the Income Tax Act, 1961 Income Tax Act.

The 1st respondent on the basis of the report submitted by the Assistant Commissioner of Income Tax, dated 5-8-1999, issued'' a show-cause

notice to the petitioners u/s 127 to show cause why the files, relating to the case of the petitioner in W.P. No. 17218 of 1999, in a group of case

have to be transferred from the Assistant Commissioner of Income Tax, Central Circle-1(6), Channei, to the Deputy Commissioner-II, Central

Circle, Trivandrum. A reply was filed on 8-9-1999 raising objections to the said transfer. After considering the said objections, the I 1st

respondent in the order dated 23-9-1999 retransferred the cases, the particulars of which are mentioned in Col. (3) of the Schedule annexed to

the order. The said order is being challenged in the above writ petitions.

The learned senior counsel appearing for the petitioners has submitted that the order suffers from mala fides, and is passed contrary to the

Circular of the Board, and also the report on which the order is passed, has not been furnished to the petitioners, and so the impugned order is

liable to be quashed. He has further submitted that the original transfer order is passed based on the direction given by the Central Board and so

the 1st respondent cannot now pass the impugned order, revoking the earlier order. On merits, the learned senior counsel has submitted that the

entire business has been shifted to Chennai and so the action of the 1st respondent in re-transferring the files to Trivandrum will not serve any

purpose and they will be put to great hardship.

The standing counsel for the department, appearing for the respondents, has submitted that though originally the order was passed transferring

the files on the basis of the representation given by the petitioners that they have transferred the entire business, it was found by the authorities that

the petitioners have not taken any steps to transfer the business to Chennai and thereby the authorities found it difficult to complete the assessment

for want of co-operation from the petitioners. He has also submitted that when the 1st respondent is having power u/s 127 to pass such an order,

this court cannot sit in appeal on the reasons given, especially when the 1st respondent passed the order after giving due opportunity to the

petitioners. Referring to the submission of the learned senior counsel appearing for the petitioners, regarding the Circular of the Board relating to

the transfer of files, the learned standing counsel has relied on the subsequent Circular dated 27-7-1999, in respect of the submission that the

Circular relied on by the petitioners cannot be pressed into service. He has further submitted that even now the petitioners are having business and

derive income in the State of Kerala and so the order passed by the Is L respondent has to be sustained.

To appreciate the rival contentions raised by the learned counsels on both sides, it is beneficial to extract section 127 which reads as follows:

Power to transfer cases.-(1) The Director General or Chief Commissioner or Commissioner may, after giving the assessee a reasonable

opportunity of being heard in the matter, wherever it is possible to do so, and after recording his reasons for doing so, transfer any case from one

or more assessing officers subordinate to him (whether with or without concurrent jurisdiction) to any other assessing officer or assessing officers

(whether with or without concurrent jurisdiction) also subordinate to him.

Section 5(7A) of the Indian Income Tax Act, 1922, contained a similar provision for transfer. It authorised the Commissioner to transfer the

case from the Income Tax Officer to another, subordinate to him, and the Central Board of revenue was authorised to transfer any case from one

Income Tax Officer to another. In the said provision, an opportunity of hearing the affected party has not been provided. But, u/s 127, the

Legislature has introduced the concept of natural justice and the requirement of recording reasons for making an order of transfer and

communication of the same to the assessee. It also gives power for transfer of a case from the jurisdiction of one Commissioner to another. It is

also helpful to refer the decided cases with reference to the scope of the said provision.

While dealing with the scope of section 5(7A), the Apex court in the decision in PANNALAL BINJRAJ AND ANOTHER Vs. THE UNION

OF INDIA AND OTHERS. (AND OTHER CASES)., , has elaborately dealt with the necessity to give reasoning in the order, and has held as

follows:

It is pointed that it will be next to impossible for the assessee to challenge a particular order made by the Commissioner of Income Tax or the

Central Board of revenue , as the case may be, as discriminatory because the reasons which actuated the authority in making the order will be

known to itself not being recorded in the body of the order itself or communicated to the assessee. The burden moreover will be on the assessee to

demonstrate that the order of transfer is an abuse of power vested in the authority concerned. This apprehension is, however, ill founded. Though

the burden of proving that there is an abuse of power lies on the assessee who challenges the order as discriminatory, such burden is not by way of

proof to the hilt. There are instances where in the case of an accused person rebutting a presumption or proving an exception which will exonerate

him from the liability for the offence with which he has-been charged, the burden in held to-be discharged by evidence satisfying the jury of the

probability of that which the accused is called upon to establish: (vide Rex v. Carr-Briant ( 194311 K.B. 607), or in the case of a detente under

the Preventive Detention Act seeking to make out a case of want of bona fides in the detaining authority, the burden of proof is held not to be one

which requires proof to the hilt but such as well render the absence of bona fides reasonably probable: (vide Ratanlal Gupta v. District Magistrate

of Ganjam ILR 1951 Ctk. 441, 459; also Brundaban Chandra Dhir Narendra v. State, of orissa (Revenue department) ILR 1952 Ctk. 5299 573.

If, in a particular case, the assessee seeks to impeach the order of transfer as an abuse of power pointing out circumstances which prima facie and

without anything more would make out the exercise of the power discriminatory, him, it will be incumbent on the authority to explain the

circumstances under which the order has been made. The court will, in that event, scrutinize these circumstances having particular regard to the

object sought to be achieved by the enactment of section 5(7A) of the Act as set out in para 4 of the affidavit of Shri V. Gouri Shankar, Under

Secretary, Central Board of revenue quoted above, and come to its own conclusion as to the bona fides of the order and if it is not satisfied that

the order was made by the authorities in bona fide exercise of the power vested in them u/s 5(7A) of the Act, it will certainly quash the same. The

standard of satisfaction which would have to be attained will necessarily depend on the circumstances of each case and the court will arrive at the

conclusion one way or the other having regard to all the circumstances of the case disclosed in the record. The court will certainly not be powerless

to strike down the abuse of power in appropriate cases and the assessee will not be without redress. The observations of Fazal Ali, J., in The State

of West Bengal Vs. Anwar Ali Sarkar, that the authority will say I am not to blame as I am acting under the Act'' will not necessarily save the order

from being challenged because even though the authority purported to act under the Act, its action will be subject to scrutiny in the manner

indicated above and will be liable to be set aside if it was found to be mala fide or discriminatory qua the assessee.'' (p. 586)

While dealing with the scope of jurisdiction of the Commissioner or the Central Board of revenue in passing the order of transfer, the Apex

court has held as follows:

It is, therefore, clear that the power which is vested in the Commissioner of Income Tax or the Central Board of revenue , as the case may be, u/s

5(7A) of the Act is not a naked and arbitrary power unfettered, unguided or uncontrolled so as to enable the authority to pick and choose one

assessee out of those similarly circumstance, thus, subjecting him to discriminatory treatment as compared with others who fall within the same

category. The power is guided and controlled by the purpose which is to be achieved by the Act itself, viz, the charge of Income Tax, the

assessment and collection thereof, and is to be exercised from the more convenient and efficient collection of the tax. A wide discretion is given to

the authorities concerned, for the achievement of that purpose, in the matter of the transfer of the cases of the assessees from one Income Tax

Officer to another and it cannot be urged that such power which is vested in the authorities is discriminatory in its nature.

There is a broad distinction between discretion which has to be exercised with regard to a fundamental right guaranteed by the Constitution and

some other right which is given by the statute. If the statute deals with a right which is not fundamental in character the statute can take it away but

a fundamental right the statute cannot take away. Where, for example, a discretion is given in the matter of issuing licences for carrying on trade,.

profession or business or where restrictions are imposed on freedom of speech, etc., by the imposition of censorship, the discretion must be

controlled by clear rules so as to come within the category of reasonable restrictions. Discretion of that nature must be differentiated from

discretion in respect of matters not involving fundamental rights such as transfers of cases. An inconvenience resulting from a change of place or

venue occurs when any case is transferred from one place to another but it is not open to a party to say that a fundamental right has been infringed

by such transfer. In other words, the discretion vested has to be looked at from two points of view, viz, (1) does it admit of the possibility of any

real and substantial discrimination, and (2) does it impinge on a fundamental right guaranteed by the Constitution? article 14 can be invoked only

when both these conditions are satisfied. Applying this test, it is clear that the discretion which is vested in the Commissioner of Income Tax or the

Central Board of revenue , as the case may be, u/s 5(7A) is not at all discriminatory.

It follows, therefore, that section 5(7A) of the Act is not violative of article 14 of the Constitution and also does not impose any unreasonable

restriction on the fundamental right to carry on trade or business enshrined in article 19(1)(g) of the Constitution. If there is any abuse of power, it

can be remedied by appropriate action either under article 226 or under article 32 of the Constitution and what can be struck down is not the

provision contained in section 5(7A) of the Act but the order passed thereunder which may be mala fide or violative of these fundamental rights.

This challenge of the vires of section 5(7A) of the Act, therefore, fails."" (p. 588)

The Division Bench of the Rajasthan High Court in Shri Rishikul Vidyapeeth and Shri Rishikul Brahmacharya Ashram Vs. Union of India

(UOI) and Others, , while dealing with the scope of section 127, has held that in the matter of transfer of a case u/s 127 the convenience of the

assessee cannot override the need of the revenue for better investigation of the case.

The Division Bench of the Delhi High Court also in the decision in Sameer Leasing Co. Ltd. Sing Co. Ltd. Vs. Chairman, Central Board of

Direct Taxes and others, , while dealing with the scope of section 127, has held as follows:

It was also contended that the provisions of section 127(2) of the Income Tax Act were ultra vires as it contained no guidelines on the basis of

which the transfer could be effected. We are unable to agree with this contention. The power u/s 127 of the Act is to be exercised in public interest

and in the interest of administration of the Act. In order to safeguard the interest of the assessee, an opportunity of being heard is granted and the

section further requires reasons to be stated for transferring a case. The decision to transfer can be taken, in a case like the present, only if there is

a concurrence between the two Commissioners of Income Tax who may be concerned with the transfer. When such high functionaries agree to the

transfer and a show-cause notice is issued and reasons are contained in the order of transfer and those reasons appear to be germane to the

transfer and show that the transfer has been made in the public interest and for a proper adjudication under the Act, we do not see how the

impugned provision can be said to be ultra vires.""(p. 133)

Again, the Division Bench of the Patna High Court, while dealing with the scope of section 127 in the decision in Jharkhand Mukti Morcha Vs.

Commissioner of Income Tax and Others, , has held as follows:

Section 127 does not contain the grounds on which a case is to be transferred. It has been left to the discretion of the authority which has to be

exercised by it in public interest. It is neither possible nor desirable to enumerate the grounds which can be said to be valid grounds for transfer u/s

127 of the Act. it depends upon the facts of each case. However, the paramount consideration for transfer should be in the public interest and the

power is to be guided and controlled to serve the purpose of the Act. The power is not to be exercised on arbitrary or flimsy grounds nor the same

should be exercised for extraneous or irrelevant considerations. If the transfer is being made for the purpose of co-ordinated investigation for the

purpose of assessment and collection of tax in a more convenient or efficient way, then it will be a good ground for transfer."" (p. 294)

From the abovesaid decisions, it is clear that the transfer of a file can be made on the basis of public interest and to implement the provisions

effectively. While doing so, the convenience of the assessee cannot stand in the way. But the said power should not be exercised arbitrarily or on

flimsy grounds, nor for extraneous or irrelevant considerations. The said requirement can easily be assessed from the reasons given in the order as

it is mandatory on the part of the officer to give such reasons u/s 127.

So, now this court has to test the validity as well as sustainability of the order on the basis of the abovesaid decided cases.

In the impugned order dated 23-9-1999, the Commissioner, Central-I Chennai-34, exercising powers u/s 127, transferred the cases

mentioned therein from the Assistant Commissioner, Income Tax, Central to the Deputy of Income- tax, Central Circle, Trivandrum. The reason

given by the Commissioner in the impugned order is as follows:

Shri G. Mohandas and the individual members of the group are still ordinary residents in Kerala. The Company, Kerala Hotels (P.) Ltd., is

controlled and, managed from Trivandrum only. The registered office ostensibly maintained at Chennai has virtually no establishment for maintaining

books of account and other particulars required in connection with- co-ordinated investigation. The business activities of the group as of now

carried out are substantially controlled from Kerala. The properties'' and assets belonging to the group are all located in Kerala. The contemplated

expansion and collaboration in business ventures in Tamil Nadu are not sufficient reasons for continuing the cases to be dealt with in Central Circle,

Chennai.

According to the learned senior counsel appearing for the petitioners, the reasons stated in the impugned order are not correct and the same

has been passed with the mala fide intention. For the submission regarding mala fide intention of the Commissioner, this court does not find any

materials in support of the said vague averments in the affidavit. Except stating that the order impugned has been passed with the mala fide

intention, no details nor materials in support of the said submission have been placed before this Court. So, the said submission of the learned

senior counsel cannot be countenanced.

In this case, it is not in dispute that the petitioners were given opportunities to put forth their points of view in the matter of transfer. The

petitioner has also filed reply and on that basis, the objections by way of reply have been considered by the Commissioner in the impugned order.

With respect to the jurisdiction of the Commissioner to pass the impugned order also, there cannot be any dispute. Such a procedure of transfer of

files is contemplated only with a view to deal with the assessment files of an assessee by an Income Tax Officer who is in-charge of the area where

the assessee resides or is carrying on business. While doing so, the officer who transfers the files should have in his mind consideration about the

organisation, advantage and convenience of the officials of the revenue to effectively discharge their statutory functions and also there should not be

inconvenience or harassment of the assessee by such transfer. But no assessee can claim a basic right of being assessed by one officer rather than

another.

In the present case, originally the files were transferred as requested by the petitioners, from the Assistant Commissioner, Income Tax, Central

Circle, Trivandrum, to Central Circle 1(6), Chennai, by Notification dated 8-8-1997, as directed by the Commissioner of Income Tax, Central

Circle I(6), Chennai, for co-ordinated investigation. The said order was passed on the request made to the Director General of Income Tax

(Investigation), Chennai, by Shri G. Mohandas in his petition dated 25-11 -1996 on the basis that he had shifted his residence permanently to

Chennai, and his accountant and senior advocates were based at Chennai. But, subsequently, the Assistant Commissioner of Income Tax, Central

Circle-I(6), Chennai, filed a report that the said Mohandas and the other individuals of his group are generally residing in Kerala, that the business

of the group is carried on, controlled substantially from Kerala and the properties and assets belonging to the group are located in Kerala. It is also

stated that though Office is maintained at No. 31/2, 111 Cross Sterling Road, Chennai-34, there is only a watchman there and due to the same,

the service of notices, fixing hearing, etc., have become avoidably time consuming. It is also stated that the authorised representative is based at

Trivandrum making it difficult for the assessing officer at Chennai to secure regular compliance. On the basis of the same, the Commissioner issued

show-cause notice on 30-8-1999 with respect to his proposal to transfer the cases again to Trivandrum office. The said Mohandas, the petitioner,

through his authorised representative, filed a reply on 8-9-1999. After considering the said objection, on the grounds mentioned in the show-cause

notice, the Commissioner passed the impugned order.

The learned senior counsel appearing for the petitioners has submitted that the original order of transfer from Trivandrum to Chennai was

passed as directed by the Director General of Income Tax (Investigation) and so the Commissioner has no jurisdiction to pass the present order.

The said submission cannot be accepted. The earlier order was also passed by the Commissioner exercising powers u/s 127 and so it cannot be

said that the Commissioner cannot pass the present order exercising powers under the same provision.

The main submission of the learned senior counsel appearing for the petitioners is that most of the assessments have been completed after

transfer in the Chennai Office, and the assessees have already transferred the registered office to Chennai, and they are gradually closing down the

business at Trivandrum. Further, the transfer of the registered office of Kerala Hotels (P.) Ltd., has been approved by the CLB, in the Company

Petition No. 394/17/SRB of 1998, dated 31-12-1999. The petitioners have also produced the certificate of incorporation with respect to the

company called Surya Mass Amusement (P.) Ltd., to show that they have established the said company in Chennai. The learned senior counsel

has also submitted that the petitioners have permanently shifted their residence to Chennai, On that basis the learned senior counsel has further

submitted that no purpose will be served by re-transferring the files to Trivandrum, and the authorities also cannot discharge their official functions

effectively.

On the other hand, the learned standing counsel appearing for the respondents, has submitted that the authorities found it very difficult to serve

the notices in the Chennai Office, and the authorised representatives of the petitioners are residing only at Trivandrum and so the authorities were

not able to complete the assessments at all. On that basis, the learned standing counsel has further submitted that the order of the Commissioner is

well-founded in re-transferring the files to Trivandrum so as to enable the authorities to discharge their functions effectively. Further, the re-transfer

has been made only on the basis of the report of the Assistant Commissioner, Income Tax, Central Circle-1(6), Chennai-34. Though the impugned

order does not speak about the proceedings of the Assistant Commissioner dated 5-8- 1999, in the counter it is stated that the basis for passing

the impugned order is the order of the Assistant Commissioner, and the said report was submitted by the Assistant Commissioner as called for by

the Commissioner of Income Tax, Central Circle-I(6), Chennai.

In the report of the Assistant Commissioner, it is stated that the assessee is residing at Kerala, controlling the affairs of the business from there

itself, and the entire business activities of the group are carried out only from Kerala, that the office being maintained at Madras is only for name-

sake, and there is no one manning the said office other than a watchman, and that because of the same, even a routine and ordinary job of serving

the notices and fixing dates for hearing has become a time consuming and problematic exercise. It is also stated that the authorised representative

of the assessee is based in Trivandrum. He has also referred to the appeals and also transferring of files in huge bulk. On that basis the Assistant

Commissioner has submitted that the interests of the revenue are being affected adversely.

Further, the Commissioner of Income Tax (Central), Chennai-34, has stated the following reasons to pass the impugned order:

(1) Shri G. Mohandas and the individual members of the group are still ordinary residents of Kerala;

(2) The company, Kerala Hotels (P.) Ltd., is controlled and managed from Trivandrum only;

(3) The registered office alleged to have been established at Cnannai is not maintaining any books of account and other particulars required in

connection with co-ordinated investigation;

(4) The properties and assets belonging to the group are located in Kerala; and

(5) The assessee has not expanded or collaborated business ventures in Tamil Nadu.

In support of the impugned order, the learned standing counsel appearing for the respondents, as stated earlier, has submitted that the

assessing officers are not able to proceed with assessment, as they could not serve the notices properly and get the assistance from the assessees.

Though the learned standing counsel has referred to certain orders, they will not help the learned standing counsel to substantiate the submission.

The earlier order of transfer was passed by the first respondent on 8-8-1997, during the accounting year 1997-98 (assessment year 1998-99),

and all the proceedings submitted before this court are only with respect to the said period. Only during that period, the earlier order was passed

by the first respondent, and so the said documents will not help the respondents to substantiate their case that the properties of the petitioners are

in Kerala State. In spite of the said fact, the earlier order of transfer was passed by the first respondent on 8-8-1997. From the typed set of

papers produced, 1 am able to see that till the date of the earlier order of transferer was passed by the first respondent, the notices and orders of

the respondents were addressed to the petitioners'' address at Trivandrum, though copy has been marked to the Chennai address. But, after

passing the said transfer order dated 8-8-1997, all the communications had been sent to the address at Chennai of the petitioners and not to the

address at Trivandrum. Further, it is not the case of the respondents that those communications were not served, and they were returned to them

for non-delivery. From the abovesaid fact, it is clear that the case of the respondents that the petitioners are not residing at Chennai cannot be

accepted.

Though this court cannot sit in appeal on the reasonings to find out whether any arbitrariness is involved in such transfer of files, this court has

to find out the correctness of the reasonings given in the impugned order. When the petitioners are able to establish that the registered office had

been transfer-red to Channai, which has been approved by the CLB, even though if the files have been transfer-red to Trivandrum, the

respondents, as contemplated u/s 282 of the Act, have to send the notices and the other communications only to the registered office, which is

situated at Chennai. Even for the individuals, the respondents have been sending communications only to Channai address of the petitioners, and so

they have to continue the same, even if the files are transferred to Trivandrum office. It is relevant to mention here the fact that either the files are in

Chennai or in Trivandrum, they are under the control of the Commissioner, Central. Merely because the assessees are not able to produce the

account books for the present, it cannot be said that the files relating to the assessees have to be transferred to Trivandrum office.

Moreover, the petitioners have now produced the details about the properties purchased in Tamil Nadu. As rightly submitted by the learned

senior counsel appearing for the petitioners, the properties purchased by the petitioners in Kerala State cannot be sold immediately, and they shall

sell them in the course of the period. When the petitioners are able to establish that they have transferred their residence and the registered office to

Chennai, no purpose would be served, if the assessment files are in Kerala. So, even in the interest of the revenue, the files should be allowed to be

in Chennai office. So, the reasons stated in the impugned order cannot be sustained, as it will not serve the purpose. The reasons given in the

impugned order cannot be said to be in the interest of public or in the interest of administration. Though the inconvenience of the assessees need

not be taken as sole ground, it should consideration. Since the power has been exercised arbitrarily and on flimsy grounds, the impugned order

cannot be sustained.

The learned senior counsel appearing for the petitioners has also relied on the Circular dated 9-6-1999 in support of his submission that prior

approval of the CBDT was not obtained and so the impugned order cannot be sustained. In the said Circular, it is stated that there is a ban on

transfer of jurisdiction from the assessing officer to another (except with the prior approval of the Board) introduced during the last year which will

remain in force till 1-4-2000. But, this Government Circular has, subsequently, been modified by another Circular dated 27-7-1999, the portion of

which runs as follows:

It is being further clarified that where the process involves decentralisation of the cases from Central charges to the jurisdictional CsIT charges,

prior approval of the Board is not necessary provided Permanent Account Nos. (PANs) have already been allotted to all such cases. To ensure

this, Permanent Account Nos. of all such assessees should invariably be included in the order u/s 127 effecting decentralisation. However,

decentralisation of the cases should take place only after the search assessments have been completed and/or no investigations are pending in such

cases.

Even in the Circular No. 770, dated 16-9-1998 issued by the Government of India, it is stated that any instructions with reference to transfer

of cases are purely administrative in nature and the same do not in any way curtail the statutory powers vested in the Income Tax authorities by

law, and while no case would be transferred in a routine manner, the exceptional cases of sensitive nature or those requiring the centralization and

decentralization on priority basis or where the Court''s directions are to be complied with, the orders for change of jurisdiction may be passed only

after obtaining the prior approval of the Board. From the above, the submission of the learned senior counsel appearing for the petitioners based

on the said Circular dated 9-6-1999 cannot be countenanced.

For the reasons stated above, the impugned proceedings of the first respondent are set aside, and these writ petitions are allowed accordingly.

But, this will not preclude the first respondent to pass an order in the later stage, if it is necessary, and the said order should be passed in

accordance with law. No costs. Consequently, W.M.P. Nos. 24965, 24966, 26075 to 26077 of 1999 are closed.