JUDGMENT
Arijit Pasayat, C.J.
1. Three orders of attachment issued under Section 281B of the Income-tax Act, 1961 (in short the Act) are subject matter of challenge in this Writ Petition. The said orders were issued by the Deputy Commissioner of Income-tax”, (Central) Circle-II (in short DyCI), purportedly to protect the interest of revenue and after obtaining prior approval of the Commissioner of Income-tax (Central), (in short the Commissioner). Total amount covered by the three orders aggregates to Rs. 23.52 crores and were in respect of shares of and security deposit with M/s Sunair Hotels Ltd, and balance due from M/S Television (Eighteen) India Ltd.
2. Filtering out unnecessary details, petitioner’s case is as follows:
Petitioner company was incorporated in January, 1986 with the name of Vardhman Leasing and Services Ltd. The name was changed to VLS Finance Ltd on 8-9-1994. Petitioner, inter-alia, carries on the business of leasing, hire purchase, providing loan and finance to other corporate entities including portfolio management, corporate consultancy and capital market operations. It also carries on business of hire-purchase and leasing in respect of industrial and office equipments including boilers, cylinders, cinematographic films, vehicles etc. Some of these items are eligible to normal as well as high rate of depreciation under the Income-tax laws. In normal course of its business it has also entered into sale-cum-lease back transactions. Some of the lease pronotes relating to these transactions were at times discounted to assure availability of finance.
3. On 22 June, 1998, a search and seizure operation under Section 132 of the Act
was carried out in petitioner’s office as well as the residential premises of its Directors. Simultaneously, survey operations at Mumbai, Madras and Kanpur offices were carried out. In course of search various, documents, books of accounts and cash of Rs. 8 lakhs was seized. Photo copies of various lease files, mainly those pertaining to assets on which 100% depreciation was claimed and allowed for assessment years 1995-96 and 1996-97 were also taken. Placing reliance on certain statements recorded and on the basis of search and investigation, department came to a prima facie conclusion that lease transactions where 100% depreciation had been allowed was so done erroneously.
4. On 28-6-1999, DyCI issued notice under Section 158BC requiring petitioner to file return within 16 days for the block period 1-4-1988 to 22-6 -1998. Petitioner requested for grant of time as complete copies of seized documents were yet to be supplied. By letter dated 13-7-1999 prayer was made for supply of photo copies of orders and seized material to be furnished at the earliest. Petitioner also requested for extension of 45 days to file the return under Section 158BC. On 22-7-1999 the jurisdiction over the case was transferred w.e.f. 26-7-99 from Joint Commissioner Special Range 10 to DyIC. Respondent No. 2 withdrew the notice under Section 158BC dated 28-6- -99 and issued a fresh notice requiring the petitioner to file return within 16 days of the receipt of notice. By letter dated 10-8-99 the petitioner requested for grant of time upto 10-9-99. On 23-8-1999, the impugned orders under Section 281B were passed. They related to the following assets:
(a) 70,00,000 equity shares of Rs. 10 each of M/s Sunair Hotels Ltd.
(b) Investment in the form of security deposited of Rs. 7 crores and interest of Rs. 4 crores thereon pertaining to Sunair Hotels Ltd.
(c) The debt of Rs. 4.52 crores due from M/s Television (Eighteen) India Ltd to the petitioner.
Vide letter dated 24-8-1999 the petitioner requested DyCI to withdraw attachment. It was explained that the shares of Sunair Hotels Ltd have no ready market because these shares are not listed in any stock exchange and that with great persuasion and prolonged litigation, the promoters of Sunair Hotels Ltd have agreed to buy back these shares. Details of proceedings before Company Law Board filed under, Sections 250, 397 and 398 of the Companies Act, 1956 were also produced. It was explained that the petitioner was in the process of recovering its dues from M/s Sunair Hotels Ltd inasmuch as in terms of settlement reached before the Company Law Board, M/S Sunair Hotels Ltd would pay Rs. 19 crores in two instalments. Request was also made for withdrawal in respect of attachment relating to Television (Eighteen) India Ltd. and security deposit with Sunair Hotels Ltd. It was specifically urged that there was no chance of petitioner running away leaving liabilities unadjusted. In any event its net worth was much more than tax liability that can ever be fastened. Since prayer to withdraw the order of attachment was not acceded to, Writ Petition has been filed.
5. Learned counsel appearing for petitioner submitted that without application of mind orders under Section 281B have been passed. According to him, the authorities have not recorded any finding that petitioner would avoid its liabilities. Applying the concept of attachment before judgment in terms of Order 38 Rule 5 of Code of Civil Procedure, 1908, (in short the CPC), it was submitted that material to form an opinion about the chance of non-recovery did not exist. On the other hand, no reasonable person would come to a conclusion that there is likelihood of the petitioner not discharging the liability and running away. It was submitted that financial report for the periods 1997-98 indicate financial stability of the petitioner company. In other words, it is submitted that the department, if so chooses, can keep under attachment properties other than those in respect of which orders have been passed and that would be substantial enough to take care of any liability which may be fastened consequently.
6. In the counter-affidavit filed by the respondents, it has been pointed out that the orders passed under Section 281B are perfectly in order. Assessing officer was satisfied that it was necessary to attach properties of the assessee in order to protect the interest of revenue. Due approval was taken from the concerned Commissioner on 12-8-1999. Assessing officer had sent a proposal to the Commissioner seeking his approval for provisional attachment of the properties which was forwarded to the Joint Commissioner who opined that it was a fit case for provisional attachment. On 30-8-1999, the Joint Commissioner forwarded the proposal to the Commissioner and by order dated 17-8-1999 the Commissioner after examining the proposal, recorded his observation that this is a fit case where attachment was necessary. While making the proposal for provisional attachment, it was observed by the assessing officer that action under Section 132(1) was taken on 22-6-1998 in VLS group of cases and during the course of search Rs. 19.02 lakhs cash, US dollars 2100 and jeweller valued at Rs. 10.49 lakhs and large number of incriminating documents were seized. Prima facie investigations by the investigation wing showed that the group has indulged in adjusting the profits earned during several years with the carried forwarded losses that were accumulated in the past years. The affairs of the group were also arranged in such a way, so as to evade huge amount of tax running into crores of rupees. It was indicated that manipulation of large magnitude was done by showing losses despite the profits earned as per the profit and loss accounts. Figures are shown below:
YEAR
Profit As per
P&L A/C
RETURNED INCOME
1994-95
10,06,77,880
(-) 1,44,19,270
1995-96
23,17,23,665
(-)36,37,53,770
1996-97
48,04,53,957
(-)25,89,79,850
1997-98
16,14,67,802
(-) 1,22,39,470
1998-99
4,99,79,161
(-) 17,45,606
7. It was also found that group has been indulging in bogus and illegal claim of depreciation on assets, particularly those which are eligible for hundred per cent depreciation. It relates to bogus buy and lease back transactions in cinematograph films which were purchased at nominal rate and has been sold for a very high value as per the appraisal report. Assessing officer found that the claim of depreciation is not allowable. On scrutiny of seized papers and subsequent investigation made by the Investigation Wing concealment of income was revealed details of which have been given in the appraisal report. It was also observed that addition on account of depreciation on cinematograph films would be in the neighbourhood of Rs. 96,32,66,864/-. Several other substantial additions were likely to be made. Details of investment were also mentioned in the proposal. This being the background, it was apprehended that the assessee may liquidate the assets making it impossible to recover tax. Therefore, an opinion was formed that provisional attachment would be necessary. On such prima facie view approval was granted by the joint Commissioner as well as by the Commissioner. Therefore, it is stated that the requirements of Section 281B have been complied with. It was pointed out that the entire chain of fraud practised by the assessee has been discovered by the Department. The tax effect only on this count will be in the neighbourhood of Rs. 58 crores excluding any interest and penalty which may be levied. Further option lies with the assessing officer as to which assets it thinks desirable to attach provisionally. The apprehension about the assessee not cooperating in liquidating the likely demand was arrived at on the basis of sufficient material. Modus operandi adopted by the assessee was to camouflage the transactions of lease of 100% items. Assessee was disclosing heavy losses for 1994-95 to 1998-99 and the total loss amounted to Rs. 65 crores during the aforesaid period. Assessee’s sinister design is evident from the disclosure of cost of leased assets at Rs. 120.66 crores as on 31-3-99 in its annual accounts. Investigations have revealed that the assessee has over valued the cinematographic films by about a thousand times so that the films worth Rs. 10,000/ has been allegedly purchased for Rs. one crore. Due opportunity was granted to the assessee in the matter
8. By order dated 20-9-1999 it was directed by the Court that the outcome of the writ petition will not affect the transaction of the petitioner with Sunair Hotels Ltd. in assumption of proceedings before the Company Law Board.
9. As indicated above, petitioner’s stand is of unreasonableness and non-application of mind. Revenue’s reply is that the procedural safeguards have been complied with.
10. Section 281B is pivotal provision which reads as follows:
281B. Provisional attachment to protect revenue in certain cases.-(1)
Where, during the pendency of any proceedings for the assessment of any income or for the assessment or reassessment of any income which has escaped assessment the Assessing Officer is of the opinion that for the purpose of protecting the interests of the revenue it is necessary so to do, he may, with the previous approval of the Chief Commissioner or Commissioner, by order in writing, attach provisionally any property belonging to the assessee in the manner provided in the Second schedule.”
For its operation two factors are necessary to be noted. Firstly, the existence of opinion of the assessing officer that for the purpose of protecting the interest of revenue, it is necessary to provisionally attach any property belonging to the assessee in the manner provided in the Second Schedule. Secondly, previous approval of the Chief Commissioner or the Commissioner, as the case may, by an order in writing. Section 281B confers a power to be exercised during proceedings for assessment so that the assessee does not fritter away or secrete his resources out of the reach of the department when assessment is completed Section 94(b) CPC provides that in order to prevent the ends of justice from being defeated the Court may, if it is so prescribed, direct the defendant to furnish security to produce any property belonging to him and to place the same at the disposal of the Court or order the attachment of any property. Order 38 Rules 5 and 6 CPC prescribe that where at any stage of a suit the Court is satisfied that the defendant, with intent to obstruct or delay the execution of any decree that may be passed against him is about to dispose of the whole or any part of his property or is about to remove the same from the local limits of the court’s jurisdiction it may attach before judgment such portion of defendant’s property as is sufficient to satisfy any decree that may be passed. The conditions that “the Court must be satisfied that the defendant, with intent to obstruct or delay the execution of any decree that may be passed against him or is about to dispose of the whole or any part of his property or is about to remove the same from the local limits of the court’s jurisdiction are not specifically stated in Section 281B but underlying object that the ends of justice should not be defeated is implicit in Section 281B.
10. We shall first deal with the stand of the parties under the scope of judicial review in such matters. The scope of judicial review in matters of administrative decision has been highlighted by the Courts in many cases. In recent times the distinction between administrative orders and judicial or quasi judicial orders have practically ceased to exist in view of primacy of the Rule of law. Administrative action is stated to be referable to broad area of Governmental activities in which the repositories of power may exercise even class of statutory function of executive quasi legislative and quasi judicial nature. It is trite law that exercise of power, whether legislative or administrative, will be set aside if there is manifest error in the exercise of such power or the exercise of the power is manifestly arbitrary. (See State of U.P. V. Renusagar Power Co., ). At one time, the traditional view in England was that the executive was not answerable where its action was attributable to the exercise of prerogative power. Professor De-Smith in his classical work ‘Judicial review of Administrative Action’ (4th Edition at pages 285-287) states the legal position in his own terse language that the relevant principles formulated by the Courts may be broadly summarized as follows. The authority in which a discretion is vested can be compelled to exercise that discretion, but not to exercise it in any particular manner. In general, a discretion must be exercised only by the authority to which it is committed. That authority must genuinely address itself to the matter before it, it must not act under the dictates of another body or disable itself from exercising a discretion in such individual cases. In the purported exercise of its discretion, it must not do what it has been forbidden to do, nor must it do what has been authorized to do so. It must act in good faith, must have regard to all relevant consideration and must not be influenced by irrelevant considerations, must not seek to promote purposes alien to the letter or to the spirit of the legislation that gives it power to act, and must not act arbitrarily or capriciously. These several principles can be conveniently grouped in two main categories; (i) failure to exercise a discretion, and (ii) excess or abuse of discretionary power. The two classes are not, however, mutually exclusive. Thus, discretion may be improperly fettered because irrelevant considerations have been taken into account and where an authority hands over its discretion to another body insets ultra vires.
11. The present trend of judicial opinion is to restrict the doctrine of immunity from judicial review to those class of cases which relate to deployment of troops entering into international treaties, etc. The distinctive features of some of these recent cases signify the willingness of the Courts to assert their power to scrutinies the factual bases upon which discretionary powers have been exercised. Judicial review has developed to a stage today when, without reiterating any analysis of the steps by which the development has come about, one can conveniently classify. The first ground is ‘illegality’ the second ‘irrationally’ and the third ‘procedural impropriety’. Those principles were highlighted by Lord Diplock in Council of Civil Service Union v. Minister for the Civil Services, (1984) 3 All ER 935 if the power has been exercised on a non-consideration or non-application of mind to relevant factors the exercise of power will be regarded as manifestly erroneous. If a power (whether legislative or administrative) is exercised on the basis of facts which do not exist and which are patently erroneous such exercise of power will stand vitiated. See Commissioner of Income-tax v. Mahindra and Mahindra Ltd. AIR 1984 SC 1132 (1983 Tax LR 1286). The effect of several decisions on the question of jurisdiction has been summed up by Grahme Aledous and John Alder in their book ‘Applications for Judicial Review, Law and Practice’ thus:
“There is a general presumption against outstanding the jurisdiction of the Courts, so that statutory provisions which purport to exclude judicial review are constructed restrictively. There are, however, certain areas of Governmental activity, national security being the paradise, which the regard themselves as incompetent to investigate, beyond an initial decision as to whether the Government’s claim is bona fide. In this kind of non-justiciable area judicial review is not entirely excluded, but very limited. It has also been said that powers conferred by the Royal Prerogative are inherently unreviewable but since the speeches of the House for the Lords in Council of Civil Services Union v. Minister for the Civil Service this is doubtful. Lords Diplock, Scorman and Roskill appeared to agree that there is no general distinction between powers, based upon whether their source is statutory or prerogative but that judicial review can be limited by the subject-matter of a particular power. In that case national security. Many prerogative powers are in fact concerned with sensitive, non-justiciable areas for example foreign affairs, but some are reviewable in principle, including the prerogative relative to the civil service where national security is not involved. Another non justiciable power is the Attorney-General’s prerogative to decide whether to institute legal proceedings on behalf of the public interest.”
Also see Pedfield v. Minister of Agriculture, Fisheries and Food; L.A. (1968) AC 997; and Council of Civil Service v. Minister for the Civil Service, (1984) 3 All ER 935 (ML).
12. The Court must while adjudicating validity of an executive decision grant a certain measure of freedom of play in the joints to the executive. The problems of Government are practical ones and may justify, if they do not require, rough accommodations; illegal, it may be, and unscientific. But even such criticism should not be hastily expressed. What is best is not discernible, the wisdom of any choice may be disputed or commented upon. Mere errors of Government are not subject to judicial review. It is only palpably arbitrary exercise which can be declared void. Only when the action of the administrative authority is so unfair or unreasonable that no reasonable person would have taken that action, can the court intervene. While fair play is an essential ingredient of such action, similarly fair play in the joints is also a necessary concomitant for administrative body functioning in an administrative spherd or quasi-administrative sphere.
13. “Discretion”, Lord Mansfield stated in classic terms in John Wilke’s case (197) 4 Hurr 2528, must be a sound one governed by law and guided by rule, not by humour. Lord Denning put it eloquently in Breen v. Amalgamated Engineering Union, (1971) 1 All ER 1148, that in a Government of Laws “there is nothing like unfettered discretion immune from judicial reviewability.” Courts stand between the executive and the subject alert, to see that discretionary power is not exceeded or misused. Discretion is a science of understanding to discern between right or wrong, between shadow and substance, between equity and colourable glosses and pretence and not to do according to one’s wills and private effections. Lord Brightman elegantly observed in the case of Chief Constable of North Wales Police v. Evans, (1982) 3 All ER 141 that:
“Judicial review, as the words imply is not an appeal from a decision, but a review of the matter in which the decision was made.”
In Tata Cellular v. Union of India , the apex Court classified the grounds of challenge as under:
“Therefore, it is not for the court to determine whether a particular policy or particular decision taken in the fulfilllment of that policy is fair. It is only concerned with the manner in which those decisions have been taken. The extent of the duty to act fairly will vary from case to case. Shortly put, the grounds upon which an administrative action is subject to control by judicial review can be classified as under:
(i) Illegality: This means the decision maker must (ii) understand correctly the law that regulates his decision (iii) making power and must give effect to it. (iv) Irrationality, namely, Wednesbury unreasonableness, (v) Procedural impropriety.”
14. The action of the State, the instrumentality, any public authority or person whose actions bear insignia of pubic law element or public character are amenable to judicial review and the validity of such action would be tested on the anvil of Article 144 of the Constitution of India, 1950 (in short Constitution). The classic passage from the judgment of Lord Greens M.R. in Associated Provincial Picture Houses Ltd. v. Wednesbury Corporation, (1948) 1 KB 223 illuminatingly states the position in law. The same reads as follows:
“It is true the discretion must be exercised reasonably. Now what does that mean? Lawyers familiar with the phraseology commonly used in relation to exercise of statutory discretions often use the word ‘unreasonable’ in a rather comprehensive sense. It has frequently been used as a general description of the things that must not be done. For instance, a person entrusted with the discretion must, so to speak, direct himself property in law. He must call his own attention to the matters which he is bound to consider. He must exclude from his consideration matters which are irrelevant to what he has to consider. If he does not obey those rules, he may truly be said, and often is said to be acting ‘unreasonably’. Similarly there may be something so absurd that no sensible person could over dream that it lay within the powers of the authority.”
Judged in the background, it cannot be said that impugned orders are suffers from any in infirmity to warrant judicial review.
15. The other relevant aspect is “the opinion” of the assessing authority on the subject of attachment.
“Opinion” means something more than mere retaining of gossip of hearsay; it means judgment of belief, that is, a belief or a conviction resulting from what one thinks on a particular question (See Dolagovinda Paricha v. Nimai Charan Mishra, ). It means : judgment of belief based on grounds short of proof. (Concise Oxford English Dictionary). If a man is to form an opinion and his opinion is to govern, he must form it himself on such reasons and grounds as seen good to him. (Per Lord Bramwell in All croft v. London (Bishop) (189.1) R.C. 666.
16. So far as the question as to which of the assets could have been attached, ii is as fairly conceded by the learned counsel for the petitioner, is the subjective satisfaction of the assessing authority. It is for him to decide as to which of the assets could be liquidated without difficulty for realization of the tax assessed. The assessee cannot compel the assessing officer to attach any particular property. Stand of the revenue is that the assets seized were those which were realizable without much difficulty and therefore orders of attachment were passed in respect of those assets. Admittedly, since the matter lay within the subjective view of the assessing officer, no execution can be taken to the exercise of such power.
17. Lastly, it was submitted by the learned counsel for the petitioner that initiator of the proceedings under Section 158B was misconceived. According to him if there was any escapement of under assessment of income, different provisions could have been resorted to. This assertion is disputed by the learned counsel for the respondent. Since proceedings under Section 158BC are pending, we do not think it appropriate to express any opinion in that regard as it lies within jurisdiction of assessing authority to consider that question. Above being the position, there is no merit in the writ petition which is dismissed.
