Nahas Kakkattummal Vs ITO (Kerala High Court)
Summary: The appellant approached the Kerala High Court in a writ appeal after the learned Single Judge declined to exercise writ jurisdiction and relegated him to the alternative statutory remedy under the Income Tax Act, 1961. The dispute concerned amounts received by the appellant while pursuing postgraduate medical studies. According to the appellant, the amounts were stipend and not salary.
The appellant’s counsel contended that the assessment order had been issued by relying “blindly” on documents supplied by the University where the appellant was studying and drawing stipend, in which the sums were shown as salary. It was submitted that the appellant was admittedly a postgraduate student and that the amount received was stipend statutorily paid under law and in accordance with mandatory guidelines of the National Medical Commission. On that basis, it was argued that the Assessing Authority could not assess the receipts as salary.
Alternatively, the appellant sought liberty to produce additional documents before the Assessing Authority. Counsel pointed out that even the University communication relied upon by the Assessing Authority categorically certified that the appellant had been admitted to an MD/MS postgraduate course as a Junior Resident. It was submitted that such students were covered by the regulations of the NMC, which prohibited payment of salary but mandated stipend. The appellant also relied upon Ext.P5, which certified that he was a bona fide PG student of the University, and contended that the letters relied upon by the Assessing Authority were contrary to that certificate.
The Income Tax Department opposed the appeal. Its Senior Standing Counsel submitted that, when information was sought from the University, the Department received an intimation stating that the appellant had been paid salary “in lieu of the work tendered” (sic). The University letter had been extracted in the Assessment Order and, according to the Department, clearly showed that the payments were treated as salary. TDS had also been deducted and remitted. It was therefore argued that the matter involved disputed questions of fact and that the learned Single Judge had correctly relegated the appellant to the statutory remedy.
The Division Bench accepted that, where an alternative efficacious remedy exists, a writ petition under Article 226 of the Constitution would normally be untenable. However, the Court noted that established exceptions exist, particularly where the impugned order has been issued without adverting to relevant facts and law and consequently stands vitiated.
In the present case, the Assessing Officer had proceeded solely on the basis of the letters stated to have been received from the University, without adverting to the other documents relied upon by the appellant, including Ext.P5 and the Government Order under which he had been admitted to the course. The Court clarified that this did not necessarily mean that the Assessing Officer was at fault, since the assessee also had the responsibility of placing relevant material before the authority. At the same time, the appellant’s case was that he had not been given such an opportunity.
The Court considered it significant that the “stipend” paid to a student was admitted to be fully exempted from the ambit of the Act. The Assessment Order did not address this aspect and instead treated the sums as “salary” solely on the basis of certain documents obtained from the University. The Court held that whether the receipts were actually stipend was a vital question of fact which the assessee had to be given an opportunity to establish cogently before a conclusive view could be taken against him. TaxGuru has also discussed the taxation of student scholarships/stipends in its post Tax on scholarship/Stipends to students.
Accordingly, the High Court allowed the appeal and set aside both the impugned judgment of the learned Single Judge and Ext.P12 order. Full liberty was left with the Assessing Officer to reconsider the matter after affording the appellant the necessary opportunity to produce documents and other germane inputs, culminating in an appropriate fresh Assessment Order as expeditiously as possible.
The Court expressly clarified that it had not entered into the merits of the rival contentions. Its observations were confined to guiding the decision to set aside the existing order and provide the appellant an opportunity for fresh consideration.
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
The appellant is before us because the learned Single Judge has refused to exercise jurisdiction in the writ petition, and has relegated them to their alternative statutory remedy under the Income Tax Act, 1961 (‘Act’ for short).
2. Smt.Parvathy Menon – learned counsel for the appellant, argued that the impugned assessment order has been settled and issued by the Assessment Authority, “blindly” relying upon certain documents that were given to him by the University where her client is studying and drawing stipend, in which, such sums are erroneously shown to be salary. She insisted that, when her client is admittedly a student of post graduate studies, the amount received by him is only stipend, statutorily so paid to him under law and as per the mandatory guidelines of the National Medical Commission; and hence that the Assessment Authority could not have assessed it in any other manner.
3. Smt. Parvathy Menon then made an alternative submission that, in case this Court is not inclined to accept the afore, then her client may be offered the liberty of producing additional documents before the Assessing Authority in substantiation of his plea; and rued that this has also been denied to him by the learned Single Judge. She explained that, she is making this submission because, even going by the letter which the Assessment Authority has relied upon, the University, where her client is studying, have categorically certified that he has been admitted to MD/MS post graduate course as Junior Resident; and that such are covered by the regulations of the ‘NMC’, which prohibit payment of salary, but mandate stipend. She concluded, asserting that, in fact, the letters relied upon by the Assessment Authority go wholly contrary to Ext.P5 certificate, which her client has received, which certifies that he is a bona fide PG student of the University.
4. Sri. Harikumar Nair – learned Senior Standing Counsel for the Income Tax Department, countered the afore submissions, saying that, when his client sought information from the University where the appellant is stated to be studying, they received intimation to the effect that the latter have been paid salary “in lieu of the work tendered” (sic). He showed that the letter from the University has been extracted in the Assessment Order, which makes it luculent that the payments are being honoured to him as “salary”; and that TDS on it has also been deducted and remitted. He asserted that, therefore, since there are disputations of facts, the learned Single Judge was without error having relegated the appellant to his statutory remedy.
5. We have no ground for cavil with Sri. Harikumar Nair, to the extent that, when there is an alternative efficacious remedy, a writ petition under Article 226 constitution becomes normally untenable. However, there are well established exceptions to this, particularly when the order impugned is one which has been issued without adverting to relevant facts and law; and which, consequently, stands vitiated and inept.
6. In the case at hand, as mentioned above, the Assessing Officer has gone solely by the letters which he says he received from the University; but without adverting to the other documents that the appellant relies on, including Ext.P5, as also a Government Order under which he was admitted to the course in question.
7. This is not to say that we find blame on the Assessing Officer because, it was also upon the assessee to have placed relevant materials before him. Of course, the answer of Smt.Parvathy Menon to this, is that her client was not given such an opportunity.
8. Be that as it may, we cannot find favour with the impugned judgment, when it is admitted that the “stipend” paid to a student stands fully exempted from the ambit of the “Act”. The Assessment order does not answer this at all, but proceeds to hold that the sums in question are “salary”, relying solely on certain documents stated to have been obtained from the University. This certainly, is a vital question of fact which, the assessee requires to be given an opportunity of establishing cogently, before a conclusive view can be held against him.
9. In such circumstances, and for reasons afore, we allow this appeal and set aside the impugned judgment, as also Ext.P12 order; however, leaving full liberty to the Assessing Officer to reconsider the matter, after affording necessary opportunity to the appellant – both to produce necessary documents and other germane inputs; thus culminating in an appropriate fresh Assessment Order, as expeditiously as is possible.
10. We clarify that we have not entered into the merits of any of the rival contentions; and that our observations herein are only to guide us to the decision we have taken, and nothing more.
