Lopamudra Misra vs. ACIT (Orissa High Court)

S. 220(6): AO should not adopt “extra legal steps” of threatening or inducing the assessee for tax recovery

The assessee won Rs. 25 lakhs in “Kaun Banega Crorepati”. On receipt of the prize money by the assessee from Star Plus, the AO issued a notice u/s 208 directing her to pay advance-tax. Though the assessee claimed that the prize was not taxable, the AO deputed an Inspector and wrote a letter in which he threatened the assessee that 300% penalty would be levied and prosecution launched and that the assessee would have no defence. He also assured that upon receiving clarification from the CBDT, the advance-tax would be refunded with interest. Based on the threats of the AO, the assessee paid advance-tax of Rs. 7.55 lakhs. In the s. 143(3) order, the AO held that the prize money was taxable u/s 2(24) (ix) even though the amendment to tax TV game shows was inserted w.e.f. 1.04.2002. The CIT (A) accepted that s. 2(24)(ix) did not apply but held that the prize money was chargeable as “income from other sources”. The Tribunal upheld the AO’s stand that the winnings were taxable u/s 2(24)(ix). The High Court remanded the matter to the Tribunal for reconsideration pursuant to which the Tribunal allowed the assessee’s appeal and dismissed the department’s appeals. The department filed an MA before the Tribunal which was also dismissed and no further appeal was filed by the department. In giving effect to the Tribunal’s order, the AO treated the winnings as “income from other sources” despite the Tribunal decision that the assessee’s appeals were allowed. The assessee filed a Writ Petition to challenge the AO’s effect order. HELD:

The AO’s action of assessing the award as income shows utter disregard to the order of the Tribunal and lacks judicial propriety which is not expected from the AO who is subordinate to the Tribunal. The AO’s action of threatening the assessee with penalty and prosecution and deputing his inspector to collect the advance-tax is certainly not a healthy practice. In order to gain faith of the assessees and create confidence in the minds of the tax payers and for smooth administration of tax law, the Revenue authorities must act in a fair and legal manner. Every action of the State and its instrumentality should be fair, legitimate and above board and without any affection or aversion. The Government cannot be permitted to play dirty games with the citizens of this country to coerce them in making payments which the citizens were not legally obliged to make. If any money is due to the Government, the Government should take appropriate steps, but it should not take extra legal steps or adopt the course of maneuvering. Because of discontentment, it is necessary to provide guidelines for just exercise of the power of Revenue authorities. To prevent the abuse of power and to see that it does not become a new despotism, courts are gradually evolving the principles to be observed while exercising such power. New problems call for new solutions.