Writ Petition Challenging Income Tax Recovery Notice Maintainable Where Part Of Cause Of Action Arises: Bombay High Court

The Court was hearing a petition challenging alleged outstanding income tax demands for three assessment years and a recovery notice issued under Section 220 of the Income Tax Act, 1961.

A Division Bench of Justice B. P. Colabawalla and Justice Firdosh P. Pooniwalla held: “… we reject the preliminary objection regarding territorial jurisdiction, ... we are of the considered view that at least part of the cause of action has arisen within the territorial jurisdiction of this Court, and therefore, we proceed to deal with the merits of the case”.

Advocate Dharan V. Gandhi appeared for the petitioner, while Advocate Arjun Gupta appeared for the respondents.

Background

The petitioner company approached the High Court, challenging alleged outstanding tax demands along with a recovery notice issued under Section 220 of the Income Tax Act.

The case arose after an erstwhile entity had first amalgamated with another company pursuant to an order of the Delhi High Court, and that company in turn amalgamated with the petitioner pursuant to an order of the National Company Law Tribunal, Mumbai Bench. The petitioner’s registered office was in Pune.

In February 2023, the petitioner received a recovery notice demanding payment of the aforesaid outstanding amounts. The notice was in the name of the erstwhile entity. According to the petitioner, it was unaware of these demands and therefore sought information under the Right to Information Act regarding the underlying orders said to have given rise to them.

The petitioner received a reply stating that for two assessment years, the demands were on account of rectification or intimation orders, but no such orders were supplied. Instead, only illegible screenshots of computation sheets were furnished. For the third assessment year, it was stated that the records were not available. Though the petitioner pursued first appeals under the RTI Act and obtained directions for furnishing full information, no such orders were ultimately supplied. On this basis, the petitioner contended that the demands were non-existent and the recovery notice was bad in law.

At the threshold, however, the respondents raised a preliminary objection regarding territorial jurisdiction. They argued that the impugned demands pertained to the erstwhile entity which had been assessed in Delhi, that the impugned orders or intimations had been passed by the assessing officer in Delhi, and that the relief sought was essentially against actions of the Delhi officer. It was therefore contended that the petitioner ought to be relegated to the Delhi High Court.

Court’s Observation

The Court began by noting that the issue of the territorial jurisdiction of a High Court to issue writs against authorities outside its territories has undergone significant development. It traced the legal position before the constitutional amendment, when jurisdiction under Article 226 depended principally on the location of the authority or respondent.

The Court referred to the decisions in Election Commission, India v. Saka Venkata Rao, K.S. Rashid and Son v. Income Tax Investigation Commission and the Seven-Judge Constitution Bench decision in Lt. Col. Khajoor Singh v. Union of India, which had held that the concept of cause of action could not be imported into Article 226 as it then stood.

The Court observed that the legal position underwent a “sea change” with the Constitution (Fifteenth Amendment) Act, 1963, which inserted clause (1-A), later renumbered as Article 226(2). This amendment specifically conferred jurisdiction on High Courts within whose territories the cause of action, wholly or in part, arises, notwithstanding that the seat of the Government or authority is outside those territories.

The Court therefore held that after the introduction of Article 226(2), even if the authority concerned is not within the territorial jurisdiction of a High Court, that High Court may still issue a writ provided the cause of action wholly or in part arises within its jurisdiction.

The Court then referred to the decisions of the Supreme Court in Navinchandra N. Majithia v. State of Maharashtra, Kusum Ingots & Alloys Ltd. v. Union of India, Om Prakash Srivastava v. Union of India and Nawal Kishore Sharma v. Union of India, and noted that these authorities have consistently held that even a small fraction of the cause of action is sufficient to confer jurisdiction, and that the expression “cause of action” means the bundle of facts necessary to be proved before the petitioner can succeed.

The Court next turned to the settled principle that the place where the impugned order is felt, or where its consequences operate, can also furnish part of the cause of action. In this context, the Court referred to Nawal Kishore Sharma, where the Supreme Court held that where communications rejecting claims were sent to the petitioner’s home State and he made representations from there, part of the cause of action arose there.

The Court also relied on Wills India Insurance Brokers (P.) Ltd. v. IRDA, where this Court held that merely because the head office of the authority was located outside the State, it could not be said that the petitioner was not affected within the territorial jurisdiction of this Court, where its registered office was situated. Further reliance was placed on Teleperformance Global Services Pvt. Ltd. v. ACIT, where this Court had held that since the successor company was in Mumbai and the impact of the impugned order was felt in Mumbai, part of the cause of action arose there.

On the strength of these authorities, the Court held that the law now clearly recognises that a High Court can exercise jurisdiction not only where the authority is located but also where the effect and consequences of the impugned action are suffered.

Having set out the legal position, the Court applied those principles to the facts before it. It recorded that the erstwhile entity had amalgamated with the petitioner, whose registered office was in Pune; that the recovery notice was received in Pune; that the impugned recovery notice and demands, even if originating from Delhi, had a direct impact on the petitioner in Pune; that it was the petitioner in Pune who would be affected by the recovery notice and alleged demands; that the consequences of the recovery actions would be felt in Pune; and that it was the petitioner in Pune who had to defend the proceedings and face coercive recovery actions. On this basis, the Court held that “a part of the cause of action has clearly arisen within the territorial jurisdiction of this Court.”

The Court rejected the argument that the petitioner had necessarily to approach the Delhi High Court merely because the original intimations or computation sheets had emanated from Delhi. It held that after the transfer of jurisdiction under Section 127, the legal situation had materially changed.

The Court then examined the impact of the transfer order under Section 127 of the Income Tax Act. It held that a transfer under Section 127 implies that “all proceedings under the Act in respect of any year which may be pending or which may have been completed or which is yet to be initiated are transferred to the transferee officer.” It therefore held that jurisdiction over the completed assessments for the assessment years in question also stood transferred to the Pune officer.

The Court expressly held that “the Delhi Officer is now functus officio,” and that any relief regarding the impugned demands could only be granted by the Pune officer. It accepted the petitioner’s contention that since the officer who now has to defend the case, redress grievances, and deal with recovery of the alleged demands is stationed in Pune, he is the right officer against whom a writ can be issued.

The Court therefore concluded that it did not impede entertaining the petition. The fact that the original orders or intimations may have emanated from Delhi did not oust the jurisdiction of the Bombay High Court; once the petitioner in Pune had received the recovery notice there, would suffer the recovery consequences there, and the current officer who had to deal with the matter was also located in Pune.

Conclusion

The Bombay High Court held that a part of the cause of action had arisen within its territorial jurisdiction and therefore the writ petition was maintainable before it. It further held that after transfer of jurisdiction under Section 127, the Pune officer was the officer competent to defend the proceedings, redress grievances and deal with recovery, while the Delhi officer had become functus officio.

Accordingly, the Court rejected the preliminary objection regarding territorial jurisdiction and proceeded to entertain the petition.

Cause Title: Capegemini Technology Services India Ltd v. Deputy Commissioner of Income Tax, Circle-1(1), Pune & Ors. (Neutral Citation: 2026:BHC-AS:15349-DB)

Appearances

Petitioner: Dharan V. Gandhi with Aanchal Vyas

Respondents: Arjun Gupta for Respondent Nos. 1 and 3

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