Gujarat High Court Says It Cannot Tinker With CBDT's Informant Reward Calculation Unless Patently Arbitrary

The Gujarat High Court has recently refused to interfere with the Central Board of Direct Taxes' (CBDT) decision fixing the reward payable to an informant under the 2007 Reward Guidelines.

It held that the reward is an ex gratia payment and that the court cannot re-evaluate the methodology adopted by the Full Board unless its determination suffers from manifest illegality or patent arbitrariness.

A Division Bench of Justice A.S. Supehia and Justice Vaibhavi D. Nanavati dismissed the writ petition filed by a real estate consultant. He had sought enhancement of the reward granted for information relating to tax evasion by the Sheladia Group.

“Since the amount of reward is an ex-gratia reward and is not governed by any statutory provisions and the petitioner has also filed an undertaking, this Court cannot step into the shoes of the expert Body like the CBDT and tinker with the amount arrived on a systematic calculations unless there is manifest illegality or the fixation of the amount of reward is premised on patent arbitrariness de hors the policy,” the court observed.

The real estate consultant had supplied information to the Income Tax Department alleging tax evasion in land transactions undertaken by the Sheladia Group. Acting on the information, the department conducted a search on December 14, 2010. The court noted that tax to the tune of ₹8.12 crore was collected. It also recorded that part of the tax recovered related to parties not connected with the information furnished by the informant.

The recommending authority proposed a reward of ₹44.55 lakh, calculated at 5.48% of ₹8.12 crore. After reconsidering the matter pursuant to an earlier order of the High Court, the CBDT Full Board fixed the final reward at ₹17.51 lakh. Since ₹15 lakh had already been paid, the balance amount of ₹2.51 lakh was released to the informant.

Before the High Court, the informant argued that the CBDT ought to have accepted the recommendation of the recommending authority. He contended that he was entitled to the higher reward proposed by that authority.

The Revenue contended that the Full Board had independently assessed the material. It submitted that the Board applied the weightage prescribed under the 2007 Reward Guidelines while determining the final reward. The Revenue also argued that the grant of reward was discretionary and did not confer any vested statutory right on the informant.

Examining the record, the court noted that the Full Board had reconsidered the proposal in detail and differed from the recommending authority's approach. It observed that the Board reassessed the accuracy of the information supplied. The Board also allotted weightage under the Guidelines and recalculated the reward after evaluating the information and applying the methodology it considered appropriate under the policy.

“The Board has minutely considered all the factors and the weightage to be given on the information and the documents,” the court held.

The bench also noted that the informant had furnished a declaration accepting that the reward was an ex gratia payment within the absolute discretion of the competent authority. The declaration further recorded that he had no right to dispute the correctness of the decision in any court of law.

Finding no manifest illegality or patent arbitrariness in the Full Board's determination, the High Court declined to interfere with the reward fixed by the CBDT.

For Petitioner:  Jit P. Patel

For Respondents: Varun K. Patel