Kanchipuram Silk Handloom Weavers' Co-Operative Marketing Society Ltd v. The Commissioner Of Income-Tax Chennai-Viii

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 12.03.2007 CORAM: THE HONOURABLE MR.JUSTICE P.D.DINAKARANandTHE HONOURABLE MRS.JUSTICE CHITRA VENKATARAMAN W.P.No.1869 of 2004 Kanchipuram Silk Handloom Weavers'Co-operative Marketing Society Ltd.320, Gandhi RoadKanchipuram-631 501 by itsSpecial Officer Sri.V.Ramamoorthy.. Petitionerversus 1. The Commissioner of Income-tax Chennai-VIII 121, Uttamar Gandhi Road Chennai-600 034. 2. The Addl. Commissioner of Income-tax Vellore Range Karpagam Buildings Officers Line Vellore-632 004. 3. The Income-tax Officer, Ward I Income-tax Buildings, M.M.Avenue Kancheepuram-631 501. .. Respondents ----- PRAYER: Writ petition filed under Article 226 of the Constitutionof India for the issue of a writ of Certiorari calling for therecords pertaining to the to the impugned order dated 15.12.2003in C.No.C.VIII/22(33)/2002-03 on the file of the first respondentconfirming the order of the second respondent dated 25.6.2002 inC.R.No.23(11)/VLR/2001-02 and quash the same. For petitioner :Mr. S. Karthigayen for Mr.G.Jayachandran For respondents :Mrs.Pushya SitaramanSenior Standing Counsel forIncome Tax ORDER (Order of the Court was made by CHITRA VENKATARAMAN,J.) This writ petition is filed against the order of theCommissioner of Income Tax, Chennai-8, seeking a prayer to quashthe order dated 15.12.2003 in C.No.C.VIII/22(33)/2002-03,confirming the order of the Additional Commissioner of Income Tax,Vellore Range. 2. The assessee/writ petitioner is a Cooperative Society. Itis engaged in the business of marketing silk sarees produced byits members. It provides credit facilities, provides godowns onhire to the members, showroom facilities etc. It is stated thatin the year 1991, the Income Tax Department took the view that thepetitioner was not entitled to have the benefit of exemption underSection 80P(2) of the Income Tax Act. 3. The assessment was completed, denying the exemption underSection 80P(2). The successive appeals to the appellateauthorities resulted in a rejection. Thereafter, the assesseepreferred an application for reference to this Court under Section256(2). This Court directed the Tribunal to decide the case andit is stated that the same is pending. It is stated that for theassessment year 1986-87 and 1987-88, the third respondent, theassessing authority, completed the assessment. Apart fromdemanding the tax, he also levied interest under Section 217 ofthe Act in view of the default committed in payment of advancetax. Interest under Section 139(8) was also imposed for thedefault committed in not filing Returns within the time permittedunder Section 139(1) of the Act. 4. It is stated that the petitioner availed the benefit ofthe Kar Vivad Samadhan Scheme. It also filed an applicationbefore the second respondent and sought for waiver of the entireinterest levied under Section 139(8) and 217 of the Act. By itsapplication dated 12.4.1999, the petitioner pleaded that thepetitioner was suffering huge financial strain and that there wereno fixed assets. They also impressed on the fact that theliability itself could be met only from the working capital onloan borrowed from the Kancheepuram Central Cooperative Bank Ltd. 4. It is stated that the petitioner availed the benefit ofthe Kar Vivad Samadhan Scheme. It also filed an applicationbefore the second respondent and sought for waiver of the entireinterest levied under Section 139(8) and 217 of the Act. By itsapplication dated 12.4.1999, the petitioner pleaded that thepetitioner was suffering huge financial strain and that there wereno fixed assets. They also impressed on the fact that theliability itself could be met only from the working capital onloan borrowed from the Kancheepuram Central Cooperative Bank Ltd. The utilisation of the cash credit for purposes other thangranting of loan to the members would only bring the society to agrinding halt. In the circumstances, they prayed for waiver ofinterest for the period 1986-87 to 1987-88. The AdditionalCommissioner of Income Tax, second respondent herein, took theview that the delay in completion of the assessment wasattributable to the petitioner and that a perusal of the latestbalance sheet for the year 2000-01 showed the balance atRs.5,92,762/- and investment in shares and in bank. Hence, itcould not be viewed that there is difficulty in payment ofinterest. However, taking note of the fact that the assessmentwas completed after one year from the date of filing and thenotice under Section 143(2), interest attributable to the period26.4.1996 to 5.11.1998 was waived. 5. Aggrieved by this, the petitioner preferred a petition forreview and once again impressed on the fact that due to the severefinancial crisis, the petitioner met the Chairman of the CentralBoard of Direct Taxes, under whose advise, the petitioner went infor the Kar Vivad Samadhan Scheme, that they had no fixed assets;the society collected meagre interest from the members forproviding credit facilities. It also pointed out that the sharecapital held with other cooperative institutions could not berealised and that it was under a statutory obligation to investtheir share capital in the Cooperative Bank in which the Societywas having full financial transactions. It further contended thatthe Society had to invest 20% of its profits in Reserve Funds,according to the Tamil Nadu Cooperative Societies' Rules. Eventhe balance sheet for the year ended 31.3.2002 showed a shortfallor deficit in the commitment towards reserve fund investments.The Employees' Provident Fund investment belonged to theEmployees' Society. The petitioner is a mere custodian of suchfunds on behalf of the employees. Considering this, thepetitioner listed out its liabilities and the loss incurred as on30.6.2002 and prayed that the case be considered sympathetically. 6. By order dated 5.8.2002, the second respondent rejectedthe petition on the ground that there was no review power. Hence,the petitioner appealed to the Commissioner to the Income Tax, thefirst respondent herein, wherein, it reiterated its contentions asstated above and prayed for waiver, which would work to thebenefit of the society and save it from financial disaster;thereby, extend protection to 1000 weavers' families. 7. By order dated 15.12.2003, the first respondent hereinconsidered the claim and stated that under Rule 117-A, the requestfor waiver or reduction of interest could be considered in thefollowing circumstances, namely, (i) where the return of income is furnished by a person whohas been treated under Section 163 as an agent of non-residentand is assessed in respect of latter's income; (ii)where the return of income is furnished by an assesseewhose only source of income during the relevant previous yearis a share in the income of an unregistered firm which has beenassessed on its total income in respect of that previous yearunder clause (b) of section 183; 7. By order dated 15.12.2003, the first respondent hereinconsidered the claim and stated that under Rule 117-A, the requestfor waiver or reduction of interest could be considered in thefollowing circumstances, namely, (i) where the return of income is furnished by a person whohas been treated under Section 163 as an agent of non-residentand is assessed in respect of latter's income; (ii)where the return of income is furnished by an assesseewhose only source of income during the relevant previous yearis a share in the income of an unregistered firm which has beenassessed on its total income in respect of that previous yearunder clause (b) of section 183; (iii) where the return of income of a deceased individual isfurnished by his legal representative and the legalrepresentative satisfies the (Assessing Officer) that he hadsufficient cause for not furnishing such return within time; (iv)where the return of income has been furnished in pursuanceof a notice issued under Section 148; (v) any case in which the assessee produces evidence to thesatisfaction of the (Assessing Officer) that he was preventedby sufficient cause from furnishing the return within time. 8. So too, under Rule 40, the request for waiver or reductionof interest could be considered in the following circumstances,namely,(i) when the relevant assessment is completed more than oneyear after the submission of the return, the delay inassessment not being attributable to the assessee; (ii) where a person is under Section 163 treated as an agent ofanother person and is assessed upon the latter's income;(iii)where the assessee has income from an unregistered firmassessed under the provisions of clause (b) of section 183;(iv)where the previous year is the financial year or any yearending about the close of the financial year and large profitsare made after the 1[st] March (or the 15[th] March in cases wherethe proviso to section 211 applies), in circumstances whichcould not be foreseen; (v)any case in which the (Deputy) Commissioner considers thatthe circumstances are such that a reduction or waiver of theinterest payable under Section 215 or Section 217 is justified. 9. The first respondent commented that the petitioner had noother convincing explanation for non-compliance of notice for theassessment years 1986-87 and 1987-88. He pointed out that theplea of the petitioner centered only on financial hardship. Heviewed that the case of the assessee/petitioner did not fall forconsideration under the conditions listed in the rules. Hefurther viewed that the second respondent had already consideredthe waiver as regards the portion of interest in terms of Rule 40(5). In the absence of any exceptional circumstances shown and there being no valid reason, quoting the decisions reported in 214ITR 364 (PRATAP SINGH CHANDRA SINGH Vs. CIT) and 234 ITR 227(SANTHOSH ELECTRICALS Vs. ITO), the first respondent, rejectedthe prayer for waiver and thereby confirmed the order of thesecond respondent. 10. Aggrieved of this, the petitioner has come by way of thiswrit petition. 11. Learned counsel appearing for the petitioner submitted thatthe authorities below failed to consider the difficulties faced bythe petitioner and that their financial position was in a very badshape. He also pointed out that with great difficulty, thepetitioner had paid huge liability of Rs.11,76,662/- under the KarVivad Samadhan Scheme. He also pointed out that the petitionerwas not a habitual defaulter. In the circumstances, he prayedthat the order of the first respondent confirming the order of thesecond respondent be set aside. 10. Aggrieved of this, the petitioner has come by way of thiswrit petition. 11. Learned counsel appearing for the petitioner submitted thatthe authorities below failed to consider the difficulties faced bythe petitioner and that their financial position was in a very badshape. He also pointed out that with great difficulty, thepetitioner had paid huge liability of Rs.11,76,662/- under the KarVivad Samadhan Scheme. He also pointed out that the petitionerwas not a habitual defaulter. In the circumstances, he prayedthat the order of the first respondent confirming the order of thesecond respondent be set aside. 12. He also pointed out that the petitioner was directed todeposit 50% of the interest amount under order dated 5.2.2004 inW.P.M.P.No.2056 of 2004. Learned counsel appearing for thepetitioner submitted that the petitioner filed its return ofincome on receipt of a notice under Section 142(1) declaring thetotal income as nil and claiming the entire income as deductibleunder Section 80P(2)(a) of the Income Tax Act. Due to thedifficult financial circumstances, the petitioner had to seek forinstallment payment. Rule 117A(5) empowers the authorities toconsider the plea of waiver chargeable under Section 139(8) and217 where an assessee produces evidence to the satisfaction of theassessing officer that he was prevented by sufficient cause in notfurnishing the return within time. Rule 40 also provides under SubRule (5) that the Commissioner may consider the circumstanceswhich would warrant a reduction or waiver of interest payableunder Section 215 of the Act. The assessee submits thatconsidering the financial crunch and the issue on liabilityremaining uncertain at that point of time, the authorities oughtto have considered the prayer favourably. He pointed out that forthe assessment years 1982-83 and 1983-84, the prayer for waiverwas considered to grant a reduction of fifty per cent only. Hefurther pointed out that the petitioner had satisfactorilyexplained the doubt of the Additional Commissioner as regards theinvestment in shares and in banks as well as the balanceavailable. Considering the explanation offered, the firstrespondent erred in overlooking these circumstances whichcertainly fall for consideration under Rule 40(5) as well as Rule117-A(5). 13. Learned senior standing counsel appearing for therespondents, however, submitted that considering the fact that theauthorities below had considered the prayer and rejected the same,the question of taking a different view in this matter does notarise. 14. It is a fairly settled proposition of law that grantingwaiver is a matter of discretion, yet, the exercise of discretionunder the Rules referred to above is conditional upon thesatisfaction of the authorities concerned as to the existence ofthe appropriate circumstances alone. Hence, the conclusion as towhether the circumstances exist or do not exist will ordinarily bea finding of fact. In exceptional circumstances, the High Courtwould exercise its writ jurisdiction to find out whether the viewof the authorities below is sustainable and supported by anyevidence or based upon the view of facts which could never bereasonably entertained. The jurisdiction to interfere is a veryrestrictive one that High Court will not interfere or reverse thefinding of the authorities if the conclusion for rejection ofwaiver plea or reduction of the liability on interest is found tobe a possible conclusion drawn from facts. 15. In the case on hand, the petitioner has projected thereasons for granting waiver, takking a considerate view. Thefirst respondent herein has stated that there is no whisper of anyfacts and circumstances which compelled the inaction on the partof the assessee. The perusal of the order shows that the firstrespondent has not considered the various circumstances projectedin its petition and the explanations offered on the question ofits financial difficulties and hardships faced. In thecircumstances, we accept the plea of the petitioner herein to theextent that the matter requires re-consideration at the hands ofthe first respondent. Considering the detailed petition made bythe petitioner herein, in fitness of things, it is necessary thatthe Commissioner considers the facts projected and pass orders inaccordance with law. 16. Consequently, we set aside the order of the first respondentand remit the matter back to the first respondent for a de novoconsideration and pass orders in accordance with law within aperiod of three months from the date of receipt of a copy of thisorder, after affording reasonable opportunity to the petitionerherein to substantiate its claim. The writ petition is disposed of accordingly. Consequently,W.P.M.P.No.2056 of 2004 is closed.Ksv Sd/Asst.Registrar /true copy/Sub Asst.RegistrarTo:1. The Commissioner of Income-tax Chennai-VIII 121, Uttamar Gandhi Road Chennai-600 034.2. The Addl. Commissioner of Income-tax Vellore Range Karpagam Buildings Officers Line Vellore-632 004.3. The Income-tax Officer, Ward I Income-tax Buildings, M.M.Avenue Kancheepuram-631 501. + one cc to Mrs. Pushya Sitaraman, SCGSC SR NO. 15298 + one cc to Mr. S.Karthikeyan, Advocate sr no. 15123 sgl(co)nm(26.03.07) W.P.No.1869 of 2004 https://hcservices.ecourts.gov.in/hcservices/