Madras Race Club, Guindy Race Course, Chennai – 600 032. Rep. By Its Member P.m.antony, Committee Of Management v. The Commissioner Of Income-Tax, Chennai-Iii

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 09.11.2017 W.P.No.29916 of 2004 Madras Race Club,Guindy Race Course,Chennai – 600 032.rep. By its Member P.M.Antony,Committee of Management.... PetitionerVs. 1.The Commissioner of Income-tax, Chennai-III, 121, Mahatma Gandhi Road, Chennai – 600 034. 2.The Assistant Commissioner of Income-tax, Company Circle IV(1), Chennai. 3.The Joint Commissioner of Income-tax, Special Range VII 121, Nungambakkam High Road, Chennai – 600 034.... Respondents Prayer: Petition filed under Article 226 of the Constitution ofIndia praying for issuance of a Writ of Certiorari to call forthe records in C.No.3057/29/III/2002-03 dated 30[th] August, 2004on the file of the 1[st] respondent. ORDER The petitioner is a company registered under Section 25 ofthe Indian Companies Act, 1956 with objects of encouraging andpromoting racing as a sport. In this writ petition, thepetitioner has challenged an order passed by the Commissioner ofIncome Tax (Chennai-III) [hereinafter referred to as “CIT] dated30.08.2004 rejecting the application filed by the petitionerunder Section 220(2A) of the Income Tax Act, 1961 requesting forwaiver of interest, which was levied on the petitioner for the https://hcservices.ecourts.gov.in/hcservices/ assessment year 1985-1986. 2.The following facts would be essential to decide as towhether the CIT was justified in rejecting the application forwaiver. 3.For the assessment year 1985-1986, the petitioner filed areturn of income on 30.09.1985 declaring taxable income ofRs.8,19,088/- after setting off of the carried forward lossamounting to Rs.32,14,404/-. 4.The Government of Tamil Nadu enacted The Madras Race Club(Acquisition and Transfer of undertaking) Act, 26 of 1986[hereinafter referred to as “Acquisition Act”], to provide forthe acquisition, for a public purpose, and transfer ofundertaking of the petitioner and for matters connectedtherewith or incidental thereto. In terms of Section 4 of theAcquisition Act, on the appointed date, i.e. 09.04.1986, theundertaking of the petitioner Club and the right, title andinterest of the Club in relation to its undertaking shall, byvirtue of the Acquisition Act, stood transferred to, and vestedin, the Government. In terms of Section 3(e) of the AcquisitionAct, “Government” means the State Government and Section 3(f)defines “Government Company” to mean a Corporation or a Companywholly owned by the State. The payments to be made, wereeffected by a Commissioner appointed by the Government in termsof Section 14 of the Acquisition Act. Every person having aclaim against the petitioner with regard to any of the mattersspecified in Second Schedule to the Act pertaining to theundertaking shall prefer a claim before the Commissioner withinthirty days from the specified date in terms of Section 17 ofthe Acquisition Act. Section 18 provides for “Priority ofclaims” and which Category I claim shall have precedence overall other categories and Category II shall have precedence overcategory III and so on. The Second Schedule to the Act containsfive Categories in which Order of Priority, the liability of thepetitioner have to be discharged and taxes fall under the VCategory, being the last Category and in the Order of Priority,they are V and the I being wages and salaries due to employeesetc. 5.The affairs of the petitioner Club was vested with theGovernment with effect from 10.04.1986 to 23.02.1996, when itwas handed over back to the petitioner, in the interregnum,certain events have taken place which would be of relevance todecide the correctness of the impugned order. As stated above,the return filed by the petitioner in September/October, 1985carried forward a loss for the assessment year 1984-1985amounting to Rs.32.14 lakhs. This return was taken up forscrutiny and an assessment order was passed on 15.03.1988(petitioner Club was under the control of the Government). In 5.The affairs of the petitioner Club was vested with theGovernment with effect from 10.04.1986 to 23.02.1996, when itwas handed over back to the petitioner, in the interregnum,certain events have taken place which would be of relevance todecide the correctness of the impugned order. As stated above,the return filed by the petitioner in September/October, 1985carried forward a loss for the assessment year 1984-1985amounting to Rs.32.14 lakhs. This return was taken up forscrutiny and an assessment order was passed on 15.03.1988(petitioner Club was under the control of the Government). In the said order of assessment, the carried forward loss forassessment year 1984-1985 was determined as Rs.35,435/- asagainst return filed by the petitioner being Rs.32.14 lakhs.Accordingly, a demand for tax of Rs.35,61,928/- was raised onthe petitioner. An appeal preferred to the CIT(A), who hadpassed an order on 12.12.1988 granting certain reliefs to thepetitioner/assessee, but nothing to do with the carried forwardloss for assessment year 1984-1985. The order passed by the CIT(A) was given effect to by order dated 28.02.1989 (assessmentyear 1985-1986). Even at that point of time, the petitioner Clubcontinued to be vested with the Government. On 12.12.2000 i.e.after the Club was handed over to the petitioner an order waspassed computing interest under Section 220(2) of the Act atRs.24.61 lakhs. In the meantime, the Assessing Officer exercisedhis suo motu power of rectification under Section 154 of the Actand took up the assessment for the year 1985-1986 which wascompleted under Section 143(3) of the Act, by order dated15.03.1988 for certain rectification and computed the interestat Rs.15,35,104/- as against earlier computation of Rs.24.61lakhs. So far as the carried forward loss for the assessmentyear 1984-1985 which was determined at Rs.35,433/- was re-determined by the Assessing Officer, by order dated 31.10.1996as Rs.11.92 lakhs. Once again, the Assessing Officer exercisedhis powers under Section 154 and passed a rectification orderdated 25.08.2003 for assessment year 1984-1985 arrived at thecarried forward business loss at Rs.12.82 lakhs as against theearlier determination of Rs.11.92 lakhs. This rectified orderdated 25.08.2003 was given effect to by way of revision ofassessment under Section 154, by order dated 29.08.2003 allowinga carried forward loss of Rs.12.82 lakhs for the assessment year1984-1985 and arrived at the total income of Rs.26,88,790/-after adjustment for tax arrived at NIL tax payable. By separateorder dated 29.08.2003, interest was demanded at Rs.24.65 lakhs. 6.As noticed above, from 09.04.1986 to 22.03.1996, theaffairs of the Club vested with the Government and however,during the said period the subscription from the members alonewas collected that being their only meagre income. Thus, itcould be seen that the assessment for the year 1985-1986 wherethe petitioner carried forward the loss for assessment year1984-1985 stood finalised only on 29.08.2003 and in other words,there were three computations made by the Assessing Officer withregard to the carried forward loss. Likewise, the interestdemanded from the petitioner, there were three computationsviz., on 07.12.2000 at Rs.24.61 lakhs; on 09.11.2001 at Rs.15.35lakhs and by the final order dated 29.08.2003, computed atRs.24.65 lakhs. Therefore, the quantum of interest payable wasfluctuating, there appears to have been a nebulous even duringthe period when the undertaking vested with the Government andimmediately thereafter which was at the instance of theDepartment. With these facts, the petitioner filed an applicationd dated 07.02.2003 before the CIT under Section 220(2A) of the Act requesting for waiver. applicationd dated 07.02.2003 before the CIT under Section 220(2A) of the Act requesting for waiver. 7.The sum and substance of the averments made therein was(i) the entire business of racing and all assets and liabilitieshave been with the custodian since 1986 and the company had nofund to pay towards the demand raised for 1985-1986, in March88; (ii) in spite of its repeated attempts to get the correctarrears petition, still the matter had not been sorted out bythe Assessing Officer, even though the correspondence to thesaid effect was made as early as in March' 1996; (iii) theassessment for the year 1985-1986 requires a further revision aspointed out by the petitioner in its latest communication whichis also pending. 8.With regard to the genuine hardship faced by thepetitioner, it was pointed out that the revision of assessmentorder was passed for the assessment year 1977-1978 and the ordergiving effect to CIT(A)'s decision dated 25.02.1984 was passedonly on 30.10.1996. However, the Assessing Officer did not allowthe mandatory interest under Section 244(1A) of the Act and ifthat had been done, the petitioner will not be liable forinterest under Section 220(2) for the assessment year 1985-1986. 9.The respondent, by the impugned order, has rejected theapplication filed by the petitioner on the following grounds: (i)the Department has given interest under Section 244(1A)of the Act with regard to the revision of assessment for theassessment year 1977-1978 and when the petitioner has receivedthat interest amount, they cannot claim that the interestpayable by them should be waived. In other words, it was statedthat the interest, which was granted under Section 244(1A),being a substantial amount, the petitioner cannot claim anyhardship; (ii) for being entitled for waiver of interest under Section220(2), three Conditions have to be satisfied cumulatively andthe petitioner has not satisfying Condition Nos.(i) and (ii)regarding genuine hardship and circumstances beyond theircontrol. Therefore, the petitioner is not entitled for waiver ofinterest; (iii) the petitioner could have paid advance tax or selfassessment tax much before the takeover of the Club on10.04.1986 and the liability could have been easily settled andthat question of 'waiver of interest' will not arise. 10.The correctness of this reasons is being tested in thiswrit petition. 11.Heard Mr.M.P.Senthilumar, learned counsel for thepetitioner and Mr.Naveen Durai Babu, learned Junior standingcounsel for the respondents and carefully perused the materialsplaced on record. 12.The assessee to be entitled for waiver of interest underSection 220(2A) has to establish to the satisfaction of the CIT,the following conditions:“(i) payment of such amount has causedor would genuine hardship to the assessee;(ii) default in the payment of theamount on which interest has been paid orwas payable under the said sub-section wasdue to circumstances beyond the control ofthe assessee; and (iii) the assessee has co-operated inany inquiry relating to the assessment orany proceeding for the recovery of anyamount due from him.” 13.The 1[st] respondent in the impugned order has rightly heldthat the assessee should cumulatively satisfy all the abovethree conditions. The 1[st] respondent does not dispute the factthat the petitioner cooperated in the enquiry relating to theimpugned assessment. In other words, there is no adverse commentagainst the petitioner with regard to their cooperation in theassessment proceedings though the vague averment is sought to bemade for the first time in the counter affidavit. Therefore, Iam satisfied that the petitioner has satisfied Clause (iii) ofSection 220(2A). The 1[st] respondent has come to a conclusion thatthe petitioner has not satisfied Clause (i) and (ii) of the saidSection. 13.The 1[st] respondent in the impugned order has rightly heldthat the assessee should cumulatively satisfy all the abovethree conditions. The 1[st] respondent does not dispute the factthat the petitioner cooperated in the enquiry relating to theimpugned assessment. In other words, there is no adverse commentagainst the petitioner with regard to their cooperation in theassessment proceedings though the vague averment is sought to bemade for the first time in the counter affidavit. Therefore, Iam satisfied that the petitioner has satisfied Clause (iii) ofSection 220(2A). The 1[st] respondent has come to a conclusion thatthe petitioner has not satisfied Clause (i) and (ii) of the saidSection. 14.With regard to “genuine hardship”, the 1[st] respondentstates that the petitioner received the payment of interest ofRs.13.89 lakhs under Section 244(1A) of the Act and havingreceived such a huge interest amount from the Department, theassessee cannot plead that it has been unjustly charged underSection 220(2) of the Act. Conveniently, the 1[st] respondent hasfailed to mention as to on what date the statutory interestpayable to the petitioner on the refund was paid. As pointed outearlier, in the application filed by the petitioner for waiverof interest, the petitioner has specifically stated that theyhad succeeded before the CIT(A) in respect of the year 1977-1978and an order was passed on 25.02.1984. However, that order wasgiven effect to only on 30.10.1996 i.e. after twelve years and even thereafter, the Department did not pay the mandatoryinterest under Section 244(1A). However, this interest was paidonly on 07.10.2003. Therefore, this payment which was receivedby the petitioner on 07.10.2003 can hardly have an impact on thepresent issue which pertains to the assessment for the year1985-1986 for which the petitioner filed return of income duringSeptember, 1985. For ten long years, the administration of theundertaking vested with the Government and the petitioner had nocontrol over the payments to be made. As mentioned above, taxesfell in Category V of Schedule II to the Acquisition Act and thelast among the priority of debts as stipulated under Section 18of the Acquisition Act. The Assessing Officer as well as theDepartment was well aware with the said provision and thispresumption can safely be drawn on account of the conduct of theDepartment in not enforcing any of the demands issued and forthe first time interest demand was issued on 12.12.2000 muchafter the Club was handed over to the Committee of Management. 15.One more important fact to be seen in the instant case isthe assessment for the year 1985-1986 in which the petitionerclaimed a carried forward loss for the assessment year 1984-1985was finalised only on 25.08.2003. The Assessing Officer suo moturectified the order for the year 1984-1985 with regard to thecarried forward business loss and this rectified order wasimplemented and revision of assessment was made for theassessment year 1985-1986 on 29.08.2003. Thus, from 1985 onwardstill 2003 the assessment was not completed. As noticed above,there were three computations with regard to carry forward loss.The petitioner cannot be stated to be wholly incorrect forclaiming a carry forward loss, while they filed the returnatleast they were partially right since the Department rectifiedthe mistake suo motu and arrived at the carried forward businessloss at Rs.12.82 lakhs as against the initial quantification ofRs.35,435/-. Thus, these factors should enure to the benefit ofthe petitioner. Thus, in the light of the factual positionreferred above, payment of interest would cause undue hardshipto the petitioner. 16.With regard to the second aspect regarding “Circumstancesbeyond the control of the assessee”, once again the 1[st]respondent relies upon the interest received by the assesseeunder Section 244(1A). In fact, this interest should have beenpaid to the petitioner even in the year 1984 as they succeededbefore the CIT(A) with regard to the assessment year 1977-1978.However, the Department paid the interest only on 07.10.2003.Therefore, to state that the petitioner having been receivedinterest should not cringe to pay interest is an analogy whichhas been wrongly cited. The petitioner is, as a matter of right,entitled for the mandatory interest. Therefore, the 1[st]respondent cannot state that the petitioner has become financialricher on account of that payment of interest. This receipt of interest which is statutory and mandatory can have no impact onthe petitioner's claim for waiver under Section 220(2A). Thispower has been conferred on the 1[st] respondent by the Statute.The manner in which he has to consider such application has alsobeen spelt out in the Statute and if the Court finds that thereasons recorded are not germane to facts or without taking intoconsideration the relevant factors or taking note of irrelevantfactors are all good and sufficient grounds to interfere withthe order. 17.The Revenue seeks to sustain the impugned order statingthat the petitioner has not satisfied Clause (ii) of Section 220(2A) as they have not established that circumstances were beyondtheir control. Though the giving effect to order of the CIT(A)for the assessment year 1985-1986 was passed on 28.02.1989, theassessment was completed and order was passed under Section 154only on 29.08.2003. Therefore, to state that in the interregnumtax could have been paid is a wrong conclusion without dueregard to the fact that the undertaking vested with theGovernment from 1986 to 1996 and even during the period when itvested with the Government, the respondent Department had nopriority over their claims and they were the last among the listof priorities, the respondent Department did not challenge theprovisions of the Acquisition Act. Therefore, to now pin downthe petitioner/assessee and direct them to pay interest will beharsh especially when the circumstances stated above clearlyshows that they were beyond the control of the petitioner. 18.The learned counsel for the Revenue relied on thedecision of the High Court of Delhi in the case of GirnarInvestment Limited V. Commissioner of Income Tax, [2012] 17taxmann.com 69 (Delhi). Firstly, the said case is clearlydistinguishable facts as the assessee therein contended that thedemand for interest should not be made from the date on whichthe assessee had committed default in payment but should befixed after taking note of the orders passed by the AppellateAuthority as well as the Tribunal. This contention was rejectedand the Hon'ble Division Bench ruled in favour of the Revenueholding that even if the assessment is restored and originaldemand gets revived from the inception, the assessee is liableto pay interest under Section 220(2) from the date on unpaidamount and any variation in the amount of demand favourbale tothe assessee which was directed by any of appellate Authoritiesin the interregnum has no effect on the liability of theassessee to pay interest. Therefore, the decision renders nosupport to the stand of the Revenue. 19.Thus, for the above reasons, this Court is fullyconvinced that the petitioner has satisfied all the threeconditions as enumerated under Section 220(2A) of the Act andtherefore are entitled for waiver of interest. 20.Accordingly, the Writ Petition is allowed and theimpugned order is set aside and the interest levied on thepetitioner for the assessment year 1985-1986 stands waived. Nocosts. s/d- Assistant Registrar True Copy Sub-Assistant Registrar 19.Thus, for the above reasons, this Court is fullyconvinced that the petitioner has satisfied all the threeconditions as enumerated under Section 220(2A) of the Act andtherefore are entitled for waiver of interest. 20.Accordingly, the Writ Petition is allowed and theimpugned order is set aside and the interest levied on thepetitioner for the assessment year 1985-1986 stands waived. Nocosts. s/d- Assistant Registrar True Copy Sub-Assistant Registrar SglTo1.The Commissioner of Income-tax, Chennai-III, 121, Mahatma Gandhi Road, Chennai – 600 034.2.The Assistant Commissioner of Income-tax, Company Circle IV(1), Chennai.3.The Joint Commissioner of Income-tax, Special Range VII 121, Nungambakkam High Road, Chennai – 600 034.+1 CC to Ms. Mallika Srinivasan, Advocate sr 79639.+1 CC to Ms. Hema Muralikrishnan, advocate sr 79847. W.P.No.29916 of 2004SP(28/11/2017) https://hcservices.ecourts.gov.in/hcservices/