M/S.rayala Corporation Pvt. Ltd.,Rep.by Its Managing Director,Ranjit Pratap144 v. The Chief Commissioner Of Income Tax, Chennai Ii, Office Of The Chief Commissioner Income Tax

IN THE HIGH COURT OF JUDICATURE AT MADRAS THE HONOURABLE MR.JUSTICE C.SARAVANAN W.P.Nos.15399 & 15400 of 2007 M/s.Rayala Corporation Pvt. Ltd.,Rep.by its Managing Director,Ranjit Pratap144/7, Old Mahabalipuram Road,Kottivakkam,Chennai 600 041. .. Petitioner in both W.Ps. vs. 1.The Chief Commissioner of Income Tax, Chennai II, Office of the Chief Commissioner Income Tax, 121, Mahatma Gandhi Road, Chennai 600 034. 2.Deputy Commissioner of Income Tax, Company Circle V (3) 121, Mahatma Gandhi Road, Chennai 600 034. .. Respondents in all W.Ps. Prayer in both W.Ps.:Writ Petitions filed under Article 226 ofthe Constitution of India to issue a writ of CertiorarifiedMandamus to call for the records of the proceedings of the 1[st]respondent in No.CC II/B(159)/2000-2001 dated 07.03.2007 forthe assessment year 1991-92 and No.CC II/B(159)/2000-2001dated 07.03.2007 for the assessment year 1992-93 to quash thesame and to further direct the 1[st] respondent to waive theinterest levied u/s.234 A & B of the Income Tax Act, 1961. For Petitioner:Mr.Vikram Vijayaraghavan for Subbaraya Aiyar Padmanabhan (in both W.Ps.) For Respondents:M/s. Hema Muralikrishnan Sr.Standing Counsel. ( in both W.Ps.) https://hcservices.ecourts.gov.in/hcservices/ C O M M O N O R D E R The petitioner is aggrieved by the impugned orderdated 7.3.2007 passed by the 1[st] respondent, the ChiefCommissioner of Income Tax,-II. By the aforesaid order, the 1[st]respondent has dismissed be application filed by thepetitioner for waiver of interest under section 234 B of theIncome Tax Act, 1961 for the Assessment Years 1991-92 and1992-93. 2. The petitioner was the owner of land on which amassive infrastructure has been put up. Earlier the petitionerhad signed a joint-venture agreement dated 30.08.1987 withM/s. Shriram Capital Trust Private Limited (for brevity thedeveloper). 3. The said joint-venture agreement contemplatedpayment of Rs.670 lakhs to the petitioner by the saiddeveloper with built up area of 75,000 ft². The agreement alsocontemplated deadlines and timelines for payment of theaforesaid amount of Rs.670 lakhs to the petitioner. Theamounts were to be paid from 3.5.1987 to 31.12.1992 in 8instalments. It appears over a period amounts were also paidbut the developer took time to get approval from the CMDA tocommence the construction. 4. Meanwhile, the petitioner and the developer signeda Memorandum of Understanding(MOU) dated 7.3.1992 which partyaltered the arrangement under the Joint Venture Agreement on13.8.1996. The petitioner had filed income tax returns undersection 139 of the Income Tax Act, 1961 the respectiveassessment years. For the assessment years 1988-89 and 1989-90 scrutiny assessments were completed on 12.3.1991 and on26.3.1992 respectively. In these two assessment years, thepetitioner had declared a total loss of Rs.56,51,991/- andRs.47,27,993/- and accordingly claimed depreciation loss andbusiness loss. 5. Meanwhile, for the assessment years 1990-91, 1991-92 and 1992- 93 regular returns were filed and scrutinyassessment orders were passed under section 143 (3) on31.3.1990, 31.3.1994 and on 22.3.1999 respectively. 6. The completed assessment for the assessment years1988-89 and 1989-90 were reopened and reassessment ordersdated 27.3.1995 came to be passed by treating a sum ofRs.31,22,667/-as the income earned from the joint-venture onaccrual basis for each of these assessment years. https://hcservices.ecourts.gov.in/hcservices/ 7. Thus, the carry forward loss of the petitioner wasreduced to Rs.25,29,324/-and Rs.15,99,523/- in the respectiveassessment years which impacted the assessment for theassessment years 1990-91, 1991-92 and 1992- 93. 5. Meanwhile, for the assessment years 1990-91, 1991-92 and 1992- 93 regular returns were filed and scrutinyassessment orders were passed under section 143 (3) on31.3.1990, 31.3.1994 and on 22.3.1999 respectively. 6. The completed assessment for the assessment years1988-89 and 1989-90 were reopened and reassessment ordersdated 27.3.1995 came to be passed by treating a sum ofRs.31,22,667/-as the income earned from the joint-venture onaccrual basis for each of these assessment years. https://hcservices.ecourts.gov.in/hcservices/ 7. Thus, the carry forward loss of the petitioner wasreduced to Rs.25,29,324/-and Rs.15,99,523/- in the respectiveassessment years which impacted the assessment for theassessment years 1990-91, 1991-92 and 1992- 93. 8. For the assessment year 1990-91 and assessment year1991-92, rectification petitions were filed by the 2[nd]respondent under Section 154 of the Income Tax Act, 1961.Rectification orders dated 22.11.1996 were passed. 9. For the assessment year 1991-92, the assessment wascompleted on 31.03.1994 under Section 143 (3) of the IncomeTax Act, 1961 determining the profit receivable atRs.41,41,790/- and compensation receivble at Rs.43,31,250/- . 10. For the assessment year 1992-93, the assessmentwas completed on 22.03.1999 under Section 143(3) read withsection 147 of the Income Tax Act, 1961 determining thecapital gain at Rs.63,05,886/- after setting off the businessloss of Rs.1,01,43,191/-and capital gain of Rs.1,64,49,077./-. 11. These developments have culminated in levy ofinterest under section 234 A and levy of interest undersection 234 B. 12. It is a contention of the petitioner that the levyof interest on the petitioner under Section 234 B is purely onaccount of recasting of the taxable income for the assessmentyears 1988-89 and 1989-90 and not because of any fresh incomebeing assessed to tax which the petitioner had failed toreturn. Under these circumstances the petitioner filed anapplication for waiver of interest on 16.2.2001 before the 1[st]respondent which came to be rejected by an order dated13.9.2002 by the 1[st] respondent. 13. Under these circumstances the petitioner hadearlier filed WP Nos.2439-2442 of 2003 to direct the 1[st]respondent herein to consider the petitioner’s application forwaiver of interest under section 234 A and 234 B of the IncomeTax Act, 1961. These writ petitions were disposed on 28.1.2003with the direction to pass orders in accordance with law aftergiving an opportunity to the petitioner. 14. By the impugned order the 1[st] respondent hasrejected the application filed by the petitioner with thehttps://hcservices.ecourts.gov.in/hcservices/following observations:- 9.. In the waiver petitions the assesseecompany also submitted that interest unde Section234A and that under Section 234B were incorrectlylevied. This contention was made on the basis ofthe following case laws: In its petition for waiver theassessee-company did not specify as tohoiw the above mentioned case lawssupported its case. However, I assumethat the petitioner company intended toput forward the argument that since theincome returned by it for each of the twoassessment years, 1991-92 & 1992-93, wasnil there was no liability to pay advancetax and, therefore,no interest shouldhave been charged, basis of charge beingthe returned income (as decided in thetwo cases referred to by the petitioner). I am unable to accept this contention ofthe assessee for the reason that theseCourt decisions had been pronounced onthe basis of Explanation 4 to Section234A which has since been deleted byFinance Act, 2001 with restropectiveeffect from 01.04.1989. Therefore, thedecisions cited by the assessee-companycannot be considered to decide the waiverpetitions in its favour. I am unable to accept this contention ofthe assessee for the reason that theseCourt decisions had been pronounced onthe basis of Explanation 4 to Section234A which has since been deleted byFinance Act, 2001 with restropectiveeffect from 01.04.1989. Therefore, thedecisions cited by the assessee-companycannot be considered to decide the waiverpetitions in its favour. 9. In view of the discussion made in theforegoing paragraphs, the two petitions forwaiver of interest filed by M/s.RayalaCorporation Pvt.Ltd., for the two assessmentyears 1991-92 and 1992-93 are hereby rejected. 15. It is the contention of the petitioner that thepetitioner had not deliberately avoided payment of tax for therespective assessment years. The tax liability for therelevant assessment years namely 1991-92 and 1992-93 was dueto the cascading effect in the reopening of the assessmentsfor the Assessment Years 1988-89 to 1990-91. The petitionertherefore submits that, petitioner’s request for waiver ofinterest under the above said provisions should be allowed. 16. It is further submitted that JV agreement datedhttps://hcservices.ecourts.gov.in/hcservices/30.08.1987 was not acted upon and the petitioner did not receive instalments, share of profits and interest on delayedpayment specified in the aforesaid agreement. Therefore, itis submitted that it cannot be said to that income can be saidto have accrued to the petitioner in view of the alteration ofthe terms of the JV agreement vide MOU dated 7.3.1992. 17. Petitioner submits that the recasting of theincome of the petitioner for the Assessment Years 1988-89 to1990-91 were without any justifiable basis. Since thepetitioner chose to avoid litigation for these assessmentyears the tax liability was minimal, the petitioner cannot besaddled with interest liability for the Assessment Years 1991-92 and 1992-93. 18. It is further submitted that but for thereassessment/rectification for the Assessment Years 1988-89 to1990-91, the petitioner would not have been exposed to hugeinterest liability under section 234B amounting toRs.20,43,792/-fortheassessmentyear1991-92andRs.54,82,176/-for the assessment year 1992-93. 19. It is submitted that interest under section 234 Bcannot be imposed on an income which did not accrue to thepetitioner and therefore it would be unfair to levy interestunder the aforesaid provision. It is submitted that whilefiling returns, the petitioner did not anticipate that theassessment would be reopened or rectified Section 148 of theIncome Tax Act, 1961 for the preceding three assessment years. 20. It is therefore submitted that the petitioner’srequest for waiver of interest under Section 234 of the IncomeTax Act, 1961 has been wrongly denied by the 1[st] respondentherein. 21. The respondents in their counter have defended theimpugned order stating that the petitioner had failed toelaborate how the 1[st] respondent had not considered the Boardcircular while rejecting their application. It is furthersubmitted that the appeal filed by the petitioner for therespective assessment years were decided against thepetitioner and no further appeal was preferred by thepetitioner. Having accepted the assessment made by the 2[nd]respondent for the respective assessment years, it is not openfor the petitioner to seek waiver of interest payable underSection 234B and C of the Income Tax Act, 1961. https://hcservices.ecourts.gov.in/hcservices/ 22. It is further submitted that as per clause 23 ofthe JV agreement, payments were made to be made throughdeposit certificates which were issued for every subsequentinstalment after due date of the earlier instalment and that“the developer shall make the stipulated payments fully andpromptly on the specified date to the owner (petitionerherein) irrespective of whether the commercial complex is putup and/or completed as scheduled and programmed above”. https://hcservices.ecourts.gov.in/hcservices/ 22. It is further submitted that as per clause 23 ofthe JV agreement, payments were made to be made throughdeposit certificates which were issued for every subsequentinstalment after due date of the earlier instalment and that“the developer shall make the stipulated payments fully andpromptly on the specified date to the owner (petitionerherein) irrespective of whether the commercial complex is putup and/or completed as scheduled and programmed above”. 23. I have considered the arguments advanced on behalfof the petitioner and the respondent. I have also consideredthe case of submitted by the learned counsel for thepetitioner and the records of the case. 24. The question to be examined in the presentpetition is whether the petitioner is entitled for waiver ofinterest under section payable under section 234 B of theIncome Tax Act, 1961. 25. The petitioner seeks to assail the impugned orderin the light of the Notification No.400/234/95-IT (B) dated23.5.1996 issued under section 119 (2)(a) of the Income TaxAct, 1961. The said notification has given guidelines to befollowed for reduction or waiver of penal interest. Paragraph2 of the said notification reads as under:- The class of incomes or class of cases inwhich the reduction or waiver of interest underSection 234A or Section 234B or, as the case may be,section 234C can be considered, are as follows: (a) Where during the course ofproceedings for search and seizure underSection 132 of the Income Tax Act, orotherwise, the books of account and otherincriminating documents have been seizedand for reasons beyond the control of theassessee, he has been unable to furnishthe return of income for the previousyear during which the action underSection 132 has taken place, within thetime specified in this behalf and theChief Commissioner or, as the case maybe, Director-General is satisfied havingregard to the facts and circumstances ofthe case that the delay in furnishingsuch return of income cannot reasonablybe attributed to the assessee. https://hcservices.ecourts.gov.in/hcservices/ (b) Where during the course of search andseizure operation under Section 132 ofthe Income Tax Act, cash is seized whichis not allowed to be utilised for paymentof advance tax instalment or instalmentsas they fall due after the seizure ofcash and the assessee has not paid fullyor partly advance tax on the currentincome and the Chief Commissioner or theDirecor-General is satisfied that theassessee is unable to pay the advancetax. © Where any income chargeable to income-tax under any head of income, other than'' capital gains'' is received or accruesafter the due date of payment of thefirst or subsequent instalments ofadvance tax which was neither anticipatednor was in the contemplation of theassessee and the advance-tax on suchincome is paid in the remaininginstalment or instalments and the ChiefCommissioner or Director-General issatisfied on the facts and circumstancesof the case that this is a fit case forreduction or waiver of interestchargeable under Section 234C of theIncome Tax Act. © Where any income chargeable to income-tax under any head of income, other than'' capital gains'' is received or accruesafter the due date of payment of thefirst or subsequent instalments ofadvance tax which was neither anticipatednor was in the contemplation of theassessee and the advance-tax on suchincome is paid in the remaininginstalment or instalments and the ChiefCommissioner or Director-General issatisfied on the facts and circumstancesof the case that this is a fit case forreduction or waiver of interestchargeable under Section 234C of theIncome Tax Act. (d) Where any income which was notchargeable to income-tax on the basis ofany order passed in the case of anassessee by the High Court within whosejurisdiction he is assessable to income-tax in relation to such income in anyprevious year and subsequently, inconsequenceofanyretrospectiveamendment of law or, as the case may be,the decision of the Supreme Court in hisown case, which event has taken placeafter the end of any such previous year,in any assessment or reassessmentproceedings the advance tax paid by theassessee during the financial yearimmediately preceding the relevantassessment year is found to be less thanthe amount of advance tax payable on hiscurrent income, the assessee ischargeable to interest under Section 234Bor Section 234C and the ChiefCommissioner or Director-General is https://hcservices.ecourts.gov.in/hcservices/ satisfied that this is a fit case forreduction or waiver of such interest. (e) Where a return of income could not befiled by the assessee due to unavoidablecircumstances and such return of incomeis filed voluntarily by the assessee orhis legal heirs without detection by theAO. 26. It is a contention of the petitioner that thepetitioner was entitled for waiver in terms of the situationcontemplated in clause (e). According to the learned counselfor the petitioner, the petitioner could not pay tax due touncertainty in the implementation of the JV agreement dated30.8.1987 and therefore claimed higher depreciation loss andbusiness loss during the assessment years 1988-89 to 1990-91.Not only the assessments were completed but also scrutinyassessment were completed as well. As a ongoing requirementunder the Act the petitioner had declared loss during theassessment year 1991-92 and 1992-93. 27. In this case, the petitioner had accepted theassessment which were revised pursuant to proceedingsinitiated under section 154/148 of the Income Tax Act, 1961for the assessment years 1988-89, 1989-90, 1990-91. Thepetitioner has also accepted the assessment made by therespondents for the assessment years 1991-92 and 1992-93 as nofurther appeal was filed by the petitioner against theassessments completed for these assessment years. 28. Pursuant to recasting of the income for theassessment years 1988-89, 1989-90, 1990-91, the taxable incomefor the assessment years 1991-92 and 1992-93 increased, whichthe petitioner has accepted. The increase in the tax liabilityfor the assessment years 1991-92 and 1992-93 are no doubt dueto cascading effect on account of recasting of thecarryforward losses for the assessment years 1988-89, 1989-90,1990-91. 29. It is the contention of the petitioner that sincethe JV agreement dated 30.8.1987 could not be acted upon, thepetitioner claimed the carry forward loss for the assessmentyears 1988-89, 1989-90 and 1990-91. They were however recastwhich had a cascading effect on the tax liability of thepetitioner for the assessment years 1991-92 and 1992-93 andtherefore the petitioner cannot be held liable to interest.https://hcservices.ecourts.gov.in/hcservices/ 29. It is the contention of the petitioner that sincethe JV agreement dated 30.8.1987 could not be acted upon, thepetitioner claimed the carry forward loss for the assessmentyears 1988-89, 1989-90 and 1990-91. They were however recastwhich had a cascading effect on the tax liability of thepetitioner for the assessment years 1991-92 and 1992-93 andtherefore the petitioner cannot be held liable to interest.https://hcservices.ecourts.gov.in/hcservices/ 30. The Memorandum of Understanding dated 7.3.1992which was signed between the petitioner and the respondent didnot substitute the JV agreement dated 30.08.1987. Thecommercial arrangement was slightly altered. The JV Agreementwas not rescinded. The MOU contemplated payment of Rs.210lakhs for the year 1992 and the petitioner agreed to vacatethe place by 30/04/1992 by which time the developer wasrequired to obtain the permit from the Madras Metropolitan andDevelopment Authority. 31. The petitioner was required to transferapproximately 25% of the UDS to the nominees of developer onbefore 31.3.1992 as and when the aforesaid amount of Rs.210lakh was received by the petitioner. The MOU also acknowledgedthat with the payment of Rs.2 lakhs on the date of MOU, thepetitioner would have received Rs.434 lakhs and the developerwas to ensure that the joint venture nature of the agreementwas maintained by taking all precautions while carrying outdocumentation. The MOU further records that the developerwould pay the entire balance before 30/03/1992. 32. With reference to the delay and consequentialinterest accruing, it was agreed that the petitioner and thedeveloper will refer to an arbitrator. 33. Under Section 145 of the Income Tax Act, 1961income chargeable under the head of “Profit and gains ofbusiness or professional” or “ Income from other sources”shall be subject to the provisions of sub-section (2) and becomputed in accordance with either cash or mercantile systemof accounting regularly employed by the assessee. 34. For the aforesaid purpose, the Central Governmentmay also notify in the Official Gazette from time to timeaccounting standards to be followed by any class of assesseeor in respect of any class of income. The petitioner hasfollowed mercantile system of accountancy. 35. The Honourable Supreme Court in CIT versus AshokBhai Chimanbhai (1965) 1 SCR 758:(1965) 56 ITR 42 has heldthat under the Income Tax Act, 1961 income is taxable when itaccrues or arises or is received or when it is by fixation,deemed to accrue, arise or is deemed to be received. The Courtheld that receipt is not the only test of chargeability oftax. If income accrues or arises it may become liable to tax.After referring to In Re The Spanish Prospecting Co. Ltd[(1911) 1Ch 92], the Honourable Supreme Court observed “Forthe purpose of this case it is unnecessary to dilate upon thehttps://hcservices.ecourts.gov.in/hcservices/distinction between income “accruing” and “arising”. But there is no doubt that the two words are used to contra- distinguishthe word “receive”. Income is said to be received when itreaches the assessee: when the right to receive the incomebecomes vested in the assessee, it is said to accrue orarise.” 36. In United Nilgiri Tea Estates Co. Versus Deputy(2012) 210 Tax Man 62 (Mad), this Court held that if theaccounts are maintained in the mercantile system, it isnecessary to see whether the income could be said to havereally accrued taking probability or improbability ofrealisation in realistic manner. 37. This Court further held that under the mercantilesystem of accounting, accrual had occurred and therefore ithas to be treated as income. Recognition of income on accrualbasis pre-supposes the satisfaction of two conditions, namelythat the revenue is measurable and that the revenuescollectible without any uncertainty. 36. In United Nilgiri Tea Estates Co. Versus Deputy(2012) 210 Tax Man 62 (Mad), this Court held that if theaccounts are maintained in the mercantile system, it isnecessary to see whether the income could be said to havereally accrued taking probability or improbability ofrealisation in realistic manner. 37. This Court further held that under the mercantilesystem of accounting, accrual had occurred and therefore ithas to be treated as income. Recognition of income on accrualbasis pre-supposes the satisfaction of two conditions, namelythat the revenue is measurable and that the revenuescollectible without any uncertainty. 38. In the present case, it is not as if amounts werenot paid under the JV agreement or amounts due were writtenoff by the petitioner. The petitioner however claimed higherbusiness loss and the depreciation loss during the assessmentyears 1988-89 to 1990-91 as the amount was not paid by thedeveloper in time as per the JV agreement dated 30.8.1986.However, the JV agreement dated 30.8.1986 was not frustratedas was projected. The project was delayed and during thecourse of time there were further payments made by thedeveloper to the petitioner and therefore there was accrualof income in the books of account of the petitioner andtherefore the petitioner was liable to that extent. 39. The assessments for the assessment years 1988-89to 1990-91 were reopened/rectified as the petitioner hadwrongly claimed business loss and depreciation loss. The re-assessments were completed for the assessment years 1991-92and 1992-93 on 22.11.1996 and on 22.3.1999 which resulted inthe increase of the positive income of the petitioner. 40. The petitioner had however failed to pay advancetax by wrongly claiming business loss/depreciation loss duringthe assessment years 1988-89 to 1990-91. Therefore it cannotbe stated that the petitioner was entitled to the benefit ofthe above notification issued under section 119 (2) (a) of theIncome Tax Act, 1961. None of the situation contemplatedunder the attracted the CBDT Notification dated 23.05.1996 41. The decision cited in Prime Securities Ltd versushttps://hcservices.ecourts.gov.in/hcservices/The Asst Commissioner of Income Tax(2011) 333 ITR 464 cited on behalf of the petitioner deals with the situation where theassessee could not anticipate increase. There the assesseehad paid advance tax but had estimated the same wrongly.Whereas in this case, the petitioner had wrongly claimedbusiness loss and depreciation loss and therefore failed topay advance tax during 1991-92 and 1992-93. Therefore, thesaid decision of the Division Bench of the Hon'ble Bombay HighCourt cannot be applied to the facts of the case. 42. Similarly the decision of the Karnataka High Courtin Shriram Chits (Bangalore) Ltd versus Joint Commissioner ofIncome Tax (2010) 325 ITR 0219 and that of this court inCommissioner of Income Tax Versus Revathi Equipment Ltd (2008)298 ITR 67 cited on behalf of the petitioner are notapplicable to the facts of the present case. There theliability to pay interest arose on account of amendment to theprovision whereas the levy of interest in the present case isnot account of these factors. 43. Therefore, these decisions cited are of norelevance to the facts of the case. As a passing reference itmay also be relevant to refer to the decision cited by thelearned counsel for the respondent in Chief Commissioner ofIncome Tax VersusRanjinikant and Sons (2017) 396 ITR 171. Adivision bench of this court held that since the tax was paidonly after the revenue had passed the reassessment order,waiver from payment of interest cannot be allowed. This issimilar to the present case. 43. Therefore, these decisions cited are of norelevance to the facts of the case. As a passing reference itmay also be relevant to refer to the decision cited by thelearned counsel for the respondent in Chief Commissioner ofIncome Tax VersusRanjinikant and Sons (2017) 396 ITR 171. Adivision bench of this court held that since the tax was paidonly after the revenue had passed the reassessment order,waiver from payment of interest cannot be allowed. This issimilar to the present case. 44. In the light of the above discussion, I do notfind any reasons to interfere with the impugned order passedby the 1[st] respondent while rejecting the application filedwith the petitioner for waiver of interest under Section 234B of the Income Tax Act, 1961 in terms of NotificationNo.400/234/95-IT (B) dated 23.5.1996. Therefore, these writpetitions are hereby dismissed and are accordingly dismissed.No costs. Sd/-Assistant Registrar(CS-VI) //True copy// kkd Sub Assistant Registrar To 1.The Chief Commissioner of Income Tax, Chennai II, Office of the Chief Commissioner Income Tax, 121, Mahatma Gandhi Road, Chennai 600 034. Chennai II, Office of the Chief Commissioner Income Tax, 121, Mahatma Gandhi Road, Chennai 600 034. 2.Deputy Commissioner of Income Tax, Company Circle V (3) 121, Mahatma Gandhi Road, Chennai 600 034. Company Circle V (3) 121, Mahatma Gandhi Road, Chennai 600 034. +1cc to M/s.Hema Muralikrishnan, Advocate SR.No.7716 +1cc to Mr.Subbaraya Aiyar Padmanabhan, Advocate SR.No.8704W.P.Nos.15399 & 15400 of 2007GMY(19/08/2020)