Op/18355/2001 Of Dr.k.m.ashik v. Dy.commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE S.SIRI JAGAN TUESDAY, THE 29TH SEPTEMBER 2009 / 7TH ASWINA 1931 OP.No. 18355 of 2001(I) --------------------------------- PETITIONER: ------------------- DR. K.M. ASHIK,MOIDU'S MEDICARE (P) LTD.,INDIRA GANDHI ROAD,CALICUT – 673 001. BY ADV. MR.ANIL K.NARENDRAN. RESPONDENTS: ------------------------ 1.DY. COMMISSIONER OF INCOME TAX,CENTRAL CIRCLE, CALICUT.CENTRAL CIRCLE, CALICUT. 2.COMMISSIONER OF INCOME TAX (CENTRAL),DESIGNATED AUTHORITY,108, UTHAMAR GANDHI SALAI,CHENNAI – 600 034. R1 & R2 BY MR. JOSE JOSEPH, S.C., I.T. THIS ORIGINAL PETITION HAVING BEEN FINALLY HEARD ON 29/09/2009, ALONG WITH O.P. NO. 18404/2001 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: O.P. NO 18355/2001-I: APPENDIX PETITIONERS' EXHIBITS: EXT.P.1(A): COPY OF THE CERTIFICATE OF INTIMATION FOR THE ASSESSMENT YEARS1989-90 AND 91-92 DTD. 09/12/1998. EXT.P.1(B): COPY OF THE CERTIFICATE OF INTIMATION FOR THE ASSESSMENT YEARFOR 1992-93 DTD. 05/02/1999. EXT.P.1(C): COPY OF THE CERTIFICATE OF INTIMATION FOR THE ASSESSMENT YEARFOR 1994-95 DTD. 12/02/1999. EXT.P.1.(D): COPY OF THE CERTIFICATE OF INTIMATION FOR THE ASSESSMENT YEARFOR 1995-96 DTD. 12/02/1999. EXT.P.2: COPY OF THE LETTER ADDRESSED TO THE R.2. DTD. 01/01/1999. EXT.P.3: COPY OF THE JUDGMENT IN O.P. NO. 6385/99 DTD. 11/03/1999. EXT.P.4: COPY OF THE LETTER BY THE PETITIONER TO THE R.2. DTD. 10/11/1999. EXT.P.5: COPY OF THE COMMUNICATION ISSUED BY THE R.2. DTD. 26/11/1999. EXT.P.6: COPY OF THE PETITION ADDRESSED TO THE R.2. BY THE PETITIONERDTD.03/07/2000. EXT.P.7: COPY OF THE COMMUNICATION ISSUED BY THE R.2. DTD. 26/07/2000. EXT.P.8: COPY OF THE ASSMT. ORDER FOR 1989-90 DTD. 30/03/1998. EXT.P.8.B: COPY OF THE ASSMT. ORDER FOR 1990-91 DTD. 08/12/1997. EXT.P.8.C: COPY OF THE ASSMT. ORDER FOR 1991-92 DTD. 08/12/1997. RESPONDENTS' EXHIBITS: NIL. //TRUE COPY// Prv. P.S. TO JUDGE. S. Siri Jagan, J. =-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-=-= =-=-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-= The petitioners in these four original petitions are partners ofmore than one firm. They chose to avail of the benefits of the KarVivad Samadhan Scheme, 1998 introduced by Finance (No.2) Act,1998. They filed individual declarations showing their individualincome as well as share income from the partnership firms in whichthey were partners. Pursuant thereto, their declarations wereaccepted and certificates were issued as contemplated under theScheme and they were directed to pay arrears of tax at the rate of40% of the income for certain assessment years. The rate of taxapplied is under challenge in these original petitions. 2. The contention raised by the petitioners is that in normalcase, where the tax arrear does not include tax, interest or penaltydetermined in any assessment on the basis of search and seizureproceedings under Section 132 for Section 132A of the Income TaxAct, the rate applicable is 30%, whereas if the tax arrear includes tax,interest or penalty determined on the basis of search and seizure, thehigher rate of 40% would apply. The petitioners' contention is that inthe assessment orders assessing the income of the petitioners, thereis no mention of any material collected during search and seizure asthe basis of the assessment and therefore in respect of thedeclarations filed by the petitioners, the lower rate of 30% should beapplied. 3. The learned standing counsel for the Income-tax Departmentwould contend that the petitioners were partners of different firms.Search and seizure were conducted in the premises of the commonmanaging partner of all the firms, who is none other than thefather/husband of the petitioners along with whom the petitioners O.P. No. 18355/2001. -: 2 :- 3. The learned standing counsel for the Income-tax Departmentwould contend that the petitioners were partners of different firms.Search and seizure were conducted in the premises of the commonmanaging partner of all the firms, who is none other than thefather/husband of the petitioners along with whom the petitioners O.P. No. 18355/2001. -: 2 :- also resided in the same house where the search and seizure wereconducted, based on materials collected in which, the firm wasassessed to income tax and proportionate share of that income of thatfirm was included in the assessment of the petitioners for the purposeof individual assessment. Since the firms' income was determinedbased on the materials collected during search and seizure, theproportionate income included in the assessment of the petitioners isalso tarred by the same brush and therefore that income attracts thehigher rate of 40%, which only has been done in the present case, isthe contention of the standing counsel. 4. I have considered the rival contentions in detail. 5. The relevant clause in the Kar Vivad Samadhan Scheme isSection 88(1), which reads thus: “88. Settlement of tax payable:- Subject to theprovisions of this Scheme, where any person makes, on or afterthe 1[st] day of September, 1998, but on or before the 31[st] day ofDecember, 1998, a declaration to the designated authority inaccordance with the provisions of Section 89 in respect of taxarrear, then, notwithstanding anything contained in any direct taxenactment or indirect tax enactment or any other provision of anylaw for the time being in force, the amount payable under thisScheme by the declarant shall be determined at the ratesspecified hereunder, namely:- (a) where the tax arrear is payable under the Income-taxAct, 1961 (4 of 1961).-- (i) in the case of a declarant, being a company or a firm, atthe rate of thirty five per cent of the disputed income; (ii) in the case of a declarant, being a person other than acompany or a firm, at the rate of thirty percent of the disputedincome; (iii) in the case where tax arrear includes income-tax,interest payable or penalty levied, at the rate of thirty five per centof the disputed income for the persons referred to in clause (i) orthirty per cent of the disputed income for the persons referred toin clause (ii); O.P. No. 18355/2001. -: 3 :- (iv) in the case where tax arrear comprises only interestpayable or penalty levied, at the rate of fifty per cent of the taxarrear; (v) where the tax arrear includes the tax, interest orpenalty determined in any assessment on the basis of search andseizure proceedings under Section 132 or section 132A of theIncome-tax Act. (A) in the case of a declarant, being a company or a firm, atthe rate of forty five per cent of the disputed income; (B) in the case of a declarant, being a person other than acompany or a firm, at the rate of forty per cent of the disputedincome; O.P. No. 18355/2001. -: 3 :- (iv) in the case where tax arrear comprises only interestpayable or penalty levied, at the rate of fifty per cent of the taxarrear; (v) where the tax arrear includes the tax, interest orpenalty determined in any assessment on the basis of search andseizure proceedings under Section 132 or section 132A of theIncome-tax Act. (A) in the case of a declarant, being a company or a firm, atthe rate of forty five per cent of the disputed income; (B) in the case of a declarant, being a person other than acompany or a firm, at the rate of forty per cent of the disputedincome; Clause a(v) is the provision where the department is empowered toapply a higher rate of income tax. That sub-section is couched in verywide terms. It stipulates that when the tax arrear includesassessment on the basis of search and seizure, higher rate of taxwould be attracted. Therefore, if the income assessed on thepetitioners has been arrived at on the basis of search and seizure,then naturally, in respect of that arrear, the higher rate would applyfor the purpose of the Scheme. In this case, the petitioners werepartners in several firms. One of the firms had filed a declarationunder the Scheme. In respect of the declaration by a firm under theScheme, the Scheme itself provides that in respect of that declarant,no separate declaration is necessary by the individual partnersinsofar as the individual partners are not liable to pay tax on theirshare income from the firm under the Kar Vivad Samadhan Scheme.But, admittedly, the other firms in which also the petitioners werepartners did not chose to file any declaration under the Scheme.Admittedly, the assessment of those firms were finalised on the basisof income disclosed on the basis of materials collected during search O.P. No. 18355/2001. -: 4 :- and seizure. After assessing the income of the firm on the basis thatthe material collected by search and seizure, the proportionate shareof income of each partner was assessed in their individualassessments. Therefore, the character of the share income of thepetitioners in those firms is that of income assessed on the basis ofmaterials collected during search and seizure. I am of opinion that inrespect of that income, Section 88(a)(v) would be attracted. In thatview, there is no merit in these original petitions and accordingly,they are dismissed. Tds/ Sd/- S. Siri Jagan, Judge. O.P. No. 18355/2001. -: 5 :- S. Siri Jagan, J. =-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-=-= O.P. Nos. 18355, 18404, 18968 & 18988 of 2001 =-=-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-= J U D G M E N T 29[th] September, 2009.