Op/19012/2000 Of Rachelamma Mathew v. The Dy.commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR FRIDAY, THE 23RD NOVEMBER 2007 / 2ND AGRAHAYANA 1929 OP.No. 19012 of 2000(L) ----------------------- PETITIONER: ------------ RACHELAMMA MATHEW,PARTNER,M/S. K.N.MATHEW & SONS,GANDHARIAMMANKOVIL ROAD,THIRUVANANTHAPURAM. BY ADV. SRI.B.S.KRISHNAN (SR.) SRI.K.ANAND (A.201) RESPONDENTS: ------------- 1.THE DEPUTY COMMISSIONER OF INCOME TAX,CENTRAL CIRCLE, THIRUVANANTHAPURAMCENTRAL CIRCLE, THIRUVANANTHAPURAM (FORMERLY ASST. COMMISSIONER OF INCOME TAX). 2.THE DIRECTOR GENERAL OF INCOME TAX,INCOME TAX DEPARTMENT,108, M.G.ROAD, NUNGAMBAKKOM,CHENNAI. BY ADV. SRI.P.K.R.MENON(SR.),SC FOR IT SRI.GEORGE K. GEORGE, SC FOR IT THIS ORIGINAL PETITION HAVING BEEN FINALLY HEARD ON 23/11/2007, ALONG WITH OP NO. 23913 OF 2000 OP NO. 23914OF 2000 THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ORDER ON CMP NO. 31668/2000 IN OP NO. 19012/2000 & ORDER ON CMP NO. 5537/2003 IN OP NO. 19012/2000. DISMISSED. 23/11/2007SD/- (C.N.RAMACHANDRAN NAIR, JUDGE) APPENDIX PETITIONER'S EXHIBITS P1 :COPY OF THE ORDER OF SETTLEMENT COMMISSION DATED 28/03/1997. P2 :COPY OF THE ORDER DATED 29/07/1997 PASSED by the ASST.COMMISSIONER OF INCOME TAX.COMMISSIONER OF INCOME TAX. P3 :COPY OF THE ORDER PASSED BY THE 1ST RESPONDENT DATED 22/07/1997. P4 :COPY OF THE APPLICATION FILED BEFORE THE 1ST RESPONDENT. P5 :COPY OF THE ORDER DATED 5TH SEPTEMBER, 1997 PASSED by the 1STRESPONDENT.RESPONDENT. P6 :COPY OF THE PETITION SUBMITTED BY THE PETITIONER BEFORE 2NDRESPONDENT.RESPONDENT. P7 :COPY OF THE ORDER PASSED BY THE 2ND RESPONDENT. // TRUE COPY // jg PA TO JUDGE. C.N.RAMACHANDRAN NAIR, J. ----------------------------------- O.P. Nos. 19012, 23913 & 23914 of 2000 ------------------------- Dated, this the 23[rd] day of November, 2007 J U D G M E N T I heard learned counsel for the petitioners and learnedstanding counsel for the Income Tax Department. 2.These original petitions are filed challenging orderproduced as Ext.P7, in all original petitions, whereunder theDirector General of Income Tax, declined to waive interest levied onpetitioners under Sections 234B and 234C of the IT Act for theassessment year 1992-93. The assessees were partners of a firmby name M/s.K.N.Mathew Sons. The firm was engaged indistribution of pharmaceuticals. An inspection was carried out bythe Department in the business premises of the firm on 19/12/1991and during search, books of accounts were seized. Pursuant tosearch, the firm filed settlement application before the SettlementCommission, which allowed the same. The reliefs granted by theSettlement Commission to the Firm included full waiver of interestunder Section 234A and part waiver of interest under Section 234B,in as much as the Settlement Commission directed the Departmentto limit the demand of interest under Section 234B for a period of O.P.No. 19012/2000 & connected cases -2- two years. So far as liability under Section 234C is concerned, theSettlement Commission directed the Assessing Officer to chargeinterest in accordance with law. The petitioners did not fileapplication for settlement, but waited for regular assessments. Inthe assessment order for the assessment year 1992-93, interestwas charged on all petitioners under Sections 234 A, B and C of theIT Act. The petitioners claimed same reliefs as granted by theSettlement Commission while granting settlement of firm’sassessment, of which they are partners. However, 2[nd] respondent,though stated that Settlement Commission’s order is not applicableas such in the case of assessment of the partners, allowed fullwaiver of interest charged under Section 234A in the case of allpartners, but rejected the waiver applications filed for waiver ofinterest under the other two sections. It is against these orders,the petitioners filed these original petitions. 3.The learned counsel for the petitioners contended thatpetitioners have no other income other than the income from thefirm, the business premises of which was searched during therelevant year and books of accounts were seized by theDepartment. Since the only income of the petitioners is O.P.No. 19012/2000 & connected cases -3- share income from the firm, the order of the SettlementCommission in the assessment of the firm should be followed in thecase of the partners is the contention advanced by learned counsel.However, learned standing counsel submits that there is noprovision mandating the Department to apply the SettlementCommission’s order applicable in the case of the firm, to the case ofall the partners. According to him, though interest is mandatory,waiver is considered based on the circular issued by the Boardunder Section 119(2)(a) of the IT Act and unless conditions aresatisfied the assessees are not entitled waiver of interest. In fact,2[nd] respondent has also held that the Settlement Commission’sorder is not binding on him. So far as waiver of interest isconcerned, I am in agreement with this finding of the 2[nd]respondent because for the purpose of waiver of interest underSections 234A or 234B or 234C, the conditions stated in the circularshould exist. In other words, the assessee has to demonstrate thatassessees’ case falls fairly under the circumstances stated in thecircular. On going through the relevant circular dated 23/05/1996,I find condition for waiver of interest under Section 234A exists andtherefore 2[nd] respondent allowed the same. So far as the conditions O.P.No. 19012/2000 & connected cases -4- for waiver of interest charged under Section 234B is concerned,during the search the Department should have seized the cash,disabling the assessees from paying the advance tax on due datesand the authority considering waiver application should be satisfiedabout it. The counsel for the petitioners contented that since thesource of income is only share income from the firm, the order ofthe Settlement Commission in the assessment of the firm should befollowed in the case of the partners. I find force in the contentionbecause if cash belonging to the Firm is seized during search or ifprohibition was issued by the Department against operation of Bankaccount, then the firm and the partners would have been disabledfrom paying advance tax. However, the waiver applications or theorders issued thereon, which are challenged in these originalpetitions, do not disclose whether cash was seized or whether therewas any restriction against withdrawal from Bank accounts of theFirm. In the absence of any of these facts, the satisfaction of theconditions referred to in the circular for waiver of interest cannot beverified. If cash was not seized and there was no prohibitionagainst withdrawal from the Bank account by the partners, then theimpugned orders have to be upheld. However, learned counsel for O.P.No. 19012/2000 & connected cases the petitioners submits that the seized records do not disclose thismatter. I feel, an opportunity can be given to the petitioners tobring to the notice of the 2[nd] respondent and ask for modification ofhis order in rectification proceedings that there was seizure of cashor prohibition against operation of Bank account, disabling theassessees from paying advance tax. Accordingly, these originalpetitions are disposed of upholding Ext.P7, but leaving freedom tothe petitioners to file Rectification Application, if facts stated aboveexist. However, since there will be delay in filing of applications forrectification on account of pendency of these original petitions,there will be direction to the 2[nd] respondent to consider theRectification Applications on merits, if Applications are filed alongwith copy of this judgment within one month from the date ofreceipt of a copy of this judgment by petitioners.