Op/38775/2002 Of The Commissioner Of Incometax Cochin v. Settlement Commission

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR. JUSTICE ANIL K.NARENDRAN THURSDAY, THE 22ND DAY OF MAY 2014/1ST JYAISHTA, 1936 OP.No. 38775 of 2002 (N) ------------------------- PETITIONER : ------------ THE COMMISSIONER OF INCOME TAX, CALICUT. BY ADVS.SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.GEORGE K. GEORGE, SC FOR IT RESPONDENTS : -------------- 1. SETTLEMENT COMMISSIONER (IT &WT) ADDITIONAL BENCH, 488-489, ANNASALAI, CHENNAI-600 035. CHENNAI-600 035. 2. SRI.C.K.ALAVI, SABANA MANZIL, MONGAM, MALAPPURAM DISTRICT. R2 BY ADV. SRI.P.BALACHANDRAN (SR.) R2 BY ADV. SMT.PREETHA S.NAIR R2 BY ADV. SRI.P.BALAKRISHNAN (E) THIS ORIGINAL PETITION HAVING BEEN FINALLY HEARD ON 22-05-2014, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: OP.No.38775 of 2002 (N) APPENDIX PETITIONER'S EXHIBITS:- EXT.P1:COPY OF THE ORDER OF THE SETTLEMENT COMMISSION DTD.18/10/2001. RESPONDENTS' EXHIBITS:- NIL. True copy P.A to Judge “CR” ANIL K.NARENDRAN, J. --------------------------------------- O.P.No.38775 of 2002 ---------------------------------------- Dated this the 22[nd] day of May, 2014 JUDGMENT This Original Petition is filed by the Commissioner ofIncome Tax, Calicut, seeking a writ of certiorari to quashExt.P1 order of the Settlement Commission (IT & WT)Additional Bench, Chennai, first respondent herein, in so far asit pertains to waiver of interest levied on the assessee underSub-section (2) of Section 220 of the Income-Tax Act, 1961,for the period subsequent to 10/02/1997, being the date offiling of the application before the Settlement Commissionunder Sub-section (1) of Section 245C of the said Act. 2.The assessee, the second respondent herein, isengaged in the business of financing vehicle purchases,constructing and selling of commercial complexes and realestate. A search under Section 132 of the Income-Tax Act, 1961, hereinafter referred to as ‘the Act’ only, was conductedat the residential and business premises of the assessee on01/02/1996. Notice under Section 158BC of the Act was issuedon 13/06/1996 and the assessee filed return of income on05/12/1996 declaring an amount of ₹4,50,000/- as undisclosedincome for the block period 1986-87 to 1996-97 and the taxpayable was worked out at ₹2,70,000/-. The assessment underSection 158BC for the block period 1986-87 to 1996-97 wascompleted on 26/02/1997 and the undisclosed income wascomputed at ₹2,10,19,540/- and the tax payable was workedout at ₹1,26,11,724/-. The assessee filed an application beforethe Settlement Commission, the first respondent herein, on10/02/1997 offering additional income of ₹2,70,000/- and theSettlement Commission passed Ext.P1 order under Sub-section(4) of Section 245D of the Act, arriving at a total undisclosedincome of ₹27,51,758/- for the block period. 3.The assessee also filed a separate petition underSub-section (2A) of Section 220 of the Act, for waiver of 3.The assessee also filed a separate petition underSub-section (2A) of Section 220 of the Act, for waiver of interest levied under Sub-section (2) of Section 220 of the Act,relying on the decision of the Income-Tax SettlementCommission (Special Bench) in the case of Damani Brothers,In re[(1999) 238 ITR (AT) 36]. In paragraph 27 of Ext. P1order, the Settlement Commission, merely relying on thedecision in Damani Brothers case (supra) ordered that theinterest levied on the assessee under Sub-section (2) ofSection 220 of the Act for the period subsequent to10/02/1997, being the date of filing the application before theSettlement Commission, will stand cancelled. The said decisionof the Settlement Commission was without considering as towhether the assessee fulfilled all the three conditions laid downin Clauses (i), (ii) and (iii) of Sub-section (2A) of Section 220of the Act. It is aggrieved by Ext.P1 order, to the extent ofgranting waiver of interest levied on the assessee under Sub-section (2) of Section 220 of the Act, for the period subsequentto 10/02/1997, being the date of filing of the application beforethe Settlement Commission under Sub-section (1) of Section 245C of the said Act, the Revenue is before this Court in thisOriginal Petition filed under Article 226 of the Constitution ofIndia. 4.Heard the learned Standing Counsel for the petitionerand the learned counsel appearing for the second respondent. Heard the learned Standing Counsel for the petitioner 5.The issue which has to be considered in this OriginalPetition is whether the Settlement Commission in Ext. P1 wasjustified in granting waiver of interest levied on the assesseeunder Sub-section (2) of Section 220 of the Act withoutconsidering as to whether the assessee fulfilled all the threeconditions laid down under Sub-section (2A) of Section 220 ofthe Act and recording reasons as to how the assessee isentitled for such waiver of interest. 6.As per Sub-section (2) of Section 220 of the Act, ifthe amount specified in any notice of demand under Section156 is not paid within the period limited under Sub-section (1),the assessee shall be liable to pay simple interest at one percent for every month or part of a month comprised in the period commencing from the day immediately following the end of the period mentioned in Sub-section (1) and ending with the day on which the amount is paid. Sub-section (2A) ofSection 220 of the Act, which provides for waiver of interest,reads as follows; (2A) Notwithstanding anything contained in Sub-section (2), the Chief Commissioner or Commissioner may reduceor waive the amount of interest paid or payable by anassessee under the said sub-section if he is satisfied that-(i) payment of such amount has caused or would causegenuine hardship to the assessee; (ii) default in the payment of the amount on which interest has been paid or was payable under the said sub-section was due to circumstances beyond the control ofthe assessee; and (iii) the assessee has co-operated in any inquiry relatingto the assessment or any proceeding for the recovery ofany amount due from him. A mere perusal of Sub-section (2A) of Section 220 of the Act makes it abundantly clear that the said sub-section, which begins with a non-obstante clause, not only overrides the (2), the Chief Commissioner or Commissioner may reduceor waive the amount of interest paid or payable by anassessee under the said sub-section if he is satisfied that-(i) payment of such amount has caused or would causegenuine hardship to the assessee; (ii) default in the payment of the amount on which interest has been paid or was payable under the said sub-section was due to circumstances beyond the control ofthe assessee; and (iii) the assessee has co-operated in any inquiry relatingto the assessment or any proceeding for the recovery ofany amount due from him. A mere perusal of Sub-section (2A) of Section 220 of the Act makes it abundantly clear that the said sub-section, which begins with a non-obstante clause, not only overrides the charging provision as contained in Sub-section (2) of Section220 of the Act, but also restricts the power of the competentauthority to reduce or waive the amount of interest paid orpayable by an assessee, only if such authority is satisfied thatthe assessee fulfilled all the three conditions laid down underSub-section (2A) of Section 220 of the Act. First conditionbeing that, payment of such amount of interest has caused orwould cause genuine hardship to the assessee. The secondcondition being that, the default in the payment of the amounton which interest has been paid or was payable under the Sub-section (2) was due to circumstances beyond the control of theassessee and the third condition being that, the assessee hasco-operated in any inquiry relating to the assessment or anyproceedings for recovery of any amount due from him.7.In Krishan Lal v. Union of India(1998 (2) SCC392 : (1998) 230 ITR 85), the Apex Court held that, when anapplication is filed under Sub-section (2A) of Section 220 of theAct, the authority concerned is called upon to take a quasi- judicial decision and if it is satisfied that the reasons contained in the application would bring the case under Clauses (i), (ii)and (iii) of Sub-section (2A) of Section 220 of the Act, then ithas power either to reduce or waive the amount of interest.(para. 4) In CIT v. Anjum M.H. Ghaswala(2002 (1) SCC633: (2001) 252 ITR 1) the Apex Court held that, wherever theAct contemplated power of waiver or reduction of interest to beentrusted with any particular authority in any particularsituation, it has done so like in Section 220(2A) of the Act.(para. 19) The Apex Court further held that, it is the normalrule of construction that when a statue vests certain power inan authority to be exercised in a particular manner then thesaid authority has to exercise it only in the manner provided inthe statute itself. (para. 27) 8. In CIT v. Damani Brothers(2003 (3) SCC 86 : (2003) 259 ITR 475), arising out of the order of the SpecialBench of the Settlement Commission in Damani Brotherscase (supra), the Apex Court considered among other questions the powers of the Settlement Commission to waive interest levied under Sub-section (2) of Section 220 of the Act.Relying the principle in Anjum’s case (supra), the Apex Courtreversed in part the order of the Settlement Commission inDamani Brothers case (supra), and held that, waiver orreduction of interest under Sub-section (2A) of Section 220 ofthe Act is hedged with certain conditions and if these conditionsare satisfied, the Commission has the power to direct waiver orreduction of interest. Paragraph 13 of the judgment reads thus; “13. Coming to the third question, the answer isprovided in Anjum's case (supra). Wherever the Act providesfor waiver of interest, the Commission can in appropriatecases direct waiver or reduction of the interest. It has to benoted that waiver or reduction of interest under Section 220(2A) and other provisions is hedged with certain conditions. Ifthese conditions are satisfied, the Commission has the powerto direct waiver or reduction. In view of this answer, theCommission has to examine whether the assessee has madeout a case for waiver or reduction.” “13. Coming to the third question, the answer isprovided in Anjum's case (supra). Wherever the Act providesfor waiver of interest, the Commission can in appropriatecases direct waiver or reduction of the interest. It has to benoted that waiver or reduction of interest under Section 220(2A) and other provisions is hedged with certain conditions. Ifthese conditions are satisfied, the Commission has the powerto direct waiver or reduction. In view of this answer, theCommission has to examine whether the assessee has madeout a case for waiver or reduction.” Later, the Apex Court in B.M. Malani v. CIT2008 (10) SCC 617 : (2008) 306 ITR 196), while considering the validity of an order passed under Sub-section (2A) of Section 220 of the Act,reiterated that, the authority has to exercise the discretionjudicially and has to arrive at a satisfaction that the threeconditions laid down therein have been fulfilled before passingan order waiving interest. 9.In Kishan Lal’s case (supra), the Apex Court heldthat, even though in Sub-section (2A) of Section 220 of theAct, it is not stated that any reasons are to be recorded in theorder deciding such an application, it is implicit in the saidprovision that whenever such an application is filed the sameshould be decided by a speaking order. Paragraph 4 of thejudgment reads thus; “4. When an application is filed under Sub-section (2A)of Section 220 the authority concerned is called upon to takea quasi-judicial decision. If it is satisfied that the reasonscontained in the application would bring the case underClauses (i), (ii) and (iii) of Section 220(2A) then it has thepower either to reduce or waive the amount of interest. Eventhough in the said sub-section it is not stated that any reasonsare to be recorded in the order deciding such an application, itappears to us that it is implicit in the said provision that whenever such an application is filed the same should bedecided by a speaking order. Principles of natural justice inthis regard would be clearly applicable. It will be seen that adecision which is taken by the authority under Section 220(2A) can be subjected to judicial review, as was sought to bedone in the present case by filing a petition under Article 226,this being so and where the decision of the application mayhave repercussion with regard to the amount of interest whichan assessee is required to pay it would be imperative thatsome reasons are given by the authority while disposing ofthe application. Mr. Salve, the learned senior counsel for theappellant has strongly relied upon the observations of thisCourt in Siemens Engineering and Manufacturing Co. of IndiaLtd. v. Union of India (1976 (2) SCC 981) where at page 986it has been stated that where an authority makes an order inexercise of its quasi-judicial function it must record its reasonsin support of the order it makes. In other words, every quasi-judicial order must be supported by reasons. In our opinion,the observations in that case would apply in the present casealso.” 10.In the case on hand, a perusal of Ext. P1 order reveala total non-application of mind by the Settlement Commissionon the crucial issue as to whether the assessee has fulfilled allthe three conditions laid down under Clauses (i), (ii) and (iii) ofSub-section (2A) of Section 220 of the Act. Moreover, no reasons have been recorded in Ext. P1 order on the entitlement of the assessee for such waiver of interest levied under Sub-section (2) of Section 220 of the Act. The only reason stated inparagraph 27.2 of Ext. P1 order is as follows; “Respectfully following the decision of the Special Bench citedabove, we hold that the interest levied under Section 220(2)for the period subsequent to 10/02/1997, being the date offiling of the application, will stand cancelled.” The decision of the Special Bench (238 ITR 36) relied by the reasons have been recorded in Ext. P1 order on the entitlement of the assessee for such waiver of interest levied under Sub-section (2) of Section 220 of the Act. The only reason stated inparagraph 27.2 of Ext. P1 order is as follows; “Respectfully following the decision of the Special Bench citedabove, we hold that the interest levied under Section 220(2)for the period subsequent to 10/02/1997, being the date offiling of the application, will stand cancelled.” The decision of the Special Bench (238 ITR 36) relied by the Settlement Commission in Ext. P1 order has already beenreversed in part by the Apex Court in (259 ITR 475). Moreover,Sub-section (2) of Section 220 of the Act restricts the power ofthe Settlement Commission to reduce or waive the amount ofinterest paid or payable by an assessee only if such authority issatisfied that the assessee has fulfilled all the three conditionslaid down under Sub-section (2A) of Section 220 of the Act.Further, in terms of the law laid down by the Apex Court in thejudgments referred supra, while passing an order under Sub-section (2A) of Section 220 of the Act, the Settlement Commission has to exercise its discretion judicially and satisfy that the three conditions laid down under Clauses (i), (ii) and(iii) of Sub-section (2A) of Section 220 of the Act have beenfulfilled, before passing an order waiving interest. Still further,such an application has to be decided by a speaking order. 11.As Ext. P1 order passed by the SettlementCommission does not satisfy the tests laid down by the ApexCourt in the judgments referred supra, the said order, to theextent it is under challenge in this Original Petition, deservesinterference of this Court under Article 226 of the Constitutionof India. In such circumstances, Ext. P1 order passed by thefirst respondent, in so far as it pertains to waiver of interestlevied on the second respondent under Sub-section (2) ofSection 220 of the Act, for the period subsequent to10/02/1997, being the date of filing of the application beforethe first respondent under Sub-section (1) of Section 245C ofthe Act, is set aside. Therefore, this original petition is disposed of, directingthe first respondent to consider the application filed by thesecond respondent under Sub-section (2A) of Section 220 ofthe Income-Tax Act, 1961, with regard to waiver of interestlevied under Sub-section (2) of Section 220 of the said Act,afresh and pass a considered order in terms of the law laiddown by the Apex Court referred supra, after affording areasonable opportunity of being heard to the secondrespondent, in accordance with law, as expeditiously aspossible, at any rate, within a period of four months from thedate of receipt of a certified copy of this judgment. No order asto costs. ANIL K.NARENDRAN, JUDGE skj