Sherla v. Wp.544.2019_11.Doc

IN THE HIGH COURT OF JUDICATURE AT BOMBAYO.O.C.J.WRIT PETITION NO.544 OF 2019 Ultratech Cement Ltd.(As the successor of Samruddhi Ltd.) … Petitioner Vs The Chief Commissioner of Income-tax – 1… Respondents& anr. Mr.J.D. Mistri, Senior Advocate with Mr.M.Agarwal i/b Mr.AtulJasani for the Petitioner Mr.Suresh Kumar with Sumandevi Yadav, Priyanka Tiwari forRespondents CORAM: AKIL KURESHI & S.J. KATHAWALLA, JJ. DATED: AUGUST 5, 2019 P.C.: 1.Heard learned Counsel for the parties for final disposal of the petition. The petition is filed by one Ultratech Cement Limited, acompany registered under the Companies Act challenging an orderdated 30.11.2018 passed by Respondent No.1 ChiefCommissioner of Income Tax rejecting the petitioner’s applicationfor waiver of interest u/s 234C of the Income Tax Act (‘the Act’, forshort). 2.Brief facts are as under: The petitioner company is a successor of oneM/s.Samruddhi Cement Limited, a company registered under the wp.544.2019_11.doc Companies Act, which was incorporated on 4.9.2009 as asubsidiary company of Grasim Industries Ltd. Grasim IndustriesLtd. desired to demerge its cement unit which would be taken overby Samruddhi Cement Ltd. A scheme for such purpose,therefore, was framed. The appointed date provided in thescheme was 1.10.2009. The scheme provided that (i) GrasimIndustries Ltd. will carry on the cement business from theappointed date to the effective date in trust on behalf of SamruddhiCement Ltd. (ii) the advance tax payment made by GrasimIndustries Ltd. in respect of the profits of the cement business fromthe appointed date and onwards shall be deemed to be paid bySamruddhi Cement Ltd. It is not in dispute that pursuant to suchclause, Grasim Industries Ltd. paid advance tax of Rs.184 croreson its profits of the cement business for the period from 1.10.2009and 31.3.2010 in the following manner: “Advance tax payment made by Grasim in respect of profitsof the Cement Business on profits pertaining to profits fromthe appointed date and onwards shall be deemed to be paidby the Company.… 3.The scheme of demerger was presented before the MadhyaPradesh High Court as well as Gujarat High Court for approval.The Madhya Pradesh High Court approved the scheme by anorder dated 31.3.2010 whereas the Gujarat High Court grantedapproval by an order dated 6.5.2010. The scheme wassubsequently duly notified and became effective from 18.5.2010. 4.Samruddhi Cement Ltd. filed its return of income for the AY2010-2011 declaring an income of Rs.428.83 crores, which undersection 115JB of the Act was assessed at Rs.931.70 crores. TheAssessment order was passed on 26.3.2013. This order took intoaccount the advance tax of Rs.184 crores paid by GrasimIndustries Ltd. for the period between 1.10.2009 till 31.3.2010.This was adjusted against Grasim’s tax liability giving rise to refundof Rs.25.66 crores (rounded off). 5.Samruddhi Cement Ltd. had not paid advance taxinstallments falling due on 15.6.2009 and 15.9.2009. The questionof charging interest on non-payment of advance tax of twoinstallments, therefore, would arise. It is not even the case of theSamruddhi Cement Ltd. that interest u/s 234C of the Act, ordinarilywould not be leviable. Samruddhi Cement Ltd., however, contendsthat such advance tax was not deposited on account of wp.544.2019_11.doc 5.Samruddhi Cement Ltd. had not paid advance taxinstallments falling due on 15.6.2009 and 15.9.2009. The questionof charging interest on non-payment of advance tax of twoinstallments, therefore, would arise. It is not even the case of theSamruddhi Cement Ltd. that interest u/s 234C of the Act, ordinarilywould not be leviable. Samruddhi Cement Ltd., however, contendsthat such advance tax was not deposited on account of wp.544.2019_11.doc impossibility. Citing Circular of CBDT dated 26.6.2006, SamruddhiCement Ltd., therefore, filed application dated 11.5.2012 to theChief Commissioner of Income Tax seeking waiver of interest. Insuch application, Samruddhi Cement Ltd. pointed out that thescheme of demerger envisaged the appointed date of 1.10.2009.From such date, Samruddhi Cement Ltd. would continue tooperate its cement business in trust for and on behalf ofSamruddhi Cement Ltd. and the advance tax pertaining to profitfrom such date and onwards, would be deemed to have been paidby Samruddhi Cement Ltd. In that application, it was also pointedout that accordingly Samruddhi Cement Ltd. had paid advance taxof Rs.184 crores in two installments falling due on 15.9.2012 and15.3.2012. It was pointed out that the scheme was approved byMadhya Pradesh High Court and the Gujarat High Court on31.3.2010 and 6.5.2010 respectively. It was also pointed out thatGrasim has not claimed benefit of such advance tax of Rs.184crores. It was contended that the company was incorporated onlyon 4.9.2009 and company was not in existence on 15.6.2009. Bythe time second installment fell due on 15.9.2009, there was noproposal to acquire the cement business from Grasim. SamruddhiCement Ltd. was in an infant stage. No business activity wascarried on. It was further pointed out that the income was received after the due date for payment of first and second installments ofadvance tax. Such income was neither anticipated nor incontemplation on such dates. The request was, therefore, made towaive interest in terms of CBDT Circular dated 26.6.2006 since thecase of the company fell squarely within the parameters of the saidCircular. 6.The Principal Commissioner passed the impugned orderdated 30.11.2018 and rejected the application of the petitioner. Hisprincipal ground was that in view of clear provisions contained inthe scheme of demerger, it cannot be stated that the income wasneither anticipated nor contemplated. Necessary conditions forwaiver of the interest provided in the CBDT Circular dated26.6.2006 were, therefore, not fulfilled. He also pressed in serviceyet another ground, namely, that the company ought to have paidall its installments which requirement in the present case accordingto him was not fulfilled. The relevant portion of his order reads asunder: “5.I have carefully considered the facts of case therequest of the assessee. Para 2(b) of the Board’sinstructions dated 26.6.2006, relied upon by the assesseecompany, reads as under: (b)Any income chargeable to income-tax under any headof income, other than “Capital gains” is received or accruedafter due date of payment of the first or subsequent installments of advance tax which was neither anticipated orwas in the contemplation of the assessee, and the advancetax on such income is paid in the remaining installment orinstallments and the Chief Commissioner/Director-General issatisfied on the facts and circumstances of the case that thisis a fit case for reduction or waiver of the interest chargeableunder section 234C of the Income-tax Act. “5.I have carefully considered the facts of case therequest of the assessee. Para 2(b) of the Board’sinstructions dated 26.6.2006, relied upon by the assesseecompany, reads as under: (b)Any income chargeable to income-tax under any headof income, other than “Capital gains” is received or accruedafter due date of payment of the first or subsequent installments of advance tax which was neither anticipated orwas in the contemplation of the assessee, and the advancetax on such income is paid in the remaining installment orinstallments and the Chief Commissioner/Director-General issatisfied on the facts and circumstances of the case that thisis a fit case for reduction or waiver of the interest chargeableunder section 234C of the Income-tax Act. Thus, as per the Board’s guidelines the income should bereceived after the due date of payment of first or subsequentinstallment of advance tax, which was neither anticipated norwas in the contemplation of the assessee. In the instantcase, the cement business of Grasim Industries wascontemplated to be transferred to the assessee w.e.f.01.10.2009 under a well thought out and deliberate plan bythe Scheme of arrangement. The assessee company being100% subsidiary of GIL was an integral part of GrasimIndustries who was carrying on the cement business.Therefore, it cannot be said that the income was notanticipated or not under contemplation. The benefit of thisclause for waiver of interest is available only in a case wherethe income was not anticipated at all. When the assesseehas executed a well thought out and deliberate plan toacquire the cement business it cannot be said that theincome from cement business was not anticipated or notunder contemplation. Thus, this condition of unexpectedincome which was not anticipated is not found fulfilled in thiscase. 6.The second condition as per this guideline is that theassessee should have made payment of advance tax onsuch income in the remaining installments. In this case nopayment of advance tax was made by the assessee at all inany of the installments. The advance tax paid by GIL was inrespect of its composite business including the cement unitas there is no provision to pay advance tax unit-wise. It isalso found that the third and fourth installment of advance taxwas paid by Gil on its own PAN and no payment was madeon the PAN of the assessee company. The Boards’ guidelinefor waiver of interest is applicable only in case where theassessee itself has paid the advance tax and there was ashortfall in the payments made in the earlier installments.Thus, the basic ingredient of payment of advance tax by the assessee, as contemplated in the Board’s instructions ismissing in this case. The assessee has only taken credit forthe 3[rd] and 4[th] installment of advance tax paid by GrasimIndustries Limited. However, the fact remains that noadvance tax was paid by the assessee though its separatePAN was available. Therefore, the assessee is not eligiblefor any wavier of interest in accordance with Board’sinstructions as no payment of advance tax was made by theassessee company at all during the year.” assessee, as contemplated in the Board’s instructions ismissing in this case. The assessee has only taken credit forthe 3[rd] and 4[th] installment of advance tax paid by GrasimIndustries Limited. However, the fact remains that noadvance tax was paid by the assessee though its separatePAN was available. Therefore, the assessee is not eligiblefor any wavier of interest in accordance with Board’sinstructions as no payment of advance tax was made by theassessee company at all during the year.” 7.Appearing for the petitioner, the learned Counsel Mr.Mistrisubmitted that the impugned order suffers from gross illegality.Samruddhi Cement Ltd., was not in existence when the firstinstallment of 15.6.2009 had fallen due. By the time of secondinstallment of 15.9.2009, the company had just come intoexistence. The proposal for acquiring the cement business fromGrasim had not yet been finalised. In any case, the scheme ofdemerger was subject to approval by two High Courts. Till suchapprovals were granted, the scheme would not come intoexistence. Various provisions made in the scheme would not beeffective. It was, therefore, not correct to hold that the profit inquestion could have been anticipated or could have been undercontemplation. He further pointed out that the advance tax ofRs.184 crores paid by Grasim was not claimed by the saidcompany but by Samruddhi Cement Ltd. and the Assessing Officerduly recognised the same while passing the order of assessment. The Commissioner was, therefore, not correct in recording that allthe installments were not paid by Samruddhi Cement Ltd. 8.On the other hand, the learned Counsel Mr.Suresh Kumaropposed the petition. He supported the impugned order. Heargued that the crucial requirement of applicability of the Circularwas that the income in question should neither be anticipated norin contemplation. In the present case, both the conditions werenot satisfied. The scheme of demerger was already framed whichenvisaged transfer of cement business of Grasim to Samruddhi.The Commissioner, therefore, had correctly come to theconclusion that the petitioner was not entitled to the benefit ofCircular. 9.In exercise of powers under section 119(2) of the Act, CBDThas issued order/circular dated 26.6.2006 regarding waiver ofinterest under section 234A, 234B and 234C of the Act. Relevantportion of this Circular reads as under: ““Sub: Order under section 119(2)(a) of the Income-taxAct, 1961 regarding waiver of interest under sections234A, 234B & 234C of the Income-tax Act, 1961. SECTION 234A, 234B, 234C, In exercise of the powers conferred under clause (a) ofsub-section (2) of section 19 of Income-tax Act 1961,Central Board of Direct Taxes, hereby directs that theChief Commissioner of Income-tax and Director General of Income-tax may reduce or waive interest chargedunder section 234A, or section 234B or section 234C ofthe Act in the classes of cases or classes of incomespecified in paragraph 2 of this Order for the period andto the extent the Chief Commissioner of Income-tax /Director-General of Income-tax may deem fit. However,no reduction or waiver of such interest shall be orderedunless the assessee has filed the return of income forthe relevant assessment year and paid the entireIncome-tax (principal component of demand due on theincome as assessed. The Chief Commissioner ofIncome-tax or Director-General of Income-tax may alsoimpose any other conditions as deemed fit for the saidreduction or waiver of interest. The class of incomes or class of cases in which thereduction or waiver of interest under section 234Aofsection 234B or, as the case may be section 234C can beconsidered, are as follows: (a)…. The class of incomes or class of cases in which thereduction or waiver of interest under section 234Aofsection 234B or, as the case may be section 234C can beconsidered, are as follows: (a)…. (b) Any income chargeable to income-tax under anyhead of income, other than “Capital gains” is received oraccrued after due date of payment of the first orsubsequent instalments of advance tax which wasneither anticipated nor was in the contemplation of theassessee, and he advance tax on such income is paid inthe remaining instalment or instalments, and the ChiefCommissioner/Director-General is satisfied on the factand circumstances of the case that this is a fit case forreduction or waiver of the interest chargeable undersection 234C of the Income-tax Act. …. … 4.Earlier Orders under section 119(2)(a) dt. 23[rd] May,1996 and 30[th] January, 1997 on the subject standsuperceded by this Order. If any petition in the past hasbeen rejected because the Board had not issued thisdirection earlier, such petition may be reconsidered anddecided in accordance with this Order. If any petition inthe past was allowed in accordance with the Ordersunder section 119(2)(a) dt. 23[rd] May, 1996 and 30[th] January, 1997, such Orders allowing waiver should notbe reopened/revised as per the guidelines contained inthis Order.” 10.It can thus be seen that to obviate the difficulty arising out ofstrict compliance of the interest provision, the CBDT has issuedthe said Circular for waiver of interest in certain circumstances.Para 4 of the Circular provides that these guidelines would beapplied even in cases, applications for waiver of interest havebeen rejected in the past. 11.The facts of the case are not seriously in dispute.Samruddhi Cement Ltd. was incorporated on 4.9.2009 as asubsidiary of Grasim Industries. The scheme of demerger ofGrasim’s business was framed which envisaged 1.10.2009 as theappointed date. The scheme was approved by the MadhyaPradesh and Gujarat High Courts on 31.3.2010 and 6.5.2010, andthe effective date being 18.5.2010. Till these orders were passed,the scheme would not be effective. The demerger as envisaged inthe scheme, would not come into existence. It was, therefore, thatthe scheme itself provided that post 1.10.2009, Grasim Industrieswould continue to operate its cement business in trust for and onbehalf of the Samruddhi Cement Ltd. The scheme also providedthat all taxes paid by Grasim Industries on the profit of its cement business arising on and after 1.10.2010 would be deemed to havebeen paid by Samruddhi Cement Ltd. That is how the twocompanies and even the assessing officer proceeded. 12.As per law, any scheme of amalgamation, merger ordemerger of companies would have to be approved by thejurisdictional High Court. The effective date may be one providedby the High Court in its order. The appointed date may be oneenvisaged in the scheme or if any specification made in the order,that may be provided by the High Court. Necessarily, therefore,any such scheme would be approved having a retrospective effect.Till approval comes from the High Court, nevertheless, the schemeremains at the stage of proposal. Under the circumstances, atbest, it can be stated that the Grasim Industries Ltd. and for thatmatter, Samruddhi Cement Ltd. could have anticipated thedemerger of the cement unit and that such demerger was also incontemplation. However, accruing of income to SamruddhiCement Ltd. cannot be stated to be either anticipated or undercontemplation. One must draw a distinction between anticipationor contemplation of demerger of the business from anticipation orcontemplation of income. Obviously, since it was GrasimIndustries and Samruddhi Cement Ltd. who had applied to the High Court for approval of the demerger scheme, the scheme wasunder contemplation and, therefore, approval anticipated. Thisdoes not mean that approval by the High Court was a certainty. Tillthe approval was granted, Samruddhi Cement Ltd. could not haveanticipated or contemplated flowing of the income in its coffers.Any other view would act extremely harshly in a situation as thepresent one and defeat the very purpose for which the Circular hasbeen issued by the CBDT. We can think of a reverse situation. Letus assume Samruddhi Cement Ltd. had paid advance tax. GrasimIndustries obviously, therefore, would not. Or the scheme ofdemerger was not approved by the High Court or not approved tillthe completion of the financial year. Samruddhi Cement Ltd. maybe able to claim refund, surely Grasim Industries would be chargedinterest for not depositing advance tax. 13.We may recall, Grasim Industries continued to discharge thetax liability on the profit of the cement business even after1.10.2009. Consequently, Grasim had paid advance tax of Rs.184crores. On account of demerger, Grasim never claimed benefit ofsuch advance tax, instead, Samruddhi Cement Ltd. in return ofincome, claimed credit thereof, which was also recognised by theAssessing Officer. Second ground pressed in service by the We may recall, Grasim Industries continued to discharge the wp.544.2019_11.doc Commissioner is wholly untenable. We may recall, he was of theopinion that the Grasim Industries had not even paid all itsinstallments and therefore also, waiver of interest could not begranted. This conclusion is based on a fallacious considerationthat the installments were paid by Grasim Industries and notSamruddhi Cement Ltd. The relevant parties, namely, GrasimIndustries and Samruddhi Cement Ltd. as well as the AssessingOfficer treated the advance tax installments paid by GrasimIndustries as deemed to have been paid by Samruddhi CementLtd. The Commissioner, therefore, was in error in pressing inservice this clause of the Circular. 14.Under the circumstances, we find that the Commissionercommitted a serious error in rejecting the application for waiver ofinterest. The impugned order dated 30.11.2018 is, therefore,quashed. It is directed that the respondents shall waive interestpayable u/s 234C of the Act in terms of CBDT Circular dated26.6.2006 for the period in question. Consequently, if suchinterest is already recovered, the same would become refundable. 15.The petition is allowed and disposed of accordingly. (S.J. KATHAWALLA, J.) (AKIL KURESHI, J.)