Tushin T.mehtalegal Heir Of Late Tushaar Mehta v. The Chief Commissioner Of Income Tax,Chennai - Ii

IN THE HIGH COURT OF JUDICATURE AT MADRAS Date of Reservation : 14.08.2019Date of Pronouncement : 14.08.2019 CORAM: THE HONOURABLE MR.JUSTICE G.R.SWAMINATHAN Tushin T.MehtaLegal heir of Late Tushaar Mehta... Petitioner Vs. The Chief Commissioner of Income Tax,Chennai - II, No.121, Mahatma Gandhi Road,Chennai – 600 035. ... Respondent Prayer : This Writ Petition is filed under Article 226 ofthe Constitution of India, to issue a Writ of Certiorari, tocall for the records of the respondent relating to proceedingsin C.No.CC.II/B(54)2001-2002 dated 19.08.2003 and quash the ame. For Respondent : Mr.D.Naveen Durai Babu for Mrs.Hema Muralikrishnan ORDER The writ petitioner's father late Mr.Tushaar Mehtavoluntarily filed his return of income for the assessment year1996-97 on 28.03.1997 admitting the total income ofRs.11,06,129/-. The assessee had claimed long term capitalgains of Rs.3,26,813/- on sale of property made during thatyear. The property in question was a leasehold propertyregistered in his name. He had entered into a transaction withMrs.Utility Builders for construction of multi storiedstructure. An agreement was executed on 06.03.1992. However,the lease deed was registered only on 21.04.1994. The claim ofthe assessee was that even though the registration was donelater, he had taken possession of the land on 06.03.1992 itself,the date when he entered into builders agreement withMrs.Utility Builders. The property was sold to Mrs.ShriramAsset Management Company Limited by sale deed dated 14.08.1995 for a sum of Rs.11,25,000/-. The consideration mentioned inthe builders agreement was Rs.5,20,000/-. Thus, there has beena capital gain of Rs.6,05,000/-. 2.The question that arose was whether it should be treatedas short term capital gains or long term capital gains.According to the assessee, he took possession of the land on06.03.1992 itself. The sale in favour of Shriram AssetManagement Company Limited was on 14.08.1995. Thus, the periodof holding the asset was more than three years. But, this standof the assessee was not accepted by the assessing officer. Theassessing officer took the view that the construction was doneby the builders on behalf of the assessee. There was nopurchase of building. The purchase was only in respect ofundivided leasehold interest in the land. The interest in theland was assigned by deed that was executed on 20.01.1994 andregistered only on 02.03.1994. According to the assessingauthority the legal right to use of the property came only on20.01.1994 with assignment of leasehold interest in the land andnot on 06.03.1992. After so reasoning out, the assessment wascompleted under Section 143(3) of the Income Tax Act, 1961, on29.10.1998 by treating the capital gains of Rs.6,05,000/- asshort term capital gains. The claim of the assessee that itwas a long term capital gains was rejected. The assessingofficer determined the total income at Rs.17,30,930/- for thesaid assessment year and demanded a sum of Rs.5,46,742/- as thetotal net tax payable. The assessing officer charged interestunder Section 234 A of the Act at Rs.45,108/- and under Section234 B at Rs.1,73,766/- and under Section 234 C at Rs.5,640/-. 3.It is not in dispute that the entire tax as demanded bythe assessing officer was paid. The writ petitioner's fatherthereafter filed a waiver petition under Section 119(2) (a) ofthe Income Tax Act on 18.08.2000 for waiver of the interestcharged under the aforesaid provisions. The stand taken in thesaid waiver petition was that on 06.03.1992 he purchased animmovable property at Royapettah High Road for Rs.5,20,000/-vide builders agreement dated 06.03.1992 and that the same wassold vide sale deed dated 14.08.1995 for a sum ofRs.11,25,000/-. Since he was under the bonafide belief that thecapital gains yielded by the aforesaid transaction would amountto long term capital gains, he filed his return of income onthat basis. 4.The writ petitioner's father invoked the Circular issuedby the Central Board of Direct Taxes in F.No.400/234/95-IT(B) on23.05.1996 which provided for waiver of interest under certaincircumstances. He pointed out that the filing of return wasvoluntary without detection by the Income Tax Department.However, by order dated 22.10.2002, the waiver petition was rejected. Challenging the same, the petitioner's father filedWP No.7940 of 2003. By order dated 22.04.2003, the High Courtset aside the rejection order on the ground that proper reasonshave not been assigned and that the order was rather laconic.The matter was remitted to the file of the authority with adirection to reconsider the matter and dispose of theapplication afresh after giving an opportunity of hearing tothe assessee. After hearing the assessee, the assessingofficer once again rejected the waiver petition and confirmedthe levy of interest under the aforesaid provisions. Theassessee died in September, 2005 and his son continued thebattle and that is how this writ petition came to be filed. 5.Heard the learned counsel appearing for the petitioner andthe learned standing counsel appearing for the respondent. 6.The learned counsel for the petitioner would contend thatinterest under Sections 234 A, 234 B and 234 C of the Income TaxAct, 1961 are statutorily levies and payable for belated/nonpayment of advance tax/income tax etc, and that the same isautomatic and mandatory. However, the request for waiver ofinterest will have to be considered in the light of Section 119(2)(a) of the Act read with the Circular issued by CentralBoard of Direct Taxes in F.No.400/234/95-IT(B), dated23.05.1996. Clause 2(e) of the said circular provides thatwhere a return of income could not be filed by the assessee dueto unavoidable circumstances and such return of income is filedvoluntarily by the assessee or his legal heirs withoutdetection by the AO, then levy of interest can be waived. 7.The learned counsel for the petitioner pointed out thatthe petitioner's father duly filed his return of income on timewithout detection by the assessing officer. According to thepetitioner's counsel, the respondent erroneously invoked Clause(e) and that the applicable clause will be clause (v) of theBoard's cricular dated 23.05.1996. According to thepetitioner, the said clause reads as under : “(v)Where return of income is filedvoluntarily without detection by the Income-taxDepartment and due to circumstances beyond controlof the taxpayer such return of income was not filedwithin the stipulated time-limit or advance tax wasnot paid at the relevant time.” The writ petitioner's father was under a bonafide belief thatthe transaction is liable only for long term capital gain.However, the assessing officer chose to treat the transactionas a short term capital gain. This according to thepetitioner's counsel was beyond the control of the assessee. “(v)Where return of income is filedvoluntarily without detection by the Income-taxDepartment and due to circumstances beyond controlof the taxpayer such return of income was not filedwithin the stipulated time-limit or advance tax wasnot paid at the relevant time.” The writ petitioner's father was under a bonafide belief thatthe transaction is liable only for long term capital gain.However, the assessing officer chose to treat the transactionas a short term capital gain. This according to thepetitioner's counsel was beyond the control of the assessee. After the assessing officer made the stand clear, thepetitioner's father duly paid the tax. Therefore, thepetitioner's counsel contend that the impugned order will haveto be set aside and the writ petition allowed. The learnedcounsel also placed reliance on the following decisions : “1.N.Haridas & Co. vs. Chief Commissioner ofIncome Tax & Anr (2008) 296 ITR 246 (Mad).2.Bhanuben Panchal and Chandrakaben Panchalvs. Chief Commissioner of Income Tax (2004) 269ITR 27 (Guj)3.S.Nagoor Babu @ Manu vs. ChiefCommissioner of Income Tax-II and Anr in WPNO.379-382 of 2005.” 8.Per contra, the learned standing counsel appearing for thedepartment submitted that the impugned order does not warrantany interference and wanted this Court to dismiss this writpetition. The learned standing counsel also filed his writtenarguments and placed reliance on the following judicialprecedents : “1.MRF vs. Deputy Commissioner of IncomeTax, Larger Tax Payer Unit, Chennai reported in76 Taxmann 283 (Mad).2.Commissioner of Income Tax IV vs. InsilcoLtd reported in 190 Taxmann 306(Del).3.Chief Commissioner of Income Tax vs.Rajanikant and sons reported in 83 Taxmann.com162(Mad).” 9.I carefully considered the rival contentions. It must benoted that the issue as to whether the capital gains made by theassessee should be treated as short term or long term hadalready attained finality. The assessee/the father of the writpetitioner had accepted the decision of the assessing officerand paid the entire tax as determined by him. The only issueis whether the levy of interest under Sections 234 A, 234 B and234 C of the Act is to be waived or not. 10.As fairly stated by the learned counsel appearing for thepetitioner Sections 234 A, 234 B and 234 C provide for levy ofinterest for delay/default/deferment in the payment of advancetax/income tax etc. They are statutory levies. Therefore, therecan be relief from the said liabilities only if the case of thepetitioner can be brought within the scope of the notificationissued by the Central Board of Direct Taxes videF.No.400/234/95-IT(B), dated 23.05.1996. In the affidavitfiled in support of the writ petition as well as in thewritten arguments, the stand of the petitioner is that clause 2(v) of the Board's circular dated 23.05.1996 must be invoked and not clause (e). 11.This Court carefully went through the contents of thenotification bearing F.No.400/234/95-IT(B), dated 23.05.1996.Nowhere is there any clause (v) as claimed by the petitioner inhis affidavit as well as in his written arguments.Notification bearing F.No.400/234/95-IT(B), dated 23.05.1996reads as follows : not clause (e). 11.This Court carefully went through the contents of thenotification bearing F.No.400/234/95-IT(B), dated 23.05.1996.Nowhere is there any clause (v) as claimed by the petitioner inhis affidavit as well as in his written arguments.Notification bearing F.No.400/234/95-IT(B), dated 23.05.1996reads as follows : “In exercise of the powers conferred underclause (a) of sub-section (2) of section 119 of theIncome-tax Act, 1961, the Central Board of DirectTaxes hereby direct that the Chief Commissioner ofIncome-tax and Director-General of Income-tax mayreduce or waive interest charged under section 234Aor section 234B or section 234C of the Act in theclasses of cases or classes of income specified inparagraph 2 of this order for the period and to theextent the Chief Commissioner of Income-tax/Director-General of Income-tax deem fit. However, no reductionor waiver of such interest shall be ordered unlessthe assessee has filed the return of income for therelevant assessment year and paid the entire tax dueon the income as assessed except the amount ofinterest for which reduction or waiver has beenrequested for. The Chief Commissioner of Income-taxor the Director-General of Income-tax may also imposeany other conditions deemed fit for the saidreduction or waiver of interest. 2.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 of proceedings forsearch and seizure under section 132 of the Income-tax Act, or otherwise, the books of account and otherincriminating documents have been seized and forreasons beyond the control of the assessee, he hasbeen unable to furnish the return of income for theprevious year during which the action under section132 has taken place, within the time specified inthis behalf and the Chief Commissioner or, as thecase may be, Director-General is satisfied havingregard to the facts and circumstances of the casethat the delay in furnishing such return of incomecannot reasonably be attributed to the assessee. (b)Where during the course of search and seizureoperation under section 132 of the Income-tax Act,cash is seized which is not allowed to be utilised for payment of advance tax installment orinstallments as they fall due after the seizure ofcash and the assessee has not paid fully or partlyadvance tax on the current income and the ChiefCommissioner or the Director-General is satisfiedthat the assessee is unable to pay the advance tax. (c)Where any income chargeable to income-taxunder any head of income, other than "Capital gains"is received or accrues after the due date of paymentof the first or subsequent installments of advancetax which was neither anticipated nor was in thecontemplation of the assessee and the advance tax onsuch income is paid in the remaining installment orinstallments and the Chief Commissioner or Director-General is satisfied on the facts and circumstancesof the case that this is a fit case for reduction orwaiver of interest chargeable under section 234C ofthe Income-tax Act. (c)Where any income chargeable to income-taxunder any head of income, other than "Capital gains"is received or accrues after the due date of paymentof the first or subsequent installments of advancetax which was neither anticipated nor was in thecontemplation of the assessee and the advance tax onsuch income is paid in the remaining installment orinstallments and the Chief Commissioner or Director-General is satisfied on the facts and circumstancesof the case that this is a fit case for reduction orwaiver of interest chargeable under section 234C ofthe Income-tax Act. (d)Where any income which was not chargeable toincome-tax on the basis of any order passed in thecase of an assessee by the High Court within whosejurisdiction he is assessable to income-tax, and as aresult, he did not pay income-tax in relation to suchincome in any previous year and subsequently, inconsequence of any retrospective amendment of law or,as the case may be, the decision of the Supreme Courtin his own case, which event has taken place afterthe end of any such previous year, in any assessmentor reassessment proceedings the advance tax paid bythe assessee during the financial year immediatelypreceding the relevant assessment year is found to beless than the amount of advance tax payable on hiscurrent income, the assessee is chargeable tointerest under section 234B or section 234C and theChief Commissioner or Director-General is satisfiedthat this is a fit case for reduction or waiver ofsuch interest. (e)Where a return of income could not be filedby the assessee due to unavoidable circumstances andsuch return of income is filed voluntarily by theassessee or his legal heirs without detection by theAssessing Officer. 3.The Chief Commissioner of Income-tax/Director-General of Income-tax may order the waiver orreduction of interest under sections 234A, 234B and234C under this order with reference to theassessment year 1989-90 or any subsequent assessmentyear but shall not so reduce or waive penal interest in those cases where waiver or reduction of suchinterest has been rejected in the past on the meritsof the case. If any petition in the past has beenrejected because the Board had not issued thisdirection earlier, these may be reconsidered anddecided in accordance with this order. Order : [F.No. 400/234/95-IT(B)], dated 23-5-1996” However, two days prior to the issuance of the notification, apress note was released. The said press note dated 23.05.1996reads as under : “Prior to 1989, taxpayers who had failed tofurnish the return of income within the specifiedtime-limit or had paid inadequate or not paidadvance tax within the stipulated time-limit werecharged penal interest for such defaults and alsosubjected to penalty proceedings. The Direct TaxLaws (Amendment) Act, 1987 inserted new sections234A, 234B and 234C in the Income-tax Act fromassessment year 1989-90 to provide for penalinterest at higher rates for the defaults in latefurnishing of the return of income, defaults inpayment of advance tax and for deferment ofadvance tax respectively and omitted separatepenalty provisions for these defaults. Theinterest payable under these sections wasmandatory and there was no provision for reductionor waiver of the penal interest, as was providedspecifically in this behalf prior to 1989. As aresult, several taxpayers faced unintendedhardships in certain circumstances. 2.The Central Board of Direct Taxes, inexercise of powers, specified in section 119(2)(a)has decided to authorise Chief Commissioners andDirectors-General (Investigation) to reduce orwaive penal interest charged under the aforesaidsections in the following circumstances, namely:— (i)where, in the course of search and seizureoperation, books of account have been taken overby the Department and were not available to thetaxpayer to prepare his return of income; 2.The Central Board of Direct Taxes, inexercise of powers, specified in section 119(2)(a)has decided to authorise Chief Commissioners andDirectors-General (Investigation) to reduce orwaive penal interest charged under the aforesaidsections in the following circumstances, namely:— (i)where, in the course of search and seizureoperation, books of account have been taken overby the Department and were not available to thetaxpayer to prepare his return of income; (ii)where, in the course of search andseizure operation, cash had been seized which wasnot permitted to be adjusted against arrears oftax or payment of advance tax installments fallingdue after the date of the search; (iii)any income other than "Capital gains"which was received or accrued after the date offirst or subsequent installment of advance tax,which was neither anticipated nor contemplated bythe taxpayers and on which advance tax was paid bythe taxpayer after the receipt of such income; (iv)where, as a result of any retrospectiveamendment of law or the decision of the SupremeCourt after the end of the relevant previous year,certain receipts which were hitherto treated asexempt, become taxable. Since no advance tax wouldnormally be paid in respect of such receiptsduring the relevant financial year, penal interestis levied for the default in payment of advancetax; (v)where return of income is filedvoluntarily without detection by the Income-taxDepartment and due to circumstances beyond controlof the taxpayer such return of income was notfiled within the stipulated time-limit or advancetax was not paid at the relevant time. 3.The Chief Commissioners and Directors-General are being authorised to reduce or waivepenal interest under sections 234A, 234B and 234Cwith reference to assessment year 1989-90 and anysubsequent assessment year subject to certainspecified conditions. This is a major step takenby the Central Board of Direct Taxes to mitigatethe hardships in deserving cases. Press Note :Dated 21-5-1996.” 12.Even this is an official press statement released bythe department, the issues will have to be adjudicated only interms of the formal notification and not in terms of the pressrelease. The case laws referred to by the learned counsel forthe petitioner are to the effect that if the assessee canestablish that the default or delay in remitting the tax was dueto circumstances beyond his control, then the department willhave to adopt a liberal approach in granting waiver of interestunder the aforesaid provisions. Even though the expression“due to circumstances beyond control of the tax payer” is notfound in Clause (e) of the notification dated 23.05.1996, onecan assume that it is equivalent to the expression “unavoidablecircumstances”. The expression “for reasons beyond the controlof the assessee” is found in clause 2(a) of the very samecircular. Therefore, instead of quibbling over the text, onecan directly go for the jugular vein. 13.Here is a case where the assessee entertained a bonafidebelief that the transaction entered into by him had yieldedonly long term capital gains. But, his stand was rejected bythe assessing authority. The order passed by the assessingauthority that the capital gains yielded only short term capitalgains and not long term capital gains had become final. Thebonafide nature of belief entertained by the assessee is whollyirrelevant. The expression “unavoidable” has been defined assomething impossible to avoid or prevent (Oxford AdvanceLearner's Dictionary, 9[th] Edition). In Black's Law Dictionary(Eight Edition), the expression “unavoidable-accident doctrine”has been explained as a rule holding that no party is liablefor an accident that was not foreseeable and which could nothave been prevented by the exercise of reasonable care. Injudicial and quasi judicial proceedings, the possibility is thatone's contention may be either accepted or rejected. Rejectionof one's legal contention cannot be characterised as anunavoidable circumstance. The decision of the adjudicator issomething that is always beyond the control of the assessee andit cannot be foreseen unless of course there is something likematch-fixing! The expression “unavoidable circumstance”occurring in clause 2(e) of the circular dated 23.05.1996 cannotobviously encompass outcomes of judicial and quasi judicialproceedings. This is all the more so because, clause 2(d)deals with arising of liability on account of a subsequentdecision of the Hon'ble Supreme Court. If adverse judicial orquasi judicial decisions are to furnish a cause for seekingwaiver of interest, it would have been expressly stated inclause 2(e) as in clause 2(d). When a person embarks on thejourney of litigation, one should always be prepared for anadverse verdict. Therefore, there is nothing unforeseeableabout the outcome of judicial or quasi judicial proceeding. 14.As the preambular paragraph of the notification dated23.05.1996 states, reduction or waiver of penal interestcharged under Sections 234 A, 234 B and 234 C of the Act can bemade only in the classes of cases or classes of income taxspecified in paragraph 2 of the order. In other words, unlessthe case of the assessee can be brought within one of the fiveclauses, there can be no scope for claiming reduction or waiver.It is not the case of the petitioner that his case will fallunder clause 2 (a) or (b) or (c) or (d) of the notification.His case will have to fall only within clause 2(e). That is why,even though the petitioner talks about clause (v) in the earlierpart of ground (d) of his affidavit filed in support of the writpetition, he would contend in the very same ground a littlelater, that he had satisfied the conditions laid under clause(e) of the Board's circular. 15.I have already held that rejection of one's stand in alegal proceeding cannot be construed as an “unavoidablecircumstance”. The case on hand clearly falls outside the scopeof clause 2(e) of the circular dated 23.05.1996. The impugnedorder is sustained. I find no merit in this writ petition. Itstands dismissed. No costs. Skm //True Copy// Sd/-Assistant Registrar Sub Assistant Registrar To The Chief Commissioner of Income Tax,Chennai - II,No.121, Mahatma Gandhi Road,Chennai – 600 035. +1cc to Mrs.Hema Muralikrishnan, Advocate, SR.No.70145 WP No.15097 of 2007 Kak(20/09/2019)