Tvl. Sanmac Motor Finance Ltd v. The Chief Commissioner Of Income Tax, Ayakar Bhavan

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM Tvl. Sanmac Motor Finance Ltd.,Represented by its Managing Director,Mr. T. ArunachalamNow carrying on business atOld No. 53 C, Second Floor,Bajanai Koil Street, Choolaimedu,Chennai – 600 094.... Petitioner Vs. 1.The Chief Commissioner of Income Tax, Ayakar Bhavan, 121, MG Road, Nungambakkam, Chennai – 600 034. 2.The Assistant Commissioner of Income Tax, Company Circle VI (1), 121, MG Road, Nungambakkam, Chennai – 600 034. 3. Tax Recovery Officer VIICompany Range IV121, M.G. RoadNungambakkam, Chennai 600 034 ...Respondents Writ Petition filed under Article 226 of the Constitution ofIndia praying to issue a Writ of Certiorarified Mandamus, tocall for the records on the file of the first respondent hereinin C.No.CCII/B(14)2006-07 dated 16.03.2010 and quash theimpugned order and consequently direct the first respondentherein to waive the interest u/s 234A, 234B and 234C of the Act. For Petitioner : Mr.R.SivaramanFor Respondents: Mr.A.N.R.Jayaprathap Standing Counsel. https://hcservices.ecourts.gov.in/hcservices/ O R D E R The petitioner is aggrieved by the impugned order dated16.03.2010 passed by the 1[st] respondent Chief Commissioner ofIncome Tax rejecting the request of the petitioner for waiver ofinterest under Section 234A, Section 234B and Section 234C ofthe Income Tax Act, 1961 read with Section 119 (2) (a) of theIncome Tax Act, 1961 in terms of CBDT’s Circular dated26.06.2006 bearing reference No.400/29/2002-IT(B). 2. Petitioner an income tax assessee had filed regularreturns under Section 139 of the Income Tax Act, 1961 for theAssessment Years 1995-96, 1996-97 and 1997-98 on 29.11.1995,29.11.1996 and 01.12.1997 respectively. 3. For the Assessment Year 1995-96, the petitioner haddeclared taxable income of Rs.79,17,837/- and had earlier paidan advance tax of Rs.38,75,000/- and adjusted the TDS ofRs.22,635/- in their returns. The assessment was completed on16.03.1998. On appeal the Commissioner of Income Tax (Appeals)by an order dated 13.03.1999 remanded the case back for re-computation. 4. Pursuant to the said remand, an order dated 14.09.2000came to be passed by the Joint Commissioner of Income Tax and atotal income of Rs.1,09,32,490/- was assessed in the hands ofthe petitioner. Accordingly, the income payable by thepetitioner was determined at Rs.50,28,945/- and after adjustingthe payment already made, the petitioner was required to pay asum of Rs.11,31,310/-. The petitioner has accepted the same andwas also asked to pay interest under Section 234B and Section234C of the Income Tax Act, 1961. 5. For the Assessment Year 1996-97, the original assessmentwas completed on 25.03.1999. The assessment was reopenedpursuant to a notice dated 13.06.1999 issued under Section 148of the Income Tax Act, 1961. The said proceeding culminated in arevised order of assessment dated 26.03.2002. As against the netloss of Rs.10,244/-, a positive income of Rs.67,80,870/- wasarrived in the said proceedings. The tax liability wasdetermined as Rs.31,27,945/-. As the petitioner had not paidadvance tax during the aforesaid Assessment Year, interest underSection 234 A and 234 B for a sum of Rs.13,93,893/- andRs.16,08,338/- was imposed on the petitioner. 6. For the Assessment Year 1997-98, the petitioner had filedthe returns on 01.12.1997. The assessment was completed on31.03.1999. Thereafter, on 26.03.2002 based on best judgmentmethod the petitioner was assessed to a total income ofRs.3,27,34,870/- and was required to pay a tax of Rs.1,00,90,165/. Petitioner was also called upon to pay interestunder Section 234A and 234B of the Income Tax Act, 1961 for anamount of Rs.21,69,372/- and Rs. 52,97,303/- respectively. 6. For the Assessment Year 1997-98, the petitioner had filedthe returns on 01.12.1997. The assessment was completed on31.03.1999. Thereafter, on 26.03.2002 based on best judgmentmethod the petitioner was assessed to a total income ofRs.3,27,34,870/- and was required to pay a tax of Rs.1,00,90,165/. Petitioner was also called upon to pay interestunder Section 234A and 234B of the Income Tax Act, 1961 for anamount of Rs.21,69,372/- and Rs. 52,97,303/- respectively. 7. It is the contention of the petitioner that thepetitioner company was engaged in business of sale of motorvehicles and also operated as a Non-Banking Financial Company(NBFC) and it had encountered difficulties in servicing thedeposits to its depositors as a result of which it faced severalhardships including arrest of its Managing Director T.Arunachalam. All the other directors and principal andresponsible officers of the petitioner company had resigned, asa result of which the interest of the company could not beprotected. The official liquidator also failed to protect thepetitioner. 8. The petitioner has accepted the tax liability but prayedfor waiver of interest under Sections 234A, 234B and 234C of theIncome Tax Act, 1961 before the 1[st] respondent on 07.03.2007, onthe ground that at the time when the reassessment proceedingswere taken up pursuant to remand order dated 30.03.1999 ofCommissioner of Income Tax (Appeals) for the Assessment Year1995-96 and notice dated 30.06.1999 for Assessment Year 1996-97and notice dated 11.10.2000 for Assessment Year 1997-98 wereissued under Section 148, the petitioner company was alreadyundergoing financial strains and was on the verge of being woundup before this court in C.P.No.323 of 1998. 9. It is submitted that by the time the re-assessment orderswere passed pursuant to notice issued Section 148 of the IncomeTax Act, 1961 for the Assessment Year 1996-97 and AssessmentYear 1997-98 on 26.03.2002, the petitioner company had beendirected to be wound up by an order dated 18.06.2001 of thisCourt in C.P.No.323 of 1998 and the said order was set aside bya Division Bench of this court only on 27.10.2006 under Sections391-394 of Companies Act, 1956 and after that the petitionercompany has been revived and the tax that was re-determinedpursuant order dated 14.09.2000, 26.03.2002 and 26.03.2002respectively were paid to the credit of the Income TaxDepartment on 27.01.2007. 10. It is therefore submitted that when the orders werepassed pursuant to remand for the Assessment Year 1995-96 andpursuant to reopening of the assessment under Section 148 of theIncome Tax Act, 1961, nobody represented the interests of thepetitioner company. With great difficulty the petitioner companyhas been revived pursuant to order passed by this court on27.10.2006 in C.P.No.146 of 2006 under Section 391-394 of theCompanies Act, 1956. 11. The 1[st] respondent has rejected the application filedfor waiver of interest on the ground that the case of thepetitioner did not fall within any of the circumstancesspecified in the Central Board of Direct Taxes Notificationdated 26.06.2006 bearing reference F.No.400/29/2002-IT(B). 12. In the impugned order, it has also been stated that thepetitioner had sufficient liquidity to pay the advance tax andincome tax and therefore it cannot be stated that the petitionerhad encountered any hardship to pay the tax or file the returnson time. 11. The 1[st] respondent has rejected the application filedfor waiver of interest on the ground that the case of thepetitioner did not fall within any of the circumstancesspecified in the Central Board of Direct Taxes Notificationdated 26.06.2006 bearing reference F.No.400/29/2002-IT(B). 12. In the impugned order, it has also been stated that thepetitioner had sufficient liquidity to pay the advance tax andincome tax and therefore it cannot be stated that the petitionerhad encountered any hardship to pay the tax or file the returnson time. 13. The learned counsel for the petitioner relied on thedecision of this Court in R.Mani Vs. The Chief Commissioner ofIncome Tax, Tiruchirapalli, 2017 SCC OnLine Mad 15884, whereinit was held that the circular issued by the Board empowering theChief Commissioner to consider the waiver petition for waiver ofinterest under Section 234A as well as 234B would show that evenif these provisions are compensatory in nature and are coveredby Section 234B, special orders for grant of relaxation could bepassed. 14. Per contra, the learned Standing Counsel for therespondent submitted that the issue is squarely covered againstthe petitioner by decisions of the Division Bench of this courtrendered in Chief Commissioner of Income-tax, Chennai-34 Vs.Rajanikant & Sons, dated 06.06.2017 in W.A.Nos.2020 to 2024 of2010 and in Tushin T.Mehta Vs. The Chief Commissioner of IncomeTax, dated 14.08.2019 passed by this Court in W.P.No.15097 of2007 and therefore the impugned order cannot be assailed. 15. In Chief Commissioner of Income-tax, Chennai-34 Vs.Rajanikant & Sons (supra), while dealing with Circular dated26.06.2006, the Court held that what emanates upon perusal ofthe Circular is that, unless the Assessee’s case falls under thecircumstances set out in paragraph 2(a) to 2(d) of the Circulardated 26.06.2006, which includes classes of case and/or classesof incomes, the Chief Commissioner / Director General of IncomeTax has no power to reduce or waive interest. It followed thedecision of the Division Bench of the Bombay High Court in DeSouza Hotels (P.) Ltd. Vs. Chief of CIT, [2012] 2017 Taxman84/20 taxmann.com 343, wherein, the court held that unless theAssessee’s case comes within the ambit and scope of the Circulardated 26.06.2006, the Chief Commissioner would have no power toreduce or waive interest under Sections 234A, 234B and 234C. 16. In Tushin T.Mehta (supra), the Court held that unlessthe case of the assessee can be brought within one of the fiveclauses of 1996 circular, there can be no scope for claiming reduction or waiver. It is not the case of the petitioner thathis case will fall under clause 2 (a) or (b) or (c) or (d) ofthe notification. 17. I have considered the arguments advanced on behalf ofthe petitioner and the respondents. Section 119 of the IncomeTax Act, 1961 has been incorporated to grant waiver from paymentof interest in case of genuine hardship. Therefore, the CentralBoard of Direct Taxes has given power to issue instructions anddirection to be followed while granting waiver of interest. 18. This power is either exercised by the Board and/or bysenior officers of the Income Tax Department like the firstrespondent. CBDT’s Notification dated 26.06.2006 bearingreference No.400/29/2002-IT(B) which is relevant to the facts ofthe present case, reads as under:- 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 maybe, section 234C can be considered, are asfollows : 18. This power is either exercised by the Board and/or bysenior officers of the Income Tax Department like the firstrespondent. CBDT’s Notification dated 26.06.2006 bearingreference No.400/29/2002-IT(B) which is relevant to the facts ofthe present case, reads as under:- 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 maybe, section 234C can be considered, are asfollows : (a) Where during the course of proceedingsfor search and seizure under section 132 ofthe Income-tax Act, or otherwise, the booksof account and other incriminating documentshave been seized, and the assessee has beenunable to furnish the return of income forthe previous year, during which the actionunder section 132 has taken place, within thetime specified in this behalf, and the ChiefCommissioner/Director General is satisfied,having regard to the facts and circumstancesof the case, that the delay in furnishingsuch return of income cannot reasonably beattributed to the assessee. (b) Any income chargeable to income-tax underany head of income, other than Capital gainsis received or accrued after due date ofpayment of the first or subsequentinstalments of advance tax which was neitheranticipated nor was in the contemplation ofthe assessee, and the advance tax on suchincome is paid in the remaining instalment orinstalments,andtheChiefCommissioner/Director General is satisfied onthe facts and circumstances of the case thatthis is a fit case for reduction or waiver ofthe interest chargeable under section 234C ofthe Income-tax Act. (c) Where any income was not chargeable toincome-tax in the case of an assessee on thebasis of any order passed by the High Courtwithin whose jurisdiction he is assessable toincome-tax, and as result, he did not payincome-tax in relation to such income in anypreviousyear,andsubsequently,inconsequence of any retrospective amendment oflaw or the decision of the Supreme Court ofIndia, or as the case may be, a decision of aLarger Bench of the jurisdictional High Court(which was not challenged before the SupremeCourt and has become final), in anyassessment or reassessment proceedings theadvance tax paid by the assessee during suchfinancial year is found to be less than theamount of advance tax payable on his currentincome, and the assessee is chargeable tointerest under section 234B or section 234C,and the Chief Commissioner/Director Generalis satisfied that this is a fit case forreduction or waiver of such interest.(d) Where a return of income could not befiled by the assessee due to unavoidablecircumstances and such return of income isfiled voluntarily by the assessee or hislegal heirs without detection by theAssessing Officer. 19. From a reading of the above circular, it is evident thatthe case of the petitioner is not specifically covered by any ofthe situation contemplated in the above notification. Therefore,no fault can be found with the impugned order of the 1[st]respondent as the 1[st] respondent is bound by the abovenotification though the petitioner company was ordered to bewound up by an order dated 18.06.2001 in C.P.No.323 of 1998. 20. The Central Board of Direct Taxes while issuing theabove notification has not factored a situation like the presentcase where an assessee is legally incapacitated from making anypayments as it was ordered to be wound up. It was under a legaldisability. 21. Though the notification has not considered the abovesituation, I am of the view that the petitioner is entitled fora partial relief for the above reason dehors the abovenotification. The date of winding up dates back to the date ofpetition and during the aforesaid period, there was a legaldisability to pay the tax by the company as the official liquidator obtained leave of the company court under theCompanies Act, 1956. 20. The Central Board of Direct Taxes while issuing theabove notification has not factored a situation like the presentcase where an assessee is legally incapacitated from making anypayments as it was ordered to be wound up. It was under a legaldisability. 21. Though the notification has not considered the abovesituation, I am of the view that the petitioner is entitled fora partial relief for the above reason dehors the abovenotification. The date of winding up dates back to the date ofpetition and during the aforesaid period, there was a legaldisability to pay the tax by the company as the official liquidator obtained leave of the company court under theCompanies Act, 1956. 22. Since the 1[st] respondent has no power to grant waiver ofinterest in the light of the specific instruction of the CentralBoard Of Direct Taxes, the Court in the exercise of its powerunder Article 226 of the Constitution of India can order waiverapplying the legal principles applicable in the case of windingup of a company, 23. The effect of an order of winding up is to put thecompany into the hands of the official liquidator for completingthe process of liquidating it. Till an order of the Court fordistribution of the company’s assets is obtained and assets aredistributed, the properties of the company continue to be thatof the company. The company under liquidation continues to existas a juristic personality only till an order under Section 481of the Companies Act, 1956 is passed for its eventualdissolution. 24. It is only thereafter, the company ceases to exist inthe eye of law. Thus, during the period in dispute between18.06.2001 and 27.10.2006, the petitioner company by itself wasunder a disability and could not discharge any liability withoutthe permission of the court. In this case no attempt was madefor recovery of tax from the petitioner company by the IncomeTax Authorities by obtaining suitable orders of this court northe official liquidator took any steps in that direction. 25. It should also be borne in mind that the petitioner hadfiled income tax return in time which also culminated inseparate assessment orders of the assessing officers on16.03.1998, 25.03.1999 and 31.03.1999 respectively for therespective Assessment Years. 26. During this period, the petitioner company was facing athreat of being wound up apart from threat of arrest of itsdirectors. The petitioner has also demonstrated that there wasan en mass resignation by the directors of the company onaccount of financial difficulties which plagued the petitionercompany and that the petitioner company was unable to defenditself effectively in these proceedings. The Managing Directorof the petitioner company was also later arrested and wasremanded to judicial custody. During the aforesaid period, thecompany had become a shell company. 27. During the aforesaid period, notices under Section 148of the Income Tax Act, 1961 were issued to the petitioner forthe Assessment Year 1996-1997 on 13.06.1999 and for theAssessment Year 1997-98 on 11.10.2000 to reopen the assessment. 28. Thus, the petitioner company was handicapped from payingthe tax that was re-assessed as it was ordered to be wound by anorder dated 18.6.2001 in C.P.No.323 of 1998. At that stage, theinterest of the petitioner was to be represented by the OfficialLiquidator before the Income Tax Authorities by filing appealagainst the re-assessment orders who failed to do so. 29. In fact, prior to the winding up of the petitionercompany, the Income Tax Authorities also could have alsoparticipated in C.P.No.323 of 1998 by either supporting oropposing the winding up of the petitioner company. Perhaps, nosteps were taken by the Income Tax Department to recover thearrears of tax which came to be determined since the petitionercompany was ordered to be wound up. 28. Thus, the petitioner company was handicapped from payingthe tax that was re-assessed as it was ordered to be wound by anorder dated 18.6.2001 in C.P.No.323 of 1998. At that stage, theinterest of the petitioner was to be represented by the OfficialLiquidator before the Income Tax Authorities by filing appealagainst the re-assessment orders who failed to do so. 29. In fact, prior to the winding up of the petitionercompany, the Income Tax Authorities also could have alsoparticipated in C.P.No.323 of 1998 by either supporting oropposing the winding up of the petitioner company. Perhaps, nosteps were taken by the Income Tax Department to recover thearrears of tax which came to be determined since the petitionercompany was ordered to be wound up. 30. Since the company was ordered to be wound up by thecreditors, attempts were also made to settle the dues of thevarious creditors by reviving the company. Under thesecircumstances, C.P.No.146 of 2006 was filed under Sections 391-394 of the Companies Act, 1956. 31. In this proceeding also wide publicity would have beengiven by way of advertisement under Company Court Rules. It wasopen for Income Tax Department to participate by eithersupporting or opposing the compromise to protect its interests.However, it appears that the Income Tax Department also failedto participate in the said proceeding. 32. Eventually, an order was passed on 27.10.2006 inC.P.No.146 of 2006. By the said order, a scheme of arrangementfor reconstruction and revival of operation of the petitionercompany was ordered so as to bind on all the secured creditors,unsecured creditors, depositors and members of the petitionercompany. It is only pursuant to the aforesaid order that theOfficial Liquidator was directed to transfer the accounts of thecompany and relevant books to the Sponsors to enable the latterto settle the claims of the creditors immediately. 33. Thus, the Official Liquidator was discharged of hisresponsibilities only thereafter. The said order was followed bya final order dated 13.11.2007 in C.P.No.146 of 2006, whereinthe promoters and directors of the petitioner company were alsodischarged from all pending proceedings. Since the petitionercompany was being wound up, there cannot be any levy of interestunder the provisions of the Income Tax Act, 1961 as it suffereda legal disability to pay the tax. 34. As the petitioner was under a legal disability duringthe period between 18.06.2001 and 27.10.2006, during the https://hcservices.ecourts.gov.in/hcservices/ subsistence of winding up order and since the petitioner companywas under the control of this court and the official liquidator,I am of the view, this is a fit case for granting partial reliefto the petitioner. 35. Under these circumstances, I am of the view that thereshould be a waiver of interest under Section 234A, Section 234Band Section 234C of the Income Tax Act, 1961 for the periodbetween 18.06.2001 and 27.10.2006 alone. 36. I therefore remit the case back to the 2[nd] respondent tocompute the interest payable by the petitioner from the due dateupto 18.06.2001 and for the period commencing from 27.10.2006upto the actual date of payment under the aforesaid provision ofthe Income Tax Act, 1961. While computing the interest payableby the petitioner, the 2[nd] respondent shall exclude the periodbetween 18.06.2001 and 27.10.2006. 37. The 2[nd] respondent shall compute the interest andcommunicate to the petitioner for the aforesaid period within aperiod of 30 days from date of receipt of a copy of this order.Petitioner shall pay the amount determined by the 2[nd] respondentwithin 15 days thereafter. In case, there is a failure on thepart of the petitioner to pay an amount within the aforesaidperiod, the relief granted to the petitioner herein shall cometo an end sine die and the impugned order shall stand revived. 37. The 2[nd] respondent shall compute the interest andcommunicate to the petitioner for the aforesaid period within aperiod of 30 days from date of receipt of a copy of this order.Petitioner shall pay the amount determined by the 2[nd] respondentwithin 15 days thereafter. In case, there is a failure on thepart of the petitioner to pay an amount within the aforesaidperiod, the relief granted to the petitioner herein shall cometo an end sine die and the impugned order shall stand revived. 38. The present Writ Petition stands disposed with the aboveobservations. No cost. Consequently, connected MiscellaneousPetition is closed. s/d- Assistant Registrar True Copy Sub-Assistant Registrar jen To1. The Chief Commissioner of Income Tax, Ayakar Bhavan, 121, MG Road, Nungambakkam, Chennai – 600 034. 2. The Assistant Commissioner of Income Tax, Company Circle VI (1), 121, MG Road, Nungambakkam, Chennai – 600 034. Company Circle VI (1), 121, MG Road, Nungambakkam, Chennai – 600 034. 3. Tax Recovery Officer VIICompany Range IV121, M.G. RoadNungambakkam, Chennai 600 034 +1 CC to Mr.A.P. Srinivas, Advocate sr 10479. W.P.No.12500 of 2010andM.P.No.1 of 2010 PPA(CO)SP(19/05/2020)