Wa/1269/2014 Of Arun Sunny v. Chief Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE ANTONY DOMINIC &THE HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU THURSDAY, THE 22ND DAY OF JUNE 2017/1ST ASHADHA, 1939 WA.No. 1269 of 2014 () IN WP(C).21314/2011 -------------------------------------------- AGAINST THE JUDGMENT IN WP(C) 21314/2011 of HIGH COURT OF KERALA DATED31-07-2014 APPELLANT/PETITIONER:--------------------- ARUN SUNNY, CHIRAKKAL HOUSE, XL/676, CHITTUR ROAD, KOCHI - 682 011. BY ADVS.SRI.S.VIJAYAN NAYAR SRI.MAT.PAI RESPONDENTS/RESPONDENTS:----------------------- 1. CHIEF COMMISSIONER OF INCOME TAX C.R.BUILDING, I.S.PRESS ROAD, KOCHI - 682 018. 2. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 2(1), CENTRAL REVENUE BUILDING, I.S.PRESS ROAD, KOCHI - 682 018. R-R BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) R-R BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 22-05-2017, THE COURT ON 22.6.2017 DELIVERED THE FOLLOWING: W.A.No.1269 of 2014 APPENDIX APPELLANT'S EXHIBITS: ANNEXURE ATRUE COPY OF THE JUDGMENT DATED 16.8.2011 IN W.A.No.1053 of 2010 OF THIS COURT. TRUE COPY CSS/ P.S.TO JUDGE Antony Dominic & Dama Seshadri Naidu, JJ. ------------------------------------------- W.A.No.1269 of 2014 -------------------------------------------- Dated this the 22nd day of June, 2017 JUDGMENT Dama Seshadri Naidu, J. Introduction: An assessee sold a piece of property and attracted capital gainstax. The Assessing Officer charged interest on the transaction underSection 234B of the Income Tax Act. The assessee unsuccessfullyasked the authority to waive the interest in terms of a notificationissued under Section 119(2) of the Act by CTBT. The question iswhether the assessee has fulfilled the eligibility criteria fixed underthe notification to earn the waiver. Our answer: No.Facts: 2. An assesee, appellant Arun filed his return of income for theassessment year 2006-07, admitting certain income. After processingthe return under section 143(1) of the Income Tax Act (“the Act”),the Assessing Officer took it up for scrutiny; he issued notice to Arun W.A.No.1269 of 2014 2 under Section 142(1)/143(2) and received his explanation, too. 3. As noticed by the Assessing Officer, Arun showed all his income under the head 'other sources'—mainly interest from bankdeposits. But the return also contained details about a piece ofproperty he sold in January 2006. Arun took a stand that the saletransaction would not attract capital gains because he had investedenough amount in bonds and, thus, earned exemption. He alsoasserted that he had purchased a residential property within the timeallowed for getting exemption from capital gains. 4. In the assessment proceedings initiated under Section 143 (3) of the Act, the Assessing Officer found the property’s value asgiven by Arun excessive. Instead, the Officer determined the long-term capital gains by adopting a different value and levied taxaccordingly. This assessment has led to, among other things, aconsequential levy of interest under Section 243B of the Act.Through notice, dt.26.11.2008, Arun was demanded to pay tax ofRs.2,17,73,630/-, inclusive of interest Rs.52,78,240/-. 5. Alarmed, Arun applied through the Ext.P2 before the Chief W.A.No.1269 of 2014 3 Commissioner of Income Tax to have the interest waived, but the request was turned down. Ext.P6 is the order. Procedural Background: (a) Leading to this Appeal: 6. Assailing the Ext.P6 order, Arun filed WPC No.21314 of2011, which a learned Single Judge dismissed on 31[st] July 2014.Aggrieved, he filed this Writ Appeal: W. A. No.1269 of 2014. ADivision Bench of this Court dismissed the appeal, too, on 14[th]January 2016. Later, Arun filed R.P.No.143 of 2016, which wasallowed on 6[th] February 2017. Thus, this Writ Appeal got resurrected—a second lease of life. 5. Alarmed, Arun applied through the Ext.P2 before the Chief W.A.No.1269 of 2014 3 Commissioner of Income Tax to have the interest waived, but the request was turned down. Ext.P6 is the order. Procedural Background: (a) Leading to this Appeal: 6. Assailing the Ext.P6 order, Arun filed WPC No.21314 of2011, which a learned Single Judge dismissed on 31[st] July 2014.Aggrieved, he filed this Writ Appeal: W. A. No.1269 of 2014. ADivision Bench of this Court dismissed the appeal, too, on 14[th]January 2016. Later, Arun filed R.P.No.143 of 2016, which wasallowed on 6[th] February 2017. Thus, this Writ Appeal got resurrected—a second lease of life. (b) On a Collateral Issue: 7.Because of the assessment and the notice of demand issued,the tax fell due by January 2009. The Department initiated Garnisheeproceedings and issued notice to the Bank under Section 226 (3) ofthe Act. At this stage, Arun obtained a stay. He eventually paid thedemanded tax in instalments: between March and June 2009. 8. Given the delay in Arun’s paying the tax, the Department W.A.No.1269 of 2014 4 invoked Section 220 (2)[1] of the Act. Arun applied under Section 220(A) of the Act before the Commissioner for waiver of interest—Rs.9,48,640. Unsuccessful in his efforts, Arun filed W.P. (C)No.17449 of 2011, which this Court dismissed on 12.07.2011. But inW.A. No.1053 of 2011, disposed of on 16.08.2011, Arun obtained apartial relief: the Division Bench reduced the interest from 12% to9% and so directed the Assessing Officer to reduce interest “by 25%and recover 75% interest.” Submissions: Appellant’s: 9. Before us, Sri S. Vijayan Nair, the learned counsel for the appellant, has submitted that the assessment year was 2006-2007,and the accounting period ended on 31[st] March 2006. His cardinalcontention is that the law holding the field when the accounting yearcame to an end shall alone govern the tax liability of an assessee. 10. Sri Nair has drawn our attention to CTBT’s Ext.P3(a) andExt.P3(b) circulars, dated 23[rd] May 1996 and dated 20[th] June 2006,respectively. According to him, since Ext.P3(b) circular was issued W.A.No.1269 of 2014 5 after the accounting period ended; that is, 31[st] March 2006, it has no application. 11. Curious was Mr. Nair’s next submission: that Ext.P3(b) circular originally had three paragraphs, and the fourth paragraph,perceived to be adverse to Arun, was added later by the officials withno legislative mandate. Despite our repeated queries to substantiatethat allegation, Sri Nair could produce no proof in that regard. Norhas Arun, as we have noticed, pleaded to that effect. 12. Sri Nair has, in the alternative, submitted that the learnedSingle Judge has relied on Ext.P3(b) instead of Ext.P3(a), whichalone applies to the facts of the case. This Court’s judgment in ChiefCommissioner of Income Tax v Jimmichan M.Varicatt[2], followed bythe learned Single Judge to dismiss the writ petition, is, according toSri Nair, in Arun's favour. He has also submitted the Gujarat HighCourt’s judgment in Commissioner of Income Tax v. Sarabhai SonsPvt., Ltd.[3], squarely applies to the facts on hand. 13. According to Sri Nair, one must read the circular along with Section 192 of the Income Tax Act to understand its true import and2[2011] 330 ITR 338 (Ker)3[1993] 204 ITR 728 (Guj) W.A.No.1269 of 2014 6 impact. Summing up his submissions, Sri Nair has submitted that the impugned judgment is perverse and calls for immediate interference.The Department’s: 14. Mr. Jose Varghese, the learned Standing Counsel for the Revenue, has submitted that Ext.P3(b) circular has superseded allother circulars holding the field till then. Drawing our attention toExt.P6, the primary order passed by the Assessing Authority, SriVarghese has submitted that the authority has rightly rejected Arun’sapplications for waiving the capital gains tax. 13. According to Sri Nair, one must read the circular along with Section 192 of the Income Tax Act to understand its true import and2[2011] 330 ITR 338 (Ker)3[1993] 204 ITR 728 (Guj) W.A.No.1269 of 2014 6 impact. Summing up his submissions, Sri Nair has submitted that the impugned judgment is perverse and calls for immediate interference.The Department’s: 14. Mr. Jose Varghese, the learned Standing Counsel for the Revenue, has submitted that Ext.P3(b) circular has superseded allother circulars holding the field till then. Drawing our attention toExt.P6, the primary order passed by the Assessing Authority, SriVarghese has submitted that the authority has rightly rejected Arun’sapplications for waiving the capital gains tax. 15. Referring to Commissioner of Income Tax v AnjumM.H.Ghaswala and others[4], a judgment rendered by the SupremeCourt, Sri Varghese has conceded that as to the tax liability,indisputably, the law prevailing on the date of account-closing shouldgovern. But about exemptions, waivers, or other benefits, the law inforce by the time the relief or exemption is sought, submits SriVarghese, should alone govern. So he contends that only the Ext.P3(b) circular would apply. W.A.No.1269 of 2014 7 Ext.P3(a) or Ext.P3(b), the exemption could be granted only underSection 234A of the Act, but not any other provisions, such as 234Bor 234C. Because the exemption claimed by Arun falls under Section234B, contends Sri Varghese, neither circular applies. So he urgesthis Court to dismiss the writ appeal, once again. Issue: 17. As set out in the “Introduction” above. Discussion: Statutory Scheme: 18.Admittedly, Arun claimed exemption or waiver underSection 234-B of the Act. Ext.P3(a) is the notification issued on 23[rd]May 1996 by the Central Board of Direct Taxes (CBDT) under clause(a) of sub-section (2) of Section 119 of the Act. It empowers theChief Commissioner of Income-tax and the Director-General ofIncome-tax to reduce or waive interest charged under Section 234A,or Section 234B or section 234C of the Act. Explicitly stated, Section234A deals with interest on defaults in furnishing return of income;Section 234B, with interest on defaults in payment of advance tax; W.A.No.1269 of 2014 8 and Section 234C, with interest on deferment of advance tax. An Analysis of Ext.P3 (a): 19. It is a notification to reduce or waive penal interest againstlate filing of return of income, etc. The notification, in fact,authorizes the Chief Commissioners and Directors-General(Investigation) to act in this regard. 20. To claim the reduction or waiver, the assessee must “file thereturn of income for the relevant assessment year and pay the entiretax due on the income as assessed” except interest for whichreduction or waiver has been requested for. The Chief Commissionerof Income Tax or the Director General of Income Tax may alsoimpose any other conditions deemed fit to reduce or waive interest.21. Para 2 of the Ext.P3(a) lists out the classes of incomes orthe classes of cases in which the reduction or waiver of interestunder section 234A, section 234B, or section 234C can beconsidered. Para 2(d), among other things, deals with the interestchargeable under section 234B or section 234C. The concession mustbe granted only on the Chief Commissioner’s or Director-General’s W.A.No.1269 of 2014 9 satisfaction that the request represents a fit case for reduction or waiver of the interest. 22. As per Para 2(e), on the other hand, if an assessee could not file a return of income owing to “unavoidable circumstances, andif the assessee files the return of income voluntarily withoutdetection by the Assessing Officer.” Para (3) also mandates that ifthe authorities have rejected any petition because the Board did notissue this direction earlier, the authorities may consider that petitionand “decide in accordance with this order.” W.A.No.1269 of 2014 9 satisfaction that the request represents a fit case for reduction or waiver of the interest. 22. As per Para 2(e), on the other hand, if an assessee could not file a return of income owing to “unavoidable circumstances, andif the assessee files the return of income voluntarily withoutdetection by the Assessing Officer.” Para (3) also mandates that ifthe authorities have rejected any petition because the Board did notissue this direction earlier, the authorities may consider that petitionand “decide in accordance with this order.” An Analysis of Ext.P3(b): 23. The Ext.P3(b), issued on 26[th] June 2006, runs substantiallyon the same lines as Ext.P3(a) does. Para 2(d) provides that benefitapplies if an assessee could not file a return of income owing tounavoidable circumstances but, later, files the return of incomevoluntarily without the assessing officer’s detection. 24. Para 3, on the other hand, clarifies that “the class of casesreferred to in paragraph 2(a) and 2(d) are specified only for thepurposes of waiver of interest charged under section 234A of the W.A.No.1269 of 2014 10 Income Tax Act.” Here, Arun himself claims that he falls underSection 234B of the Act. 25. Further pertinent to note is that para 4 emphasizes that theearlier orders—including the Ext.P3(a)—on the subject standsuperseded by Ext.P3(b). Analogous to para 4 of Ext.P3(a), thisnotification, too, clarifies that “if the authorities have earlier rejectedany petition because the Board had not issued this direction earlier,”the authorities may consider that petition and “decide in accordancewith this order.” Further, it mandates that those petitions allowedearlier under the circulars, dt.23.5.1996 and dt.30.1.1997, should notbe reopened/revised. How Were These Circulars Judicially Interpreted: 26. To begin with, in CIT v. Anjum M. H. Ghaswala[5]a Three-Judge Bench of the Supreme Court considered the issue whether theSettlement Commissioner, constituted under Section 245B of the Act,has the jurisdiction to reduce or waive the interest chargeable underSections 234A, 234B and 234C of the Act, while passing orders ofsettlement under Section 245D(4) of the Act. The answer was ‘no.’ 5[2002]1 SCC 633 W.A.No.1269 of 2014 11 27. In para 27 of the judgment their Lordships hold that theAct requires the Board (CDBT) to exercise the power under Section119 in a particular manner, i.e. by issuing orders, instructions, anddirections. These orders, instructions, and directions are meant to beissued to other income tax authorities for proper administration ofthe Act. The Commission while exercising its quasi-judicial power ofarriving at a settlement under Section 245-D cannot have theadministrative power of issuing directions to other income taxauthorities. It is a normal rule of construction that when a statutevests certain power in an authority to be exercised in a particularmanner, then the said authority must exercise it only in the mannerprovided in the statute itself. Anjum concludes that the Commissioncannot exercise the power of relaxation found in Section 119(2)(a) ofthe Act. 28. In CIT v. Jimmichan M. Varicatt[6]the assessee was grantedwaiver of interest under Section 234A of the Act but was denied thatbenefit under Sections 234B and 234C. The notification underconsideration was Ext.P3(a). A learned Single Judge ruled in6[2001] 330 ITR 338 (Ker.) W.A.No.1269 of 2014 12 assessee’s favour: that Clause (e) is a condition the satisfaction ofwhich entitles the Assessee to claim waiver of interest under Sections234B and 234C of the Act. So the assessee was entitled to thebenefit of waiver. As a matter of fact, the assessee has voluntarilyfiled returns and paid tax. The Department took the matter inappeal. 29. A Division Bench of this Court, allowing the appeal, has held: 28. In CIT v. Jimmichan M. Varicatt[6]the assessee was grantedwaiver of interest under Section 234A of the Act but was denied thatbenefit under Sections 234B and 234C. The notification underconsideration was Ext.P3(a). A learned Single Judge ruled in6[2001] 330 ITR 338 (Ker.) W.A.No.1269 of 2014 12 assessee’s favour: that Clause (e) is a condition the satisfaction ofwhich entitles the Assessee to claim waiver of interest under Sections234B and 234C of the Act. So the assessee was entitled to thebenefit of waiver. As a matter of fact, the assessee has voluntarilyfiled returns and paid tax. The Department took the matter inappeal. 29. A Division Bench of this Court, allowing the appeal, has held: “[i]n our view, Clauses (a) and (e) of the notification deal with thesame subject, that is circumstances for waiver of interest underSection 234A. However, for waiver of interest payable under Sections234B and 234C, application has to be considered with specificreference to Clauses (b), (c) and (d) of the notification. While Clause(a) refers to disability of an Assessee from filing return on account ofsearch and seizure and retention of books of account, Clause (e)deals with other cases where parties were disabled from filing ofreturns for unavoidable reasons, may be party happens to be out ofIndia, happens to be sick and laid up, etc.” 30. In Bhanuben Panchal and Chandrikaben Panchal v. CIT[7], the Gujarat High Court has taken a contrary stand. Like Jimmichan,in Bhanuben, too, the assessee was granted the partial waiver ofinterest under Section 234A. His request for having the interest 7[2004] 269 ITR 27(Guj) W.A.No.1269 of 2014 13 waived under Sections 234B and 234C was rejected. On challenge,the Division Bench of Gujarat High Court has observed that theassessee has paid the entire tax due on income as assessed, exceptthe interest. The delay in the assessee’s filing returns and payingthe taxes was said to be due to unavoidable circumstances.According to the Gujarat High Court, interest can be waived onlyafter the assessee has filed the return of income for the relevantassessment year and paid the entire tax due on the income asassessed, except interest for which the waiver has been requested. 31. Given the decisional cleavage between Jimmichen andBhanuben, we respectfully concur with the view taken by Jimmichen,a judgment rendered by a coordinate Bench of this Court. Even therationale of Jimmichen, in our view, squarely accords with theinterpretative standards to be followed in applying the CDBT circularsto the facts of a given case. We see no unavoidable orinsurmountable circumstances disabling the assessee from filing thereturns and paying the taxes on time—save his own interpretativespin put on the provisions. W.A.No.1269 of 2014 14 32. Admittedly, Arun’s claim for waiver is under Section 234B ofthe Act. As seen from para 3 of Ext.P3(b), paras 2(a) and (d) applyto claims only under Section 234A of the Act. Para 2(b) excludescapital gains and covers interest chargeable under Section 234C ofthe Act. Para 2(c), on the other hand, deals with the judicialintervention and the resultant non-remittance of tax. To sum up, we fail to see any illegality or arbitrariness in theacts of the taxing authorities, nor do we find any legal infirmity in theimpugned judgment. So, we dismiss the writ appeal as devoid of anymerit. No order on costs. sd/- Antony Dominic, Judge css/ sd/- Dama Seshadri Naidu, Judge true copy P.S.TO JUDGE