Wa/1915/2008 Of M.v.ganesh v. The Commissioner Of Income Tax, Cochin

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT:- THE HONOURABLE THE CHIEF JUSTICE MR.H.L.DATTU & THE HONOURABLE MR. JUSTICE A.K.BASHEER WEDNESDAY, THE 15TH OCTOBER 2008 / 23RD ASWINA 1930 W.A.No.1915 of 2008 ----------------------------------- AGAINST THE JUDGEMENT IN O.P.7467/1999-L, DATED 14/03/2008 .................... APPELLANT/PETITIONER:- -------------------------------------- M.V.GANESH, LEGAL REPRESENTATIVE OF M.S.VISAMBHARAN (DECEASED), METHANATH HOUSE, SOUTH MARADY, MOOVATTUPUZHA. BY ADV. SRI. K.M.V.PANDALAI, SMT. S.HEMALATHA. RESPONDENTS/RESPONDENTS:- ------------------------------------------------ 1. THE COMMISSIONER OF INCOME TAX, COCHIN, (DESIGNATED AUTHORITY UNDER THE KARVIVAD SAMADHAN SCHEME 1998). 2. THE ASSISTANT COMMISSIONER OF INCOME TAX, INVESTIGATION CIRCLE, TRICHUR. R1 & R2 BY SRI.JOSE JOSEPH, STANDING COUNSEL FOR INCOME TAX. THIS WRIT APPEAL HAVING COME UP FOR ADMISSION ON 15/10/2008, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:- H.L.Dattu, C.J. & A.K.Basheer, J. --------------------------------------------- W.A.No.1915 of 2008 --------------------------------------------- Dated, this the 15[th] October, 2008 JUDGMENT H.L.Dattu,C.J. Appellant before us is the legal representative of lateM.S.Viswambharan. During his life time, Viswambharan had called inquestion Exhibit P5 order passed by the Designated Authority under a scheme,known as “Kar Vivad Samadhan Scheme, 1998”. The other relief that wassought in the writ petition was to quash Exhibit P3 order passed by theassessing authority for the assessment year 1984-85 in exercise of his powersunder Section 155 of the Income Tax Act, 1961 (“I.T.Act” for short). The lastrelief that was sought was to direct the first respondent, viz., the DesignatedAuthority, to pass fresh orders on Exhibit P4 declaration in accordance withthe provisions of Kar Vivad Samadhan Scheme, 1998, treating the petitioneras an assessee in default of payment of tax as if no adjustment of refund ismade towards the demand for the assessment year 1982-83. (2) Late Viswambharan was an assessee under the provisions ofthe I.T.Act. He is born on the files of the 2[nd] respondent. The assessingauthority had completed the assessments for the assessment year 1982-83.Subsequently, has passed an order for the said assessment year under Section 155 of the I.T.Act, dated 24.11.1995 (Exhibit P2) and on the sameday, he has passed yet another order for the assessment year 1984-85 (ExhibitP3) and in the said order, he has adjusted the refunds that were due to thepetitioner for the assessment year 1984-85 towards the tax liability for theassessment year 1982-83. The adjustments so made, according to thepetitioner/assessee, was without informing the petitioner, as required underSection 245 of the I.T.Act. (3) Petitioner, in order to take the benefit under the provisionsof the Kar Vivad Samadhan Scheme, 1998, had filed an application before theDesignated Authority on 30.12.1998. The Designated Authority has passedExhibit P5 order dated 26.2.1999, granting relief only to the interest payableby the petitioner. (4) Aggrieved by Exhibit P5 order passed by the DesignatedAuthority and Exhibit P3 order passed by the assessing authority, thepetitioner was before this Court in O.P.No.7467 of 1999. (5) During the pendency of the Original Petition, the assesseeexpired. With the permission of the Court, his son has come on record toprosecute the Original Petition filed by his father. (6) The learned Single Judge, by his order dated 14.3.2008, has rejected the writ petition. That is how the assessee is before us in this appeal. (4) Aggrieved by Exhibit P5 order passed by the DesignatedAuthority and Exhibit P3 order passed by the assessing authority, thepetitioner was before this Court in O.P.No.7467 of 1999. (5) During the pendency of the Original Petition, the assesseeexpired. With the permission of the Court, his son has come on record toprosecute the Original Petition filed by his father. (6) The learned Single Judge, by his order dated 14.3.2008, has rejected the writ petition. That is how the assessee is before us in this appeal. (7) Sri.K.M.V.Pandalai, learned counsel appearing for theappellant/assessee, would contend, firstly, that, the orders passed by theDesignated Authority is contrary to the provisions of Kar Vivad SamadhanScheme and, secondly, it is contended that the assessing authority was notjustified in adjusting the refunds due to the appellant for the assessment year1984-85 towards the tax arrears for the assessment year 1982-83. (8) In order to resolve the controversy that is canvassed by theassessee's learned counsel before us, the provisions of Kar Vivad SamadhanScheme, 1998 (“Scheme” for short) requires to be noticed. (9) The Scheme has come into existence on 1[st] September, 1998.The definition clauses contained in Section 87 of the Finance (No.2) Act,1998 (“Finance Act” for short) would define the words “declarant”,“designated authority”, “disputed chargeable interest”, “disputed income”,“disputed tax” and “tax arrear” of the Scheme. (10) The “declarant” means, a person making a declarationunder section 88 of the Finance Act. The “Designated Authority” means, forthe purpose of direct tax, viz., the Income Tax Act, Wealth Tax Act and GiftTax Act, an officer not below the rank of Commissioner of Income-tax andnotified by the Chief Commissioner for the purposes of the Scheme. Section87(d) of the Finance Act provides for the meaning of the expression “disputedchargeable interest” in relation to an assessment year. It means, the whole or so much of the chargeable interest as is relatable to the disputed tax.Section 87(e) of the Finance Act provides for the meaning of the expression“disputed income”, in relation to an assessment year, as, the whole or so muchof the total income as is relatable to the disputed tax. Section 87(f) of theFinance Act defines “disputed tax” to mean, the total tax determined andpayable, in respect of an assessment year under any direct tax enactment butwhich remains unpaid as on the date of making the declaration under section88 of the Finance Act. The expression “tax arrear”, for the purpose of directtax, means, the amount of tax, penalty or interest determined on or before 31[st]March, 1998 under the direct tax enactments in respect of the assessment yearas modified consequent to an order passed by an appellate authority, butremaining unpaid by the assessee on the date of declaration. (11) Section 88 of the Finance Act provides for settlement oftax payable. Omitting what is not necessary for the case, we would only referto sub-clauses (ii), (iii) and (iv) of Section 88(a) of the Finance Act. The saidsub-clauses read as under: “(ii)in the case of a declarant, being a person otherthan a company or a firm, at the rate of thirty per cent of thedisputed income; (iii) in the case where tax arrear includes income-tax,interest payable or penalty levied, at the rate of thirty-five percent of the disputed income for the persons referred to in clause(i) or thirty per cent of the disputed income for the persons referred to in clause (ii); (iv) in the case where tax arrear comprises only interestpayable or penalty levied, at the rate of fifty per cent of the taxarrear”. (11) Section 88 of the Finance Act provides for settlement oftax payable. Omitting what is not necessary for the case, we would only referto sub-clauses (ii), (iii) and (iv) of Section 88(a) of the Finance Act. The saidsub-clauses read as under: “(ii)in the case of a declarant, being a person otherthan a company or a firm, at the rate of thirty per cent of thedisputed income; (iii) in the case where tax arrear includes income-tax,interest payable or penalty levied, at the rate of thirty-five percent of the disputed income for the persons referred to in clause(i) or thirty per cent of the disputed income for the persons referred to in clause (ii); (iv) in the case where tax arrear comprises only interestpayable or penalty levied, at the rate of fifty per cent of the taxarrear”. (12) Sub-clause (i) of Section 88(a) of the Finance Act wouldnot apply to the appellant, since the declarant is not a Company or a firm.Sub-clause (ii) of Section 88(a) would apply to the appellant, because, he is aperson other than a Company or a firm. Sub-clause (iii) provides for theprocedure that requires to be followed by the Designated Authority forconsidering the application filed under Section 88 of the Finance Act. In thecase of tax arrears payable under the provisions of the I.T.Act, where the taxarrear includes income-tax, interest payable or penalty levied, the assesseewould be entitled to pay only thirty percent of the disputed income.Sub-clause (iv) speaks of interest remaining unpaid. In such cases, theDesignated Authority can grant benefit under the Scheme by directing theassessee to pay fifty percent of the undisputed interest or penalty. (13) Having seen the different clauses of the Scheme, now letus come back to the fact situation in the instant case. (14) The assessments in the assessee's case has been completedby the assessing authority for the assessment year 1982-83. (15) The assessing authority, thereafter, has invoked his powersunder Section 155 of the I.T.Act to modify the orders of assessment for the assessment year 1982-83 and after such modification, has quantified the taxpayable by the assessee. (16) Subsequently, the assessing authority has also passed anorder, in exercise of his powers under Section 155 of the I.T.Act, dated24.11.1995. In the said order, the assessing authority has arrived at aconclusion that the assessee is entitled for refund of a sum of Rs.87,232/- forthe assessment year 1984-85. The assessing authority, after suchquantification, has adjusted the refund that is due to the assessee for theassessment year 1984-85 towards the tax payable for the assessment year1982-83. The said order passed by the assessing authority was communicatedto the assessee. Though the appellant has a contention that he had questionedthe correctness or otherwise of the adjustment so made by the assessingauthority for the assessment year 1982-83 from the refunds for the assessmentyear 1984-85 before the Designated Authority in the year 1999, it is seen, that,the appellant has not produced any order passed by the said authority.Therefore, the only inference that is possible is, that, the order passed by theassessing authority has become final. (17) As required under the Scheme, the assessee had filed anapplication under Section 88 of the Finance Act before the DesignatedAuthority. On the date of filing of the application, what was payable by theassessee was only the interest portion towards the tax, for the reason that (17) As required under the Scheme, the assessee had filed anapplication under Section 88 of the Finance Act before the DesignatedAuthority. On the date of filing of the application, what was payable by theassessee was only the interest portion towards the tax, for the reason that whatever tax that was payable by the assessee has already been adjusted bythe assessing authority while passing the order under Section 155 of theI.T.Act for the assessment year 1982-83. In a situation of this nature, theDesignated Authority was justified in placing reliance on sub-clause (iv) ofSection 88(a) of the Finance Act.(18) However, Sri.K.M.V.Pandalai, learned counsel appearingfor the appellant/assessee, would submit that the adjustment that was made bythe assessing authority while passing orders under Section 155 of the I.T.Actdated 24.11.1995 for the assessment year 1984-85 is contrary to the statutoryprovisions, in particular, Section 245 of the I.T.Act. If that is so, the assesseeought to have questioned the said order before the appropriate forum. Thougha copy of the application dated 8.3.1999 challenging the correctness orotherwise of the order making adjustment by the assessing authority wasproduced in the writ petition as Exhibit P7 along with an affidavit dated6.3.2008, it would appear that the appellant has not taken any steps to get thatapplication disposed of by the concerned authority till this date. That onlymeans, the order passed by the assessing authority has become final. Theorders so passed by the assessing authority under Section 155 of the I.T.Act,at best, can be an illegal order or an irregular order, but it cannot be a voidorder. Further, it cannot be said that the orders passed by the assessingauthority is a nullity in the eye of law. (19) In the above view of the matter, in our view, theDesignated Authority was justified in granting relief only under sub-section(iv) of Section 88(a) of the Finance Act. (20) Keeping all these aspects of the matter in view, in ouropinion, the learned Single Judge has rightly rejected the writ petition.Therefore, interference with the said order is not called for by us in thisappeal. Accordingly, the appeal requires to be rejected and it is rejected.Ordered accordingly. H.L.Dattu Chief Justice vku/dk A.K.Basheer Judge