We Are Concerned With The Assessment Years 1991-92And 1992-93 Pertaining To The Party Respondents. The Factsleading To The Present Appeal In Brief Are As Under v. While Completing The Assessments Of The Partners For

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HON'BLE THE CHIEF JUSTICE DR. MANJULA CHELLUR & THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE TUESDAY, THE 11TH DAY OF FEBRUARY 2014/22ND MAGHA, 1935 WA.No. 560 of 2010 ( ) ----------------------------- AGAINST THE JUDGMENT IN OP 14606/2002 OF THIS HONOURABLE COURTDATED 06-11-2009 --------------------- APPELLANTS/RESPONDENTS : --------------------------------------------- 1. THE CHIEF COMMISSIONER OF INCOME TAX, CALICUT. CALICUT. 2. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-I, ALUVA. CIRCLE-I, ALUVA. 3. THE TAX RECOVERY OFFICER, OFFICE OF THE JOINT COMMISSIONER OF INCOME TAX ALUVA RANGE, ALUVA. ALUVA RANGE, ALUVA. BY ADV. SRI.JOSE JOSEPH, SC RESPONDENT(S) : ---------------------------- 1. SHRI. GEORGE P. MATHEWS, PARTNER, M/S. PAUL MATHEWS & SONS, ELOOR MURI KALAMASSERY. PARTNER, M/S. PAUL MATHEWS & SONS, ELOOR MURI KALAMASSERY. 2. SHRI. ROY MATHEWS, PARTNER, M/S. PAUL MATHEWS & SONS, ELOOR MURI KALAMASSERY. PARTNER, M/S. PAUL MATHEWS & SONS, ELOOR MURI KALAMASSERY. 3. SHRI. ABRAHAM P. MATHEWS PARTNER, M/S. PAUL MATHEWS & SONS, ELOOR MURI KALAMASSERY. PARTNER, M/S. PAUL MATHEWS & SONS, ELOOR MURI KALAMASSERY. 4. SHRI. M.M. MATHEWS, PARTNER, M/S. PAUL MATHEWS & SONS, ELOOR MURI KALAMASSERY. PARTNER, M/S. PAUL MATHEWS & SONS, ELOOR MURI KALAMASSERY. 5. SHRI.JOHN P. MATHEWS, PARTNER, M/S. PAUL MATHEWS & SONS, ELOOR MURI KALAMASSERY. PARTNER, M/S. PAUL MATHEWS & SONS, ELOOR MURI KALAMASSERY. WA.No. 560 of 2010 ( ) -2- *ADDL. R6 TO R8 IMPLEADED ------------------------------------------- *6.SMT.NEENA GEORGE W/O.LATE GEORGE P. MATHEWS, MENACHERIL HOUSE, M 10/10 CHANGAMPUZHA NAGAR, KALAMASSERY. *7. SHRI.MATHEW GEORGE S/O.LATE GEORGE P. MATHEWS, MENACHERIL HOUSE, M 10/10 CHANGAMPUZHA NAGAR, KALAMASSERY. MENACHERIL HOUSE, M 10/10 *8. SHRI.THIMOTHY GEORGE S/O. GEORGE P. MATHEWS, MENACHERIL HOUSE, M 10/10 CHANGAMPUZHA NAGAR, KALAMASSERY. MENACHERIL HOUSE, M 10/10 *ARE IMPLEADED AS ADDITIONAL RESPONDENTS 6 TO 8 IN WA AS PER ORDER DATED 03.10.2013 IN IA NO. 138/2012. BY ADV. SRI. P. BALAKRISHNAN THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 11-02-2014, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: MANJULA CHELLUR,C.J. & A.M.SHAFFIQUE, J. = = = = = = = = = = = = = = = = Writ Appeal No.560 of 2010 = = = = = = = = = = = = = = = = = = = = = Dated this the 11 th day of February, 2014 JUDGMENT Manjula Chellur,CJ Revenue is before us challenging the judgment of thelearned Single Judge in O.P. No.14606 of 2002. 2. We are concerned with the assessment years 1991-92and 1992-93 pertaining to the party respondents. The factsleading to the present appeal in brief are as under:- One M/s.Paul Mathews & Sons, Eloor Muri, Kalamasseryconsist of 5 partners. Assessment of the firm for the year 1989-90 came to be completed on 25.9.1990 wherein unabsorbeddepreciation came to be allocated to all the five partners of thefirm. Subsequently, Ext.P1 rectification order came to bepassed by the Assessing Officer pertaining to the very same firmin the light of the decision of the Supreme Court in its judgmentdated 22.03.1991 reported in Garden Silk Weaving Factory Writ Appeal No.560 of 2010 vs. Commissioner of Income-tax(1991) 189 ITR 512) whereintheir Lordships held that unabsorbed depreciation in the case ofa firm cannot be set off at the hands of the partners and it has tobe reverted back to the firm’s case. This order of rectificationcame to be made under Section 154 of Income Tax Act (for shortthe Act) on 21.01.1994. 3. While completing the assessments of the partners for Writ Appeal No.560 of 2010 vs. Commissioner of Income-tax(1991) 189 ITR 512) whereintheir Lordships held that unabsorbed depreciation in the case ofa firm cannot be set off at the hands of the partners and it has tobe reverted back to the firm’s case. This order of rectificationcame to be made under Section 154 of Income Tax Act (for shortthe Act) on 21.01.1994. 3. While completing the assessments of the partners for the years 1991-92 and 1992-93, the Assessing Officer disallowedthe claim of set off of unabsorbed depreciation pertaining to thefirm and determined the tax payable, so also levied interestunder Section 234B for non-payment of advance tax. Assesseesadmittedly filed several representations seeking waiver ofinterest levied under Section 234B contending that by virtue ofthe assessment orders pertaining to the assessment year 1989-90 they are entitled to claim unabsorbed depreciation and therewas no mistake on their part, so far as claim of suchdepreciation. 4. Exts.P2, P4 and P7 are the orders rejecting the claim ofwaiver of interest by the respondents/partners. Aggrieved by thesaid orders, all partners filed OP No.14606 of 2002 when recovery proceedings came to be initiated as per Ext.P9. Saidmatter was disposed of opining that petitioners were entitled tothe benefit of unabsorbed depreciation, therefore, the impugnedorders deserve to be quashed. It was further declared thatpetitioners were not liable to pay any interest under Section234B of the Act for the assessment years 1991-92 and 1992-93.Aggrieved by the said judgment of the learned Single Judge,Department is before us. 5. According to learned Standing Counsel for the Revenue,if any of the assessees was to get benefit of waiver of interest, ithas to be in accordance with the circulars issued under Section119(2)(a) of the Act by the Department from time to time. So faras present case is concerned, though we are concerned withcircular dated 23.5.1996, there is reference to circular dated02.5.1994 in some of the impugned orders which were underchallenge before learned Single Judge. As a matter of fact, inExt.P2, circular dated 02.05.1994 was referred to and accordingto the department, the said circular is not at all applicable to thefacts of the case as there was no income that had accrued orarose. So far as 1996 circular, at the time of Ext.P2 it was not in Writ Appeal No.560 of 2010 existence. Ext.P4 is dated 25.03.1999 and Ext.P7 is dated26.07.2000, rejecting the claim of assessees. By this timecircular of 1996 was very much in existence. As a matter of fact,in the Original Petition the claim of the petitioners was, thedepartment has totally ignored the circular of 1996. 6. On perusal of circular of 1996, no doubt, it refers towaiver of interest under Sections 234A, 234B, or 234C.However, in order to secure benefit where reduction or waiver ofinterest could be extended, certain conditions were enumeratedat Clauses (a) to (e). In other words, unless these conditionswould apply to the facts of the case of the assessees, they werenot allowed to enjoy the benefit of either reduction or waiver ofinterest under Section 234B. On perusal of the judgment oflearned Single Judge, there is no reference to any of theseconditions to be complied with by the assessees before theymake a claim for waiver of interest. The approach of learnedSingle Judge was entirely on a different footing. 7. According to learned Single Judge, there was nomistake or error on the part of the assessees in seeking thebenefit of unabsorbed depreciation and they cannot be blamed because of the judgment of the Apex Court, which persuaded theauthorities to rectify the order under Section 154 of the Act.Therefore, for no fault of them, if they did not pay the taxpayable by them, they shall not be saddled with liability ofinterest under Section 234B. 7. According to learned Single Judge, there was nomistake or error on the part of the assessees in seeking thebenefit of unabsorbed depreciation and they cannot be blamed because of the judgment of the Apex Court, which persuaded theauthorities to rectify the order under Section 154 of the Act.Therefore, for no fault of them, if they did not pay the taxpayable by them, they shall not be saddled with liability ofinterest under Section 234B. 8. One has to approach the controversy raised from twoangles, that is, with reference to the conditions enumerated inCircular of 1996 and the factual position. As already statedabove, none of the conditions were claimed by the petitionersthough a feeble attempt was made by the learned counsel for therespondents/assesees that case of the assessees would fall underclause (d) which reads as under:- “(d) Where any income which was not chargeable toincome-tax on the basis of any order passed in the case of anassessee by the High Court within whose jurisdiction he isasessable to income-tax and as a result, he did not pay income-tax in relation to such income in any previous year andsubsequently in consequence of any retrospective amendment oflaw or as the case may be, the decision of the Supreme Court inhis own case, which event has taken place after the end of anysuch previous year, in any assessment or reassessmentproceedings the advance tax paid by the assessee during thefinancial year immediately preceding the relevant assessment year is found to be less than the amount of advance tax payable on hiscurrent income, the assessee is chargeable to interest undersection 234B or section234C and the Chief Commissioner orDirector General is satisfied that this is a fit case for reduction orwaiver of such interest.” 9. On perusal of Clause (d), we are afraid, the facts of thepresent case would not attract the condition at Clause (d),therefore, the said argument is unsustainable. 10. Then coming to the factual situation, admittedlyreturns pertaining to 1991-92 came to be filed as early as30.10.1991 and 1992-93 on 30.10.1992, Judgment in GardenSilk Weaving Factory (supra) was rendered on 22.03.1991much prior to the submission of returns for both the assessmentyears by the assessees. Once Supreme Court has laid down thelaw that depreciation of a firm cannot be allocated to the benefitof partners personally and it shall revert back to the firm, theassessees should have been careful enough to file their returnswithout claiming such unabsorbed depreciation in the light ofthe law laid down by the Apex Court. Though 1989-90assessment of the firm did allocate such unabsorbeddepreciation, law of the land declared such allocation as bad. In the light of such observation of the Apex Court the returns oughtto have been filed showing the correct income. Apparently,advance tax was not paid, therefore, automatically they are liableto pay interest chargeable under Section 234B of the Act. In the light of the above reasoning, we are of the opinion,judgment of learned Single Judge deserves to be set asideconfirming the opinion of the Department at Exts.P2,P4 and P7.Accordingly, this writ appeal is allowed. MANJULA CHELLUR,CHIEF JUSTICE A.M.SHAFFIQUE, JUDGE. sj 12/02