Wp/2672/2003 Of B.n. Malani v. Commissioner Of Income Tax

IN THE HIGH COURT OF JUDICATUREANDHRA PRADESH AT HYDERABAD THE HON'BLE MR JUSTICE J.CHELAMESWARand THE HON'BLE MR JUSTICE D.APPA RAO WRIT PETITION NO : 2672 of 2003 Dated: 27thJuly 2006 Between:B.M.Malani .. Petitioner AND The Commissioner of Income Tax,Andhra Pradesh-V, Buddha Bhavan,Mahatma Gandhi Road,Secunderabad and another .. Respondents ORDER : (per JC,J) The writ petition is filed challenging the order passed bythe 1[st] respondent dated 26.11.2002 by the respondentdeclining to waive the interest accrued on the amountdetermined by the Settlement Commission. The facts leadingto the impugned order are as follows : A search operation was conducted at the residentialpremises of the petitioner under Section 132 of the Income TaxAct on 4.9.1994. On the basis of the material obtained duringthe course of search, the 2[nd] respondent issued notice underSection 148 of the Act requiring the petitioner to file income taxreturns for the assessment years 1990-91 to 1995-96. For thefirst of the two assessment years mentioned above, it appearsthe petitioner had already filed his Income Tax returns on 1.2.1993 and on 23.2.1993. However, in view of the search, hefiled revised returns for the above mentioned two assessmentyears under Section 148 and also filed returns for the remainingassessment years mentioned above. Thereafter, the petitioner made an application underSection 245-C of the Income Tax Act before the SettlementCommission. Eventually, the Settlement Commission passedan order on 2.12.1999. Though through the application thepetitioner, sought the settlement of the issue for the abovementioned assessment years, it appears that the SettlementCommission also went into the question of income of theassessee for the assessment year 1988-89 and came to theconclusion that the petitioner is liable to be assessed on anincome of Rs.1,68,09,306/- as against the income admitted bythe petitioner of Rs.54,82,805/-. A consequential order underSection 245-D(4) came to be passed by the 2[nd] respondentdemanding payment of Rs.1,57,77,651/- towards the tax on theabove mentioned income determined by the SettlementCommission. The demand notice dated 11.2.2000 alsostipulated that the above mentioned tax was payable on orbefore 12.4.2000. It appears that the petitioner paid variousamounts before 12.4.2000. The entire amount was not paid bythat date. It appears from the pleading that by 8.3.2002, thepetitioner paid a total amount of Rs.1,60,66,947/-. As a matterof fact, it appears only part of the amount was paid in cash andthe remaining was realized by the department from out of theassets of the petitioner, the details of which will be discussedlater in this judgment. In view of the non compliance with thedirections of the Settlement Commission regarding the date ofpayment of the tax determined by it, the Assessing Officerlevied interest under section 220(2) of the Act for the assessment year 1990-91, 1991-92, 1992-93 and 1995-96 byhis order dated 8.3.2002. The amount of interest levied wasRs.31,41,106/-. Subsequently, on an application by thepetitioner, the Assessing Officer (2[nd] respondent) rectified the8.3.2002 order and determined the interest payable atRs.24,36,352/-. Aggrieved by the levy of the above mentionedinterest, the petitioner filed an application before the 1[st]respondent for waiver of the said interest which application wasrejected by the 1[st] respondent and hence the present writpetition. assessment year 1990-91, 1991-92, 1992-93 and 1995-96 byhis order dated 8.3.2002. The amount of interest levied wasRs.31,41,106/-. Subsequently, on an application by thepetitioner, the Assessing Officer (2[nd] respondent) rectified the8.3.2002 order and determined the interest payable atRs.24,36,352/-. Aggrieved by the levy of the above mentionedinterest, the petitioner filed an application before the 1[st]respondent for waiver of the said interest which application wasrejected by the 1[st] respondent and hence the present writpetition. Under Section 220(1) of the Act, the amountsspecified therein are required to be paid within thirty days of theservice of the notice of demand. Under sub-section (2), it isstipulated that if the amount is not paid within the said period of30 days, the assessee is liable to pay interest, the furtherdetails of which may not be necessary for the purpose of thiscase. However, under section (2A), the 1[st] respondent hereinis authorized to reduce or waive the amount of interest paid orpayable by an assessee. Under sub-section (2) if the 1[st]respondent is satisfied that (i)payment of such amount has caused orwould cause genuine hardship to theassessee;would cause genuine hardship to theassessee; (ii)default in the payment of the amount onwhich interest has been paid or was payableunder the said sub-section was due tocircumstances beyond the control of theassessee; andwhich interest has been paid or was payableunder the said sub-section was due tocircumstances beyond the control of theassessee; and(iii)the assessee has cooperated in anyinquiry relating to the assessment or anyproceeding for the recovery of any amountdue from him. inquiry relating to the assessment or anyproceeding for the recovery of any amountdue from him. It is the admitted case of the petitioner that thesatisfaction of the 1[st] respondent regarding the fulfillment of the three conditions extracted above is cumulative, but not mutuallyexclusive. However, it is the case of the petitioner that thepetitioner’s case satisfies all the above mentioned threeconditions specified under sub-section (2A) to enable theCommissioner (1[st] respondent) to waive the interest and it’s thesubmission of the learned counsel for the petitioner that on thefulfillment of the three conditions specified under Section 2A,the Commissioner is bound to grant a waiver, but cannot refuseto waive. Sri N.R.Sivaswamy, learned counsel for the petitionerpointed out that the Settlement Commission recorded acategoric finding at para (9) of its order that the petitioner hadcooperated in the proceedings before the SettlementCommission with the following words : “9. Considering the co-operation extended by theapplicant in the completion of thepresent settlement proceedingand the true and full disclosuremade, we grant immunity undersection 245H(1) from theimposition of penalty andprosecution under the IncomeTax Act and relevant sections ofIPC, relating to matters coveredin the present order. However,the immunity so granted shall bewithdrawn, if it is subsequentlyfound that the conditionsprescribed in sub-sections 1(A)(2) of Section 245H are satisfied.” Insofar as the 1[st] condition is concerned, the learned counsel for the petitioner submitted that in theapplication before the 1[st] respondent, the petitioner stated thathe did not own any moveable or immoveable property by thedate of the said application. But the 1[st] respondent recorded afinding at para 9 of the impugned order that “it is learnt that inaddition to the property sold, the HUF owns another property; Insofar as the 1[st] condition is concerned, the learned counsel for the petitioner submitted that in theapplication before the 1[st] respondent, the petitioner stated thathe did not own any moveable or immoveable property by thedate of the said application. But the 1[st] respondent recorded afinding at para 9 of the impugned order that “it is learnt that inaddition to the property sold, the HUF owns another property; i.e., about 6000 sq. yards of vacant land located in prime areanear Airport, in Begumpet, Hyderabad.” Obviously, thereference was to the HUF of which the petitioner is a Member. The learned counsel for the petitioner argued that in theapplication for waiver of interest, the petitioner made adeclaration on 1[st] November, 2002 before the 2[nd] respondentto the effect that the petitioner did not own any moveable orimmoveable properties and the house referred to by the 1[st]respondent belongs to his son in whose favour there was apartial partition which partition the above referred house fell tothe share of the son which fact was borne out from theProceedings of the Income Tax Officer, A Ward, Circle-III,Hyderabad. Therefore, the learned counsel argued that thefinding of the 1[st] respondent, the HUF of which the petitioner isa member owns another house is based on no evidence onrecord. On the other hand, the learned counsel for therespondent submitted that the petitioner sold another houseowned by him in the month of September, 1998 for an amountof Rs.65 lakhs and invested the proceedings of the sale to theUnit Trust of India which would mature after a lapse of fiveyears from the date of the purchase of the units. The learnedcounsel argued that the sale of the said house itself wassubsequent to the search though before the determination ofthe liability of the petitioner by the Settlement Commission. Thepetitioner cannot claim that he did not possess any moveable orimmoveable assets. The petitioner does not dispute the abovementioned transaction of sale and invested in the Unit Trust ofIndia. But, it’s the case of the petitioner that the respondentsissued garnishee proceedings against the Unit Trust of Indiaand the Unit Trust of India in a haste sold the units prematurely thereby resulting in a loss to the petitioner which decision of theUnit Trust of India was challenged by the petitioner inW.P.No.23025 of 2002. A Division Bench of this Court by itsorder dated 27.8.2004 in resorting to distress sale of thepetitioner’s unit was illegal and quashed, the operative portionof the said order reads as follows : “In the result, thetransfer of units of the petitionerto UTI by the 3[rd] respondent isquashed. Since the tax hasalready been paid, therefore inthe interest of justice, we directthe 3[rd] respondent to calculatethe face value of the units of thepetitioner at Rs.10/- per unit andpay the difference to thepetitioner. The writ petition isaccordingly disposed of. Nocosts.” The learned counsel for the respondents,however, argued in this behalf that that the respondents areduly authorized by law to initiate garnishee proceedings againstthe UTI for the units held by them and owned by the petitionerherein. The illegality if any is in the sale conducted by the UnitTrust of India, is an illegality committed by the Unit Trust but notthe respondents and therefore the said fact is irrelevant inconsidering the application of the petitioner for waiver ofinterest. We accept the submission of the learnedcounsel for the petitioner insofar as the property located atBegumpet is concerned and hold that the finding recorded bythe 1[st] respondent is without any material on record. But thequestion still remains whether such a conclusion vitiates thefinding of the 1[st] respondent that the payment of the interestwould cause genuine hardship to the assessee. We accept the submission of the learnedcounsel for the petitioner insofar as the property located atBegumpet is concerned and hold that the finding recorded bythe 1[st] respondent is without any material on record. But thequestion still remains whether such a conclusion vitiates thefinding of the 1[st] respondent that the payment of the interestwould cause genuine hardship to the assessee. The hardship claimed by the petitioner is onaccount of lack of resources either moveable or immoveable. Even after the conclusion of this Court that the finding of the 1[st]respondent regarding the property at Begumpet is justified, thefact remains that the petitioner had assets by way of units in theUnit Trust of India by the date of the Settlement Commissiondetermined his liability of tax. The fact that a distress saleconducted by the Unit Trust fetched a lower rate in our viewdoes not make any difference for the consideration of theapplication of the petitioner for the waiver of interest. The UTIdid not follow according to the Division Bench of this Court therequisite procedure in resorting to distress sale. That is adifferent matter. But, nothing prevented the petitioner fromencashing the said units and pay the tax liability in time. Thesubmission of the learned counsel for the petitioner that such apremature sale of the units would result in a financial loss to thepetitioner is irrelevant in the context of the application for waiverof interest. If the petitioner is already found liable and due topay tax under the Income Tax Act, the petitioner cannot choosethe time for encashing the assets he had to get the post pricefor the asset and still complain that the levy of interest wouldcause undue hardship to him. Apart from that by virtue of theDivision Bench judgment of this Court, the UTI is alreadydirected to make good the loss suffered by the petitioner byvirtue of the distress sale undertaken by the UTI. Coming to the satisfaction of the 2[nd] conditionmentioned under Section 220(2A), we are of the opinion thatthough elaborate submissions are made as to how the saidcondition is satisfied, we do not propose to examine suchsubmissions in view of the finding reached by us that thepetitioner could not establish that the payment of interest would cause genuine hardship to the petitioner. Admittedly asindicated earlier in this judgment, the three conditions specifiedin Section 220(2A) are not mutually exclusive, but satisfaction ofall the conditions is a sine qua non for the exercise of thediscretion by the 1[st] respondent to either waive or reduce theamount of interest. In the circumstances, we do not see any merit inthe writ petition and the same is therefore dismissed. ------------------------ J.CHELAMESWAR,J knk Dt : 27.7.2006 ------------------- D.APPA RAO,J