Wp(C)/20365/2005 Of E.m.joseph v. The Chief Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE K.VINOD CHANDRAN MONDAY, THE 21ST NOVEMBER 2011 / 30TH KARTHIKA 1933 WP(C).No. 20365 of 2005(Y) -------------------------- PETITIONER: --------------- E.M.JOSEPH, S/O. MATHEW, RESIDING AT EDAPPALLY - LEGAL HEIR OF LATE SMT.CHERIA MARIAMMA. BY ADV. SRI.T.M.SREEDHARAN SMT.C.K.SHERIN RESPONDENTS: --------------- 1. THE CHIEF COMMISSIONER OF INCOME TAX, CENTRAL REVENUE BUILDING, I.S.PRESS ROAD, COCHIN-682 018. 2. THE DEPUTY COMMISSIONER OF INCOME TAX (ASSESSMENT), SPECIAL RANGE-2, ERNAKULAM. 3. THE JOINT COMMISSIONER OF INCOME TAX, SPECIAL RANGE-2, ERNAKULAM. ADV. SRI.P.K.R.MENON,SR.COUNSEL,GOI(TAXES) SRI.GEORGE K. GEORGE, SC FOR IT THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 21/11/2011, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: APPENDIX PETITIONER'S EXHIBITS: EXT.P1: TRUE COPY OF PROCEEDINGS OF THE DY. COMMISSIONER OFINCOME TAX(ASSESSMENT)SPECIAL RANGE, COCHIN 682 018VIDE NO. 46028/P-47535/DCA/SR SPECIAL RANGE II DT. 11.4.1996INCOME TAX(ASSESSMENT)SPECIAL RANGE, COCHIN 682 018VIDE NO. 46028/P-47535/DCA/SR SPECIAL RANGE II DT. 11.4.1996EXT.P2: TRUE COPY OF THE DETAILS OF PAYMENT OF THE AMOUNTIN INSTALMENTS DURING 29.6.1993IN INSTALMENTS DURING 29.6.1993EXT.P3: TRUE COPY OF THE ORDER DEMANDING INTEREST UNDERSEC.220(II) DT.28.10.1999SEC.220(II) DT.28.10.1999EXT.P4: TRUE COPY OF THE PETITION DT.11.1.2001 FOR WAIVER OFINTEREST SUBMITTED TO THE 1ST RESPONDENTINTEREST SUBMITTED TO THE 1ST RESPONDENTEXT.P5: TRUE COPY OF THE ORDER PASSED BY THE 1ST RESPONDENTDT.8.6.2005DT.8.6.2005 RESPONDENTS' ANNEXURES: NIL //TRUE COPY// P.A. TO JUDGE K. VINOD CHANDRAN, J ---------------------------------------------------- W.P(C) No. 20365 of 2005 ---------------------------------------------------- Dated this the 21[st] day of November, 2011 J U D G M E N T The petitioner being the legal heir of the deceasedassessee filed an application under section 220(2A) of theIncome Tax Act, 1961, which was considered by theCommissioner by Ext.P5 order, limiting the waiver to anamount of Rs.24408; which was the balance amount due fromthe deceased assessee. 2. The assessment for the assessment year 1989-90completed under Section 143(3) determining the total incomewas later revised reducing the total income. The total demandraised contained interest under section 234(A), 234(B) and234(C) coming to ` 14,61,916/- which was waived by an orderdated 21.10.1999, by the Chief Commissioner of Income Tax.The application which is the subject matter of the above writpetition was to waive the interest of ` 1,95,570/- levied undersection 220(2A) of the Income Tax Act. 3. The Chief Commissioner, the first respondent passeddetailed order by Ext.P5 limiting interest levied to the amount WPC No.20365/2005 : 2 : already paid and directing waiver of the balance amountremaining unpaid. In Ext.P5 order the Commissioner haselaborately considered the scope of Section 220(2A) of theIncome Tax Act and found that all the three conditionsregarding genuine hardship to the assessee, default in taxbeing not due to the circumstances attributable to theassessee and the cooperation of the assessee were satisfied.The learned Standing Counsel appearing for the departmentwould contend that the hardship found by the ChiefCommissioner was only to the extent of further payment to bemade by the petitioner, on behalf of the assessee, and that,with respect to the amounts already paid the same cannot besaid to have been paid, bringing it within the ambit of220(2A). The said contention is advanced because the amountalready paid was adjusted by the department from the refundof the amounts consequent to the waiver of interest leviedunder Section 234(A), 234(B) and 234(C). 4. On admitted facts, the interest under Section 234(A),234(B) and 234(C) imposed at more than the tax due waswaived by the Chief Commissioner, while the amounts werebeing deposited in instalments by the petitioner. Thepetitioner was paying the instalments on behalf of the WPC No.20365/2005 : 3 : assessee who died on 22.10.1996. It was in the context of theabove payment of certain instalments and the refundconsequent to the subsequent waiver that the said amountswere adjusted towards the interest under section220(2A). Iam unable to agree with the contention of the Revenue thatthe adjustment would take it out of the ambit of 220(2A), sincethe same cannot be said to have been paid by the assessee oron her behalf by the legal heirs. Section 220(2A) does notdraw any such distinction and the manner in which theRevenue recovers the amounts, in my opinion is not relevantwhile considering the waiver application made under Section220(2A). What has gone to the coffers of the Revenue is to beconsidered payment by the assessee but subject to the threeconditions. 5. Section 220(2A), for consideration of the waiverapplication to reduce or waive the amount, postulates threesituations or conditions which are: 1, that there was genuine hardship which the payment of such amount has caused or would cause. 2. that the default in the payment of tax was due tocircumstances beyond the control of the assessee and 3. that the assessee co-operated in the enquiry relating WPC No.20365/2005 : 4 : to the assessment or any proceedings for the recoveryof any amount due from him. 6. The Commissioner in Ext.P5 order has found thethree conditions to be satisfied. The learned counsel for theRevenue would but contend that with respect to the questionof hardship the Commissioner has found the hardship onlywith respect to further payment of interest and no hardshiphas been found with respect to the amounts already adjustedtowards the interest. I am afraid, the said contention cannotbe countenanced because the clear finding entered on thefacts is that the present petitioners, the legal heirs, are facingrevenue recovery proceedings from the State authorities.Genuine hardship has to be found on the facts andcircumstances of each case which satisfaction was entered bythe Commissioner. However, there is no reason stated to limitthe waiver to the amounts remaining due and payable.Section 220(2A) as it stood before the amendment of 1984contemplated waiver of interest payable by the assessee andsub clause (1) also related to the hardship caused in furtherpayment of the amount remaining unpaid. However, byTaxation Laws Amendment Act 1984 the provisions have beensuitably amended with retrospective effect from 1.10.1984 WPC No.20365/2005 : 5 : conferring power on the Chief Commissioner or theCommissioner to reduce or waive the amount of interestalready paid and the conditions have also been suitablyamended to bring in those amounts which has already beenpaid. 7. The Standing Counsel for the Revenue would rely on Smt. Harbans Kaur v. Commissioner of Wealth Tax[(1997) 224 ITR 418]to contend that in interpretingsection 18B of the Wealth Tax Act, Supreme Court has heldthat “Inexerciseofthatdiscretion,theCommissioner can either reduce the amount ofthe penalty or he may waive the entire penalty.It is for the Commissioner to decide on the factsof a particular case whether a waiver in entiretyor a reduction alone is warranted” I am in respectful agreement with the said proposition andSection 220(2A) also confers the discretion on theCommissioner to waive the interest in its entirety or reducethe amount. However, I notice, that the Hon'ble SupremeCourt dismissed the appeals of the assessee since in the saidcase the Commissioner had indicated his reasons for reducingthe penalty instead of granting full waiver. Further while WPC No.20365/2005 : 6 : “Inexerciseofthatdiscretion,theCommissioner can either reduce the amount ofthe penalty or he may waive the entire penalty.It is for the Commissioner to decide on the factsof a particular case whether a waiver in entiretyor a reduction alone is warranted” I am in respectful agreement with the said proposition andSection 220(2A) also confers the discretion on theCommissioner to waive the interest in its entirety or reducethe amount. However, I notice, that the Hon'ble SupremeCourt dismissed the appeals of the assessee since in the saidcase the Commissioner had indicated his reasons for reducingthe penalty instead of granting full waiver. Further while WPC No.20365/2005 : 6 : considering the decision of the various High Courts cited insupport of the appellant the Supreme Court also held: “In all those decisions the learned judges havepointed out that without indicating any reasonwhatsoever the Commissioner cannot dispensewith his discretion in granting waiver of thepenalty. Those decisions have not laid downthe proposition that the only course which aCommissioner can adopt on fulfilment of theconditions is to waive the penalty in entirety.” It is the absence of reasons for reducing the penalty that isglaring in the order of the Commissioner impugned in thiswrit petition. The Commissioner merely says that “payment offurther interest will cause hardship to them” and does notstate any reason for limiting or reducing the waiver. Thelearned Standing Counsel for the Revenue also placedreliance on the decision inKerala State CashewDevelopment Corporation Ltd. v. Income Tax Officerand another [(1990)186 ITR 521]. The dictum laid downin the said case is that cancellation of penalty does not ipsofacto result in total waiver of interest since the former ispunitive and the latter is compensatory. The same is notrelevant in the facts of the instant writ petition since the WPC No.20365/2005 : 7 : Commissioner's order is found improper by this Court to theextent it limits the waiver for reason of total and glaringabsence of reasons and not on the ground of waiver of entirepenalty imposed. Further, while considering the scope ofwaiver contemplated by Section 139(8) of the Income Tax Actthe Division Bench of this Court also held: “This power, no doubt, should be exercisedjudiciously and fairly, keeping in mind factorsrelevant to the issue and eschewing irrelevantfactors and circumstances, to be inferred fromthe policy of the law itself.” The judicious exercise of power of waiver, I am afraid, isconspicuously absent in the above case. It would have been adifferent situation if the Commissioner had considered thehardship on the facts involved and reduced the interestliability of the assessee for reasons stated. 8. I am further fortified by the decision of the Hon'bleSupreme Court of India inB.M.Malani v. Commissioner of Income-tax[( 2008) 306 ITR 196]. The Hon'ble SupremeCourt while considering the ingredients of genuine hardshipheld that it would inter alia be a genuine difficulty merelybecause a person has large assets that will not per se lead toa conclusion that he would never be in difficulty as he can sell WPC No.20365/2005 those assets and pay the amount of interest levied. TheSupreme Court also considering the power of theCommissioner under Section 220(2A) held “indisputably, the CIT has the discretion not toaccede to the request of the assessee, but thediscretion must be judiciously exercised. He hasto arrive at a satisfaction that the three conditionslaid down therein have been fulfilled beforepassing an order waiving interest.” (emphasis supplied) Income-tax[( 2008) 306 ITR 196]. The Hon'ble SupremeCourt while considering the ingredients of genuine hardshipheld that it would inter alia be a genuine difficulty merelybecause a person has large assets that will not per se lead toa conclusion that he would never be in difficulty as he can sell WPC No.20365/2005 those assets and pay the amount of interest levied. TheSupreme Court also considering the power of theCommissioner under Section 220(2A) held “indisputably, the CIT has the discretion not toaccede to the request of the assessee, but thediscretion must be judiciously exercised. He hasto arrive at a satisfaction that the three conditionslaid down therein have been fulfilled beforepassing an order waiving interest.” (emphasis supplied) 9. In the instant case, what was stated by theCommissioner was that certain amounts were already paid byway of adjustment or otherwise and that certain amountsremained unpaid. The Standing Counsel for the Revenuewould also contend that the waiver of interest was limited tothat remaining unpaid since the amount adjusted cannot betaken to be having been paid. The section not having madeany such distinction, as found earlier, and by virtue of theamendment entitling both paid and unpaid interest to beconsidered for waiver; I am of the opinion that the discretionhas not been properly exercised by the Commissioner. In the circumstances and on the findings entered above,Ext.P5 order to the extent the same fails to consider waiver of WPC No.20365/2005 the amounts already paid is set aside. The first respondent isdirected to pass fresh orders in accordance with theobservations made above, within a period of three monthsfrom the date of receipt of a copy of this judgment. K. VINOD CHANDRAN (Judge) jma