THE COMMISSIONER OF INCOMETAX COCHIN V. SETTLEMENT COMMISSION

OP/38775/2002

AI Insights

The case involves the Commissioner of Income Tax, Calicut, challenging an order by the Settlement Commission which waived interest on the assessee under Section 220(2) of the Income-Tax Act, 1961, following the filing of an application under Section 245C. The primary legal issue was whether the Settlement Commission was justified in waiving the interest without ensuring that the assessee met all the conditions specified in Section 220(2A). The High Court found that the Settlement Commission had not adequately considered these conditions and had not provided reasons for its decision, leading to the setting aside of the order and a directive for a fresh consideration.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 727026 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 22-05-2014
• Assessment Year: misc
• Other Referred Cases: Damani Brothers, In re [(1999) 238 ITR (AT) 36], Krishan Lal v. Union of India (1998 (2) SCC 392 : (1998) 230 ITR 85), CIT v. Anjum M.H. Ghaswala (2002 (1) SCC 633: (2001) 252 ITR 1), CIT v. Damani Brothers (2003 (3) SCC 86 : (2003) 259 ITR 475), B.M. Malani v. CIT 2008 (10) SCC 617 : (2008) 306 ITR 196)
• Laws Referred To: Income-Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: P BALACHANDRAN; PREETHA NAIR; P BALAKRISHNAN
• Assessee Lawyers: P K R M MENON; GEORGE K GEORGE
• Keywords: Block period; Settlement commission; Undisclosed income; Waiver of interest; Quasi-judicial decision
• Section: 132; 158BC; 220(2); 245C; 245D; 220(2A)

Judgement Text

"IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR. JUSTICE ANIL K.NARENDRAN THURSDAY, THE 22ND DAY OF MAY 2014/1ST JYAISHTA, 1936 OP.No. 38775 of 2002 (N) ------------------------- PETITIONER : ------------ THE COMMISSIONER OF INCOME TAX, CALICUT. BY ADVS.SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.GEORGE K. GEORGE, SC FOR IT RESPONDENTS : -------------- 1. SETTLEMENT COMMISSIONER (IT &WT) ADDITIONAL BENCH, 488-489, ANNASALAI, CHENNAI-600 035. 2. SRI.C.K.ALAVI, SABANA MANZIL, MONGAM, MALAPPURAM DISTRICT. R2 BY ADV. SRI.P.BALACHANDRAN (SR.) R2 BY ADV. SMT.PREETHA S.NAIR R2 BY ADV. SRI.P.BALAKRISHNAN (E) THIS ORIGINAL PETITION HAVING BEEN FINALLY HEARD ON 22-05-2014, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: OP.No.38775 of 2002 (N) APPENDIX PETITIONER'S EXHIBITS:- EXT.P1 : COPY OF THE ORDER OF THE SETTLEMENT COMMISSION DTD.18/10/2001. RESPONDENTS' EXHIBITS:- NIL. True copy P.A to Judge “CR” ANIL K.NARENDRAN, J. --------------------------------------- O.P.No.38775 of 2002 ---------------------------------------- Dated this the 22nd day of May, 2014 JUDGMENT This Original Petition is filed by the Commissioner of Income Tax, Calicut, seeking a writ of certiorari to quash Ext.P1 order of the Settlement Commission (IT & WT) Additional Bench, Chennai, first respondent herein, in so far as it pertains to waiver of interest levied on the assessee under Sub-section (2) of Section 220 of the Income-Tax Act, 1961, for the period subsequent to 10/02/1997, being the date of filing of the application before the Settlement Commission under Sub-section (1) of Section 245C of the said Act. 2. The assessee, the second respondent herein, is engaged in the business of financing vehicle purchases, constructing and selling of commercial complexes and real estate. A search under Section 132 of the Income-Tax Act, O.P.No.38775 of 2002 2 1961, hereinafter referred to as ‘the Act’ only, was conducted at the residential and business premises of the assessee on 01/02/1996. Notice under Section 158BC of the Act was issued on 13/06/1996 and the assessee filed return of income on 05/12/1996 declaring an amount of ₹4,50,000/- as undisclosed income for the block period 1986-87 to 1996-97 and the tax payable was worked out at ₹2,70,000/-. The assessment under Section 158BC for the block period 1986-87 to 1996-97 was completed on 26/02/1997 and the undisclosed income was computed at ₹2,10,19,540/- and the tax payable was worked out at ₹1,26,11,724/-. The assessee filed an application before the Settlement Commission, the first respondent herein, on 10/02/1997 offering additional income of ₹2,70,000/- and the Settlement Commission passed Ext.P1 order under Sub-section (4) of Section 245D of the Act, arriving at a total undisclosed income of ₹27,51,758/- for the block period. 3. The assessee also filed a separate petition under Sub-section (2A) of Section 220 of the Act, for waiver of O.P.No.38775 of 2002 3 interest levied under Sub-section (2) of Section 220 of the Act, relying on the decision of the Income-Tax Settlement Commission (Special Bench) in the case of Damani Brothers, In re [(1999) 238 ITR (AT) 36]. In paragraph 27 of Ext. P1 order, the Settlement Commission, merely relying on the decision in Damani Brothers case (supra) ordered that the interest levied on the assessee under Sub-section (2) of Section 220 of the Act for the period subsequent to 10/02/1997, being the date of filing the application before the Settlement Commission, will stand cancelled. The said decision of the Settlement Commission was without considering as to whether the assessee fulfilled all the three conditions laid down in Clauses (i), (ii) and (iii) of Sub-section (2A) of Section 220 of the Act. It is aggrieved by Ext.P1 order, to the extent of granting waiver of interest levied on the assessee under Sub- section (2) of Section 220 of the Act, for the period subsequent to 10/02/1997, being the date of filing of the application before the Settlement Commission under Sub-section (1) of Section O.P.No.38775 of 2002 4 245C of the said Act, the Revenue is before this Court in this Original Petition filed under Article 226 of the Constitution of India. 4. Heard the learned Standing Counsel for the petitioner and the learned counsel appearing for the second respondent. 5. The issue which has to be considered in this Original Petition is whether the Settlement Commission in Ext. P1 was justified in granting waiver of interest levied on the assessee under Sub-section (2) of Section 220 of the Act without considering as to whether the assessee fulfilled all the three conditions laid down under Sub-section (2A) of Section 220 of the Act and recording reasons as to how the assessee is entitled for such waiver of interest. 6. As per Sub-section (2) of Section 220 of the Act, if the amount specified in any notice of demand under Section 156 is not paid within the period limited under Sub-section (1), the assessee shall be liable to pay simple interest at one per cent for every month or part of a month comprised in the O.P.No.38775 of 2002 5 period commencing from the day immediately following the end of the period mentioned in Sub-section (1) and ending with the day on which the amount is paid. Sub-section (2A) of Section 220 of the Act, which provides for waiver of interest, reads as follows; (2A) Notwithstanding anything contained in Sub-section (2), the Chief Commissioner or Commissioner may reduce or waive the amount of interest paid or payable by an assessee under the said sub-section if he is satisfied that- (i) payment of such amount has caused or would cause genuine hardship to the assessee; (ii) default in the payment of the amount on which interest has been paid or was payable under the said sub- section was due to circumstances beyond the control of the assessee; and (iii) the assessee has co-operated in any inquiry relating to the assessment or any proceeding for the recovery of any amount due from him. A mere perusal of Sub-section (2A) of Section 220 of the Act makes it abundantly clear that the said sub-section, which begins with a non-obstante clause, not only overrides the O.P.No.38775 of 2002 6 charging provision as contained in Sub-section (2) of Section 220 of the Act, but also restricts the power of the competent authority to reduce or waive the amount of interest paid or payable by an assessee, only if such authority is satisfied that the assessee fulfilled all the three conditions laid down under Sub-section (2A) of Section 220 of the Act. First condition being that, payment of such amount of interest has caused or would cause genuine hardship to the assessee. The second condition being that, the default in the payment of the amount on which interest has been paid or was payable under the Sub- section (2) was due to circumstances beyond the control of the assessee and the third condition being that, the assessee has co-operated in any inquiry relating to the assessment or any proceedings for recovery of any amount due from him. 7. In Krishan Lal v. Union of India (1998 (2) SCC 392 : (1998) 230 ITR 85), the Apex Court held that, when an application is filed under Sub-section (2A) of Section 220 of the Act, the authority concerned is called upon to take a quasi- O.P.No.38775 of 2002 7 judicial decision and if it is satisfied that the reasons contained in the application would bring the case under Clauses (i), (ii) and (iii) of Sub-section (2A) of Section 220 of the Act, then it has power either to reduce or waive the amount of interest. (para. 4) In CIT v. Anjum M.H. Ghaswala (2002 (1) SCC 633: (2001) 252 ITR 1) the Apex Court held that, wherever the Act contemplated power of waiver or reduction of interest to be entrusted with any particular authority in any particular situation, it has done so like in Section 220(2A) of the Act. (para. 19) The Apex Court further held that, it is the normal rule of construction that when a statue vests certain power in an authority to be exercised in a particular manner then the said authority has to exercise it only in the manner provided in the statute itself. (para. 27) 8. In CIT v. Damani Brothers (2003 (3) SCC 86 : (2003) 259 ITR 475), arising out of the order of the Special Bench of the Settlement Commission in Damani Brothers case (supra), the Apex Court considered among other O.P.No.38775 of 2002 8 questions the powers of the Settlement Commission to waive interest levied under Sub-section (2) of Section 220 of the Act. Relying the principle in Anjum’s case (supra), the Apex Court reversed in part the order of the Settlement Commission in Damani Brothers case (supra), and held that, waiver or reduction of interest under Sub-section (2A) of Section 220 of the Act is hedged with certain conditions and if these conditions are satisfied, the Commission has the power to direct waiver or reduction of interest. Paragraph 13 of the judgment reads thus; “13. Coming to the third question, the answer is provided in Anjum's case (supra). Wherever the Act provides for waiver of interest, the Commission can in appropriate cases direct waiver or reduction of the interest. It has to be noted that waiver or reduction of interest under Section 220 (2A) and other provisions is hedged with certain conditions. If these conditions are satisfied, the Commission has the power to direct waiver or reduction. In view of this answer, the Commission has to examine whether the assessee has made out a case for waiver or reduction.” Later, the Apex Court in B.M. Malani v. CIT 2008 (10) SCC 617 : (2008) 306 ITR 196), while considering the validity of an O.P.No.38775 of 2002 9 order passed under Sub-section (2A) of Section 220 of the Act, reiterated that, the authority has to exercise the discretion judicially and has to arrive at a satisfaction that the three conditions laid down therein have been fulfilled before passing an order waiving interest. 9. In Kishan Lal’s case (supra), the Apex Court held that, even though in Sub-section (2A) of Section 220 of the Act, it is not stated that any reasons are to be recorded in the order deciding such an application, it is implicit in the said provision that whenever such an application is filed the same should be decided by a speaking order. Paragraph 4 of the judgment reads thus; “4. When an application is filed under Sub-section (2A) of Section 220 the authority concerned is called upon to take a quasi-judicial decision. If it is satisfied that the reasons contained in the application would bring the case under Clauses (i), (ii) and (iii) of Section 220(2A) then it has the power either to reduce or waive the amount of interest. Even though in the said sub-section it is not stated that any reasons are to be recorded in the order deciding such an application, it appears to us that it is implicit in the said provision that O.P.No.38775 of 2002 10 whenever such an application is filed the same should be decided by a speaking order. Principles of natural justice in this regard would be clearly applicable. It will be seen that a decision which is taken by the authority under Section 220 (2A) can be subjected to judicial review, as was sought to be done in the present case by filing a petition under Article 226, this being so and where the decision of the application may have repercussion with regard to the amount of interest which an assessee is required to pay it would be imperative that some reasons are given by the authority while disposing of the application. Mr. Salve, the learned senior counsel for the appellant has strongly relied upon the observations of this Court in Siemens Engineering and Manufacturing Co. of India Ltd. v. Union of India (1976 (2) SCC 981) where at page 986 it has been stated that where an authority makes an order in exercise of its quasi-judicial function it must record its reasons in support of the order it makes. In other words, every quasi- judicial order must be supported by reasons. In our opinion, the observations in that case would apply in the present case also.” 10. In the case on hand, a perusal of Ext. P1 order reveal a total non-application of mind by the Settlement Commission on the crucial issue as to whether the assessee has fulfilled all the three conditions laid down under Clauses (i), (ii) and (iii) of Sub-section (2A) of Section 220 of the Act. Moreover, no O.P.No.38775 of 2002 11 reasons have been recorded in Ext. P1 order on the entitlement of the assessee for such waiver of interest levied under Sub- section (2) of Section 220 of the Act. The only reason stated in paragraph 27.2 of Ext. P1 order is as follows; “Respectfully following the decision of the Special Bench cited above, we hold that the interest levied under Section 220(2) for the period subsequent to 10/02/1997, being the date of filing of the application, will stand cancelled.” The decision of the Special Bench (238 ITR 36) relied by the Settlement Commission in Ext. P1 order has already been reversed in part by the Apex Court in (259 ITR 475). Moreover, Sub-section (2) of Section 220 of the Act restricts the power of the Settlement Commission to reduce or waive the amount of interest paid or payable by an assessee only if such authority is satisfied that the assessee has fulfilled all the three conditions laid down under Sub-section (2A) of Section 220 of the Act. Further, in terms of the law laid down by the Apex Court in the judgments referred supra, while passing an order under Sub- section (2A) of Section 220 of the Act, the Settlement O.P.No.38775 of 2002 12 Commission has to exercise its discretion judicially and satisfy that the three conditions laid down under Clauses (i), (ii) and (iii) of Sub-section (2A) of Section 220 of the Act have been fulfilled, before passing an order waiving interest. Still further, such an application has to be decided by a speaking order. 11. As Ext. P1 order passed by the Settlement Commission does not satisfy the tests laid down by the Apex Court in the judgments referred supra, the said order, to the extent it is under challenge in this Original Petition, deserves interference of this Court under Article 226 of the Constitution of India. In such circumstances, Ext. P1 order passed by the first respondent, in so far as it pertains to waiver of interest levied on the second respondent under Sub-section (2) of Section 220 of the Act, for the period subsequent to 10/02/1997, being the date of filing of the application before the first respondent under Sub-section (1) of Section 245C of the Act, is set aside. O.P.No.38775 of 2002 13 Therefore, this original petition is disposed of, directing the first respondent to consider the application filed by the second respondent under Sub-section (2A) of Section 220 of the Income-Tax Act, 1961, with regard to waiver of interest levied under Sub-section (2) of Section 220 of the said Act, afresh and pass a considered order in terms of the law laid down by the Apex Court referred supra, after affording a reasonable opportunity of being heard to the second respondent, in accordance with law, as expeditiously as possible, at any rate, within a period of four months from the date of receipt of a certified copy of this judgment. No order as to costs. ANIL K.NARENDRAN, JUDGE skj "