Deversons Private Limited vs Chairman, Central Board of Direct Taxes and Others

M.S. Shah, J.—At the oral request of Mr SN Divetia, learned counsel for the petitioner, leave to add Chief Commissioner of income tax-I,

Aayakar Bhavan, Ashram Road, Ahmedabad as respondent No.4.

Notice of Rule to the newly added party returnable today. Mr Manish Bhatt, learned standing counsel waives service of Rule for the newly added

party.

In the facts and circumstances of the case, the petition is taken up for final disposal today.

This petition under Article 226 of the Constitution challenges the order dated 31.3.1994 (Annexure ""M"") passed by the Commissioner of

Income Tax, Gujarat-I, Ahmedabad rejecting the petitioner''s revision petition u/s 264 of the Income Tax Act, 1961 (""the Act"" for short) and

rejecting the petitioner''s claim to delete the interest of Rs.3,48,122/- levied u/s 234B of the Act for AY 1989-90. The petitioner has also

challenged the legality of the order dated 21/28.1.1993 (Annexure ""I"") of the Central Board of Direct Taxes in regretting its inability to intervene in

the matter to waive the above interest.

The facts leading to filing of this petition, briefly stated, are as under :-

The petitioner filed on 29.12.1989 its return of income for AY 1989-90 u/s 139(1) of the Act. The petitioner had claimed in the return of income

that Export Cash Assistance amount of Rs.7,68,651/- was exempt being a capital receipt. The petitioner had made its claim on the basis of the

decision dated 17.11.1989 (Annexure ""B"") of the Income Tax Appellate Tribunal, Ahmedabad in the case of the petitioner itself for AYs 1982-83

and 1983-84.

The petitioner had paid advance tax as per its return of income as under :-

Amount

Rs.

------

(1) Advance-tax 2,19,450

(2) Tax deducted at source 148

(3) Tax u/s. 140A 1,72,640

--------

3,92,238

Interest u/s.234B 27,621

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Total 4,19,859

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The petitioner had voluntarily paid interest of Rs.27,621/- u/s 234B of the Act because advance tax paid by it was less than 90% of the tax

payable on its income shown in its return of income.

Thereafter, the Assessing Officer, respondent No.3 herein, issued an intimation dated 10.1.1990 (Annexure ""C"") u/s 143(1)(a) accepting the

income shown by the petitioner in its return, but determined interest payable u/s 234B of the Act at Rs.31,074/- as against Rs.27,621/- paid by the

petitioner and raised a demand for additional interest of Rs.3,453/- u/s 234B of the Act. The petitioner paid the said amount.

Thereafter, the Assessing Officer commenced assessment proceedings u/s 143(3) of the Act for the aforesaid AY 1989-90. During the course of

assessment proceedings, by letter dated 22.1.1991 (Annexure ""D"") the petitioner informed the Assessing Officer that Export Cash Assistance was

made taxable with retrospective effect from 1.4.1967 and, therefore, Export Cash Assistance of Rs.7,68,751/- earlier claimed in its return of

income as capital receipt, be treated as income.

Thereafter, the Assessing Officer passed order dated 29.10.1991 u/s 143(3) of the Act for AY 1989-90 making addition of Export Cash

Assistance of Rs.7,68,751/- and two other similar items with which we are not concerned in this petition. The Assessing Officer also levied interest

of Rs.3,48,122/- u/s 234B of the Act on the ground that the advance tax paid by the petitioner u/s 210 was less than 90% of the assessed tax. The

said amount of interest was subsequently recovered from the petitioner by adjusting it against the refund for subsequent AY 1990-91.

When the petitioner filed an appeal against the aforesaid order u/s 143(3) of the Act challenging the additions and levy of interest u/s 234B of the

Act, the Commissioner of Income Tax (Appeals) granted relief in respect of other items, but held that the appeal was not maintainable against

charging of interest u/s 234B of the Act, but the petitioner would be at liberty to take other remedial actions u/s 154 or Section 264 of the Act.

The petitioner, therefore, made a rectification application u/s 154 of the Act before the Assessing Officer, respondent No.3 herein, for deleting

interest of Rs.3,48,122/= levied u/s 234B of the Act which came to be rejected by the Assessing Officer by his order dated 17.3.1992 (Annexure

K""). The petitioner challenged the said order by filing a revision petition u/s 264 of the Act before respondent No.2 which also came to be

rejected by respondent No.2 by his order dated 31.3.1994 (Annexure ""M""). In the meantime, the application made by the petitioner to the

Chairman, Central Board of Direct Taxes also came to be rejected by communication dated 21/28.1.1993 (Annexure ""I"") regretting inability of the

Board to intervene in the matter. Hence this petition.

At the hearing of this petition, Mr SN Divetia, learned counsel for the petitioner has made the following submissions :-

4.1 In the case of this petitioner itself, the Income Tax Appellate Tribunal had held by order dated 17.11.1989 that Export Cash Assistance was a

capital receipt and, therefore, not taxable as income. Hence, when the petitioner filed the return of income on 29.12.1989 for AY 1989-90, the

petitioner was fully justified in showing the Export Cash Assistance of Rs.7,68,651/- received in the financial year ended 31.3.1989 as capital

receipt. Even the Assessing Officer while issuing the intimation u/s 143(1)(a) had also determined the interest payable u/s 234B of the Act without

treating the aforesaid amount of Export Cash Assistance as income. It was only on 16.3.1990 that Finance Bill 1990 was introduced for making

Export Cash Assistance taxable and Finance Act 1990 received the assent of the President of India on 31.5.1990. Since the last date for making

payment of advance tax for the year in question was 31.3.1989, the petitioner could not have anticipated any such change in law which was going

to be made in future. It was, therefore, impossible for the petitioner to pay advance tax on Export Cash Assistance of Rs.7,68,751/- which was

held to be exempt by the Income Tax Appellate Tribunal in the petitioner''s own case and also earlier by the Income Tax Appellate Tribunal,

Special Bench, Delhi in the case of Godore Tools, (1985) Taxation 78 6. It was, therefore, illegal or unfair to charge interest u/s 234B of the Act

on the said amount which was subsequently offered by the petitioner itself as income for AY 1989-90 as per the petitioner''s letter dated

22.1.1991.

4.2 Mr Divetia has submitted that in any view of the matter, the interest levied u/s 234B of the Act was required to be waived. In support of the

said submission, Mr Divetia has placed strong reliance on the decisions of the Apex Court in Commissioner of Income Tax Vs. Hindustan Electro

Graphites Ltd., and in Commissioner of Income Tax, Mumbai Vs. Anjum M.H. Ghaswala and Others, .

Mr Divetia has also heavily relied on the CBDT Notification No. 400/234/95-IT(B) dated 23.5.1996 and the subsequent Circular No. 783, dated

18.11.1999 in support of his contention that where any income which was not chargeable to Income Tax on the date of filing of return, but

subsequently in consequence of any retrospective amendment of law, the amount becomes chargeable to Income Tax and interest is charged

thereon u/s 234B, it is a fit case for reduction or waiver of such interest.

On the other hand, Mr Manish Bhatt, learned standing counsel for the respondent authorities has relied on the affidavit in reply of the Deputy

Commissioner of Income Tax (Assessment), Special Range-I, Ahmedabad contending that, as held by the Hon''ble Supreme Court in CIT vs.

Swadeshi Cotton Mills Co.Ltd., (1982) 135 ITR 110 the receipt which springs out from the business of the assessee is a revenue receipt and,

therefore, the petitioner ought to have offered the Export Cash Assistance amount as its income for the relevant assessment year. It is further

submitted that Madras and Calcutta High Courts had held in Commissioner of Income Tax Vs. Wheel and Rim Company of India Ltd., and 10

Taxman 180 that cash assistance received under a government scheme is taxable as business income and, therefore also, the Export Cash

Assistance ought to have been added as income for the relevant assessment year irrespective of the fact whether the section was on the statute

book or not.

In Commissioner of Income Tax Vs. Hindustan Electro Graphites Ltd., the Apex Court had an occasion to deal with a similar case, though in

the context of levy of additional tax u/s 143(1A) of the Act. In the said case also, the return for AY 1989-90 was filed on 29.12.1989. In view of

the amendment by insertion of clause (iiib) in Section 28 of the Act making Export Cash Assistance as taxable w.e.f.1-4-1967 the Assessing

Officer in that case passed the order u/s 143(1A) adding the Export Cash Assistance amounts as income and also levying additional tax u/s

143(1A) and also charged consequential interest. The assessee succeeded before the Tribunal and the High Court. Dismissing the revenue''s

appeal, the Apex Court held that where a return is filed, the law applicable would be the law as it stood on the date of filing of the return. In the

instant case, there was not even a bona fide mistake and in fact it was not a case where under some mistaken belief the assessee did not disclose

the cash compensatory support received by it. It is true that income by way of cash compensatory support became taxable retrospectively with

effect from April 1, 1967, but that was by an amendment of Section 28 by the Finance Act of 1990, which amendment could not have been

known before the Finance Act was amended on May 31, 1990. Levy of additional tax bears all the characteristics of penalty. Additional tax was

levied as the assessee did not in his return show the income by way of cash compensatory support. After the assessee had filed its return of

income, which was correct as per law on the date of filing of the return, the cash compensatory support also came within the sweep of section 28.

When additional tax has the imprint of penalty, Revenue cannot say that levy of additional tax is automatic u/s 143(1A) of the Act. If additional tax

could be levied in such circumstances it will be punishing the assessee for no fault of his. That cannot ever be the legislative intent. In the

circumstances of the case, levy of additional tax taking into account the income by way of cash compensatory support was not warranted.

Although the above observations were in the context of levy of additional tax u/s 143(1A), the same reasoning would apply in the matter of

waiver of interest u/s 234B of the Act. On the date when the assessee was required to pay advance tax and even on the date of filing of the return,

the assessee could not have been expected to pay tax on the Export Cash Assistance received by him in the year ended 31.3.1989 nor to show

the same as income in the return filed on 29.12.1989. It was after expiry of the assessment year that there was a statutory amendment with

retrospective effect making Export Cash Assistance as taxable with effect from 1.4.1967. Under the circumstances, the notification dated

23.5.1996, particularly para (d) thereof, issued u/s 119(2)(a) would be applicable. The relevant portion of the notification reads as under :-

In exercise of the powers conferred under clause (a) of sub-section (2) of Section 119, the Central Board of Direct Taxes, hereby direct that the

Chief Commissioner of Income Tax and Director General of Income Tax may reduce or waive interest charged u/s 234B or section 234B or

section 234C of the Act in the classes of cases or classes of income specified in paragraph 2 of this order for the period and to the extent the Chief

Commissioner of income tax/Director General of Income Tax deem fit. However, no reduction or waiver of such interest shall be ordered unless

the assessee has filed the return of income for the relevant assessment year and paid the entire tax due on the income as assessed except the

amount of interest for which reduction or waiver has been requested for. The Chief Commissioner of Income Tax or the Director General of

Income Tax may also impose any other conditions deemed fit for the said reduction or waiver of interest.

(a) to (c) ... ... ... ...

(d) Where any income which was not chargeable to Income Tax on the basis of any order passed in the case of an assessee by the High Court

within whose jurisdiction he is assessable to Income Tax, and as a result, he did not pay Income Tax in relation to such income in any previous

year and subsequently, in consequence of any retrospective amendment of law or, as the case may be, the decision of the Supreme Court in his

own case, which event has taken place after the end of any such previous year, in any assessment or reassessment proceedings the advance tax

paid by the assessee during the financial year immediately preceding the relevant assessment year is found to be less than the amount of advance

tax payable on his current income, the assessee is chargeable to interest u/s 234B or Section 234C and the Chief Commissioner or Director-

General is satisfied that this is a fit case for reduction or waiver of such interest.

We are, therefore, clearly of the view that the present case would squarely fall under clause (d) of the aforesaid notification. Since the

petitioner''s tax liability arose subsequently after filing of the return and after expiry of the assessment year on account of retrospective amendment

of law, consequential levy of interest u/s 234B was clearly required to be dealt with as a fit case for reduction or waiver of interest.

Since the power of such reduction/waiver is now vested in the Chief Commissioner of Income Tax, we set aside the order dated 31.3.1994

(Annexure ""M"") passed by the Commissioner of Income Tax, Gujarat-I, Ahmedabad and the order dated 21/28.1.1993 (Annexure ""I"") of the

Central Board of Direct Taxes and direct the Chief Commissioner of Income Tax, respondent No.4 herein, to entertain the petitioner''s application

for waiver of interest u/s 234B of the Act as per the Notification dated 23.5.1996 issued u/s 119(2)(a) of the Act. If the petitioner makes such an

application within three weeks from today, respondent No.4-Chief Commissioner of Income Tax shall decide the same as expeditiously as

possible and preferably within three months from the date of receipt of the application.

Rule is made absolute to the aforesaid extent with no order as to costs.