S. Prahalatha Babu vs Commissioner of Income Tax

S. Jagadessan, J.—The petitioner submitted his declaration under the Voluntary Disclosure of Income Scheme, 1997. The said scheme

came into force from 1-7-1997. The last date for making the declaration was 31-12-1997. Section 64 of the Finance Act, 1997 (26 of 1997)

deals with the charging of tax. Section 65 of the said Act prescribes the particulars to be furnished in the declaration. Section 66 of the said Act

prescribes the time-limit for payment of tax, according to which the declarant is to pay tax along with the declaration. Section 67(1) enables the

declarant to file the declaration without paying the tax as contemplated u/s 66 and he may pay the tax within three months from the date of filing of

the declaration with simple interest at the rate of 2 per cent for every month or part of the month comprised in the period beginning from the date of

filing the declaration and ending on the date of payment of such tax. Section 67(2) made it clear that if the declarant fails to pay the tax in respect of

the voluntary disclosed income before the expiry of three months from the date of filing of the declaration, the declaration filed by him shall be

deemed never to have been made under the scheme. Section 70 contemplates that the tax paid in respect of voluntary disclosed income u/s 64(1)

shall not be refundable. The petitioner failed to make declaration before the respondent on 29-12-1997. The petitioner did not pay the tax along

with the return. The petitioner ought to have paid the tax on or before 28-3-1998, before the expiry of three months period in accordance with

section 67(1). Admittedly, the petitioner did not pay the tax within the stipulated time. But, however, he paid the amount of tax on 31-3-1998. As

there is a delay of three days in paying the tax, the respondent, under the impugned proceedings, rejected the declaration made by the petitioner

under the scheme and refused to give the benefit of the scheme. Challenging the said order, the writ petition has been filed. The learned counsel for

the petitioner contended that the petitioner approached the Vysa Bank, Kutchery Road Branch, Myalpore, for the sanction of the loan to pay the

tax in accordance with the scheme. The total value of the declaration made under the scheme by the petitioner is Rs. 38.36 lakhs and the petitioner

is liable to pay the tax at 30 per cent of the declared amount. The petitioner applied for the loan of Rs. 9.75 lakhs to be repaid on 18 monthly

installments. The bank sanctioned the loan only on 31-3-1998 and immediately thereafter the tax had been paid. The tax having been paid, the

benefit to the petitioner under the scheme cannot be refused on technical grounds; especially when the tax paid is not refundable and also when the

declaration made by the petitioner can be used against him for reopening of the income tax returns submitted by him for the previous assessment

years.

The learned counsel for the respondent vehemently contended that the Act provides or prescribes the procedure to be followed. Under the said

proceedings, the time-limit also prescribes the procedure to be followed. Under the said procedure, the time-limit is also prescribed for compliance

of the formalities to have the benefit of the scheme. Hence, if the assessee wants to have the benefit of the scheme, he has to comply with the

conditions specified in such provisions of the Act in strict sense. Section 67(2) makes it clear that if the compliance of condition is not strictly

adhered to, then the declaration itself shall be deemed never to have been made under the scheme. Hence, the declarant should be careful in filing

their declaration and complying the conditions thereon.

I carefully considered the contentions of both the counsels. The purpose of the introduction of the scheme is clear from section 64 which is as

follows:

Charge of tax on voluntary disclosed income.-- (1) Subject to the provisions of this scheme, where any person makes, on or after the date of

commencement of this scheme but on or before the 31st day of December, 1997, a declaration in accordance with the provisions of section 65 in

respect of any income chargeable to tax under the income tax Act for any assessment year,--

(a) for which he has failed to furnish a return u/s 139 of the income tax Act ;

(b) which he has failed to disclose in a return of income furnished by him under the income tax Act before the date of commencement of this

scheme ;

(c) which has escaped assessment by reason of the omission or failure on the part of such person to make a return under the income tax Act or to

disclose fully and truly all material facts necessary for his assessment or otherwise,

than, notwithstanding anything contained in the income tax Act or in any Finance Act, income tax shall be charged in respect of the income so

declared (such income being hereinafter referred to as the voluntarily disclosed income) at the rates specified hereunder, namely :--

(i) in the case of a declarant, being a company or a firm, at the rate of 35 per cent of the voluntarily disclosed income;

(ii) in the case of a declarant, being a person other than a company or a firm, at the rate of 30 per cent of the voluntarily disclosed income.

(2) Nothing contained in sub-section (1) shall apply in relation to--

(i) the income assessable for any assessment year for which a notice u/s 142 or section 148 of the income tax Act has been served upon such

person and the return has not been furnished before the commencement of this Scheme ;

(ii) the income in respect of the previous year in which a search u/s 132 of the income tax Act was initiated or requisitioned u/s 132A of the income

tax Act was made, or survey u/s 133A of the income tax Act was carried out or in respect of any earlier previous year.

Sub-clause (b) of section 64(1)(c) specified the persons who are entitled for the scheme. Hence, there is no doubt that the scheme has been

introduced to those who have failed to furnish their return or who have failed to disclose the income in their return. This is almost to bring out the

hidden black money to facilitate the same to be treated as accounted one. Hence, those who opted to file the declaration under this scheme have

necessarily made the declaration about the black money they have possessed with a fond hope that they will have the benefit of the scheme by

paying the tax as required either u/s 66 or 67. When that be the intention of the Parliament, whether sub-section (2) of section 67 which makes the

declaration non-existent on the basis of the failure to pay the tax within the stipulated time can be considered to be mandatory and thereby the

declarant can be refused of the benefit.

This is a beneficial provision introduced by the Parliament to give the benefit to those who are possessed of the black money to make the

declaration and pay the tax and thereby convert the same into an accounted one. When making the declaration, the declarant has to disclose the

quantum of the amount which has not been accounted for to the income tax Department in the previous years and which is liable for taxation.

Hence, the declarant is revealing the secret in order to have the benefit of the scheme which enables him to convert the hidden wealth as an

accounted one by paying the tax. Further, the tax paid under the scheme is not a refundable one as per section 70 of the Act. When such strict

restrictions are there whether it would be reasonable to refuse the benefit of the scheme to the declarant after the payment of the tax by him. It

goes without saying that the declarant not only deprived of the tax paid by him but also subjected himself to other proceedings on the basis of the

declaration. In such circumstances, there should be some leniency with regard to the strictness of the period of limitation to comply with the

payment of tax.

In an identical case in Smt. Laxmi Mittal Vs. Commissioner of Income Tax, the Punjab and Haryana High Court has held that section 67 does

not embody a totally inflexible rule in the following words:

Mr. Sawhney submits that section 67 lays down as inflexible rule and, according to this provision, the deposit has to be made within a period of

three months from the date of declaration. Any failure renders the declaration and the deposit non est. This contention cannot be accepted. The

Government of India has itself issued a Circular dated September 3, 1998. But this Circular it has been, inter alia provided by the Board that the

period for calculating interest will be 90 days from the date of declaration. If the 90th day happens to be a bank holiday, payment on the 91st day

being the next working day would be valid. Thus, it is clear that section 67 does not embody a totally inflexible rule. When things are beyond the

control, of the citizen, certain moving space is normally allowed. This is precisely what the petitioner is wanting in the present case.

Taking the totality of circumstances into consideration it appears that the petitioner was unable to make the deposit on account of reasons beyond

her control. The revenue has suffered no loss as the interest for three months, viz., Rs. 33,000, has been deposited by the petitioner. Still further, it

is also clear that a declaration under the scheme could be made on or before December 31, 1997. The tax along with interest could have been

deposited on or before March 31, 1998. Any deposit before that should not be considered as being beyond the scheme. In any event, the interest

having been paid, the revenue has suffered no loss. (p. 99)

I am in total acceptance with the view taken by the learned Judges of the Punjab and Haryana High Court, as the same is more reasonable and

sensible. Otherwise, the person who made the declaration by revealing the secret, because of his inability to comply with the condition within the

period of limitation, will definitely subject himself for other proceeding. He will also be forced to forgo the tax paid by him. In the result, not only

deprived of the benefit of the scheme but also forced to face the loss which cannot be the intention of the Legislature. The scheme is not only to

bring out the hidden income of an individual but also to get the revenue for the Centre. As rightly pointed out by the learned Judges of the Punjab

and Haryana High Court, when the declarant has paid the amount with interest thereto and that too without any long delay, with an explanation for

the non-payment of the amount within the stipulated three months period from the date of declaration, the declarant must be given the benefit of the

scheme.

For the reasons stated above, I am of the view that the impugned proceedings cannot be sustained and as such, it is set aside and the writ petition

is allowed. No cost.