B.M.Malani Vs. Commissioner of Income Tax
& ANR. [2008] INSC 1674 (1 October 2008)
Judgment
IN THE SUPREME COURT OF INDIA CIVIL APPELLATE
JURISDICTION CIVIL APPEAL NO. 5950 OF 2008 (Arising out of SLP (C) No. 4091 of
2007) B.M. MALANI ... APPELLANT Versus
S.B. Sinha, J.
1. Leave granted.
2. This appeal is
directed against the judgment and order dated 27.7.2006 passed by the High
Court of Judicature of Andhra Pradesh at Hyderabad in Writ Petition No. 2672 of
2003 whereby and whereunder the Writ Petition filed by the appellant herein
against an order dated 26.11.2002 passed by the Commissioner of Income Tax
rejecting the application filed by the appellant herein under Section 220 (2-A)
of the Income Tax Act, was dismissed.
3. Appellant had been
carrying on money-lending business and trading in shares and securities. On or
about 4.9.1994, a raid was conducted in his residential premises by the
authorities in exercise of their power under Section 132 of the Income Tax Act
(for short, "the Act"). Amongst others, shares worth market value of
Rs. 61.38 lakhs and a demand draft worth Rs. 10 lakhs in the name of PAN
Clothing Company Limited were seized. By a letter dated 15.12.1994, a
declaration was made by the appellant in terms of sub-Section (4) of Section
132 of the Act, by reason whereof he opted to pay taxes from out of the seized
shares and securities stating that the shares be expeditiously disposed of and
the sale proceeds therefrom be appropriated towards taxes.
The said letter dated 15.12.1994 reads as under :
"Please refer to your letter cited in reference
above in the matter of payment of taxes. I had made declaration U/s. 132(4) of
the Act and pursuant declaration opted to pay taxes from out of the assets
namely shares and securities under seizure, as I have no further funds. I have
therefore delivered my consent and requested the Asst. Director of Income Tax
(Inv.) Unit-2 (3), to dispose of the shares as expeditiously as possible for
appropriating the proceeds towards taxes and advance tax. In the above
circumstances I request you sir to arrange for sale of Shares, Securities under
seizure to meet the tax liabilities and oblige."
3 Indisputably, the said request of the appellant was
not acceded to.
However, the fact that such an offer had been made by the
appellant is not denied or disputed. It is furthermore not disputed that the
Income Tax Department demanded and recovered a sum of Rs.40 lakhs in between
the period January and March 1995, the details whereof are as under:
"Assessment Year Date of Payment Amount (Rs.)
1993-94 17.01.1995 7,50,000/- 1994-95 17.01.1995 7,50,000/- 1992-93 18.01.1995 50,000/-
1991-92 20.03.1995 10,00,000/- 1991-92 24.03.1995 10,00,000/- Total
40,00,000/-"
Indisputably, the appellant filed an application in terms
of sub- Section (1) of Section 245C before the Settlement Commission on
2.1.1996 whereupon an order was passed by the Settlement Commission on
2.12.1999.
The demand draft drawn in the name of PAN Clothing
Company Limited worth Rs. 10 lakhs which was seized during the course of search
was encashed by the Income Tax Department in July 2000 after the same was got
revalidated.
By an order dated 8.3.2002, the Income Tax Officer, Ward
- 10(1), Hyderabad levied interest for a sum of Rs. 31,41,106/- under Section
220 (2) of the Act for the assessment years 1990-91 to 1995-96.
4 Appellant thereafter filed an application for waiver
of interest on diverse dates i.e. 3.4.2002, 14.5.2002 and 16.9.2002. The same
was rejected by the Commissioner of Income Tax reason of an order dated
26.11.2002 opining that the appellant did not satisfy all the three conditions
which were required for allowing a waiver petition. It was, however, accepted
that the appellant cooperated with the Department. So far as the request of the
appellant to sell the shares and securities is concerned, it was opined that
the levy of interest did not cause any genuine hardship to him and the default
in payment of the amount of tax on which interest has been paid or was payable
under Section 220(2A) was due to circumstances beyond his control. It was
furthermore opined that the dues as against the appellant could be crystallized
only after passing of the order of the Settlement Commission 2.12.1999.
The Commissioner held:
"Further, as per the enquiry report dated
22.11.2002, obtained from the Income Tax Officer Ward-10 (1), indicates that
Sri B.M.Malani has been residing in a house bearing No. 1-11-219, Begumpet,
Hyderabad.
The property is located in posh area near Airport in
Begumpet. The area of the property is about 6000 sq. yds., and value will be
around Rs. 2 crores. Thus, property as referred above belongs to HUF and the
assessments under consideration were passed in the status of HUF.
From the details gathered by the Department, it was
revealed that the assessee possesses good resources and he is financially sound
and it will 5 not cause any hardship in discharging legitimate tax liability
which is in the form of interest u/s 220 (2A) and the tax liability that would
have arisen out of his inordinate delay in liquidation of taxes."
By reason of the impugned judgment, the High Court
opined:
"The hardship claimed by the petitioner is on
account of lack of resources either moveable or immoveable. Even after the
conclusion of this Court that the finding of the 1st respondent regarding the
property at Begumpet is justified, the fact remains that the petitioner had
assets by way of units in the Unit Trust of India by the date of the Settlement
Commission determined his liability of tax. The fact that a distress sale
conducted by the Unit Trust fetched a lower rate in our view does not make any
difference for the consideration of the application of the petitioner for the
waiver of interest. The UTI did not follow according to the Division Bench of
this Court the requisite procedure in resorting to distress sale. That is a
different matter. But, nothing prevented the petitioner from encashing the said
units and pay the tax liability in time.
The submission of the learned counsel for the petitioner
that such a premature sale of the units would result in a financial loss to the
petitioner is irrelevant in the context of the application for waiver of
interest. If the petitioner is already found liable and due to pay tax under
the Income Tax Act, the petitioner cannot choose the time for encashing the
assets he had to get the post price for the asset and still complain that the
levy of interest would cause undue hardship to him. Apart from that by virtue
of the Division Bench judgment of this Court, the UTI is already directed to
make good the loss suffered by the petitioner by virtue of the distress sale
undertaken by the UTI."
6 Applicability of the second condition specified in
Section 220(2A) of the Act was not gone into on the premise that the appellant
had not been able to establish that payment of interest would cause any genuine
hardship to him.
4. Before adverting to the contentions raised by the
parties, however, we may notice that the Settlement Commission did not accept
the incomes declared by the appellant in his returns filed on 1.1.1996 under
Section 148 of the Act and enhanced the amount of taxable income. It also
estimated the income for earlier Assessment Year 1989-90 in terms of Section
245-E of the Act, although, his application did not cover that Assessment Year,
the details whereof are as under:
"Assessmen Income admitted Income determined t Year
by petitioner by Settlement (in Rs.) Commission (in Rs.) 1988-89 8,090
26,21,090 1990-91 10,75,310 33,51,574 1991-92 28,67,040 29,92,880 1992-93
13,62,100 56,35,038 1993-94 64,505 11,27,964 1994-95 56,880 1,52,880 1995-96
52,880 9,27,880 Total 54,82,805 1,68,09,306"
7 The amount of tax quantified by the Assessing Officer
in terms of the order of the Settlement Commission for different Assessment
Years were as under:
"Assessment Year Tax demand payable (in Rs.) 1988-89
13,54,284 1990-91 37,29,992 1991-92 33,68,567 1992-93 61,39,448 1993-94
7,21,192 1994-95 65,145 1995-96 3,99,023 Total 1,57,77,651"
Demand notices were issued accordingly. Taxes were
payable in terms thereof on or before 1.4.2000. All amounts paid by the
appellant before the said date were adjusted. The appellant had deposited a
total amount of Rs.1,60,66,947/- on or before 8.3.2002. The amount of interest
calculated at a sum of Rs.31,41,106/- was levied for non-payment of the dues as
on 8.3.2002 for Assessment Years 1990-91, 1991-92, 1992-93 and 1995-96. The
amount so determined, however, stood rectified for the four Assessment Years to
the extent of Rs.24,36,352/- in stead and place of Rs.31,41,106/- as would
appear from the following chart.
8 "Assessmen Tax demand Levied Int. Demand paid/ t
Year payable U/s. 220 (2) recovered till (Rs.) (Rs.) 8.3.2000 (Rs.) 1988-89
13,54,284 NIL 13,54,284 1990-91 37,29,992 1,91,996 37,27,992 1991-92 33,68,546
4,58,463 33,68,546 1992-93 61,39,448 16,53,560 64,30,765 1993-94 7,21,192 NIL
7,21,192 1994-95 65,145 NIL 65,192 1995-96 3,99,023 1,32,333 3,99,023 Total
1,57,77,630 24,36,352 1,60,66,947"
5. Section 220(2A) of the Act contains a non-obstante
clause. It confers a jurisdiction upon the Chief Commissioner or Commissioner
to reduce or waive the amount of interest paid or payable by an assessee there under,
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 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) Assessee has
co-operated in any inquiry relating to the assessment or any proceeding for the
recovery of any amount due from him.
6. The submission of Mr. Verma is that non encashment of
demand draft worth Rs. 10 lakhs as also non-selling of the shares and
securities as prayed for by the appellant caused genuine hardship to the
assessee, in support whereof reliance has been placed on the New Collins
Concise English Dictionary, Words and Phrases Permanent Edition Vol. 18 and
Black's Law Dictionary.
It was furthermore submitted that had the shares and
securities been sold when the request therefor was made, which was worth Rs. 30
lakhs at the relevant time, the tax burden of the appellant would have been
reduced; particularly when after adjusting the amount of Rs.117.04 lakhs
deposited by the appellant, only a sum of Rs. 40.73 lakhs remained due.
7. Ms. Rajni Ohri Lal, learned counsel appearing on behalf
of the respondents, however, drew our attention to the nature of the business,
the appellant had been carrying on and the magnitude thereof to contend that
the appellant did not suffer any genuine hardship.
8. The term `genuine' as per the New Collins Concise
English Dictionary is defined as under:
`Genuine' means not fake or counterfeit, real, not
pretending (not bogus or merely a ruse)"
10 For interpretation of the aforementioned provision,
the principle of purposive construction should be resorted to. Levy of interest
although is statutory in nature, inter alia for re-compensating the revenue
from loss suffered by non-deposit of tax by the assessee within the time
specified therefor. The said principle should also be applied for the purpose
of determining as to whether any hardship had been caused or not. A genuine
hardship would, inter alia, mean a genuine difficulty. That per se would not
lead to a conclusion that a person having large assets would never be in
difficulty as he can sell those assets and pay the amount of interest levied.
The ingredients of genuine hardship must be determined
keeping in view the dictionary meaning thereof and the legal conspectus
attending thereto. For the said purpose, another well--known principle, namely,
a person cannot take advantage of his own wrong, may also have to be borne in
mind. The said principle, it is conceded, has not been applied by the courts
below in this case, but we may take note of a few precedents operating in the
field to highlight the aforementioned proposition of law.
[See Priyanka Overseas Pvt. Ltd. & Anr. v. Union of
India & ors. 1991 Suppl. (1) SCC 102, para 39, Union of India & ors. v.
Major General Madan Lal Yadav (Retd.) (1996) 4 SCC 127 at 142, paras 28 and 29,
Ashok Kapil v. Sana Ullah (dead) & ors. (1996) 6 SCC 342 at 345, para 7,
Sushil Kumar v. Rakesh Kumar (2003) 8 SCC 673 at 692, para 65, first 11
sentence, Kusheshwar Prasad Singh v. State of Bihar & ors. (2007) 11 scc
447, paras 13, 14 and 16).
Thus, the said principle, in our opinion, should be
applied even in a case of this nature. A statutory authority despite receipt of
such a request could have kept mum. It should have taken some action. It should
have responded to the prayer of the appellant.
However, another principle should also be borne in mind,
namely, that a statutory authority must act within the four corners of the
statute.
Indisputably, the Commissioner has the discretion not to
accede to the request of the assessee, but that discretion must be judiciously
exercised.
He has to arrive at a satisfaction that the three
conditions laid down therein have been fulfilled before passing an order
waiving interest.
Compulsion to pay any unjust dues per se would cause
hardship.
But a question, however, would further arise as to
whether the default in payment of the amount was due to circumstances beyond
the control of the assessee.
Unfortunately, this aspect of the matter has not been
considered by the learned Commissioner and the High Court in its proper
perspective.
The Department had taken the plea that unless the amount
of tax due was ascertainable, the securities could not have been sold and the
demand draft could not have been encashed. The same logic would apply to the
12 case of the assessee in regard to levy of interest also. It is one thing to
say that the levy of interest on the ground of non-payment of correct amount of
tax by itself can be a ground for non-acceding to the request of the assessee
as the levy is a statutory one but it is another thing to say that the said
factor shall not be taken into consideration at all for the purpose of exercise
of the discretionary jurisdiction on the part of the Commissioner. Appellant
volunteered that the securities be sold. Why the said request of the appellant
could not be acceded to has not been explained. It was a voluntary act on the
part of the appellant.
It was not even a case where sub-Section (3) of Section
226 of the Act was resorted to. As the offer was voluntary, the authorities of
the Department subject to any statutory interdict could have considered the
request of the appellant. It was probably in the interest of the revenue itself
to realize its dues. Whether this could be done in law or not has not been gone
into.
9. The same ground, however, was not available to the
appellant in respect of the demand draft, as in relation thereto no such
request was made. The demand draft was in the name of a Company. It may be true
that when any document is seized, a presumption is raised that the same belongs
to the person from whose possession or control it was seized as is laid down in
sub-Section (4A) of Section 132 of the Act, but such a 13 presumption is a
rebuttable one. In the absence of any request made by the Assessee himself,
probably at that point of time, the same could not have been encashed.
Appellant did not own the same in law. He did not make any request for its
enchashment.
Whether such a presumption should be raised or not was
the subject matter of consideration by the Assessing Officer at the time of
making its final assessment as the appellant himself filed an application
before the Settlement Commission in terms of Section 245C(1) of the Act.
10. We are, therefore, of the opinion that interests of
justice would be sub-served if the impugned judgment is set aside and the
matter is remitted to the Commissioner of Income Tax for consideration of the
matter afresh.
11. The appeal is allowed accordingly to the
aforementioned extent.
No costs.
.....................................J.
[S.B. Sinha]
.....................................J.
[Cyriac Joseph]
New
Delhi;
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