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3. SUPREME COURT- B.M. MALANI Versus CIT dated 1-10-08

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.

FULL TEXT

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

COMMR. OF INCOME TAX & ANR. ... RESPONDENTS

 

JUDGMENT

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.
 2

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

thereunder, 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.
 9

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

subserved 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;
October 01, 2008