In assessment of trust, AO cannot invoke section 68 for non-corporate entities without verifying statutory conditions.

JUDGMENT

1. In all these cases, the petitioners are the asseessees under the Income Tax Act and are aggrieved by the rejection of application submitted by them, seeking waiver of interest in respect of the income tax liability for various assessment years, which were ultimately settled by the orders passed by the Income Tax Appellate Tribunal as well as this Court, after multiple levels of litigation. As common issues are arising in all these writ petitions, these cases are heard together and W.P.(C). No. 23129/2019 is taken as the leading case.

2. The facts that led to the filing of WP(C) No 23129/2019 are as follows:- The petitioner submitted the returns of income for the assessment year 1994-1995 on 29.12.1995, declaring her income as Rs.1,37,540/-. While submitting the returns, the petitioner claimed deduction under Sec.80 HHC, to the extent of Rs.48,63,817/-, which constituted deduction in respect of manufactured goods and proviso deduction in respect of export incentives. The assessing officer worked out a negative figure as loss on manufactured goods. The assessee submitted an appeal before the Ist Appellate Authority. In the meanwhile, a rectification application was submitted by the petitioner, and the same was also rejected. Against the same, the petitioner filed an appeal, and as per Ext.P2 order, the Ist Appellate Authority allowed the appeal, accepted the contentions raised by the petitioner and consequently an appeal effect order was passed on 20.03.2003 by the assessing officer. Against Ext.P2 order, the Department submitted an appeal before the Income Tax Appellate Tribunal, which was dismissed. According to the petitioner, both the orders passed by the Ist appellate Authority as well as Income Tax Tribunal was in the light of the principles laid down by the Division Bench of this Court in CIT v. A.V. Thomas & Co. Ltd.  225 ITR 29 (Kerala), which was in respect of the assessment year 1985-1986.

3. In the mean while, the Bombay High Court rendered a judgment in Ipca Laboratories Ltd. v. Dy. CIT (No. 1) [2001] 251 ITR 401 (Bombay) on 02.07.2001, taking a different view than taken by this Court. However, according to the petitioner, as far as the State of Kerala is concerned, the law governing was, as declared by this Court in A.V Thomas’ case (supra). Subsequently, judgment rendered by the Bombay High Court was upheld by the Hon’ble Supreme Court as per decision in IPCA Laboratory Ltd. v. Dy. CIT  266 ITR 521 (SC) on 11.03.2004. Based on the same, the Department submitted a miscellaneous petition before the Tribunal. The miscellaneous application was allowed by the Tribunal. In the meantime, two nos ITA happened to be submitted by the Income Tax Department before this Court; ITA Nos.102/2008 and 124/2008. Both the said appeals were allowed by this Court. In ITA No. 102/2008, as per judgment dated 18.02.2009, the assessing authority was directed to recompute the eligible deduction under 80HHC in the light of the decision rendered by the Hon’ble Supreme Court in IPCA Laboratories (supra). Similarly, in ITA No.124/2008, it was held that the processing charges received and found part of the turnover, should be included in the turnover of the assessee in order to arrive at the deduction under Sec. 80HHC by following the decision of the Hon’ble Supreme Court in the decision CIT v. K. Ravindranathan Nair 295 ITR 228 (SC). Accordingly, based on the aforesaid directions, re-computation was affected by the assessing officer by the proceedings dated 29.06.2011, by computing the income at Rs.50,31,840/- without allowing any deduction under Sec.80HHC and raised a demand of Rs.45,09,649/-. The petitioner had remitted the said amount, which was inclusive of the interest payable in respect of the same under Sec.234 A, 234B, 234C and 220(2) of the Income Tax Act.

4. Subsequently, the petitioner submitted Ext.P6 application, seeking waiver of interest as contemplated in Ext.P5, which is Waiver of Reduction of Interest Order of 2006. Relying upon of clause 2(c) of the said order, the claim was made by the petitioner before the Chief Commissioner of Income Tax, and that resulted in Ext.P7 order. As per Ext.P7, the request for refund was rejected on the reason that, the petitioner is not entitled to the benefits of Ext.P5 order, as she does not satisfy the requirments contemplated therein. This writ petition is submitted by the petitioner in such circumstances seeking the following reliefs:-

In other writ petitions also, facts and circumstances as well as the sequence of events are similar and the only difference is with respect to the assessment years.

5. In all these cases, counter affidavits were submitted by the Department, reiterating the stand taken by the Chief Commissioner, while rejecting the respective applications submitted by the petitioners. It is asserted therein that, none of the petitioners are entitled to get the benefit of Clause 2(c) of the Ext.P5 order, in view of the fact that, there is nothing to show that, the petitioners have deducted the amounts under Sec80HHC, based on a declaration of law made by the High Court or the Supreme Court at the relevant time.

6. I have heard Sri. Anil D. Nair, the learned senior counsel appearing for the petitioners and Sri.Christopher Abraham, the learned senior standing counsel appearing for the respondents in all these cases.

7. The learned senior counsel appearing for the petitioners brought to the attention of this Court, various statutory provisions contained in Sec.208, 210, 234B and 220 (2) of the Income Tax Act, while challenging the Ext.P8 order, by which, waiver of interest and refund was rejected. It was pointed out that, as far as Sec.234B is concerned, Sub.Sec.3 thereof provides that, Where, as a result of an order of reassessment or recomputation under section 147 or section 153A, the amount on which interest was payable in respect of shortfall in payment of advance tax for any financial year under sub-section (1) is increased, the assessee shall be liable to pay simple interest at the rate of one per cent for every month or part of a month comprised in the period commencing on the 1st day of April next following such financial year and ending on the date of the reassessment or recomputation under section 147 or section 153A. Thus, it was pointed out that, liability to pay the interest would accrue only from the date of reassessment or recomputation, which according to the learned Sr. counsel happened only on 29.06.2011, as per Ext.P4, the order giving effect to the judgment passed by this Court in ITA Nos. 102/2008 and 124/2008.

8. Similarly with regard to Sec.220(2), it is also pointed out that, if at all the petitioner has to pay any interest, the same can only be from the date of default which has to be reckoned with reference to the date of demand made under Sec.156 of the Income Tax Act, and the periods stipulated therein. Here, according to the learned senior counsel, the interest was demanded from the date of submitting the returns, which is not legally sustainable.

9. Apart from the above, to substantiate the challenge raised against Ext.P8, in the light of the guidelines contained in Ext.P5 order, it is submitted by the learned senior counsel that, the petitioner had paid the advance tax and furnished the returns, in the light of the law then existed, on the basis of the decision rendered by this Court in A.V.Thomas and Co. Ltd (supra) Therefore, clause 2(c) of Ext.P5 is squarely applicable, in view of the fact that, the act of the petitioner, seeking reduction under sec.80HHC, was upheld by the Ist Appellate Authority and also by the Appellate Tribunal, on the basis of the law declared by this Court in A.V.Thomas’ case (supra). Although the decisions were recalled and set aside by the High Court, the same was by following observations made by the Hon’ble Supreme Court in IPCA Laboratories Ltd (supra) subsequent to the decision taken in A.V.Thomas’ case (supra) by this Court. Since the decisions taken by the Ist appellate authority and the Appellate Tribunal at the first instance, were in the light of the law declared by this Court as per A.V.Thomas’ case (supra) the petitioner would fall within the ambit of clause of 2(c) of the Ext.P5 circular and hence, the reason cited by the 1st respondent, while rejecting the application for waiver was not at all justifiable.

10. On the other hand, the learned senior standing counsel appearing for the respondents would vehemently oppose the aforesaid contention, by pointing out that, as far as clause 2(c) of Ext.P5 is concerned, the same is applicable in a case where, the assessee acted upon the decision rendered by the High Court or Hon’ble Supreme Court, and paid the tax accordingly, but later the said judgment was overruled by the Hon’ble Supreme Court or by the High Court, effecting change in the position of law. As far as this case is concerned, it is pointed out by the learned senior standing counsel that, the judgment which is relied on by the petitioners, .i.e, A.V.Thomas’ case (supra) was rendered only on 10.01.1997, but the returns in these cases were submitted before the said date, except in W.P. (C) No. 23207/2019. As far as the order rejecting the waiver of interest in W.P.(C).No.23207/2019 is concerned, the petitioner therein was not entitled to claim the benefit of the Ext.P5, as it was one of the essential conditions that, to claim the waiver, the assessee has to pay the tax component, but the same was not paid by the petitioner therein. Thus, it was submitted by the learned senior standing counsel for the respondents that in all these case, the reliefs cannot be granted.

11. I have carefully gone through the records and examined the contentions raised by both the parties. As mentioned above, the specific case of the learned senior counsel appearing for the petitioners is that, all along, the petitioner was claiming the deductions while paying the advance tax as well as furnishing the returns, based on the decision rendered by this Court, which governed the field at the relevant time. Therefore, since the position of law, as declared by this Court in A.V.Thomas’ case (supra), was altered by the subsequent judgment of the Bombay High Court, which was later upheld by the Hon’ble Supreme Court in IPCA Laboratories limited Case (supra), and the orders of assessment of the petitioners were modified in terms of the same, the petitioner would be entitled to the benefit of waiver of interest is contemplated under Ext.P5 circular. While considering these aspects, the first question to be considered is whether the petitioners would fall under clause 2(c) of Ext.P5, which is a scheme for granting waiver of interest in certain cases. The said provision reads as follows:

“The class of income or class of cases in which the reduction or waiver of interest under Section 234A or Section 234B or, as the case may be, Section 234C can be considered, are as follows:

(a)…….

(b)…….

(c) Where any income was not chargeable to income-tax in the case of an assessee on the basis of any order passed by the High Court within whose jurisdiction he is assessable to income-tax, and as 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 of the decision of the Supreme Court of India, or as the case may be, a decision of a Larger Bench of the jurisdictional High Court (which was not challenged before the Supreme Court and has become final), in any assessment or reassessment proceedings the advance tax paid by the assessee during such financial year is found to be less than the amount of advance tax payable on his current income, and the assessee is chargeable to interest under Section 234B or Section 234C, and the Chief Commissioner/Director General is satisfied that this is a fit case for reduction or waiver of such interest.”

12. On carefully going through the same, it can be seen that, it specifically provides that, the said clause would be applicable in cases where, any income was not chargeable to income tax in the case of an assessee on the basis of an order passed 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. Therefore, one of the essential requirements is that, the non payment of tax by the assessee must be on the basis of an order passed by the High Court within whose jurisdiction such assessee is assessable to Income Tax Act. Of course, in A.V. Thomas case, the law declared by this Court as far as the deduction under Section 80HHC is concerned, was in favor of the petitioner, but, as rightly pointed out by the learned Standing Counsel for the respondents the said judgment was rendered on 10.01.1997, whereas , the returns in all these cases, except that of W.P. (C).No. 23207/2019, were submitted prior to the said date. Thus, as far as those petitioners are concerned, under no circumstances, it can be held that, the petitioners while making deduction under Section 80HHC were acting in consonance with any of the orders passed by the High Court or the Hon’ble Supreme Court. No other decisions were brought to the notice of this Court, which governed the field and was in favor of the petitioners, at the time when the relevant returns were submitted or when the advance tax was paid by the petitioners. Therefore, as the essential requirements for claiming the waiver, as contemplated under clause 2 (c) of Ex.P5 are not seen satisfied by the petitioners. Thus, the decision taken by the respondent, as per Ext.P8, cannot be found defective.

13. When it comes to the petitioner in W.P.(C). No.23207/2019, even though it could be held that, it would be possible for them to claim the benefit of clause 2 (c) of Ext P5, it is evident from the records that, she is not entitled to claim the benefit of the same on account of another reason. One of the specific conditions in Ext.P5 is that, no reduction of waiver of such interest shall be ordered, unless the assessee has filed the return for the relevant assessment year and paid the entire income tax (principal component of the demand) due on the income as assessed and it was found by the respondents that, the said condition has not been complied with by the petitioner in W.P.(C).No. 23207/2019. Even though, she may be eligible to claim the benefit under Section 2 (c) of Ext P5, on account of non-compliance of this condition, no interference in the order rejecting the waiver of interest claimed.

14. As far as the contention raised by the learned senior counsel, placing reliance upon sub-section 3 of Section 234B of the Act, the crucial aspect to be noticed is that, the petitioner is not challenging the imposition of interest as per the orders issued in this regard. What is under challenge is only the rejection of application for waiver on the basis of Ext.P5. Ext.P7 which is the application submitted by the petitioner, the petitioner is claiming only the benefit of the waiver of interest as provided in the said order and at no point of time, any challenge has been raised, by placing reliance upon sub-section 3 of Section 234B. Moreover, as far as sub-section 3 of Section 234A is concerned, the same may not be applicable in this case in view of the fact that, even though the returns were submitted by the petitioner claiming deduction under 80HHC of the Income tax Act, the assessing officer did not allow the same, and computed the income without granting the deduction under the said provision. Even though, the said assessment order was interfered by the first Appellate Authority and later by the Tribunal, on account of the order passed by this Court as well as the Tribunal, the finding of the assessing authority was ultimately upheld. Therefore, the sub-section 3 of Section 234A may not be applicable to the case of the petitioner as well.

15. Another contention raised by the learned counsel for the petitioner is that, as far as the interest payable under Section 220 (2) of the Act is concerned, the same would arise, only in case the petitioner fails to pay the amount, after the demand notice under Section 156 is issued and on expiry of the period specified therein. It is the case of the petitioner that, in this case the demand under Section 220(2) was made from the date of returns. However, from the documents produced before this Court, there is nothing to indicate that, the demand is made from the date of interest. Therefore, the petitioner can be granted an opportunity to claim the same, if the demand is made from the date of return which is not something permissible under Section 220 (2) of the Income tax Act.

In such circumstances, these writ petitions are dismissed; however, clarifying that, in case the petitioners have a case that, the excess interest was demanded, under Section 220(2) of the Income tax Act, with effect from the date of submitting the returns, applications in this regard claiming refund of the same can be submitted, before the competent authority and if such applications are submitted within one month from the date of receipt of a copy of the same, it shall be treated as a valid application and shall be considered and appropriate orders thereon shall be passed in accordance with law after hearing the respective petitioners.