Jharkhand High Court
New United Construction Co. vs Commissioner Of Income Tax And Ors. on 14 May, 2004
Equivalent citations: (2004)189CTR(JHARKHAND)411, [2004]270ITR224(JHARKHAND)
Author: P.K. Balasubramanyan
Bench: P.K. Balasubramanyan, R.K. Merathia
JUDGMENT P.K. Balasubramanyan, C.J.
1. The petitioner 'is an assessee under the IT Act. While completing the assessment for the asst. yr. 1985-86, the AO issued a notice to the assessee to show cause why a penalty should not be imposed on it under Section 271(1)(c) of the Act. The assessee submitted its objections. After considering the objections, the AO passed an order dt. 14th March, 1988, marked Annex-1 in the writ petition, imposing, a penalty of Rs. 2,20,000 on the assessee under Section 271(1)(c) of the Act. The assessee filed an appeal before the CIT(A), Ranchi. The CIT(A) accepted the belated explanation to be offered by the assessee and held by his order, Annex-2 dt. 17th Nov., 1988, that the assessee could not be held liable under Section 271(1)(c) of the Act. The penalty imposed was deleted. The Department filed an appeal before the Tribunal, Patna, challenging the decision of the CIT(A) deleting the penalty. The Tribunal by order dt. 25th Oct., 1995 marked Annex.-3 reversed the order of the CIT(A) and restored the order of the AO imposing a penalty on the assessee. The assessee got the question as to "whether, on the facts and in the circumstances of the case, the imposition of penalty under Section 271(1)(c) of the Act amounting to Rs. 2,20,000 was legal and valid" referred to the High Court under Section 256(1) of the IT Act.
2. Meanwhile, the assessee filed an application under Section 220(2A) of the Act praying for waiver of interest on the penalty imposed. Complaining that the said petition remained undisposed of, the assessee filed CWJC No. 447 of 1999(R) before this Court. This Court, by judgment dt. 22nd Feb., 1999, directed the CIT to dispose of the petition for waiver of interest filed by the assessee within the period fixed by that order. The CIT was also directed to ensure that the restraint proceedings were confined to the amount necessary to be secured. Thereafter, the CIT, Dhanbad, considered the petition for waiver of interest filed by the assessee and passed the order dt. 23rd March, 1999, marked Annex.-16, rejecting the prayer for waiver of interest on the finding that the conditions of Section 220(2A) of the Act which enable such waiver were not satisfied in the case. The present writ petition is filed challenging the order on the petition for waiver of interest filed by the assessee.
3. This writ petition was directed to be listed along with the reference made under Section 256(1) of the IT Act relating to the sustainability of the imposition of penalty, since necessarily, the question of interest on penalty would depend on the validity of the very imposition of the penalty itself. But at the hearing, it was found that it will be more convenient to dispose of the tax reference first, since, even if the answers therein were to be against the assessee, the question of waiver of interest on penalty claimed by the assessee in terms of Section 220A of the Act, would require independent consideration and hence even while reserving orders in Tax Reference Case No. 36 of 1998, the present writ petition was directed to be posted separately for hearing. On 29th Jan., 2004, the Reference in Tax Case No. 36 of 1998, was answered against the assessee and in favour of the Revenue. Thus, the imposition of penalty against the assessee was found legal. Hence, what is involved in this writ petition is the question whether the order of the CIT refusing to waive the interest on penalty sought by the assessee, calls for interference in exercise of our jurisdiction under Article 226 of the Constitution of India. This question was again heard in detail on 27th Feb., 2004.
4. In the order, Annex.-16, refusing to waive interest on the penalty imposed, the CIT has held that the conditions which enabled waiver under Section 220(2A) of the Act were not satisfied in this case. He has noticed that three cumulative conditions have to be satisfied before the waiver could be allowed. He has noticed that it was necessary to show that the payment of the amount would have caused genuine hardships to the assessee; that the default in payment of the amount on which interest was payable was due to circumstances beyond the control of the assessee and that the assessee has co-operated with the . inquiry relating to the assessment, or in the proceedings for recovery of any amount due from the assessee. In Annex.-16, after referring to the facts of the case, the CIT has found that none of the conditions referred to above has been satisfied by the assessee and in that view, there was no justification in waiving the interest on penalty as sought for by the assessee.
5. On facts, the finding that the assessee has not satisfied any of the conditions of Section 220(2A) of the Act is seen to be sustainable. The assessee has not been able to show that any genuine hardship would have been caused to it, if payment of interest on the penalty imposed had been made by it. Nor has the assessee been able to show that non-payment of the penalty was due to circumstances beyond the control of the assessee. It is clear from the facts noticed in the order of the CIT, that the assessee had certainly not co-operated in the proceedings for recovery of amounts due from it. The CIT has noticed the steps that had to be taken by the Department in view of the non-co-operation of the assessee to recover the amount in question. Even assuming that the assessee could mount some sort of a challenge to the finding on the first of the two aspects, it is clear that there was no co-operation on the part of the assessee in the matter of recovery of the amount due from it and on that basis, the finding of the CIT could be clearly sustained. What was attempted to be argued on behalf of the assessee was that the co-operation on the part of the assessee was needed only in the enquiry relating to the assessment and the assessee had co-operated at the stage of assessment by filing a revised return and accepting the order of assessment without even appealing against it. But on the terms of the section, even if the above submission is taken to be correct in its entirety, the assessee would not be entitled to the waiver sought for, since the co-operation of the assessee was also required in the proceedings for recovery of the amount due from it. That part of the case has been properly dealt with by the CIT to show that the assessee had not so co-operated. On the terms of the section, even if there was no co-operation with reference to the recovery of the amount, the authority concerned could refuse to waive interest on the penalty. The finding by the CIT on the aspect, as we have indicated above, is found to be clearly sustainable and nothing could be argued against it. Therefore, the order, Annex.-16, has to be found to be legal and valid.
6. In this situation, what was, in fact, argued emphatically on behalf of the assessee was that the assessee would be entitled to the waiver of interest on the penalty imposed, for the period 17th Nov., 1988 to 24th Oct., 1995, the period during which, on the basis of the order of the CIT(A), the order for penalty stood set aside and until its revival by order of the Tribunal dt. 25th Oct., 1995. In fact, the argument was whether the assessee was not entitled to reduction of the amount of interest on the penalty imposed for the period during which the penalty order was not operative, it having been set aside by the CIT(A). The learned counsel submitted that as distinct from an assessment, it was the imposition of a penalty and while considering the question, the Court has to strictly consider whether the conditions for imposition exist in a given case. He argued that when on 17th Nov., 1988, the CIT(A) set aside the order imposing penalty, it could not be said that the assessee had to pay the penalty or that he had the liability to pay the penalty inviting an obligation to pay interest on that amount. No doubt, the AO had imposed a penalty by his order dt. 14th March, 1988 and had also made a demand under Section 156 of the Act and it could be taken that there was an obligation on the assessee to pay the penalty as demanded. But that demand stood effaced when the CIT(A) allowed the appeal by order dt. 17th Nov., 1988 and it stood effaced until the order of the CIT(A) was set aside by the Tribunal on 25th Oct., 1995 and the order imposing penalty by the AO was restored, A proceeding initiated pursuant thereto could only make the assesses liable for interest subsequent to 25th Oct., 1995 in addition to its obligation to pay interest from 14th March, 1988 to 17th Nov., 1988, during the period when the order of the AO imposing the penalty remained in force. Counsel submitted that the question was squarely covered by the decision of the Supreme Court in Vikrant Tyres v. ITO AIR 2001 SC 800. Therein, their Lordships referring to Section 220(2) of the Act stated:
"8. A bare reading of this section clearly indicates that, if the assessee does not pay the amount demanded under a notice issued under Section 156 of the Act within the time stipulated under Sub-section (1), the said assessee is liable to pay simple interest at one and one-half per cent for every month or part of a month comprised in the period commencing from the date immediately following the end of the period mentioned in Sub-section (1) and ending with the day on which the amount is paid, and therefore, the condition precedent under this section is that there should be a demand notice and there should be a default to pay the amount so demanded within the time stipulated in the said notice. Applying this section to the facts of the case, it is seen that immediately after the assessment was made for the relevant years, demand notices were issued under Section 156(1) of the Act and admittedly the appellant satisfied the said demands and nothing was due pursuant to the said demand notices. However, after the judgment of the appellate authority which went in favour of the assessee, the Revenue refunded the amount due as per the said order of the authority. Thereafter, when the matter was taken up ultimately in reference to the High Court and the assessee lost the case, fresh demand notices were issued and it is also an admitted fact that in satisfaction of the said demand notices the appellant had paid the amount as demanded within the time stipulated therein. The question, therefore, is whether the Revenue is entitled to demand interest in regard to the amount which was refunded to the assessee by virtue of the judgment of the appellate authority and which was repaid to the Revenue after decision in the reference by the High Court on fresh demand notices being issued to the assessee? Admittedly, on a literal meaning of the provisions of Section 220(2) of the Act, such a demand for interest cannot be made. The High Court by a liberal interpretation of the said section and relying upon Section 3 of the Validation Act has held that the Revenue is entitled to invoke Section 220(2) of the Act for the purpose of demanding interest on such retention of money.
9. We are not in agreement with the High Court on the interpretation placed by it on Section 220(2) of the Act in regard to the right of the Revenue to demand interest in a situation where the assessee has promptly satisfied the demand made by the Revenue in regard to the tax originally assessed.
10. It is a settled principle in law that the Courts while construing revenue Acts have to give a fair and reasonable construction to the language of a statute without leaning to one side or the other, meaning thereby that no tax or levy can be imposed on a subject by an Act of Parliament without the words of the statute clearly showing an intention to lay the burden on the subject. In this process, the Courts must adhere to the words of the statute and the so-called equitable construction of those words of the statute is not permissible. The task of the Court is to construe the provisions of the taxing enactments according to the ordinary and natural meaning of the language used and then to apply that meaning to the facts of the case and in that process if the taxpayer is brought within the net, he is caught, otherwise he has to go free. This principle in law is settled by this Court in India Carbon Ltd. v. State of Assam (1997) 6 SCC 479 : AIR 1997 SCW 3091 : AIR 1997 SC 3054, wherein this Court held "interest can be levied and charged on delayed payment 'of tax only if the statute that levies and charges the tax makes a substantive provision in this behalf". A Constitution Bench of this Court speaking through one of us (Hon. Bharucha, J.) in the case of V.V.S. Sugars v. Government of AP (1999) 4 SCC 192 : AIR 1999 SCW 1871 : AIR 1999 SC 2124 reiterated the proposition laid down in the India Carbon Ltd.'s case (supra) in the following words: "The Act in question is a taxing statute and, therefore, must be interpreted as it reads, with no additions and no subtractions, on the ground of legislative intendment or otherwise". If we apply this principle in interpreting Section 220 of the Act, we find that the condition precedent for invoking the said section is only if there is a default in payment of amount demanded under a notice by the Revenue within the time stipulated therein and if such a demand is not satisfied then Section 220(2) can be invoked."
7. Their Lordships also referred to, with approval, the decision of the Kerala High Court in ITO v. A.V. Thomas & Co. (1986) 160 ITR 818 (Ker), in which it was held that the condition precedent for invoking Section 220(2) is that, even after notice of demand under Section 156 and after the further period of 35 days as provided under Section 220(1) of the Act, the assessee should continue as a defaulter in the matter of payment of tax demand. In the light of the above decision, it appears to us that it could not be said that during the period 17th Nov., 1988 to 25th Oct., 1995, there was any outstanding demand for penalty against the assessee and, therefore, it could not be said that there was a default in payment of penalty making it liable for the interest during that period. No doubt, it is possible to argue that an appeal is a continuation of the original proceeding and when the CIT(A) set aside the order of the AO imposing penalty and the Department took up the matter in appeal before the Tribunal, the order imposing penalty, only went into eclipse and once the Tribunal allowed the appeal of the Revenue and restored the order imposing penalty, the order imposing penalty came out of eclipse and' revived the obligation of the assessee to pay it and the interest due on it and also the obligation of the assessee pursuant to the original notice issued under Section 156 of the Act, by the AO on the imposition of penalty. Though we find some force in this submission on behalf of the Revenue on this aspect, we feel that we are clearly bound by the decision of the Supreme Court quoted above and in the light of that decision, it has to be held that there will be no liability on the part of the assessee to pay interest on the penalty for the period 17th Nov., 1988 to 25th Oct., 1995. To that extent Annex.-16 order of the CIT(A) calls for interference. We, therefore, allow this writ petition in part and quash the demand for interest on the penalty for the period 17th Nov., 1988 to 25th Oct., 1995. We hold that the assessee would be liable for interest on the penalty imposed for the period prior to 17th Nov., 1988 and for the period subsequent to 25th Oct., 1995 until the recovery of penalty as held in Annex.-16. In the circumstances, we direct the parties to suffer their respective costs.