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TuticorIn Vegetable Marketing Co. (P.) Ltd. Vs. Income-tax Officer and anr. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberW.P. No. 10931 of 1990
Judge
Reported in[2000]243ITR202(Mad)
ActsIncome-tax Act, 1961 - Sections 119, 119(2), 234A, 234B and 234C
AppellantTuticorIn Vegetable Marketing Co. (P.) Ltd.
Respondentincome-tax Officer and anr.
Appellant AdvocateH. Karthik Seshadri, Adv.
Respondent AdvocateC.V. Rajan, Adv.
Cases ReferredIn Sant Lal v. Union of India
Excerpt:
direct taxation - interest - sections 119, 234a, 234b and 234c of income tax act, 1961 - petition for declaring provisions of sections 234b and 234c as unconstitutional, arbitrary, null and void - whether interest envisaged by sections 234b and 234c is confiscatory in nature as submitted on behalf of petitioner or compensatory as contended on behalf of department - provisions of sections 234a, 234b and 234c are only compensatory in nature and not confiscatory - petition dismissed. - - karthik seshadri, learned counsel for the petitioner, that the impugned provisions are more in the nature of penalty and if it is a case of penalty the petitioner is being condemned without being heard. this clearly shows that the assessee should have filed returns in time andaccording to section 7(2).....k. sampath, j.1. the petitioner prays for a declaration that the provisions of sections 234b and 234c of the income-tax act, 1961, are unconstitutional, arbitrary, null and void.2. the allegations necessary for the disposal of the writ petition are as follows :the petitioner-company is liable to pay income-tax on the profit it makes from conducting a market and running a lodge. under section 207 of the income-tax act, 1961 (hereinafter referred to as 'the act'), every assessee is liable to pay advance tax in accordance with sections 208 to 219. before april 1, 1988, computation of advance tax excluded from the purview of the current income, capital gains and lotteries. however, by the direct tax laws (amendment) act, 1987, made applicable from april 1, 1988, both these items were included.....
Judgment:

K. Sampath, J.

1. The petitioner prays for a declaration that the provisions of Sections 234B and 234C of the Income-tax Act, 1961, are unconstitutional, arbitrary, null and void.

2. The allegations necessary for the disposal of the writ petition are as follows :

The petitioner-company is liable to pay income-tax on the profit it makes from conducting a market and running a lodge. Under Section 207 of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), every assessee is liable to pay advance tax in accordance with Sections 208 to 219. Before April 1, 1988, computation of advance tax excluded from the purview of the current income, capital gains and lotteries. However, by the Direct Tax Laws (Amendment) Act, 1987, made applicable from April 1, 1988, both these items were included in the computation of the current income for the purpose of payment of advance tax. There was a further amendment in 1989 coming into force on and from April 1, 1989, and a summary of the provisions relating to advance tax and the penal consequences that might result in case of default is as follows : If the tax payable is more than Rs. 1,500 on current income, the asses-sees are liable to pay advance tax under Section 209 as provided for. The computation of advance tax is provided in Section 210 of the Act which makes it obligatory on the part of the assessees to remit the advance tax on their own.

3. Under Section 211 instalments of advance tax are provided and the same is as follows :

First instalment on 20 per cent, of the tax payable, second instalment on a further 30 per cent and the last instalment on the balance of 50 per cent.

4. Under Section 220 it is provided that the assessees would be liable to pay interest at 18 per cent, per annum on any amount due on a demand issued by the Income-tax Officer concerned.

Section 234A of the Act provides for the payment of interest by the assessees on account of delayed filing of the returns.

Section 234B provides that if the advance tax is less than 90 per cent, of the tax payable, then the assessees are liable to pay interest at two per cent, per month on the difference of the amount ascertained as tax and the advance tax paid by the assessees as and from the (then) following financial year, namely, April 1, 1989. It is also provided that the interest liability shall be extended up to the date of payment of the difference in advance tax.

Under Section 234C of the Act, the assessees are liable to pay interest at 18 per cent, per annum in case it is found that there was a short fall in the payment of advance tax from the dates they were actually due. That is to say the Act provides that if the first instalment of advance tax is short by actual 20 per cent, of the tax due then the assessees should make payment of interest for the balance period up to the end of the financial year on the difference. Similarly, for the second instalment, interest would be liable to be paid in case of short fall.

It is also provided under Section 220(2A) that the Commissioner of Income-tax can waive interest or reduce the same in respect of tax due on regular assessment. It is also provided that if the tax demanded by the Income-tax Officer is not paid within the time prescribed, then the asses-see would be liable to pay interest at the rate of 18 per cent per annum.

5. The provisions relating to advance tax before the amendment were as follows :

The question of payment of interest on the defaulted amount of advance tax would arise only if the advance tax paid was less than 75 per cent, of the tax due and the rate was only 15 per cent. It was also provided that the Income-tax Officer was given discretion to reduce the interest or waive the same on any of the conditions specified under rule 40 of the Income-tax Rules. Similarly, under Section 215 of the Act discretion was given to the Commissioner to waive interest on sufficient cause being shown. The assessees were entitled to file estimates and revised estimates of the current income.

For the assessment year 1989-90, the accounts of the petitioner were finalised and it was found that it had made a profit of Rs. 4,16,859 and on the basis of the said income, tax payable thereon was at Rs. 2,05,192. Along with the return, the petitioner remitted a sum of Rs. 1,18,567 which was the difference between the tax paid and the actual tax which was due. The auditors of the petitioner opined that in view of the amended provisions of Sections 234B and 234C, the petitioner was liable to pay a sum of Rs. 24,655 being the interest on the amount short paid in the advance tax. According to the petitioner, the requirement for interest was quite unreasonable and when the petitioner entreated the auditors to pursue the matter the petitioner was informed that there was no alternative other than to make the payment of interest as per the requirements of Sections 234B and 234C.

6. Under Section 234B the difference in tax was Rs. 1,18,567 and interest paid on the shortfall of Rs. 1,18,567 for the period April 1, 1989, to December 51, 1989, was Rs. 21,342. Interest details paid under the provisions of Section 234C can be stated as follows :

Rs.20% of tax on September 15, 1988 41,038Tax paid 20,000Difference 21,038Interest at 1.5 per cent, for three months 940Similarly,50 per cent, of tax payable was 1,02,596 Advance tax paid was50,000Difference was 52,596Interest paid thereon at 1.5 per cent, for three months was2,307Thus, the total interest paid came to24,655

The provisions of Sections 234B and 234C are unreasonable, arbitrary and unconstitutional for the following reasons :

Sections 234B and 234C seek to punish an event which would not be the outcome of a wilful violation but only a mere happening of an event and should, therefore, be declared as arbitrary and unconstitutional.

Any offence or violation arising out of a statute should provide for determination of such an offence or violation by a properly constituted judicial Tribunal and that too after following a procedure containing every facility to the alleged offender or violator to defend himself and only after a proper trial, a penalty can be imposed on the offender or violator.

7. The impugned provisions having not provided for any such mandatory requirements are violative of constitutional guarantees.

There is no discretion provided on the part of any one to take into account genuine cases of hardship.

8. The rate of two per cent, per mensem on the difference of the advance tax not paid is also arbitrary and not based on any rationale or principle. Even in respect of default in the payment of an ascertained tax the interest required to be paid is only 1 1/2 per cent, per mensem and that under Section 220(2A) of the Act, the Commissioner is empowered to reduce or waive interest in cases of genuine hardship in the payment of tax on regular assessment and no such provision is available in the case of default in estimating the correct current income and the advance tax not paid.

9. If a person had not paid any advance tax at all he is treated on par with a person who had made payment of advance tax in an honest belief but which might turn out to be not the correct one.

10. The amendment has been made applicable as and from April 1, 1989, without taking into account that earlier advance tax provisions applied up to March 15, 1989, and there was hardly any time for the person to correct himself before he had been made liable.

11. There is no reasonable classification. There is no provision for making any revised estimate as contained in the earlier enactment.

12. Mr. H. Karthik Seshadri, learned counsel for the petitioner, besides urging the above points also relied on the following two judgments of the Supreme Court :

(i) State of Rajasthan v. Ghasilal : [1965]2SCR805 , and

(ii) Associated Cement Co, Ltd. v. Commercial Tax Officer : [1982]1SCR563 ,

and submitted that the provisions of Sections 234B and 234C are confiscatory in nature and in the absence of any effective provision in the Act to hear the assessee and decide the question there is violation of the constitutional guarantees and the principles of natural justice.

13. Though no counter has been filed, Mr. C. V. Rajan, learned counsel appearing for the Department, submitted that the matter is now settled by several decisions of this court and other High Courts. The decisions are :

(i) Union Home Products Ltd. v. Union of India : [1995]215ITR758(KAR) .

(ii) Ranchi Club Ltd. v. CIT : [1996]217ITR72(Patna) .

(iii) Sant Lal v. Union of India

(iv) Dr. S. Reddappa v. Union of India : [1998]232ITR62(KAR) .

(v) Nemi Chand Jain v. Union of India : [1998]234ITR764(MP)

(vi) Sivanandha Steels Ltd. v. CBDT.

14. It is ably argued by Mr. H. Karthik Seshadri, learned counsel for the petitioner, that the impugned provisions are more in the nature of penalty and if it is a case of penalty the petitioner is being condemned without being heard. Apart from that the provisions having come into effect from April 1, 1989, persons such as the petitioner who had no inkling of what was to come had hardly any time to correct themselves before being made liable.

15. In State of Rajasthan v. Ghasilal : [1965]2SCR805 the facts were as under :

The respondent therein who was a dealer within the meaning of the Rajasthan Sales Tax Act filed a writ petition in the High Court of Rajasthan challenging the making of assessments on its turnover for the year 1955-56 on the ground that the rules which had been published on March 28, 1955, were invalid. On January 9, 1958, the High Court passed an interim order stating that the petitioner will keep proper accounts and file the prescribed returns but shall not be assessed till further orders. While the petition was pending in the High Court, an Ordinance No. 5 of 1959 was promulgated on November 6, 1959, validating the Rules. Thereupon the respondent there withdrew the writ petition. On December 17, 1959, the Rajasthan Sales Tax Validation Act (Rajasthan Act 43 of 1959) replaced the Ordinance. The effect of the Ordinance and the Validation Act was to validate the Rules, even if any defect existed in the making of the Rules. On December 4, 1959, the Sales Tax Officer called upon the respondent therein to pay the tax due by him within a week as the writ petition had been withdrawn and dismissed. The respondent had filed its returns earlier and also had deposited certain amounts towards tax. On April 25, 1960, the Sales Tax Officer made an assessment in respect of the accounting period November 3, 1956, to October 22, 1957, and also proceeded to impose a penalty of Rs. 400 under Section 16(1)(b) of. the Act Justifying the imposition of the penalty, he observed thus (AIR 1965 SC 1455 and page 319 of [1965] 16 STC 319) : 'The assessee has not deposited tax for the quarters on the due date.The tax deposited for the fourth quarter is very late, i.e., after two yearsthe assessee was given a notice and in reply to which he referred to thestay order of the High Court granted to him in a writ petition filed challenging the validity of the Sales Tax Rules made under the Act, the stayorder of the High Court does not say that the assessee is allowed to withhold the tax. On the contrary, it directs that the petitioner (assessee) willkeep proper accounts and file prescribed returns but shall not be assessed.This clearly shows that the assessee should have filed returns in time andaccording to Section 7(2) the treasury challan of the deposit should haveaccompanied them. This amounts to contravention of the mandatoryprovisions. The writ was dismissed on April 23, 1958 (sic 23-11-1959). Eventhe amount was not deposited till December 17, 1959. This shows that theassessee withheld the tax intentionally.'

16. The Deputy Commissioner of Sales Tax (Appeals), Kotah, dismissed the appeal upholding the penalty. On December 6, 1960, the Sales Tax Officer assessed the respondent in respect of the accounting period October 23, 1957, to November 10, 1958, and imposed a penalty, of Rs. 1,000 for not depositing the tax in time on the same grounds. The respondent questioned the penalties in respect of the abovesaid two years before the High Court. The High Court allowed the petitions. Against the order of the High Court, the State of Rajasthan filed two appeals which were disposed of by the Supreme Court by the judgment rendered in the above cases. The Supreme Court on a construction of clause (b) of Section 16(1) of the Rajasthan Act held that there was no breach and the orders imposing the penalties could not be sustained, as according to the terms of Section 16(1)(b) there must be a tax due and there must be a failure to pay the tax due within the time allowed. The Supreme Court held that no tax was due within the terms of Section 16(1)(b) of the Rajasthan Act. Though Section 3, charging Section read with Section 5 made tax payable, i.e., created a liability to pay the tax and that was the normal function of a charging Section in a taxing statute, till the tax payable was ascertained by the assessing authority under Section 10 of the Act or by the assessee under Section 7(2) no tax could be said to be due within Section 16(1)(b) of the Act for till then there was only a liability to be assessed to tax.

17. In Associated Cement Co. Ltd. v. Commercial Tax Officer : [1982]1SCR563 , the assessee, a cement manufacturing company, did not include freight charges in its taxable turnover in the bona fide belief that they were not liable to be included. However, immediately after the decision of the Supreme Court reported in Hindustan Sugar Mills Ltd. v. State of Rajasthan : [1979]1SCR276 , declaring freight charges as components of sale price the assessee filed a revised return and paid sales tax on freight charges also. It was held by the Supreme Court as follows (headnote of AIR 1981 SC) :

'Since the amount of tax due in respect of the freight charges which was payable under Sub-Section (2) of Section 7 was not paid within the period allowed, Section 11B was clearly attracted and the liability to pay interest as required by it arose. Freight charges had to be included in the taxable turnover of the assessee mentioned in the returns that were filed within the prescribed time under Section 7(1) and the tax payable in respect of freight charges should have been paid as required by Sub-Section (2) of Section 7 before the returns were filed and therefore the fact that the question relating to the liability of the assessee to pay sales tax in respect of the freight charges was decided by the Supreme Court subsequently does not in any way affect the question as to payment of interest. The decision of the Supreme Court did not create any new liability. It only declared that such a liability was existing at the relevant point of time.'

18. The Supreme Court further held that (headnote of AIR) : 'Either by delaying the filing of the return or not filing it at all or by filing a return wrongly claiming that a certain part of the turnover is not taxable or by not disclosing a part of the taxable turnover in the return an assessee cannot escape the liability to pay interest under Section 11B(a) on the amount of tax withheld, as a consequence of his own action or inaction, from the last date on which it had to be paid as per Sub-section (2) or Sub-Section (2A) of Section 7, as the case may be, read with the rules. An assessee cannot contend that interest does not accrue under Section 11B(a) on the tax payable by him where the time to file the return has elapsed until he actually files a return admitting the liability to pay such tax or until assessment is made. The statutory liability under Section 11B(a) arises wherever there is default in payment of the tax within the period allowed by law irrespective of any doubt which an assessee may be entertaining about the liability to pay the tax.'

19. The above extract is against the contention of the petitioner. However, while deciding that case the Supreme Court in paragraph 23 went about the question as to how tax, interest and penalty are different concepts. This is very strongly relied upon by learned counsel for the petitioner. Paragraph 23 (page 1903 of AIR) runs as follows :

'We are concerned in this case with the liability of the assessee to pay interest on the amount of tax which had remained unpaid. Tax, interest and penalty are three different concepts. Tax becomes payable by an assessee by virtue of the charging provision in a taxing statute. Penalty ordinarily becomes payable when it is found that an assessee has wilfully violated any of the provisions of the taxing statute. Interest is ordinarily claimed from an assessee who has withheld payment of any tax payable by him and it is always calculated at the prescribed rate on the basis of the actual amount of tax withheld and the extent of delay in paying it. It may not be wrong to say that such interest is compensatory in character and not penal.'

20. The whole question now is whether the interest envisaged by Sections 234B and 234C is confiscatory in nature as submitted on behalf of the petitioner or compensatory as contended on behalf of the Department.

21. All the points raised by learned counsel for the petitioner were raised before the Karnataka High Court in Union Home Products Ltd. v. Union of India : [1995]215ITR758(KAR) and were answered against the assessee. Though the decision deals with Section 234A also, we are not concerned with that. Perhaps the only point that has not been answered by the Karnataka High Court relates to the contention of learned counsel for the petitioner that the provisions of Sections 234B and 234C of the Act are made applicable as and from April 1, 1989, without taking into account that the earlier advance tax provisions applied up to March 15, 1989, and there was hardly any time for a person to correct himself before being made liable.

22. Before the Karnataka High Court in Union Home Products Limited's case [1995] 215 ITR 758, instances of situations which would lead to harsh and palpably unjust results if the impugned provisions are given effect to and which may expose the provisions to the charge of unconstitutionality on the ground of the provisions being wholly unfair and arbitrary were cited. It would be worthwhile to reproduce those instances from the decision. They are (page 779) :

'(a) Cases where retrospective amendments in the statutory provisions may have the effect of enhancing the income or reducing or otherwise disallowing relief or expenditure thereby increasing the levy under Sections 234A, 234B and 234C ;

(b) Cases in which the assessee may, acting upon the judgment of a High Court, pay advance tax in a particular fashion but the said payment may become insufficient by reason of the reversal of the judgment by the Supreme Court ;

(c) Cases in which substantial unanticipated income may be generated towards the fag end of the accounting year thereby resulting in a short-fall in the payment of the first two instalments of advance tax ;

(d) Cases in which interest payable in land acquisition cases may be subjected to tax in the respective earlier years though the payment was actually received later or consequent upon the judgment of the Supreme Court thereby resulting in unanticipated shortfall in the advance tax paid ;

(e) Cases in which the sleeping partners' tax liability may get enhanced on account of the working partner's indifference or apathy in communicating the correct income to the partners ;

(f) Cases in which professionals in practice may not be able to anticipate their annual income even from the beginning of the year ;

(g) Cases in which the book profit is not ascertained where income under Section 115J of the Act has to be computed and offered for taxation ;

(h) Cases in which an assessment may result in additions which may not be in the nature of concealment or may be due to differences in opinion which could never be anticipated ;

(i) Cases in which the assessee may suffer interest due to the delay in the completion of the assessment even though the delay was not attributable to him ;'

23. The learned single judge of the Karnataka High Court quoted the decision of the Supreme Court in R. K. Garg v. Union of India : [1982]133ITR239(SC) , as a complete answer to the contentions raised by the petitioners before the Karnataka High Court.

May be the earlier provisions made a distinction between interest and penalty. But then the present provisions did away with the distinction.

As pointed out in the Karnataka High Court judgment the new system does not get its colour from the old. The new provisions will have to be interpreted in the light of the language employed therein and the purpose they purported to achieve. One of the objects behind the introduction of the Direct Tax Laws (Amendment) Bill, 1987, was to remove the uncertainties in the matter of assessments by cutting down areas of subjective decisions of the tax authorities, with a view to ensure uniform treatment of persons similarly placed and to reduce litigation.

24. The fact that the new system introduced by the provisions of Sections 234A, 234B and 234C relating to payment of mandatory interest was also meant to deter the assessees from repeatedly committing default, it does not necessarily mean that the provisions are penal in character. 'That apart, it is one of the well recognised principles governing interpretation of statutes that the Statement of Objects and Reasons is not admissible for construing the provisions contained in an enactment which makes it contrary to the actual words used in the legislation.' The Karnataka High Court further observed that (headnote): 'it is not possible to hold that the provisions of Sections 234A, 234B and 234C are provisions of a penal nature simply because, in actual application of these provisions there may be situations where an assessee may render himself liable to payment of interest under each one of these provisions simultaneously for the same period nor can the compensatory nature of the provisions be deemed to have been lost simply because in a given situation the provisions may, on account of their simultaneous application to an assessee, raise the liability to pay interest for the overlapping period to a rate higher than two per cent, per month. So long as the basic character of the levy remains compensatory the rate of interest which is levied either by the provision itself or on account of its dual effect in a given situation will be wholly immaterial.'

25. The learned judge further observed that (headnote): 'The fact that for refunds due to an assessee from the Department on account of excess amount of tax paid the rate of interest applicable is lower than two per cent, or that different rates are prescribed for different situations covered by different statutory provisions does not show that the rate of interest prescribed under Sections 234A, 234B and 234C is either penal in character or that the same makes the provisions themselves penal. As a matter of fact the levy of interest under Sections 234A, 234B and 234C has no co-relation whatsoever with the provision regarding payment of interest by the Department on refunds due to the assessee.' The learned judge went on to say (headnote) : 'By prescribing calculation of interest on monthly basis, the provisions cannot be said to have lost its compensatory character. This is true even in regard to Section 234C where the interest payable is not for the period for which the amount of tax was actually withheld but for a period of three months. Sections 234A, 234B and 234C do not envisage the grant of any hearing or the grant of any relief to the assessees concerned in so far as the levy of interest is concerned. The levy is automatic the moment it is proved that the assessee has committed a default within the comprehension of any one of the provisions in question. That being so it cannot be accepted that the authorities must grant a hearing and exercise the power to grant relief. The principles of natural justice have no application where a statute either by express words or by necessary implication excludes the grant of a hearing to the assessee concerned.'

26. So far as the powers of relaxation are concerned I will advert to the same a little later.

27. In Ranchi Club Limited v. CIT : [1996]217ITR72(Patna) , the Ranchi Bench of the Patna High Court has held that Sections 234A and 234B of the Act are not penal in nature and no allegation of arbitrariness or violation of rules of natural justice can be imputed to them. They merely provide for payment of interest by an assessee who commits default in furnishing the return either under Section 139(1) or 139(4) or in response to a notice under Section 142(1) of the Act, or has either failed to pay the advance tax or the advance tax already paid is less than 90 per cent, of the tax assessed against him. The amount on which the interest is levied is the amount which can legitimately be said to be public revenue which, although payable by the assessee, has actually not been paid by him. Levy of interest on such amount which the assessee withholds and makes use of cannot be said to be anything but a compensatory measure meant to offset the loss which the Revenue suffers on account of non-payment of the said amount. This becomes evident also from the fact that the sections contain specific provisions in regard to the period for which this additional liability is imposed on the defaulting assessees.

28. In Sant Lal v. Union of India , a Division Bench of the Punjab and Haryana High Court dealing with the question followed the decision in Union Home Products Limited's case : [1995]215ITR758(KAR) . The Bench observed as follows (headnote):

'The choice of the Legislature in matters pertaining to taxes as well as the mode and manner of recovery of taxes cannot ordinarily be interfered with by the court. The court must adjudge the constitutionality of a legislation by the generality of its provisions and not by its crudities or inequities or by the possibilities of abuse of any of its provisions. The Legislature is presumed to be aware of the needs of the time and the measures to be adopted for collection of revenue and the courts cannot interfere with the legislative instrument merely because there does not exist a provision in the statute giving some discretion to the authorities constituted under the Act.

Sections 234A to 234C of the Income-tax Act, 1961, have been inserted in the Act with effect from April 1, 1989. Sections 234A to 234C replaced old provisions as is evident from the Direct Tax Laws (Amendment) Bill, 1987. A plain reading of the Statement of Objects and Reasons incorporated in the Bill shows that a committee was constituted by Parliament for simplification and rationalisation of direct taxes. One of the objects behind the Bill was to remove the uncertainty in the matter of assessment by cutting down areas of subjective decisions of taxing authorities with a view to ensure uniform treatment to persons similarly placed and to reduce litigation because it was felt that the existing provisions gave unlimited discretionary powers to the assessing authorities to levy different penalties and interest for similar faults. The question whether the provision making interest payable on the happening of any event is a provision which is compensatory in character will have to be answered in the context of the language and the purpose behind the provision and not by reference to other provisions of similar or analogous nature. Viewed thus, it is not possible to hold that the provisions of Sections 234A, 234B and 234C are provisions of a penal nature simply because, in actual application of these provisions there may be situations where an assessee may render himself liable to payment of interest under each one of these provisions simultaneously for the same period nor can the compensatory nature of the provisions be deemed to have been lost simply because in a given situation, the provisions may, on account of their simultaneous application to an assessee raise the liability to pay interest for the overlapping period to a rate higher than two per cent, per month. Sections 234A, 234B and 234C are valid.'

29. In Dr. S. Reddappa v. Union of India : [1998]232ITR62(KAR) , a Division Bench of the Karnataka High Court confirmed the judgment of a learned single judge. Dealing with the meanings of the words 'compensatory' and 'penal' the Bench observed as follows (page 71) :

'The dictionary meaning of the word 'penal' is imposing, constituting a punishment, a penalty ; to put under a disadvantage. In the fiscal statute, the word 'compensatory' would mean to make good the loss suffered by the Revenue on account of acts of commission and omission attributable to the assessee'

and concluded as follows (headnote):

'Creating circumstances for compelling the assessee to discharge his statutory obligation cannot be termed to be a penalty. The collection of tax being an act of the State for providing protection, security and other amenities to the society, cannot, in all circumstances, be termed to be either a penalty or a punishment. The failure on the part of the assessee to abide by the provisions of the Income-tax Act has been made a basis for forcing him to compensate society by paying interest in terms of Sections 234A, 234B and 234C of the Act. The amount on which interest is levied is an amount which can legitimately be said to be public revenue though payable by the assessee, but not paid by him, despite his knowledge of the position of law. Levy of interest on such amount which is utilised by the assessee for his own purposes has rightly been directed to be compensated by means of directing him to pay the interest at the rates specified under the Sections. The Legislature in its wisdom thought it appropriate to replace penal provisions by incorporating compensatory provisions. It is not possible to hold that the provisions of Sections 234A, 234B and 234C are provisions of a penal nature simply because in actual application of these provisions there may be situations where an assessee may render himself liable to payment of interest under each one of these provisions simultaneously for the same period nor can the compensatory nature of the provisions be deemed to have been lost simply because in a given situation the provisions may on account of their simultaneous application to an assessee raise the liability to pay interest for the overlapping period to a rate higher than 2 per cent, per month. So long as the basic character of the levy remains compensatory, the rate of interest which is levied either by the provision itself or on account of its dual effect in a given situation will be wholly immaterial. The argument that the charge of interest for a period in excess of the period for which the assessee withheld the amount of tax payable by him amounted to penalty, is also without any substance. Such a provision appears to have been made with a view to facilitate the computation of liability of the assessee, without imposing any penalty upon him. The safeguards provided in the statute itself unambiguously show that the Sections cannot be termed to be penal in character and thereby unconstitutional on the ground of violating the principle of 'audi alteram partem'.'

30. In Nemi Chand Jain v. Union of India : [1998]234ITR764(MP) , a Division Bench of the Madhya Pradesh High Court referred to the two Karnataka decisions and also the Patna decision and followed them holding that the levy is compensatory in character and not confiscatory.

31. Only if it is found that the levy of interest is penal in nature then the contentions urged by learned counsel for the petitioner would require further investigation. In view of the overwhelming legal position as decided by the several authorities referred to above, it has to be held that the levy is only compensatory in nature. The validity of the said provisions has therefore to be upheld.

32. Now coming to Section 119 of the Act the petitioner in the instant case did not have enough time to correct himself as the new provisions were made applicable as and from April 1, 1989, without taking into account the fact that the earlier advance tax provisions were applicable up to March 15, 1989. Learned counsel is well founded in his contention. But there is a machinery provided under Section 119 of the Act to safeguard or to alleviate the problems that could be envisaged by the assessees. The Karnataka judgment in Union Home Products Limited's case [1995] 215 ITR 758, has doubted whether the powers that are exercised by the Board under Section 119(2)(a) would apply to individual cases, though there is no such doubt when it comes to exercising the powers under Section 119(2)(b). Section 119(2)(b) envisages orders by the Board in any case or class of cases for the purpose of avoiding genuine hardship. Which means that the Board can exercise this power under Section 119(2)(b) in regard to any class of cases in general or any individual case in particular.

33. Section 119(2)(a) of the Act runs as follows :

'Section 119(2) without prejudice to the generality of the foregoing power,-- (a) the Board may, if it considers it necessary or expedient so to do, for the purpose of proper and efficient management of the work of assessment and collection of revenue, issue, from time to time (whether by way of relaxation of any of the provisions of Sections 139, 143, 144, 147, 148, 154, 155, Sub-Section (1A) of Section 201, Sections 210, 211, 234A, 234B, 234C, 271 and 273 or otherwise), general or special orders in respect of any class of incomes or class of cases, setting forth directions or instructions (not being prejudicial to assessees) as to the guidelines, principles or procedures to be followed by other income-tax authorities in the work relating to assessment or collection of revenue or the initiation of proceedings for the imposition of penalties and any such order may, if the Board is of opinion that it is necessary in the public interest so to do, be published and circulated in the prescribed manner for general information.'

34. As already noticed, learned single judge in Union Home Products' case [1995] 215 ITR 758 (Kar), has expressed doubt whether the individual case can be brought to the notice of the Board for purposes of grant of relief, whether by way of relaxation or otherwise of any of the provisions mentioned in Sub-Section (2)(a) of Section 119. According to the learned judge, the absence of the permitted language 'in any case' in the provisions of clause (a) appears to be significant and apparently means that powers vested in the Board under clause (a) of Sub-Section (2) of Section 119 can be exercised only for the purpose of proceedings for any class of incomes or class of cases generally. Individual cases of hardship do not therefore fall within the purview of Sub-Section (2)(b) thereof, Of course, the learned judge has observed that (page 785) :

'This does not, however, mean that individual cases of hardship cannot be brought to the notice of the Board by the assessees concerned with a view to persuade the Board to make a provision in exercise of its power under Section 119(2)(a) for the benefit of such class of cases. Once the Board exercises its powers under Section 119(2)(a) and defines the class of cases in which the rigours of Sections 234A, 234B and 234C will apply less harshly, it will be immaterial whether one or more cases fall in any such class prescribed by the Board. There may be instances where even a single case may constitute a class by itself, while there may be others where a fairly large number of cases may fall in the specified category. The nature of the powers exercised by the Board under Section 119(2)(a) appears to be more of a legislative character providing for the generality of the cases or class of incomes. In the process of exercising the said power while the Board can draw upon its own experience, information or even imagination, it may also be enlightened or persuaded by the facts of a given case, however unique or freakish the same may appear to be..... As a responsible high-power statutory body exercising a certain amount of discretion in the matter of relaxation of the rigours of the provisions mentioned in Section 119(2)(a), the Board is expected to examine such requests fairly and objectively, and provide for such remedies either by way of relaxation or otherwise as may, in its wisdom, be justified in a given class of cases. When seen in this light, an individual assessee facing hardship by reason of the provisions of Sections 234A, 234B and 234C, will certainly have the opportunity of highlighting the grievance and seeking remedial steps before the Board. This appears to me to be the scheme behind Section 119(2)(a) which, in my opinion, is a fairly satisfactory means of preventing hardship in the extreme cases referred to by learned counsel for the petitioners.'

35. In Sant Lal v. Union of India , the Punjab and Haryana Bench had this to say (headnote) :

'Section 119(2) confers power upon the Board to grant relaxation of any of the provisions mentioned in the said Sub-section including Sections 234A to 234C of the Act. Exercise of this power is for the benefit of asses-sees. The Board can grant relaxation by a general or by a special order issued on the subject in respect of any class of income or class of cases. The intention of the Legislature to confer power upon the Board of relaxation even in cases covered by Sections 234A to 234C of the Act shows that even though these provisions are compensatory in nature, the Board may in appropriate types of cases issue general or special order for grant of relaxation. The plain language employed in Section 119(2) of the Act does not in so many words refer to an individual case, but, it is not possible to hold that mere absence of the expression 'in any case' before the words 'any class of incomes or class of cases' means that the Board can under no circumstance deal with an individual case. In a given case of an individual assessee or a group of assessees, the Board can, if it considers appropriate, exercise the power of granting relief from the rigours of Sections 234A to 234C of the Act. In a given situation, a single case may constitute a class or a particular type of cases may constitute a special category. The Board may in a given case issue an order for treating an individual case as a class unto itself for the purpose of relieving an assessee of hardship.'

36. Nearer home in Sivanandha Steels Ltd. v. CBDT, Raju J., as the learned judge then was dealing with this aspect, has relied on H. S. Anantharamaiah v. CBDT : [1993]201ITR526(KAR) , and stated as follows (headnote of CTR) :

'The power exercised by the Board under Sub-Section (2) of Section 119 is quasi-judicial in nature. The exercise of powers under the said provision is not only made to depend but conditioned upon the existence or otherwise of certain vital and essential facts and circumstances. The question as to under what sub-clause of Sub-section (2) of Section 119 the Board is moved by an assessee appears to be immaterial for the issue now under consideration. The position will depend very much upon the fact as to whether the assessee has moved for relief under any of the provisions contained in Sub-section (2) of Section 119. Though the power under Section 119(2) is discretionary, it is by now well settled that the exercise of discretion has to be in accordance with the rules of reason and justice and not according to private opinion. The essential safeguards in the exercise of discretionary powers have been held to be that such exercise should be according to law and not arbitrary or fanciful. If the claim of an assessee is denied or rejected, the refusal of a claim would seriously affect the rights of the assessee concerned involving civil consequences. Consequently, there is no escape from the proposition that the power under Section 119(2) is one of quasi-judicial nature and that any rejection of the claim should precede an effective opportunity to the assessee/petitioner concerned and that the decision arrived at though need not be of the nature or partake the character of a judicial decision must sufficiently disclose the mind of the authority that decision has been arrived at on approver and due application of mind to the relevant circumstances and criteria indicate in the statute. The impugned orders when decided in the light of the above principles, cannot be allowed to stand in so far as the orders passed by the Central Board of Direct Taxes are concerned. The orders of the Central Board of Direct Taxes and that of the Ministry concerned communicated shall stand hereby quashed. The Board is directed to restore the petitions already filed to its file and consider the claim and dispose of the same after giving an effective opportunity to the petitioners and pass orders on the claims made for waiver in accordance with law. The petitioners concerned shall have liberty to move the concerned Income-tax Officer/assessing authority or/and Central Board of Direct Taxes for appropriate relief and orders, depending upon the grievance and relief that is sought for. As and when the petitioners in those writ petitions move the Board, the said authority shall consider the claims so made in the light of the directions issued in the other batch of cases. The assessing authority concerned also shall be at liberty as and when moved by the respective petitioners to consider the claim, if any, that may be made as are permissible in law for such authority to consider and pass appropriate orders in this regard.'

37. Thus the petitioner has now a remedy provided under Section 119 of the Act.

38. With so many decisions holding that the provisions of Sections 234A, 234B and 234C are only compensatory in nature and not confiscatory, the writ petition has to fail. Accordingly, the writ petition is dismissed. However, there will be no order as to costs.


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