BEFORE THE HON'BLE MR.JUSTICE RAM MOHAN REDDY

1 R IN THE HIGH COURT OF KARNATAKA, BANGALORE DATED THIS THE 11 th DAY OF MARCH, 2013 BEFORE THE HON'BLE MR.JUSTICE RAM MOHAN REDDY WRIT PETITION NO. 16136 OF 2011 (T-IT) BETWEEN: M/S. UB GLOBAL CORPORATION LTD., (AMALGAMATED WITH M/S. UNITED BREWERIES (HOLDINGS) LTD) UB TOWER, LEVEL 12, 14 & 15 UB CITY, 24, VITTAL MALLYA ROAD BANGALORE - 560 001 REP.BY ITS EXECUTIVE VICE PRESIDENT GROUP TAXATION SRI. S. RAMANUJAM AGE 59 YEARS SON OF LATE SRI. R SRINIVASAN. PETITIONER (BY SRI. MALHARA RAO & VIJAYKUMAR PUNNA, ADVOCATES * For S PARTHASARATHY, ADVOCATE) AND : THE CHIEF COMMISSIONER OF INCOME-TAX BANGALORE II C R BUILDING QUEEN S ROAD BANGALORE - 560 001. RESPONDENT (BY SRI. K V ARAVIND & M V SESHACHALA, ADVOCATES) * Inserted vide Chamber Order dtd. 27.03.2013

2 THIS WRIT PETITION IS FILED UNDER ARTICLE 226 OF CONSTITUTION OF INDIA PRAYING TO QUASH THE ORDER OF THE RESPONDENT DT. 12.12.2006 FOR THE ASESSMENT YEAR 2001-02 VIDE ANN-D; AND ETC. THIS WRIT PETITION COMING ON FOR PRL.HEARING IN B GROUP THIS DAY, THE COURT MADE THE FOLLOWING: ORDER Petitioner company was extended the benefit of deduction under Section 80HHC of the Income-tax Act, 1961, for short Act for the assessment year 1996-97 by order dt. 31.3.1999 under Section 143(3) of the Act. That order when called in question by the revenue before the Commissioner of Income-tax, the Appellate Authority, by order dt. 7.4.2000 held that the assessing officer was not justified in extending the benefit and accordingly allowed the appeal following the decision of the Kerala High Court in Commissioner of Income-tax v- V.T.Joseph 1. Petitioner having filed an appeal before the Income Tax Appellate Tribunal, for short Tribunal, brought to its notice the decisions of the learned Single Judge in V.J.Joseph s case (supra) and 1 (1997) 225 ITR 731

3 the subsequent opinion of another learned Single Judge in Commissioner of Income Tax -v- A.V. Thomas 2 taking a contrary view by extending the benefit of Section 80HHC. The Tribunal, following the subsequent opinion, allowed the appeal by order dt. 29.12.2000. 2. Petitioner under the bonafide belief that the Judgment of the learned Single Judge in A.V. Thomas case (Supra 2 ) dt. 10.1.1997 insofar as it related to extending the benefit of deduction under Section 80HHC of the Act was available to it during the previous year 2000-2001 did not pay the advance tax during the three quarters ending December 2000 and thereafterwards. However, the revenue carried the order of the Tribunal in Income-tax Appeal No.127/2001 before this Court, and during its pendency, the Apex Court in IPCA Laboratory Limited v- Deputy Commissioner of Income Tax 3 declared 2 (1997) ITR 29 DD 10.1.1997 3 (2004) 226 ITR 521 (SC) DD 11.3.2004

4 the law over applicability of Section 80 HHC of the Act, following which this court by order dated 8.12.2006 allowed the appeal of the Revenue disentitling the petitioner to the deduction. In effect the benefit allowed to the petitioner by the Assessment Officer and the Income-tax Tribunal was nullified. In other words petitioner on being liable to pay the tax for the assessment year 2001-02, the previous year 2000-01 did make payment. 3. The Assessing Officer passed an order levying interest under Section 234-B of the Act for the delay in making payment, which led the petitioner to file an application for waiver of interest invoking Order F.No.400/234/95-IT(B) Dated 30.1.1997 as modified by Order F.No.400/129/2002-IT(B) dated 26.6.2006 under Section 119(2)(a) of the Act, for short Order. That application when rejected by order dated 12.12.2006 Annexure-D of the Chief Commissioner of Income-tax,

5 Bangalore-2 followed by the rejection of the request for rectification, by order dt.29.10.2010, Annexure-J has resulted in this petition. 4. Learned Counsel for the petitioner submits that under Section 119(2)(a) of the Act, the Central Board of Direct Taxes passed the Order investing the Chief Commissioner of Income-tax and Director General of Income-tax with the jurisdiction to reduce or waive interest charged under Section 234-A or 234-B or 234-C of the Act in classes of cases or classes of income, specified in Paragraph 2 of the said order. According to the learned counsel Paragraph 2(c) of the said order though illustrative, but not exhaustive, takes into its fold a situation where any income was not chargeable to income of an assessee on the basis of any order of the High Court within whose jurisdiction he is assessable to Income Tax and did not pay Income Tax in relation to such income in any previous year and subsequently as

6 a consequence of a decision of the Supreme Court of India, in any assessment or reassessment proceedings the advance tax paid is less than the tax payable on his current income, the assessee is chargeable to interest under Section 234B or 234C and the Chief Commissioner is satisfied that it is a fit case for reduction or waiver, of such interest, may exercise such jurisdiction. According to the learned counsel the Authority ought to have exercised a jurisdiction vested in it under clause 2(c) of the Order dt. 26.6.2006 and waived interest under Section 234-B. Learned counsel hastens to add that though the revenue preferred IT Appeal No.127/2001 against the order of the Tribunal, nevertheless this court having not directed an interim order of stay of the order of the Tribunal and the appeal was disposed of on 8.12.2006 following the decision of the Apex Court in IPCA Laboratory Limited s case (Supra 3 ), the Chief Commissioner was not justified in denying waiver of interest. It is lastly

7 submitted that petitioner being under the bonafide belief that the decision in A.V.Thomas case (Supra 2 ) of the learned Single Judge of the High Court of Kerala did hold the field insofar as Section 80HHC of the Act, was entitled to the benefit of that Judgment and justified in not making payment of advance tax during the first three quarters of the previous year 2000-01, hence, there was no justification to decline the benefit of waiver of interest. Learned counsel places reliance upon the decision of the High Court of Gujarat in Bhanuben Panchal and Chandrikaben Panchal v- Chief Commissioner of Income Tax 4. 5. Per contra learned counsel for the Revenue seeks to sustain the order impugned as being well merited, fully justified and not calling for interference. 6. According to the learned counsel paragraph 2(c) takes into fold only one class of case i.e. where any 4 (2004) 269 ITR 27 (Gujarat) Paragraph 7

8 income was not chargeable to income of an assessee on the basis of an order of the High Court within whose jurisdiction he is assessable to Income Tax and as the order of the Tribunal subject matter of ITA 127/2001, paragraph 2(c) has no application. Learned counsel further submits that paragraph 7 of the Judgment of the High Court of Gujarat is an obiter and not a ratio decidendi, hence inapplicable to the facts of the case. It is further submitted that the Order F.No.400/129/02- IT(B) dated 26.6.2006 issued under Subsection (2) of Section 119 of the Act specifies class of cases in which paragraph 2(c) applies and not otherwise. 7. Having heard the learned counsel and perused the pleadings, the point for consideration is Whether the petitioner an assessee in the State of Karnataka is entitled to maintain a claim for reduction of waiver of interest under Section 234B pursuant to paragraph 2 (C) of the Order, on the premise that its income for the assessment year 2001-2002, was not chargeable to Income

9 Tax under Sec. 80 HHC of the Act, in the light of the order in CIT v- A.V.Thomas of High Court of Kerala? 8. There is no dispute that the petitioner during the accounting year 2001-02 i.e. previous year 2000-01 claimed deduction under Section 80HHC on the basis of 90% of export incentives as worked out under the proviso to Subsection (3) of Section 80 HHC of the Act, by ignoring losses under clauses (a) and (b) of the said section, which was accepted by the Assessing Officer. That order when carried in appeal by the revenue before the Commissioner was reversed, while the further appeal preferred by the petitioner before the Tribunal led to restoration of the order of the Assessing Officer on the basis of the decision in A.V.Thomas case (Supra 2 ) rendered by a learned Single Judge of High Court of Kerala. It is also not in dispute that the decision in A.V.Thomas case (Supra 2 ) D.D.10.01.1997 was a judgment passed after the decision in

10 V.T.Joseph s case (Supra 1 ). The further fact not in dispute is that ITA 127/2001 preferred by the revenue was pending before this court without an interim order of stay of the order of the Tribunal. It is also undisputed that Tribunal was bound by the decision in A.V. Thomas case (Supra 2 ), which held the field. In the circumstances petitioner s bonafide belief that he was entitled to the deduction under Section 80HHC of the Act during the previous year 2000-01, cannot be found fault with. 9. Section 234B provides for interest for default in payment of advance tax by an assessee who is liable to pay advance tax under Section 208 or when the advance tax paid by such assessee under Section 210 is less than 90% of the assessed tax. In such cases assessee is liable to pay simple interest at the rate of one percent for every month or part of a month comprised in the period from the 1 st day of April next

11 following such financial year to the date of determination of total income under sub-section (1) of Section 143 and where a regular assessment is made to the date of such regular assessment on an amount equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid as aforesaid falls short of the assessed tax. 10. In order to obviate the hardship of the assessee the Order F.400/234/95 IT(B) dated 30.1.1997 was issued under Section 119(2)(a) of the Act, as modified by order F.400/129/2002-IT(B) dated 26.6.2006. Paragraph 2(c) of the said order reads thus: 2. The class of incomes or class of cases in which the deduction 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) xxxxx (b) xxxxx (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

12 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, and subsequently, in consequence of any retrospective amendment of law or 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 has become final), in any assessment or re-assessment 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. A bare reading of paragraph 2(c) indicates that income when 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 a result did not pay Income Tax in relation to such income in any previous years, and by a decision of the Supreme Court any assessment or

13 reassessment proceeding the advance tax paid by an assessee is found to be less than the amount of advance tax payable as the current income, the Chief Commissioner/Director General is satisfied that it is a fit case for waiver of interest under Section 234B or 234C, is entitled to such a benefit. 11. In the facts of this case the bone of contention of the revenue is that the assessee in the State of Karnataka did not have the benefit of any order of this Court permitting deduction under Section 80HHC of the Act, therefore is disentitled to that deduction on the basis of the decision in A.V.Thomas case (Supra 2 ). 12. The preamble to the Order F.No.400/129/2002 IT (B) dated 26.6.2006 makes reference to the words class of cases or class of incomes as specified in paragraph 2 thereunder. A reading of paragraphs 2(a), (b), (c) and (d) what can be deciphered is that instances are illustrative and not

14 exhaustive since, it is not possible to enumerate all kinds of hardships that would befall an assessee to be considered for waiver of interest under Section 234B or 234C. The waiver or reduction in interest under Sec. 234A or 234B or 234C, in paragraph 2(a) is if the delay on the part of the assessee in filing the return is due to seizure of books of account and other documents during search and seizure under Sec. 132 of the Act; Paragraph 2(b) provides that if any income chargeable to Income Tax under any head of income other than capital gains is received or accrued after the due date of payment of the first or subsequent installment of advance tax, neither anticipated nor in the contemplation of the assessee; paragraphs 2(c) refers to any income 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 did not pay income tax in relation to such income, and subsequently as a consequence of a

15 decision of the supreme court, in an assessment or reassessment if it is found that the advance tax paid is less than the amount payable on his current income; paragraph 2(d) provides for instances where return of income could not be filed by the assessee due to unavoidable circumstances and such return of income is filed voluntarily by the assessee or his legal heirs without detection by the assessing officer. 13. Interestingly paragraph 2(d) as it existed in the order dated 23.05.1996 was modified by the order dt. 30.01.1997, and reads thus : - The clause d of para 2 of the said order read as under : Where any income which was not chargeable to income-tax on the basis of any order passed in the case of an assessee 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 and subsequently, in consequence of any retrospective amendment of law or as the case may be, the decision of the Supreme Court,

16 in his own case, which event has take place after the end of any such previous year, in any assessment or reassessment proceedings the advance tax paid by the assessee during the financial year immediately preceding the relevant assessment year is found to be less than the amount of advance tax payable on his current income, the assessee is chargeable to interest under section 234B or section 24C and the Chief Commissioner of Director General is satisfied that this is a fit case for reduction of waiver of such interest. 2. In partial modification of this para of the Order, the Central Board of Direct Taxes has decided that there shall be no condition that the decision of the High Court or the Supreme Court, as referred to therein, must be given in the assessees s own case. Also the condition that any retrospective amendment of law or the decision of the Supreme Court or the jurisdictional High Court must have been made after the end of the relevant year stand withdrawn. 14. Viewed in this perspective the decision of the High Court or Supreme Court need not be in the case of the assessee. In other words the decision of incidence and applicability of Income Tax under the act, need not

17 necessarily be in the case of the assessee but could be in any other case i.e. of any other assessee or otherwise. As long as the decision covers the field of Income Tax legislation, as may be applicable to any assessee, would be a circumstance for reduction of waiver of interest under Sec. 234 A to C as the case may be. 15. In the facts noticed supra, petitioner bonafide believed that the decision of the High Court of Kerala in A.V. Thomas case (Supra 2 ) was applicable, entitling the petitioner to the deduction under Sec. 80 HHC of the Act. The Tribunal bound by the said decision had no option but to apply the same to the case of the petitioner, aggrieved by which ITA 127/01 filed by the revenue before this court, was allowed following the opinion of the Supreme Court in IPCA Laboratory s case (Supra 3 ), impliedly overruling the decision in A.V.Thomas case (Supra 2 ). In the circumstances, it would be incongruous to hold that

18 paragraph 2 (c) applies only to cases of orders passed by the High Court within whose jurisdiction the assessee is assessable to Income Tax under the Act and not to a decision of any other High Court. Under the law of precedents too judgments of other High Courts are persuasive. 16. A division bench of the High Court of Gujarat in Bhaneben s case (Supra 4 ) regard being had to the facts obtaining therein over delay in filing the return of income resulting in late payment of taxes, an unavoidable circumstance, observed thus: 7. It is thus clear that Clause (a) to (d) all state the circumstances beyond the control of the assessee and they may be considered as the species or illustrations of unavoidable circumstances or circumstances beyond the control of the assessee which is the genus contained in Clause (e) providing that where a return of income could not be filed by the assessee due to unavoidable circumstances and such return of income is filed voluntarily by the assessee or his legal heirs

19 without detection by the AO, waiver of interest can be considered. It appears to the Court that when the circumstances leading to delay in filing of return of income are also the circumstances resulting into late payment of taxes and when the same set of circumstances are considered to be unavoidable circumstances responsible for the delay in filing of the return of income, ordinarily, such circumstances would also qualify to be considered as unavoidable circumstances responsible for the delay in late payment of taxes. 17. As regards extending the benefit of waiver of interest under Section 234B, learned counsel for Revenue submits that in Bhanuben s case (Supra 4 ), the Division Bench of High Court of Gujarat extended the relief upto 75% and directed the assessee to pay 25% of the interest levied. 18. In the circumstances the point for consideration is answered in the affirmative. Petitioner having made out a case for consideration over reduction or waiver of interest under Sec. 234B of the act, the

20 Chief Commissioner of Income Tax was not justified in rejecting the claim by the orders impugned, on the premise that the petitioner an assessee not within the jurisdiction of High Court of Kerala was disentitled to rely upon the decision of that court in A.V. Thomas case, (Supra 2 ). 19. Apparently the order Annexure-D is dt. 12.12.2006 while assessment year is 2001-02 and no useful purpose will be served by merely quashing the orders Annexures-D & J of the Chief Commissioner of Income Tax and remitting the proceeding for consideration afresh, after applying its mind to the facts of the case, ends of justice would be met by waiving interest upto 75%. In the result, petition is allowed in part. The orders Annexures-D and J of the Chief Commissioner of Income Tax, Bangalore are quashed and the petitioner

21 is directed to pay 25% of the interest levied under Section 234B of the Act for the assessment year 2001-02. Sd/- JUDGE ln