MADHU SILICA (PVT.) LTD. VS COMMISSIONER OF INCOME-TAX
1999 P T D 2424
[227 I T R 350]
[Gujarat High Court (India)]
Before C. K. Thakker and Rajesh Balia, JJ
MADHU SILICA (PVT.) LTD.
Versus
COMMISSIONER OF INCOME-TAX and another
Special Civil Application No.7077 of 1995, decided on 12/09/1995.
Income-tax-
----Recovery of tax---Appeal---Stay of recovery proceedings---Effect of Circular No.530, dated 6-3-1989---Deductions allowed in earlier years by Appellate Authority---Appeal against order of disallowance in relevant years pending---Assessing Officer bound to stay recovery proceedings in respect of amount in dispute---Indian Income Tax Act, 1961, Ss.119 & 220---C. B. R. Circulars Nos.530, dated 6-3-1989 and 589, dated 16-1-1991.
Under section 119 of the Income Tax Act, 1961, the Board may, from, time to time, issue such orders, instructions and directions to other Income-tax Authorities as it may deem fit, for the proper administration of the income-tax Act and such Authorities and all other persons employed in the execution of this Act are to observe and follow such orders, instructions and directions, subject to the condition that no such direction can be issued to require any Income-tax Authority to make a particular assessment or to dispose of particular case in a particular manner or to interfere with the discretion of the Deputy Commissioner of Appeals or the Commissioner (Appeals) in the exercise of his appellate functions. In exercise of that power the Board has issued Circular No.530, dated March 6, 1989. From the aforesaid provision of the Act and circular issued by the Central Board of Direct Taxes, it is apparent that in a case where the assessee has preferred an appeal under section 246, the Assessing Officer has been vested with the discretion to treat the assessee as not being default in respect of the amount in dispute in appeal as long as the appeal remains un-disposed of, even though the time for payment of demand under the assessment has expired. The power being discretionary, general, guidelines laying down the circumstances in which the assessee may be treated as not being in default, were issued by the Board. According to the instructions contained in clause (2) of the circular, it is obvious that where the demand in dispute relates to issue that have been decided in favour of the assessee in an earlier order by an Appellate Authority or Court in the assessee's own case, the assessee is not to be treated as being in default, in respect of that amount in dispute in appeal. While laying down that guideline it has been further clarified that in such a situation, the assessee will be treated as not in default only in respect of the amount attributable to such disputed points, namely, which have been decided in favour of the assessee in the earlier order by the Appellate Authority. Another Circular No.589, dated January 16, 1991, had been issued by the Board wherein the Board has clarified under clause (2) of its instruction contained in the circular, that according to paragraph 2 of Circular No.530, the Assessing Officer in the two situations referred to in that para 2 was bound to treat the assessee as not being in default in respect of the amount in dispute in appeal.
Held, that the conditions necessary for the exercise of the discretion in favour of the assessee under section 220(6) of the Act existed in favour of the assessee in the present case. The issue relating to the eligibility of deduction claimed under sections 80-HH and 80-I had been decided in favour of the assessee by the Appellate Authority in respect of earlier years. The assessee had presented an appeal in respect of the two assessment years in question against the order of the Assessing Officer. Hence, the assessee could not be treated as "an assessee in default" in respect of the demand of the tax for the; assessment year 1993-94 to the extent such demand was referable to the dispute relating to non-allowance of the deduction claimed by the assessee under sections 80-HH and 80-I of the Act.
S. N. Soparkar for Petitioner
B. J. Shelat for Respondents.
JUDGMENT
RAJESH BALIA, J.---Rule. Mr. Shelat waives service of rule on behalf of the respondent.
The petitioner, which is a company, has taken over the business of Madhu Chemicals. The said Madhu Chemicals, which was a partnership firm, had acquired new plant and machinery in the accounting year relating to the assessment year 1987-88, which according to the said firm, resulted in the substantial expansion of the capacity of its factory and on that basis, it claimed benefit of deflation under sections 80-HH and 80-I of the Income Tax Act, 1961. Such deduction thought is allowed by the Assessing Officer for the assessment years 1987-88 and 1988-89, were ultimately allowed by the Income-tax Appellate Tribunal. For the assessment years 1989-90, 1990-91 and 1991-92, the assessee's claim for deduction under sections 80-HH and 80-I of the Income-tax Act as a successor to Madhu Chemicals was denied by the Assessing Officer but the claim of the assessee was upheld by the Commissioner of Income-tax (Appeals) by his order, dated 28-3-1994. Thereafter, for the assessment years 1992-93 and 1993-94, the Assessing Officer continued to deny the benefit to the petitioner in respect of section 80-HH and section 80-I of the Act. The petitioner-assessee preferred an appeal before the Commissioner of Income-tax (Appeals). When proceedings of recovery under section 220 of the Act were taken against the petitioner-assessee, the petitioner applied before the Assessing Officer that for non-payment of demand in respect of the claim under sections 80-HH and 80-1 which has been accepted in his own case during the earlier assessment year, he may not be treated as "assessee in default" to the extent the tax demand is referable to that claim. The Assessing officer passed the impugned order, Annexure AD/18-4-1995, by which it was informed that the Commissioner, Rajkot, has approved the stay of 80 per cent of the demand subject to paying 20 per cent of the balance amount immediately and also subject to the filing of adequate securities and charging of interest under section 220(2) of the Act in respect of the assessment years 1992-93 and 1993-94.
Learned counsel for the petitioner contends that in respect of the amount of tax demand under the assessment years of 1992-93 and 1993-94 to the extent the same has resulted in disallowing deductions under sections 80-HH and 80-1 are concerned, the assessee cannot be deemed to be "assessee in default" for the purpose of invoking the provisions of section 220 of the Income-tax Act for recovering the same and levying the interest, etc. The petitioner relies on the provisions of section 220(6) read with the circular issued by the Board in respect of laying down guidelines regarding section 220(6) of the Income-tax Act.
Learned counsel for the Revenue urged that the provisions of subsection (6) of section 220 of the Act vest discretionary power in the Assessing Officer in the circumstances of the case to treat the assessee as not being in default in respect of the amount in dispute. The exercise of the power being discretionary, it cannot ordinarily be subjected to judicial review under Article 226 of the Constitution of India The Department also contended that the assessee may be entitled to the benefit under section 220(6) only in respect of the demand referable to the deduction claim under sections 80-HH and 80-I of the Act, but not in respect of other income assessed to tax.
We have carefully considered the rival contentions urged before us and we are of the opinion that the petition must succeed in respect of tax demand that is related to disallowance of the claim of deductions under sections 80-HH and 80-I of the Income-tax Act. Subsection (6) of section 220 reads as under:
"220 (6). Where an assessee has presented an appeal under section 246, the Assessing Officer may, in his discretion, and subject to such conditions as he may think fit to impose in the circumstances of the case, treat the assessee as not being in default in respect of the amount in dispute in the appeal, even though the time for payment has expired as long as such appeal remains un-disposed of."
Under section 119 of the Income-tax Act, the Board may, from time to time, issue such orders, instructions and directions to other Income-tax Authorities as it may deem fit for the proper administration of the Income-tax Act, and such authorities and all other persons employed in the execution of this Act are to observe and follow such orders, instructions and directions, subject to the conditions that no such direction can be issued to require any Income-tax Authority to make a particular assessment or to dispose of a particular case in a particular manner; or to interfere with the discretion of the Deputy Commissioner (Appeals) or the Commissioner (Appeals) in the exercise of his appellate functions.
In exercise of that power the Board has issued Circular No.530 (see (1989) 176 ITR (St.) 240), dated 6th March, 1989. Paragraphs 2 and 3 of the circular read as under:
"2. Having regard to the proper and efficient management of the work of collection of revenue, the Board has considered it necessary and expedient to order that on an application being filed by the assessee in this behalf, the Assessing Officer will exercise his discretion _ under section 220(6) of the Act (subject to such conditions as he may think fit to impose) so as to treat the assessee as not being in default in respect of the amount in dispute in the appeal in the following situations.
(i) the demand in dispute has arisen because the Assessing Officer had adopted an interpretation of law in respect of which there exists conflicting decisions of one or more High Courts or the High Court of jurisdiction has adopted a contrary 4fterpretation but the Department has not accepted that judgment, or
(ii) the demand in dispute relates to issues that have been decided in favour of the assessee in an earlier order by an Appellate Authority or Court in the assessee's own case.
3. It is clarified that in the situations mentioned in paragraph 2 above; the assessee will be treated as not in default only in respect of the amount attributable to such disputed points. Further, where it is subsequently found that the assessee has not cooperated in the early disposal of appeal or where a subsequent pronouncement by a higher Appellate Authority or Court alters the situation referred to paragraph 2 above, the Assessing Officer will no longer be bound by these instructions and will exercise his discretion independently."
From the aforesaid provision of the Act and circular issued by the Central Board of Direct Taxes, it is apparent that in a case where the assessee has preferred an appeal under section 246, the Assessing Officer has been vested with the discretion to treat the assessee as not being in default in respect of the amount in dispute in appeal as long as the appeal remains un-disposed of even though the time for payment of demand under the assessment has expired. The power being discretionary, general guidelines laying down the circumstances in which the assessee may be treated no being in default, were issued by the Board in exercise of its power under section 119 of the Act which have been reproduced hereinabove. As per the instructions contained in clause (2) of the circular it is obvious that where the demand in dispute relates to issues that have been decided in favour of the assessee to an earlier order by I an Appellate Authority or Court in the assessee's own case, the assessee is not to be treated as being in default in respect of that amount in dispute in appeal-. While laying down the guideline it has been further clarified that in the situation the assessee will be treated as not in default only in respect of the amount attributable to such disputed points, namely, which have been decided in favour of the assessee in the earlier order by the Appellate Authority. We also notice that another Circular No.589-D (see (1991) 187 ITR (St.) 79), dated 16th January, 1991, had been issued by the Board wherein the Board clarified under clause (2) of its instruction contained in the circular that according to paragraph 2 of Circular No.530 (see (1989) 176 ITR (St.) 240, the Assessing Officer in the two situations referred to in that paragraph 2 was bound to treat the assessee as not in default in respect of the amount in dispute in appeal.
It is not in dispute that the aforesaid circular being in the nature of laying down general, guidelines for proper administration of the Act for those who are employed the execution of the Act they are bound to observe such instruction particularly ones which are beneficial to the assessee, -
From the narration of the facts and the provisions noticed above, it is obvious that the conditions necessary for the exercise of the discretion in favour of the assessee under section 220(6) of the Act apparently exists in favour of the assessee in the present case.
The issue relating to the eligibility of deduction claimed under sections 80-HH and 80-I has been decided in favour of the assessee by the Appellate Authority in respect of the earlier years. The assessee has presented an appeal in respect of the two assessment years in question against the order of the Assessing Officer. For uniform exercise of discretion in situations like the present the instructions by the Board are contained in Circular No.530 (see (1989) 176 ITR (St.) 240 referred to above which are binding on the Assessing Officer. The instructions are not in respect of any particular assessment or a particular case nor is the discretion under section 220(6) to be exercised by the Deputy Commissioner (Appeals) or Commissioner of Income-tax (Appeals), or by any other Appellate Authority but it is to be exercised by the Assessing Officer himself while invoking the provisions of section 220(6).
Law is well-settled that though investing of power is couched in a manner as to vesting a discretion in the authority invested, to exercise that power, in reality when it is shown that conditions for exercise of such power exist, the Authority is bound to exercise discretion in that manner. Therefore, in our opinion there is no escape from the conclusion that in the present case the assessee could not be treated "an assessee in default" in respect of the demand of the tax for the assessment year 1993-94 to the extent such demand is referable to the dispute relating to non-allowance of the deduction claimed by the assessee under sections 80-HH and 80-I of the Act. Therefore, to that extent the question of compelling the assessee to make Payment of such demand could not arise. Obviously to the extent the demand is not related to the issue in dispute decided in favour of the assessee in the earlier occasion, the conclusion reached by us would not apply.
Accordingly, the order, Annexure A, dated 18th April, 1995, is hereby quashed and set aside and it is directed that the assessee shall not be treated as in default in respect of the demand in dispute relating to the claim for deduction under sections 80-HH and 80-I which have been decided in favour of the assessee in an earlier order by the Appellate Authority in the assessee's own case and keeping that in view the Assessing Authority shall pass order under section 220(6) afresh in accordance with law. Rule made absolute with an order as to costs.
Before we part with the case, we may note that learned counsel for the Revenue stated that *he Department has not accepted the order passed by the Income-tax Appellate Tribunal in the case of Madhu Chemicals, Bhavanagar, for the assessment year 1987-88 and though an application under section 256(1) has been rejected by the Income-tax Appellate Tribunal, the Department is taking steps to make an application under section 256(2). As the controversy about the merits of allowance of the claim' under sections 80-HH and 80-I is not the subject-matter of the petition before us, we may make it clear that this decision has no bearing whatsoever on the merits of the claim of the assessee.
M.B.A./2028/FC???????????????????????????????????????????????????????????????????????????????? Order accordingly.