Income-tax---

----Recovery of tax---Interest for delay in payment of tax---Waiver of interest---Power to reject application for waiver is a discretionary power-- Income-tax Authority must apply its mind before such rejection---Order must contain reasons---Matter remanded to CIT---Indian Income Tax Act, 1961, S.220.

The Authorities exercising powers under the various provisions of the Income Tax Act, 1961, have a duty to state the reasons for the conclusions reached by them. Though it is a discretionary power, but, while exercising such a discretionary power, the authorities are duty bound. to indicate in their order that they had applied their mind in that regard:

Held; that there was nothing in the order of the Central Board of Direct ,Taxes to show that it took into consideration the several grounds raised by the-writ petitioner entitling her to waiver of interest under section 220(2A) of the Act. Though under the Voluntary Disclosure Scheme, there can be no waiver of interest that was not the reason given by the CBDT in rejecting the application of the writ petitioner for waiver of interest. The order rejecting the application for waiver of interest was not valid.

Matter remanded to Commissioner of Income-tax for consideration of claim for waiver of interest.

Smt. Harbans Kaur v. CWT (1997) 224 ITR 418 (SC) and Apex Finance and Leasing Ltd. v. CIT (1994) 207 ITR 781 (SC) ref.

R. Jankiraman for Petitioner.

S.V. Subramanian for C.V. Rajan for Respondents.

JUDGMENT

The writ petition is for the issue of a writ of certiorarified mandamus to call for the records of the first respondent in F. No. 404/279 of 1985-ITCC, dated March 25, 1987, quash the said order and further direct the first respondent to grant the benefit of section 220(2A) of the Income Tax Act,1961.

The allegations as sit out in the affidavit in support of the writ petition are as follows:

The petitioner is an assessee on the file of the Income-tax Officer 1(3), Cuddalore. South Arcot District, in G. I. No.3601-S. On September 3, 1972, there was a search by the Intelligence Department in the business premises of the petitioner's husband and gold jewels weighing about 21 kilos and silver articles weighing about 2.5 kilos were seized. Assessment proceedings were initiated by the Income-tax Department in pursuance of the alleged materials gathered during the search and on the basis of the seized articles. In 1975, the Government of Indian brought .a scheme known as "Voluntary Disclosure of Income and Wealth". The petitioner opted for settling. the dispute under the scheme. Accordingly, the tax due on the income assessed for the assessment year 1972-73 had been paid. However, the seized gold and silver articles were not returned to the petitioner on the ground that the Central excise authorities objected to the return of the seized articles. The petitioner filed a writ petition before this Court for the release of the articles. The Court directed the Department to release the articles to the petitioner. The appeal . by the Central Excise Department against the order in the writ petition was dismissed by this Court in the .year 1981. While the matter was pending before this Court, the assessment up to the assessment year 1980-81 had been completed and the Department raised tax demands on the petitioner as well as on the members of the association of persons. The petitioner had to pay tax to the tune of Rs.3,80,000 under the scheme, but the jewellery had not been released by the Department. She had to borrow huge amounts for payment of taxes. The Income-tax Officer charged interest under sections 139 and 217 of the income-tax Act (hereinafter referred to as "the Act") for the assessment years 1972-73 to 1981-82. The interest charged under section 220 of the Act up to March 31, 1985, alone amounted to Rs.2,08,199. On the petitioner's representation to the Inspecting Assistant Commissioner to waive the interest under section 139 and section 217, the Income-tax Officer, after getting approval from the Inspecting Assistant Commissioner, waived the interest. As the first respondent alone had jurisdiction to waive interest under section 220(2A) of the Act, the petitioner filed a petition before the first respondent stating the reasons to waive interest. However, the first respondent having rejected the petition on the ground that the petitioner had not satisfied the conditions laid down under section 220(2A), the present writ petition has been filed.

The grounds raised in the writ petition are as under:

The writ petitioner had complied with the three conditions laid down under section 220(2A) of the Act. Her non-payment of the tax amount was due to reasons beyond her control as the jewellery seized was not released by the Department. She had also co-operated in the enquiry relating to the assessment and the proceedings for the recovery. She had also to borrow huge amounts to pay the tax and payment of interest under section 220 of the Act on the tax amount would cause hardship. The default in the payment of tax was due to reasons beyond the control of the petitioner. If only the Department had released the articles in time, the petitioner could have paid the tax in time and avoided payment of interest under section 220 of the Act. As the Department was itself at fault, the first respondent could not deny the benefit of section 220(2A) of the Act to the petitioner. The second respondent also had made a recommendation to the first respondent for waiver of interest. The first respondent had not considered the recommendation made by the second respondent. The Department had waived interest under sections 139 and 217 of the Act on the petition filed by the petitioner explaining the circumstances under which the petitioner could not pay the tax and by the same token the first respondent is bound to waive the interest charged under section 220 of the Act. The first respondent had acted arbitrarily in exercise of his jurisdiction under section 220(2A) of the Act.

The second respondent has filed a counter on behalf of all the respondents stating, inter alia, as follows:

The petitioner under the 'Voluntary Disclosure Scheme' enabled waiver of only the interest leviable under sections 139 and 217 as well as the penalty leviable under section 271(1)(a) and there is no provision for waiver of interest under section 220(2) as for a valid application under the Voluntary Disclosure Scheme, the tax payable on the income voluntarily disclosed under the Scheme ought to be paid before the application is filed and in the instant case the tax payable on the income disclosed was not paid before the application was made and hence, though the respondents would have been justified in rejecting the petition under the Voluntary Disclosure Scheme and made a regular assessment resulting in the levy of interest under sections 139(8) and 217 as well as the penalty under section 271(1)(a) valid, the respondents did not resort to the said procedure and waived the interest levied under section 139(8) and 217. the, question of waiver of interest leviable under section 220(2) for non-payment of tax is not available to the disclosures made under the Voluntary Disclosure Scheme. The order of the first respondent in refusing to waive the interest is perfectly justified.

The jewellery was retained only to the extent of tax arrears and if the petitioner had paid the taxes, the jewellery would have been returned earlier. Since she had not paid the taxes, the jewellery had necessarily to be retained and the petitioner could not make a complaint that she could not effect payment because of the non-return of the jewellery.

The order of the first respondent dated March 25, 1987, reads as follows:

Madam,

Please refer to your petition dated September 10, 1985, on the subject mentioned above. The matter has been examined by the Board. After considering the applications filed by you and the report of the Commissioner of Income-tax in the matter, the Board is of the view that the conditions as laid down in section 220(2A) are not satisfied in your case and hence regrets its inability to interfere in the matter."

It is fairly well-settled now that the authorities exercising powers under the various provisions of the Income-tax Act, 1961, have a duty to state the reasons for the conclusions reached by them in the course of the orders passed by them. No ,doubt, it is a discretionary power. But, while exercising such . a discretionary power, the authorities are duty bound to indicate in their order that they had applied their mind in that regard.

Dealing with a case arising under section 18B of the Wealth Tax Act, 1957, the Supreme Court in Smt. Harbans Kaur v. CWT (1997) 224 ITR 418 observed as follows (headnote):

"The words 'the Commissioner may in his discretion ...reduce or waive the amount of penalty' in section 18B of the Wealth Tax Act, 1957 clearly show that the power conferred on the Commissioner is to be exercised by him in such manner as he deems just and proper.

If the conditions stipulated in the section are satisfied, the Commissioner has a discretion in the matter. In exercise of that discretion, the Commissioner can either reduce the amount of penalty or he may waive the entire penalty. It is for the Commissioner to decide on the facts of a particular case whether a waiver in entirety or a reduction alone is warranted. Of course, when the Commissioner, instead of giving a complete waiver, chooses to give only a reduction of the penalty amount, he must indicate in his order that he has applied his mind in that regard."

Again in Apex Finance and Leasing Ltd. v. CIT (1994) 207 ITR 781, the Supreme Court stated as follows (head note):

"The question whether the Commissioner was justified on the facts and in the circumstances of the case, in refusing to exercise his power under section 273A of the Income Tax Act, 1961, to waive interest and penalty where the assessee has disclosed income voluntarily in a revised return, is a question to be examined on the merits and the High Court, on a writ petition challenging such a refusal, ought not to dismiss the petition on the ground that the order was not liable to interference in extraordinary jurisdiction."

In that case, Supreme Court set aside the order of the High Court and remanded the case.

In the instant case, it is the grievance of the writ petitioner that there is absolutely no indication in the' order of the first respondent that it had applied its mind to the facts of the case before rejecting the petition for waiver of interest. I am of the view that the grievance of the writ petitioner is justified. There is really nothing in the order of the first respondent to show that it took into consideration the several grounds raised by the writ petitioner entitling her to waiver of interest under section 220(2A) of the Act. No doubt, it is contended by the learned senior standing counsel for the Department that under the Voluntary Disclosure Scheme, there can be no ' waiver of interest. However, that is not the reason given by the first respondent in rejecting the application of the writ petitioner for waiver of interest. What the first respondent has stated in the order is that the conditions as laid down in section 220(2A) are not satisfied in the instant case and not that cases coming under the Voluntary Disclosure Scheme are. outside the purview of section 220(2A) for waiver-of interest. In these circumstances, the writ petitioner is entitled to succeed, and the writ petition is allowed.

The order of the first respondent, dated March .23, 1987 in F.No.404/279 of 1985-ITCC is quashed. In view of the fact that the powers under section 220(2A) are now exercised by the second respondent and not by the first respondent, the matter is remanded to the second respondent for consideration of the claim of the writ petitioner for waiver of interest in the light of the observation contained in this order. However, there will be no order as to costs:

In view of the order passed in the main writ petition, the stay petition W.M.P. No. 6230 of 1988 is dismissed.

I M.B.A./4024/FCPetition dismissed.