Income-tax---

----Recovery of tax---Delay in payment of tax---Interest---Waiver of interest---Discretionary power which must be exercised in a judicious manner---Pursuit of remedies available to assessee cannot be construed as non-cooperation---Rejection of application for waiver of interest without giving reasons---Not' valid---Indian Income Tax Act, 1961, S.220-- Constitution of India, Art.226.

The power to waive interest under section 220(2-A) of the Income Tax Act, 1961, is a discretionary power. While exercising discretionary power, the authorities are duty-bound to indicate in their order that they had applied their mind in that regard. Pursuit of remedies available to the assessee cannot be construed as non-cooperation with the Department unless the pursuit had been of a cantankerous nature, obstructive or evasive:

Held, that from the records it was clear that the Commissioner of Income-tax had not passed any order on the petitioner for waiver, dated December 15, 1987, and the revised petition for waiver dated June 27, 1988. On this short ground alone, the order dated July 27, 1988, had to be quashed. The order dated July 27, 1988, had been signed by the second respondent, viz., the Income-tax Officer, for the Commissioner of Income tax, No reason had been given for the rejection of the application for waiver. The order was not valid and was liable to be quashed.

Apex Finance and Leasing Ltd. v. CIT (1994) 207 ITR 781 (SC); Harbans Kaur (Smt.) v. CWT (1997) 224 ITR 418 (SC); Mahalakshmi Rice Mills v. CIT (1981) 129 ITR 53 (Kar.) and Seshammal Chidambaram (R.) v. CBDT (1998) 234 ITR 585 (Mad.) ref.

P. P. S. Janarthana Raja for Petitioner.

S. V. Subramanian for C. V. Rajan for Respondent.

JUDGMENT

The writ petition is for the issue of a writ of certiorarified mandamus to call for the records relating to the petitioner in C.No.1325-B(8) of 1986-87 on the file of the first respondent and quash the impugned order, dated July 27, 1988, 'and consequently direct the first respondent to waive the -interest of Rs.49,778 levied under section 220(2) of the Income Tax Act, 1961, for the assessment year 1971-72.

It is alleged in the affidavit in support of the petitioner as follows:

During the assessment year 1971-72, the petitioner, was a partner in a firm. P. Ramasamy, consisting of three partners. The Income-tax Officer City Circle IV(8), Madras 6, the second respondent herein, rejected the registration under section 185(1)(b) of the Income-tax Act, 1961, (hereinafter referred to as the "Act"), for the firm P. Ramasamy, and took the view that the petitioner was the owner of the so-called firm of P. Ramasamy in individual capacity and determined the total income at Rs.6,19,710. The petitioner filed an appeal to the Appellate Assistant Commissioner of Income-tax, Central Range-1, Madras 34. The view taken by the second respondent was confirmed. However, the Appellate Assistant Commissioner gave certain deductions in the quantum of income assessed in the-hands of the petitioner. Both the Department as well as the petitioner appealed to the Income-tax Appellate Tribunal, Madras. The Tribunal remanded the matter to the Appellate Assistant Commissioner with a direction to consider the issue afresh. The Appellate Assistant Commissioner by order, dated November 30, 1982, granted registration to the firm, P. Ramasamy, and also gave relief in the quantum of income assessed. In giving effect to the said order of the Appellate Assistant Commissioner, the second respondent by order, dated August 12, 1983, fixed the income of the firm at Rs.1,81,570. The Department filed an appeal against the order of the Appellate Assistant Commissioner to the Income-tax Appellate Tribunal. The appeal was dismissed confirming the order of the Appellate Assistant Commissioner. In passing the consequent order, dated September 26, 1983, the second respondent determined the tax payable by the petitioner at Rs.37,278. This was reduced to Rs.20,562 by order, dated March 26, 1986, after taking into account certain refund due to the petitioner and also certain payments made towards the tax due. The petitioner was also granted permission to pay the tax due, namely, Rs.20,567, in three instalments. The petitioner duly paid the instalments. However, after the payment of the instalments, the Tax Recovery Officer. IV, demanded a sum of Rs.9,439 as interest levied under section 220(2) of the Act by letter, dated January 8, 1987, in T. R. No. 128 of 1978-79 on the ground that payments have been made after a long delay. According to the Tax Recovery Officer under rule 5 of the Second Schedule to the Act, interest had to be calculated at the rate of 12 per cent. from October 1, 1983, to September 30, 1984, on the diminishing balance and at the rate of 15 per cent. from October 1, 1984, till the date of complete payment of arrears. He directed the petitioner to pay the said interest of Rs.9,439 levied under section 220(2) of the Act to be paid immediately. The petitioner filed a petition under section 220(2-A) of the Act to the Central Board of Direct Taxes, New Delhi, and contended that the petitioner was facing financial difficulties, and that he paid the tax demand according to the instalments given by the Income-tax Officer and that the delay in payment of tax could not be solely attributed to the petitioner. Section 220(2-A) was amended subsequently vesting the power with; the Commissioner of Income-tax. The first respondent issued a notice to the petitioner. He appeared before him and contended that the tax liability for the assessment year 1971-72 was settled after a prolonged litigation. Hence, the delay in payment of tax should be - regarded as due to circumstances beyond the control of the petitioner. It was also contended by the petitioner that he had co-operated with the Department in all enquiries with regard to assessment and recovery of taxes and thus, he satisfied all the conditions in the said section. However, the first respondent by his order, dated August 3, 1987, in C. No.1325-B(8) of 1986-87, dismissed the petition on the ground that the petitioner had not fulfilled the basic. requirements, of cooperation in the matter of assessment proceedings as the petitioner was on litigation for a long time against the order passed by the Income-tax Officer. The second respondent by demand notice in Form No.7, dated August 13, 1987, demanded a sum of Rs.49,778 as interest under section 220(2) of the Act. The petitioner filed a waiver petition under section 220(2-A) of the Act before the first respondent on December 17, 1987. Later, a revised petition was filed on June 29, 1988. The first respondent without affording an opportunity of hearing or assigning any reason, by order, dated July 27, 1988, refused to entertain the petition with an observation that the matter had already been decided. This order is under challenge.

The respondents have not filed any counter. However, learned senior counsel for the respondents supported the

order of the first respondent on the basis of materials available.

By communication T. R. No. 128 of 1978-79, dated January 8, 1987, the Tax Recovery Officer-I, demanded a sum of Rs.9,493 as the interest due under rule 5 of the Act. The letter has given the details as to how the amount was arrived at. The petitioner filed an application under section 220(2-A) of the Act before the Central Board of Direct Taxes, New Delhi, for waiver of interest. He has given the reasons which would entitle him to have waiver of interest. The delay in the payment of the amount of tax was due to circumstances beyond his control and there was prolonged litigation which commenced in the year 1974 and came to a close only after ten years. He had cooperated with the Department in all enquiries relating to the assessments as well as recovery proceedings to complete the assessments and to pay the income-tax as early as possible and he was always interested in settling the matter by completing the assessments and appeals and to prove his bona fides he had paid all the taxes. The power under section 220(2-A) by the time the matter was taken up, had come to be exercised by the first respondent and the first respondent, by his Order No.1325-B(8) of 1986-87, dated August 3, 1987, rejected the claim of the petitioner for waiver of interest. In the order, the first respondent had stated that the petitioner did not cooperate with the Department in the matter of payment of tax demands as finally determined by the Income-tax Appellate Tribunal by its order, dated April 17, 1984. That waiver of interest sought for related to a demand of Rs.9,493. However, there was a further notice of demand under section 156 of the Act bearing date August 30, 1987, calling upon the petitioner to pay a sum of Rs.49,778. This communication was received by the petitioner on October 30, 1987. The notice also did not mention as to how the figure was arrived at. It merely stated as follows:

"This is to give you notice that for the assessment year 1971-72, a sum of Rs.49,778/220(2) details of which, are given on the reverse has been determined to be payable by you. "

The reverse of the said demand notice did not contain any details. Thereafter, the petitioner made an application once again to the first respondent for waiver of interest under section 220(2-A) setting out in detail how he was entitled to waiver. This was on December 15, 1987. This was followed by another revised petition for waiver of interest under the Act on June 27, 1988, the first respondent received a communication from the second respondent stating that the revised petition could not be entertained as the matter had already been decided.

It is really surprising as to how the second respondent could purport to pass an order under section 220(2-A) of the Act. From the records, it is seen that the first respondent has not passed any order on the petition for waiver, dated December 15, 1987, and the revised petition for waiver, dated June 27, 1988. On this short ground alone., the order, dated July 27, 1988, has to be quashed. The order has been signed by the second respondent for the first respondent. It is also not stated in the order as to why the petition, dated June 27, 1988, is rejected. It is also not mentioned in the order as to when the matter was already decided. Disposal given to the revised petition for waiver is not,proper. It can also bee looked at from another angle. There is no reference in the order, dated July 27, 1988 to the petition made by the petitioner on December 15, 1987.

It is contended by learned senior counsel for the Department that what the order, dated July 27, 1988, means is that the earlier petition, dated January 31, 1987, for waiver of interest of Rs.9,493 was rejected by the first respondent on August 3, 1987, and the same reasoning should apply to the revised application filed by the petitioner for waiver of interest in respect of the demand for Rs.49,779.

Admittedly, there is no disposal of the petition, dated December 15, 1987. It is argued by learned senior counsel that the power under section 220(2-A) is a discretionary power and it has been exercised properly by the first respondent and the same cannot be called in question under Article 226 of the Constitution of India.

I had an occasion to deal with a matter relating to waiver of interest in W. P. No.4232 of 1988 (R. Seshammal Chidambaram v. CBDT (1998) 234 ITR 585 (Mad.). I held that while exercising discretionary power, the authorities were duty-bound to indicate in their order that they had applied their mind in that regard: In Smt. Harbans Kaur v. CWT (1997) 224 ITR 418 (SC), dealing with a case arising under section 18-B of the Wealth Tax Act, 1957, the Supreme Court stated as follows (headnote):

"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 observed as follows (headnote):

"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 273-A 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 exercise of its extraordinary jurisdiction. "

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

In the instant case, the grievance of the writ petitioner is that the first respondent has not given any reason in the order for rejecting the claim for waiver. I have already adverted to the fact that the impugned order has been signed by the second respondent on behalf of the first respondent.

It is also necessary to refer to one other aspect of the matter. In the earlier order passed by the first respondent in the application filed by the petitioner for waiver of interest of Rs.9,493, the first respondent relied on Mahalakshmi Rice Mills v. CIT (1981) 129 ITR 53 (Kar.) and held that the petitioner did not cooperate in the matter of payment of tax demand as finally determined by the Income-tax Appellate Tribunal by its order, dated April 17, 1984. No doubt, the Karnataka High Court has held that by cooperation, it could mean that the assessee did not resort to any litigation, obstruction or evasive taxies in concluding the assessment and no more. In this case, I do not find any material to show that the writ petitioner had not cooperated with the Department in the matter of assessment. In fact, it is a matter of record that the original assessment was reduced considerably. in the appeal filed by the petitioner. Pursuit of remedies available to the assessee cannot be construed as non-cooperation with the Department unless the pursuit had been of a cantankerous nature, obstructive or evasive.

For all the reasons stated above, I am of the view that the impugned order cannot stand. The order of the first respondent, dated July 27, 1988, is quashed and the first respondent is directed to take on file both this petitions, dated December 15, 1987, and the revised petition, dated June 27, 1988, and pass a considered order after affording an opportunity to the writ petitioner to state his case and substantiate his claim for waiver of interest. The writ petition is allowed. The matter is remitted to the first respondent. No costs.

In view of the disposal of the main writ petition, W. M. P. No. 15933 of 1988 is dismissed.

M.B.A./6/FCOrder accordingly.