MANHARBHAI MULJIBHAI KAKADIA vs. INCOME TAX OFFICER

C/SCA/15097/2004 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION NO. 15097 of 2004 With SPECIAL CIVIL APPLICATION NO. 15101 of 2004

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE AKIL KURESHI

and HONOURABLE MS JUSTICE SONIA GOKANI

================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ KAKADIA BUILDERS PVT. LTD.....Petitioner(s) Versus INCOME TAX OFFICER & 1....Respondent(s) ================================================================ Appearance: MR JP SHAH, ADVOCATE for the Petitioner(s) No. 1 MR SUDHIR M MEHTA, ADVOCATE for the Respondent(s) No. 1 RULE SERVED for the Respondent(s) No. 1 - 2 ================================================================ CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI Page 1 of 5

C/SCA/15097/2004 JUDGMENT and HONOURABLE MS JUSTICE SONIA GOKANI

Date : 03/03/2014

ORAL JUDGMENT

(PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. Since the facts are similar, we may record those arising in Special Civil Application No.15097/2004. 2. The petitioner has challenged an order dated 11.10.2002 passed   by   the   Settlement   Commission   in   the   following background : 2.1) The petitioner had applied for settlement under the scheme   provided   under  the  Income   Tax  Act,   1961.   The Settlement Commission passed an order on 12.3.1996. In such order, the Tribunal provided for charging of interest under section 234A, 234B and 234C of the Act as under : “22. A   request   has   been   made   for   waiver   of   interest chargeable u/s.234A, 234B and 234C of the Income­tax Act in both the cases. In the case of Kakadia Bulders P. Ltd. returns for assessment  years 1994­1995 and 1995­ 1996 were due after the date of search. Considering the same, the interest chargeable for nine out of twelve months delay in 1994­95 is waived. Interest u/s.234A for 1995­96 is chargeable for three months only which shall be charged as per law. In the facts of the case, interest u/s.234A for 1992­93 and  1993­94 is waived  to the   extent  of 50%. Interest chargeable u/s.234B for all the four years will be reduced by 50%. Regarding Shri Mahnarlal M. Kakadia, interest u/s.234A Page 2 of 5

C/SCA/15097/2004 JUDGMENT for   the   assessment   years   1993­94   and   1994­95   will   be charged   for   eighteen   and   six   months   respectively.   The balance   interest   is   waived.   Interest   u/s.234A   for assessment   years   1995­96   will   be   charges   as   per   law. Interest   u/s.   234B   will   be   reduced   by   50%   of   the chargeable amount in all the four years under settlement. Interest us.234C in both the cases will be charged as per law.” 2.2)  Revenue   thereupon   approached   the   Settlement Commission   and   requested   for   rectification   of   the   said order in connection with the interest portion contending that   as   per   the   decision   of   Supreme   Court   in   case   of Commissioner of Income­tax v. Anjum M.H. Ghaswala and others reported in 252 ITR 1, charging of interest was mandatory.   The   Commission   therefore,   could   not   have waived any portion of such interest liability. 2.3)  The   Settlement   Commission   thereupon   passed   the impugned order and stated thus : “4. The applicant’s miscellaneous application dated 29 th December,  2000  was  to the  effect  that  interest  charged under section 234A and 234B as a part of the order under section   245D(4)   was   not   chargeable   in   view   of   the judgement of the Patna High Court in the case of CIT v/s Ranchi   Club   Ltd.,  later   affirmed   by   the   Supreme  Court (164   CTR   2000).   It   is   noticed   that   the   law   has   been amended with the deletion and amendment of Explanation 4 to Section  234A  and   Explanation  1 to Section  234B respectively by Finance Act 2001 with retrospective effect from   1.4.89   .   Therefore,   the   miscellaneous   applications moved by the applicants fail. Shri Vijay Metha clarified that interest charged by the Assessing Officer has been on the basis of the Special Bench decision in the case of Gulraj Engineering & Construction Company 1995(215 ITR at 1). Page 3 of 5

C/SCA/15097/2004 JUDGMENT 5. Shri   Mehta   pleaded   for   time   to   pay   the   liability arising to the applicants as a result of this order citing financial constraints. We allow both the applicants to pay the   resultant   liability   in   four   quarterly   installments beginning   30 th  November,   2002.   Interest   payable   under section   245D(6A)   will   be   payable   along   with   the   last installment. 6. In the result, the miscellaneous application moved by the   applications   are   rejected   and   the   miscellaneous application moved by the Department is partly allowed.” 3. It   could   thus   be   seen   that   the   Commission   Settlement modified its direction with respect to charging of interest exercising powers of rectification. The Supreme Court in case of Brij Lal and others v. Commissioner of Income­ tax  reported   in   (2010)   328   ITR   477(SC),   held   that   the Settlement Commission had no power of rectification. 4. In   that     view   of   the   matter,   on   this   short   ground,   the impugned order is required to be set aside. We clarify that we do not express any opinion on the Revenue’s contention which finds favour with the Settlement Commission that in view   of   the   decision   of   the   Supreme   Court   in   case   of Commissioner of Income­tax v. Anjum M.H. Ghaswala and others(supra), no portion   of interest liability of the assessee   could   have   been   waived   or   reduced   by   the Commission.  If the Revenue was aggrieved by such order of the Settlement Commission, it ought to have challenged the same in accordance with law. In any case, application for rectification was not maintainable as the statute stood at the relevant time as interpreted by the Supreme Court in case of  Brij Lal and others v. Commissioner of Income­ tax(supra). Page 4 of 5

C/SCA/15097/2004 JUDGMENT 5. Under   the   circumstances, impugned   order   dated 11.10.2002  is quashed leaving it open to the Revenue to follow   its   remedies   against   the   original   order   of   the Settlement Commission. 6. Petition is disposed of. Rule made absolute accordingly. (AKIL KURESHI, J.) (MS SONIA GOKANI, J.) raghu Page 5 of 5