RATILAL C SMITH vs. ASSISTANT COMMISSIONER OF INCOME TAX

C/SCA/16249/2013 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION NO. 16249 of 2013 With SPECIAL CIVIL APPLICATION NO. 16250 of 2013 With SPECIAL CIVIL APPLICATION NO. 16531 of 2013

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 ? ================================================================ C M SMITH AND SONS....Petitioner(s) Versus ASSISTANT COMMISSIONER OF INCOME TAX....Respondent(s) ================================================================ Appearance: MR JP SHAH WITH MR MANISH J SHAH, ADVOCATE for the Petitioner(s) No. 1 MR MR BHATT, SENIOR COUNSEL WITH MRS MAUNA M BHATT, Page 1 of 8

C/SCA/16249/2013 JUDGMENT ADVOCATE for the Respondent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MS JUSTICE SONIA GOKANI

Date : 03/02/2014

ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. These   petitions   arise   out   of   common   background.   They have therefore, been heard together for final disposal and would be disposed of by this common order. 2. We may notice the facts arising in Special Civil Application No.16249/2013.   The   petitioner   assessee   for   the assessment   years   1988­1989   to   1995­1996   applied   for settlement   of   the   assessment to   the   Settlement Commission   (“the   Commission”   for   short)   in   terms   of provisions  contained  in the  Income  Tax  Act,  1961  (“the Act”for short). Such application was entertained and the Commission passed order dated 11.10.2002 assessing the tax   liability   of   the   petitioner.   In   such   order,   the Commission   gave   the   following   directions   for   charging interest : “(C) Interest   under   section   215/217,   234B   and   234C shall   be   charged   according   to   law   except   in   respect   of ASST. Year 1993­94 in the case of the firm for the reasons mentioned below : The assessment under section 143(3) for assessment year 1993­94   in   the   case   of   M/s.   Smith   and   Sons   was Page 2 of 8

C/SCA/16249/2013 JUDGMENT completed by A.O. After the submission of the settlement application but before the same was admitted. In view of the   Special Bench decision in case of Damani brothers (238 ITR 36(AP)), the assessment completed would have to be   considered   as   non­est.   In   the   circumstances,   the interest chargeable in respect of assessment year 1993­94 in the case of M/s. T.M. Smith and sons would have to be restricted upto the date of the order under section 143(1) (a).”

It is not in dispute that the petitioner paid up the remaining   tax   as   per   the   order   of   the   Settlement Commission within the time permitted. 3. Based  on  such  order  of the  Commission,  the  Assessing Officer passed a consequential order dated 4.2.2003. In the said order, he calculated the interest under section 234B and   234C   of   the   Act   upto   the   stage   of   the   Settlement Commission   passing   the   final   order   of   settlement   as envisaged under section 245D(4) of the Act. He observed that   such   interest   would   be   chargeable   as   per   the directions   contained   in   para.   26(c)   of   the   Commission’s order which has been produced here­in­above. Contending that the interest under section 234B and 234C could not have been charged beyond the stage of section 245D(1) of the   Act,   the   petitioner   moved   an   application   for rectification before the Commission on 19.6.2003. In such an application, the petitioner prayed inter­alia that : “(a) The Hon’ble  ITSC  may  be pleased  to hold that  no interest u/sec.234B is chargeable in respect of A.Y.1988­ 89. (b) The interest u/sec.234B be ordered to be calculated Page 3 of 8

C/SCA/16249/2013 JUDGMENT only   upto   the   date   of   the   order   of   the   Hon’ble   ITSC u/sec.245D(1).” 4. This application for rectification remained pending before the Commission for number of years. In the meantime, the petitioner also filed written statement. In such statement, the petitioner relied on the decision of the Supreme Court in case of Brjlal and others v. Commissioner of Income­ tax  reported   in   (2010)   328   IR   477(SC)   to   contend   that interest   beyond   the   stage   of   section   245D(1)   was   not permissible. 5. The   Settlement   Commission   passed   its   impugned   order dated 17.9.2013 in which in addition to holding that the Commission  has no power  to rectify its own order, also observed that there was no mistake apparent on the record in the order passed by the Commission on 11.10.2002. It was observed that in such order, necessary directions were given   for   charging   interest   under   different   sections   as applicable in accordance with the provisions of the Act. The contention   of   the   petitioner   that   newly   introduced   sub­ section (6B) of section 245D permitting the Commission to rectify its own order in the present case was also rejected on the ground  that  such  provision  was  prospective  and that in any case in view of time limitation provided in the said provisions, the proceedings would be time barred. This order of the Commission was challenged by the petitioner in the present writ petition. 6. During  the  pendency  of the  petition,  the  petitioner  also amended the petition to include the challenge to the order dated   4.2.2003   passed   by   the   Assessing   Officer.   The Page 4 of 8

C/SCA/16249/2013 JUDGMENT respondents   have   filed   reply   including   reply   to   the amended petition and opposed the petition. 7. Having   heard   the   learned   counsel   for   the   parties   and having   perused   the   documents   on   record,   the   following scenario emerges : a) The petitioner  contests the interest charged by the Revenue in terms of the order passed by the Settlement Commission beyond the stage of section 245D(1) of the Act. b) Such challenge the petitioner kept alive all through out right from the stage, Settlement Commission passed its order under section 245D(4). c) The   Assessing   Officer   levied   such   interest   on   the premise that Settlement Commission’s order so permits. d) When the petitioner filed the rectification application before the Commission, the Commission informed him that the only order passed by the Commission was to charge interest as per law. In other words, there was no direction specifically   providing   for   interest   from   the   petitioner beyond the stage of section 245D(1). e) Such application  for rectification  remained pending before the Commission all along for number of years. There is nothing  on  record  to  suggest  that  the  petitioner  was responsible for such delay nor any ground has been raised by the Revenue before us. Page 5 of 8

C/SCA/16249/2013 JUDGMENT f) In   the   meantime,   the   Supreme   Court   clarified   the legal position and held in its judgement in case of   Brjlal and others(supra) that interest beyond the stage of section 245D(1) under section 234B and 234C, cannot be charged. In the same judgement, the Supreme Court also laid down that   the   Settlement   Commission   has   no   power   of rectification. 8. Sum   total   of   the   above   sequence   of   events   is   that   the petitioner had all along kept its application to the interest being charged under section 245D(1) alive. It may be that under   mistaken   bona   fide   belief   that   Settlement Commission   has   power   of   rectification,   he   filed   such application  before the Commission  and such application came to be dismissed.  We have noticed that application remained pending before the Commission for long number of years. Had such an application been terminated shortly after being filed, either on merits or on the ground that the Commissioner has no power of rectification, the petitioner would have taken his steps as may be available in law. Now that the Commission has rejected the application on both counts,  namely,  that  there  was  no error  in the  original order   and   also   that   it   does   not   have   the   power   of rectification,   in   our   opinion   the   petitioner   cannot   be precluded   from   questioning   the   Assessing   Officer’s interpretation   and   implementation   of   the   Commission’s order. It is not in dispute that if law is applied as laid down by the Supreme Court in case of  Brjlal and others(supra), such consequential direction of the Assessing Officer would not be valid. Counsel for the Revenue however, vehemently contended   that   the   challenge   of   the   petitioner   to   the Page 6 of 8

C/SCA/16249/2013 JUDGMENT Assessing   Officer’s   order   is   highly   belated.   We   must however, see the entire sequence of events in light of the developments noted above. The petitioner had approached the Settlement Commission  raising the grievance that the Commission’s   order   permitting   the   Assessing   Officer   to charge interest gave rise to a dispute and that such order therefore,   should   be   clarified   or   rectified.   Even   while holding that the Commission has no power of rectification, it did in the same order clarify that its previous order was only   for   charging   interest   as   per   the   statute.   In   other words,   the   Commission   never   required   the   Assessing Officer to charge interest de­horse the statutory scheme. It was  therefore,  that  the  petitioner  had  no  choice  but  to question   the   very   base   order   of   the   Assessing   Officer misapplying the directions of the Settlement Commission. When such challenge comes before us, we must apply the law as presently prevailing. 9. Had the petitioner abandoned his cause and accepted the directions  of the  Settlement  Commission,  as understood and   implemented   by   the   Assessing   Officer   of   charging interest   even   beyond   the   stage   of   section   245D(1)   and thereafter, many years later relied on the decision of the Supreme Court in case of   Brjlal and others(supra), we would have certainly considered the Revenue’s objection to such a challenge on the ground that only on delay and latches   such   challenge   should   be   terminated.   In   the present  case,  the  petitioner  all  along  kept  his challenge alive. He cannot be penalised for his application before the Settlement   Commission   remaining   pending   nearly   for   a decade. Page 7 of 8

C/SCA/16249/2013 JUDGMENT 10. In   the   result   three   separate   orders   passed   by   the Assessing Officer dated 4.2.2003 giving effect to the orders passed by the Settlement Commission are quashed to the extent such order provides for charging interest from the respective petitioners under section 234B and 234C of the Act beyond the stage of section 245D(1) thereof. To this extent, petitions are allowed and disposed of. (AKIL KURESHI, J.) (MS SONIA GOKANI, J.) raghu Page 8 of 8