VIJAY KUMAR vs. COMMISSIONER OF INCOME TAX PATIALA

The petitioner prays for quashing the order dated 22.2.1999, Annexure P.1 in respect of demand of ` 61,319/- raised by withdrawal of interest under Section 244A of the Income Tax Act, 1961 (in short, “the Act”) granted to him on refund of tax in pursuance of the appeal decided in his favour by the Commissioner of Income Tax (Appeals) Patiala [CIT(A)] whereas the appeal of the department is pending before the Income Tax Appellate Tribunal (in short, “the Tribunal”). Further prayer has been made for a direction to the respondent to issue a certificate under Section 90(2) of the Kar Vivad Samadhan Scheme, 1998 (in short, Gurbax Singh 2017.08.16 10:44 “the KVSS, 1998”) by recovery of the amount of ` 1,70,733/- only against a total demand of ` 2,33,052/- out of which ` 1,70,733/- is due as per the scheme which has already been paid by the petitioner. A direction has also been sought to the respondent to keep all actions under the scheme pending and not to make any declaration invalid under KVSS 1998 till the disposal of the present writ petition.

A few facts relevant for the decision of the controversy involved as narrated in the petition may be noticed. The petitioner retired as Development Officer of the Life Insurance Corporation of India in June 1994. He was a regular income tax assessee. The assessments were made for various years regularly whereas for the assessment years 1988- 89 to 1995-96, the assessments were made by the assessing authority raising various demands after making additions/adjustments in the declared income on account of expenses incurred in respect of incentive bonus and additional conveyance allowance received by the petitioner. The income was enhanced against which the petitioner went in appeal before the Commissioner of Income Tax (Appeals) [CIT(A)] who had tax was to be paid in respect of the disputed income at the rate of 30% of the total disputed income and no interest or penalty levied was to be paid which was waived and if the amount due was on account of interest charged or penalty levied, only then in such cases, 50% of the total amount was to be paid. The other condition was that the said demands should have been raised before 31.3.1998 and it was calculated on the basis of amount due as on the date of making the declaration. The assessee also opted to pay the tax even though the appeal had been decided in his favour. The petitioner also filed declaration before the Income Tax Commissioner, Patiala in respect of the departmental appeal and as per section 90(1) of KVSS 1998 within 60 days of the receipt of the declaration under section 88 of the said scheme determined the amount of tax payable under the scheme by order Annexure P.1 dated 22.2.1999. The petitioner was to pay it within 30 days of the passing of the order upto 23.3.1999 and certificate of full and final settlement was finally to be issued by the authority. The respondent in the case of the petitioner issued a certificate showing amount payable at ` 2,32,052/- which includes the amount of ` 61,319/- as payable under the scheme on account of interest withdrawn which had already been allowed under Section 244A of the Act as refund. According to the petitioner, under the scheme, it was only the tax in respect of the disputed income which was to be paid at the rate of 30% and no other amount if due on or before 31.3.1998 shall be payable and hence raising of the demand by withdrawal of interest given on refund under Section 244-A of the Act in consequence of appeal effect to the extent of ` 61319/- had not been decided in accordance with KVSS 1998. The said amount was neither legally created nor payable under Section 244A(3) of the Act and, therefore, it could not be taken or raised under the KVSS scheme. The last date of making the payment was 23/24th of March 1999 and hence the petitioner had no other alternative except to approach this court through the present writ petition. The petitioner has made the payment of ` 1,70,733/- which was the tax due in accordance with the said scheme Tax practitioners’ case (supra), which was accepted by the department, the scheme of tax arrear was modified to cover tax, penalty or interest under dispute in departmental appeal and the pending departmental appeals were made eligible to be covered under the Scheme provided the original demand had been determined on or before 31.3.1998. In such cases, the entire income under dispute constituted disputed income and the tax payable was required to be worked out on that income at the prescribed percentage. Since the petitioner wanted to settle the dispute by paying taxes on the income disputed in second appeal, the interest given under section 244A of the Act was not to be allowed on such taxes refunded to him while giving effect to the first appellate order and therefore, it was rightly withdrawn.

The primary question that arises for consideration is whether the interest given under Section 244A of the Act at the time of refund in pursuance to order of CIT(A), was required to be paid back by the petitioner in case his application under KVSS, 1998 for settlement of dispute was accepted.

We have heard learned counsel for the parties and do not find any merit in the writ petition.

Admittedly, the petitioner filed a declaration under Section 88 of the Finance (No.2) Act, 1998 which was received on 28.01.1999 in the office of the Designated Authority. In exercise of the powers conferred by Sub Section 1 of Section 90 of the Finance (No.2) Act, 1998, the Designated Authority after consideration of the relevant material determined the following amount payable by the petitioner towards the full and final settlement of its tax arrears covered by the above said declaration under the KVSS, 1998:- S.No. Direct Tax enactment A.Y. Tax Arrears Amount payable

It would be advantageous to refer to certain relevant provisions of the KVSS, 1998 Scheme. The definition of “tax arrear” under the KVSS, 1998 as enumerated therein reads as under:- “In relation to direct tax enactment, the amount of tax, penalty or interest determined on or before the 31st day of March, 1998 under that enactment in respect of an assessment year as modified in consequence of giving effect to an appellate order but remaining unpaid on the date of declaration.” Section 88 of the KVSS, 1998 reads as under:- Settlement of tax payable:

A perusal of above provisions shows that “tax arrears”

Adverting to the facts of the present case, the petitioner made a declaration for the assessment years 1988-89 to 1995-96 before the respondent vide application dated 28.01.1999. The scheme in question was initially not available to the cases where appeals had been filed by the department but after the decision rendered by the Delhi High Court in All India Federation of Tax practitioners’ case (supra) the scope of tax arrear was modified to cover tax, penalty or interest under dispute in departmental appeal and the pending departmental appeals were thus made eligible to be covered under the scheme in question provided the original demand had been determined on or before 31.03.1998. On receipt of declaration by the petitioner, the respondent issued a certificate of intimation under Section 90 (1) of the Finance (No.2) Act, 1998 by considering the income under dispute in second appeal as disputed income. The amount of tax was worked out on that income at the prescribed rate. On that basis, the tax payable under the KVSS 1998 was determined at ` 1,70,733/- payable by the applicant- assessee in respect of assessment years 1988-89 to 1995-96. Besides, the interest of ` 61,319/- allowed under Section 244A of the Act on account of order of CIT(A), in pursuance to which the refund had been allowed to the assessee, was withdrawn.

In those cases, where the department was in appeal, the tax arrears were to be calculated by taking the amount which was subject matter of appeal before the appellate authority. However, wherever refund of tax in pursuance to any order favourable to the assessee alongwith the interest under Section 244A of the Act had been made, the assessee could not take benefit of the interest and retain the same. It could not be successfully pleaded by the assessee that he was legally entitled to keep the interest amount. In other words, the entire income under dispute in appeal constituted the disputed income on which tax was to be calculated and any interest allowed under Section 244-A of the Act could not be allowed to be retained by the assessee. Further, since no tax arrear was pending against the petitioner on the date of filing the declaration and no such demand was created on that date, no separate order under Section 244-A(3) of the Act was required to be issued. Further in B.M. Parmar’s case (supra), it has been held by this Court that the incentive bonus is assessable under the head “salary” and not under head “profits and gains of business or profession”. The upshot of the above discussion is that the petitioner is not entitled to claim benefit of interest of ` 61,319/- paid to him under Section 244A of the Act while availing the benefit of KVSS 1998 and thus it has been rightly concluded by the respondent-authority that the interest cannot be refunded which was withdrawn. The demand raised by the respondent by including the said amount of ` 61,319/- thus cannot be faulted.

Learned counsel for the petitioner has not been able to point out any error in the view taken by the respondent authority. Consequently, finding no merit in the petition, the same is hereby dismissed.