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IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 15TH DAY OF OCTOBER, 2015
BEFORE
THE HON'BLE MR. JUSTICE RAM MOHAN REDDY
WRIT PETITION NO.27405 OF 2015 (T-IT)
BETWEEN:
BOSCH LIMITED P.O.BOX NO.3000 HOSUR ROAD, ADUGODI BANGALORE-560 030. REPRESENTED HEREIN BY ITS JOINT MANAGING DIRECTOR, MR.SOUMITRA BHATTACHARYA – 55 YEARS ... PETITIONER
(By Sri. K.P. KUMAR, SENIOR ADV.,)
AND
THE ASSISTANT COMMISSIONER OF INCOME TAX-LTU, BANGALORE. JSS TOWERS, 100 FEET RING ROAD BANASHANKARI IIIRD STAGE, BANGALORE-560 095.
THE CHIEF COMMISSIONER OF INCOME TAX-L.T.U. BANGALORE, JSS TOWERS, 100 FEET RING ROAD, BANASHANKARI IIIRD STAGE, BANGALORE-560 095.
THE DEPUTY COMMISSIONER OF INCOME TAX-L.T.U. BANGALORE, JSS TOWERS, 100 FEET RING ROAD BANASHANKARI IIIRD STAGE, BANGALORE-560 085. ... RESPONDENTS
(By Sri. JEEVAN J NEERALGI, ADV.,)
THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO SET ASIDE THE IMPUGNED ORDER DTD.13.3.2015 [ANNEX-M] PASSED BY THE R-2 REJECTING THE PETITIONER'S APPLICATION FOR WAIVER OF INTEREST UNDER SECTION 234C OF THE ACT FOR THE ASSESSMENT YEAR 2010-11 & ETC.,
THIS WRIT PETITION COMING ON FOR ORDERS THIS DAY, THE COURT MADE THE FOLLOWING:
O R D E R
The rejection of petitioner’s application for waiver of interest under Section 234C for the accounting year 2010-11 under the Income Tax Act, 1961 (for short ‘Act’), on the premise that the income was not business income, when challenged in W.P.No.48496/2013, a learned single Judge, by order, dated 20.08.2014, held the income as business income and the notification for waiver of interest applied to the case of the petitioner
hence remitted the proceeding to the Chief Commissioner, Large Tax Payers Unit (LTU), Bengaluru, for fresh consideration.
On remand, the Chief Commissioner, (LTU), Bengaluru, by order, dated 13.03.2015, Annexure-M, in great elaboration extracting the observations of the Apex Court as well as this Court in reported opinions, rejected the request for waiver by declining to accept petitioner/assessee’s submission of unpredicted or unanticipated income during the year due to which Advance Tax paid was less by observing further that:- petitioner had not brought out any other reason for its inability to forecast its sales in the said year in contrast to the other years where advance tax was paid correctly; the non anticipation of the income is not proved by the assessee; the assessee being a leading manufacturer of automobile parts had always made “good profit” year after year; and, there was no financial hardship in considering the grant of relief as observed by various
Courts in their decisions for invoking provisions for waiver. Hence this petition.
At the outset, learned Senior Counsel for petitioner places on record the year wise sales and total income (as returned) for the financial year 1999-2000 to 2010-2011 which is taken on record, since learned counsel for the revenue has no objection.
Few facts necessary for decision making are:
(i) Petitioner/assessee filed return of income for the assessment year 2010-11 declaring income of `913,82,50,403/- which when processed under Section 143(1) on 28.07.2011 resulted in charging interest under Section 234C amounting to `9,18,00,814/-, due to delay in payment of installment of advance tax. The calculation of interest when questioned, was rectified by order dated 29.02.2012 invoking Section 154 of the ‘Act’ reducing the interest to `2,14,81,953/-.
(ii) Petitioner’s application dated 11.04.2011 for waiver of interest charged under Section 234C of the ‘Act’, when rejected, at the first instance, was set-aside by order dated 20.08.2014 in W.P.No.48496/2013 and the proceeding remanded for consideration afresh.
(iii) Petitioner’s claim for waiver of interest is said to be based upon the notification dated 23.05.1996 said to be on par with paragraph 2(b) of the notification dated 26.06.2006, Annexure-B, on the premise that it had paid advance tax on the basis of anticipated current income during the first quarter of the year and there was no contemplation that its current income would exceed the current income for the previous year i.e., assessment year 2009-10 (financial year 2008-09). According to the petitioner, current income for the financial years 2006-07 was `761 crores, while, `753 crores for the year 2007-08
and `620 crores the for year 2008-09, hence a decrease in the current income, leading to anticipated decrease in the current income for the financial year 2009-10. In the circumstances, during the first quarter of the year 2009-10, petitioner, it is said did not anticipate its current income would be `901 crores, regard also being had to global recession. (iv) The Chief Commissioner declined to accept the aforesaid plea of the petitioner by recording conclusions in paragraph 4 of the order that there was no fall in turn over during the first quarter of the year which prompted the assessee to pay less advance tax compared to earlier years and observed that on reckoning the details of sales, consumption, and production, obtained from the assessee for 3 previous years, there was no decrease in the sales during the financial year 2009-10 as compared to earlier years.
It was further observed, estimation of advance tax payments is based on internal estimates of the company’s working and profitability and not on “global parameters” which seem to have influenced the assessee’s estimation of advance tax; thrust of the case of the assessee was brought out on “macro economic factors” responsible for global economic crisis in the financial year 2008-09 which continued upto 2009-10 as indicated in the economic survey of 2009-10 presented in the parliament and statistics of periodical review conducted by centre for monitoring Indian Economy on the outlook of Indian economy, industrial/automotive sector.
The Chief Commissioner held that macro economic parameters and the state of the global economy cannot be considered as the basis for the estimation to pay advance tax. According to the Chief Commissioner, each assessee has to make its own estimation of income for payment of advance tax based
on production, sales and income and not based on global economic factors.
At paragraph 5 of the order, it is observed that though it is for the Board of Revenue to notify the classes of cases for waiver of interest in exercise of power vested in it based on economic conditions in the country or worldwide, nevertheless, no such classes of income have been notified so far and as a result, no individual case is eligible for waiver of interest in terms of the notification, disentitling petitioner/assessee for waiver of interest under Section 234C.
Having thus recorded conclusions, the Chief Commissioner extracted, in extenso (i) the observations of the five Judges Bench in Commissioner for Income Tax vs. Anjum M.H. Ghaswala, that Section 234 A, B and C are mandatory in nature; (ii) the observation of this court in Dr.S.Reddappa and another vs. Union of India and others reported in 232 ITR 62 that the nature of interest charged under the aforesaid
provisions is compensatory and not penal and that Section 234C regulates payment of simple interest at the rate of 18% per annum in case an assessee liable to pay advance tax under Section 208 of the Act, either fails to pay the tax or pays the same which is less than 30% by September 15, or 60% by December 15, of the tax due on the returned income; and (iii) observations of the Apex Court in several reported opinions that interest charged under Section 234, A, B and C cannot but be compensatory in character.
The authority while addressing the question of waiver of interest under Section 234A, B and C of the Act extracted the observations of this Court in M/s Union Land and Building Society Pvt. Ltd. Vs. Union of India reported in 215 ITR 758, rejecting the submission that imperfection and legitimate expose of the provisions to criticism or challenge to its vires, on the premise, that validity of legislation, otherwise valid, could not be struck down simply because, in some
extreme or freak case, it would operate so unfairly as to make it look penal or confiscatory, and Courts must always remember that legislation is directed to practical problems and economic mechanism is highly sensitive and complex, that many problems are singular and contingent, while laws are not abstract propositions and do not relate to abstract units and are not to be measured by abstract symmetry, that exact wisdom and nice adoption of remedy are not always possible and that judgment is largely a prophecy based on meager and un-interpreted experience.
The Chief Commissioner held that the aforesaid observations were a complete answer to the arguments of the petitioner based on possible hardship in a certain situation. At paragraph IV.8 the authority observed that waiver of interest under Section 119(2)(a) of the ‘Act’ is not absolute requiring a consideration in the light of the circumstances mentioned therein, although Courts have held that the Circular speaks of class of
incomes or class of cases, nevertheless, opined that individual cases can be considered for the purpose of relieving an assessee of genuine hardship.
Yet again in paragraph IV.9, it was further observed that there is no separate unanticipated income in the form of a windfall but only the increase in business turnover resulting in increase in profits at the end of the year and that the net profits of the business at the end of the year will be forecasted in the first quarter by the assessee himself who is in possession of the information regarding the affairs of the business and how business is performing. The authority having examined the advance tax paid for the assessment year 2007-08 onwards till 2014-15 (till December) though observed that on a comparison in the previous years, the advance payment remained the same, nevertheless recorded a finding that it was factually incorrect to submit that substantial increase in the business income during the last quarter of the financial year 2009-10
was neither anticipated nor contemplated by the assessee.
It was further observed that advance tax payment for the accounting year 2011-12 was higher than for the accounting year 2012-13 and yet again, an increase in the accounting year 2013-14, based upon the return of income which the assessee predicted and not by the department taking into consideration internal mechanism including TDS payable for the whole year. In the circumstances, the authority rejected petitioner’s plea that for the assessment year 2010-11, a forecast of the increase in profits during the last quarter of the year was unavailable, since, such increase in profits “may be” due to various internal and external conditions.
Sri K.P.Kumar, learned senior counsel submits that there being no dispute over applicability of notification dated 26.06.2006, Annexure-B to petitioner, an individual assessee, for waiver of interest under Section 234C of the ‘Act’ as noticed by the Chief
Commissioner at paragraph IV.8, the question for consideration was, whether petitioner had putforth satisfactory explanation for exercise of discretion to waive interest under Section 234C in terms of clause 2(b) of the notification dated 26.06.2006?
Learned Senior counsel points to the year wise sales and current income demonstrating fluctuating and reduction in income during the financial year 2006-07 to `761 crores; 2007-08 `753 crores; 2008-09 `620 crores, hence unable to predict current income of `901 crores for the financial year 2009-10 not at least during the first quarter of the financial year 2009-10. Learned Senior counsel hastens to add that petitioner is in the business of automobile parts, one of the global leaders and highest tax payer for over six decades, an admitted fact, and for estimation of anticipated current income for the financial year 2009-10 so as to pay advance tax took into consideration not only the reduction in the current income of the previous years, but also global
recession during the financial year 2008-09 which spilt over first quarter of financial year 2009-10, as also “macro economic parameters” and say of global economy.
Sri Jeeval J. Neeralgi, learned counsel for respondent revenue seeks to support the order impugned as being will merited, fully justified and not calling for interference.
The core question for decision making is,
“Whether in the facts and circumstances, petitioner/assessee’s explanation was satisfactory of acceptance for the benefit of waiver of interest charged under Section 234C of the ‘Act’ by invoking clause 2(b) of the notification dated 26.06.2006, Annexure-B?”
Having examined the order impugned of the Chief Commissioner and perused the pleadings, there is no more doubt that the authority meandered into aspects both in law and on facts unnecessary for decision
making, more appropriately, over whether Section 234 A, B and C of the ‘Act’ was penal or compensatory and as to whether the said provisions were mandatory, since the order impugned extensively is devoted to extraction of reported opinions of the Apex Court and that of this Court. Having extracted the observations in M/s Union Land and Building Society Pvt. Ltd. Vs. Union of India, in the considered opinion of the Court, the Chief Commissioner misdirected himself to negative the claim of the petitioner on the premise that possible hardship pleaded was set-at-rest and the challenge to the constitutionality of Section 234C on that ground was unavailable. The aforesaid reason assigned is a meek response to the claim for waiver of interest by invoking the notification, Annexure-B, since it is neither the case of the petitioner nor that of the revenue that petitioner challenged the constitutionality of Section 234 A, B and C of the ‘Act’ more so, before the Chief Commissioner.
The finding of the Chief Commissioner that during the first quarter of the financial year 2009-10, petitioner should have anticipated current income of `901 crores by a mechanism of details of sales, consumption and production over the previous 3 years is far from acceptance. Learned senior counsel is correct in his submission that during the financial years 2006-07, the current income was `761 crores, while for the year 2007-08, was reduced to `753 crores and for the year 2008-09 further reduced to `620 crores and therefore, it was reasonable for the assessee to anticipate a further reduction in the current income for the financial year 2009-10, atleast during the first quarter of the said year, and the advance tax paid on the basis of anticipated reduction of current income for the said year cannot be said to be figment of wild imagination, more so, since assessee is admittedly a global manufacturer of automotive parts for over six decades and more. It is common knowledge that there was a global recession during the financial years 2008-09 as
noticed by the Chief Commissioner on the basis of economic survey of 2009-10 presented in the Parliament and Statistics of periodical review conducted by the Centre for monitoring Indian economy on the outlook of Indian Economy, Industrial Automotive Sector. Rejection of plea of the petitioner that ‘macro economic parameter’ play an important role in the anticipation of reduced current income for the financial year 2009-10, in the facts and circumstances a relevant factor, was unjustified.
Merely because the Board of Revenue did not issue notification over cases/class of income on the basis of economic condition of the country or worldwide, in my considered opinion, was unjustified since Chief Commissioner concluded, positively, that an individual assessee’s claim for waiver can be considered in terms of the notification.
Petitioner assessee is admittedly in the Automotive parts industry for more than six decades, and has a well
established internal management system that can predict the level of profit for payment of advance tax. At the same time, it is common knowledge that any industry, particularly where manufacturing process is involved, and more appropriately, an automotive spare part industry, having serious challenges in the wake of technology outburst and global slow down, with reduction in current income for three consecutive previous financial years, it is reasonable to predict that on account of external factors/global, and not merely internal relating to manufacture, sale, affairs of business, and how it is performing there would be a reduction in the current income for the financial year 2009-10, atleast during the 1st quarter of the said year.
It is a matter of fact that it is only in the last quarter of the financial year 2009-10, petitioner saw rise in income but that by itself and nothing more, it cannot be said that petitioner anticipation of less current income for that year was not justified. Looking
to the circumstances and in particular the complexities of business both global, internal, in the country, and myriad possibilities, in the absence of mathematical precision it cannot be said that an automotive spare part industry could predict high profits in the financial years. Needless to state that, in the absence of a straight jacket formula several factors go into decision making, particularly, by the petitioner, who, under Section 234C is required to assess its likely current income for that financial year and having demonstrated the reduction in the current income for three preceeding years, the Chief Commissioner was not justified in rejecting the explanation of the petitioner over its anticipated low current income for the financial year 2009-10, at least in the 1st quarter of that year, for payment of Advance Tax.
Admittedly the Chief Commissioner without making reference to any material over manufacture, sales, production of automotive parts by the petitioner
during the 1st quarter of the financial year 2009-10, was not justified in concluding that petitioner could have by an internal mechanism, anticipated the spurt in increase in profit in the last quarter of the year, for payment of Advance Tax.
It is no doubt true that petitioner did not experience a windfall during the last quarter of the financial year 2009-10, but did have an increase business income. Paragraph 2(b) of the notification cannot be read restrictively, to mean that waiver of interest under Section 234 ‘C’ is available only to cases of windfall, since that would be too myopic. In fact discretion is invested in the Chief Commissioner to be exercised judiciously, based on facts and circumstances, since not circumscribed by any fetters. If as noticed supra, and at the cost of repetition petitioner suffered decrease in current income in the three consecutive previous years, coupled with global recession in automotive industry, an admitted fact, it
was imminent for the Chief Commissioner to have exercised judicious discretion in petitioner’s favour.
In my considered opinion, in the facts and circumstances, petitioner’s explanation is acceptable, calling for exercise of discretion by the Chief Commissioner under paragraph 2(b) of the notification dated 26.06.2006, Annexure-B, over the extent of interest waiver. In the result, petition is allowed. The order impugned is quashed and the proceeding remitted for consideration by the Chief Commissioner, insofar as it relates to the extent of waiver of interest charged under Section 234C of the Income Tax Act, in terms of paragraph 2(b) of the notification dated 26.06.2006, Annexure-B. Compliance within four weeks from the date of receipt of a copy of this order.
Sd/- JUDGE
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