Whether when assessee avails benefits based on decision of Kerala HC, which was later over-ruled by SC, it cannot be granted waiver of penal interest merely because it is not located within jurisdiction of Kerala HC - NO: HC

THE issues before the Bench are - Whether when an assessee has genuinely availed benefits under the Income Tax Act, relying upon the decision of Kerala High Court, which was later overruled by the Supreme Court, it cannot be granted the waiver of penal interest u/s 119(2)(a), merely because the assessee is not located within the jurisdiction of the Kerala High Court; Whether the power of waiver of penal interest u/s 119(2)(a) can be exercised only in the perspective of the decision of the High Court or Supreme Court passed necessarily in assessee's own case and Whether the fact that the decision covers the field of Income Tax legislation, as may be applicable to any assessee, would not amount to a sufficient circumstance for reduction of waiver of interest - Whether the decision of the other High Courts have any persuasive value.
And, the HC allows the assessee's writ.

Facts of the case

The assessee wanted to claim the benefit u/s 80HHC of the Act. At that point of time a Judgment of the Single Judge of Kerala High Court in A.V. Thomas’ case, came which extended the benefit of deduction u/s 80HHC. The assessee under the bonafide belief that this benefit was available to it during the previous year 2000-2001 did not pay the advance tax during the three quarters ending December 2000 and there afterwards. The benefit of deduction was allowed by the AO, however, was rejected by the Chief Commissioner of Income-tax ("CCIT"). The assessee filed an appeal before the Tribunal. The Tribunal relying on the order passed by the Kerala High Court allowed the deduction. Now, the Revenue went in appeal before the Karntataka High Court. While this appeal was pending before the Karntaka High Court, the Apex Court in IPCA Laboratory Limited –v- Deputy Commissioner of Income Tax declared the law over applicability of Section 80 HHC, following which the appeal of the Revenue was allowed, which disentitled the assessee from the deduction. The AO passed an order levying interest u/s 234-B for the delay in making payment, which led the assessee to file an application for waiver of interest u/s 119(2)(a). However, the application was rejected by the CCIT.

Aggrieved, the assessee has filed this writ petition.

The counsel for the assessee submitted that u/s 119(2)(a), the CBDT passed the ‘Order’ investing the CCIT and DGIT with the jurisdiction to reduce or waive interest in classes of cases or classes of income, where any income was not chargeable to income of an assessee on the basis of any order of the High Court within whose jurisdiction he is assessable to Income Tax and did not pay Income Tax in relation to such income in any previous year and subsequently as a consequence of a decision of the Supreme Court of India, in any assessment or reassessment proceedings the advance tax paid is less than the tax payable on his current income. According to the counsel this was a fit case for waiver of interest and the Authority ought to have exercised its jurisdiction. Finally, it was submitted that the assessee being under the bonafide belief that the decision in A.V.Thomas’ case of the Single Judge of the High Court of Kerala did hold the field insofar as Section 80HHC of the Act, was entitled to the benefit of that Judgment and justified in not making payment of advance tax during the said period.

In the counter argument, the counsel for the Revenue sought to sustain the penalty order.

Having heard the parties, the High Court held that,

+ the preamble to the Order F.No.400/129/2002 IT (B) dated 26.6.2006 makes reference to the words ‘class of cases or class of incomes’ as specified in paragraph 2 thereunder. A reading of paragraphs 2(a), (b), (c) and (d) what can be deciphered is that instances are illustrative and not exhaustive since, it is not possible to enumerate all kinds of hardships that would befall an assessee to be considered for waiver of interest under Section 234B or 234C. The waiver or reduction in interest under Sec. 234A or 234B or 234C, in paragraph 2(a) is if the delay on the part of the assessee in filing the return is due to seizure of books of account and other documents during search and seizure under Sec. 132 of the Act; Paragraph 2(b) provides that if any income chargeable to Income Tax under any head of income other than “capital gains” is received or accrued after the due date of payment of the first or subsequent installment of advance tax, neither anticipated nor in the contemplation of the assessee; paragraphs 2(c) refers to any income not chargeable to Income Tax in the case of an assessee on the basis of any order passed by the High Court within whose jurisdiction he is assessable to income – tax and did not pay income – tax in relation to such income, and subsequently as a consequence of a decision of the supreme court, in an assessment or reassessment if it is found that the advance tax paid is less than the amount payable on his current income; paragraph 2(d) provides for instances where return of income could not be filed by the assessee due to unavoidable circumstances and such return of income is filed voluntarily by the assessee or his legal heirs without detection by the assessing officer;

+ viewed in this perspective the decision of the High Court or Supreme Court need not be in the case of the assessee. In other words the decision of incidence and applicability of Income Tax under the act, need not necessarily be in the case of the assessee but could be in any other case i.e. of any other assessee or otherwise. As long as the decision covers the field of Income Tax legislation, as may be applicable to any assessee, would be a circumstance for reduction of waiver of interest under Sec. 234 A to ‘C’ as the case may be;

+ in the facts noticed, petitioner bonafide believed that the decision of the High Court of Kerala in A.V. Thomas’ case was applicable, entitling the petitioner to the deduction under Sec. 80HHC of the Act. The Tribunal bound by the said decision had no option but to apply the same to the case of the petitioner, aggrieved by which ITA 127/01 filed by the revenue before this court, was allowed following the opinion of the Supreme Court in IPCA Laboratory’s case, impliedly overruling the decision in A.V.Thomas’ case. In the circumstances, it would be incongruous to hold that paragraph 2 (c) applies only to cases of orders passed by the High Court within whose jurisdiction the assessee is assessable to Income Tax under the Act and not to a decision of any other High Court. Under the law of precedents too judgments of other High Courts are persuasive;

+ as regards extending the benefit of waiver of interest under Section 234B, counsel for Revenue submits that in Bhanuben’s case, the Division Bench of High Court of Gujarat extended the relief upto 75% and directed the assessee to pay 25% of the interest levied;

+ in the circumstances the point for consideration is answered in the affirmative. Petitioner having made out a case for consideration over reduction or waiver of interest under Sec. 234B of the act, the Chief Commissioner of Income Tax was not justified in rejecting the claim by the orders impugned, on the premise that the petitioner an assessee not within the jurisdiction of High Court of Kerala was disentitled to rely upon the decision of that court in A.V. Thomas’ case.