2004 (7) TMI 51 - HC - Income Tax

Waver of interest u/s 234B - notification dated May 23, 1996 issued u/s 119(2)(a) - petitioner challenges the order rejecting the petitioner s revision petition under section 264 and rejecting the petitioner s claim to delete the interest levied under section 234B - petitioner has also challenged the legality of the order of CBDT in regretting its inability to intervene in the matter to waive the above interest Held that present case would squarely fall under clause (d) of notification dated May 23, 1996 - Since the petitioner s tax liability arose subsequently after filing of the return and after the expiry of the assessment year on account of retrospective amendment of law, consequential levy of interest u/s 234B was clearly required to be dealt with as a fit case for reduction or waiver of interest Since the power of such reduction/waiver is now vested in the Chief Commissioner of Income-tax, we set aside the impugned order passed by the Commissioner of Income-tax, and the order of CBDT and direct the Chief Commissioner of Income-tax, to entertain the petitioner s application for waiver of interest

Issues Involved:

1. Legality of the order rejecting the petitioner's revision petition under section 264 of the Income-tax Act, 1961.
2. Legality of the order refusing to waive the interest levied under section 234B of the Income-tax Act, 1961.
3. Applicability of retrospective amendments in tax laws to the petitioner's case.
4. Petitioner's entitlement to waiver or reduction of interest under section 234B based on Central Board of Direct Taxes (CBDT) notifications and circulars.

Detailed Analysis:

1. Legality of the Order Rejecting the Petitioner's Revision Petition under Section 264 of the Income-tax Act, 1961:

The petitioner challenged the order dated March 31, 1994, passed by the Commissioner of Income-tax, Gujarat-I, Ahmedabad, which rejected the revision petition under section 264 of the Income-tax Act, 1961. The petitioner had sought the deletion of interest amounting to Rs. 3,48,122 levied under section 234B for the assessment year 1989-90. The petitioner's revision petition was rejected, and the petitioner contested this rejection as being unjustified.

2. Legality of the Order Refusing to Waive the Interest Levied under Section 234B of the Income-tax Act, 1961:

The petitioner also challenged the legality of the order dated January 21/28, 1993, from the Central Board of Direct Taxes, which expressed its inability to intervene and waive the interest under section 234B. The petitioner argued that the interest levied was unfair because the advance tax paid was based on the law as it stood at the time of filing the return, which did not include the export cash assistance as taxable income.

3. Applicability of Retrospective Amendments in Tax Laws to the Petitioner's Case:

The petitioner filed the return of income for the assessment year 1989-90 on December 29, 1989, claiming that export cash assistance was a capital receipt and thus exempt from tax. This claim was based on a decision by the Income-tax Appellate Tribunal in the petitioner's own case for earlier assessment years. However, the Finance Act, 1990, introduced a retrospective amendment making export cash assistance taxable from April 1, 1967. The petitioner argued that it was impossible to anticipate this change in law and pay advance tax accordingly.

4. Petitioner's Entitlement to Waiver or Reduction of Interest under Section 234B Based on CBDT Notifications and Circulars:

The petitioner contended that the interest levied under section 234B should be waived, citing CBDT Notification No. 400/234/95-IT(B), dated May 23, 1996, and Circular No. 783, dated November 18, 1999. These provisions allowed for the reduction or waiver of interest where income became taxable due to retrospective amendments. The petitioner argued that since the export cash assistance became taxable only after the retrospective amendment, the interest should be waived.

Court's Observations and Judgment:

The court noted that the petitioner was justified in treating the export cash assistance as a capital receipt based on the prevailing legal position and the decisions of the Income-tax Appellate Tribunal. It was only after the retrospective amendment introduced by the Finance Act, 1990, that the export cash assistance became taxable. The court referenced the Supreme Court's decision in CIT v. Hindustan Electro Graphites Ltd., which held that the law applicable would be the law as it stood on the date of filing the return. Therefore, the petitioner could not have anticipated the retrospective amendment and should not be penalized for it.

The court concluded that the case fell under clause (d) of the CBDT notification, which allowed for the waiver of interest in cases where income became taxable due to retrospective amendments. Consequently, the court set aside the orders dated March 31, 1994, and January 21/28, 1993, and directed the Chief Commissioner of Income-tax to entertain the petitioner's application for waiver of interest under section 234B as per the notification dated May 23, 1996. The petitioner was instructed to file the application within three weeks, and the Chief Commissioner was directed to decide the application expeditiously, preferably within three months.

Conclusion:

The court ruled in favor of the petitioner, recognizing that the retrospective amendment could not have been anticipated and that the interest levied under section 234B should be considered for waiver. The orders rejecting the petitioner's revision petition and refusing to waive the interest were set aside, and the Chief Commissioner of Income-tax was directed to re-evaluate the petitioner's application for waiver of interest.

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