2004 (5) TMI 27 - HC - Income Tax

Relief under the Voluntary disclosure of income scheme - petitioner had filed the declaration/return under the VDI Scheme on December 31, 1997 which is well within the time provided under the Scheme and the petitioner had also remitted the tax due as per the declaration on March 30, 1998, together with interest which is also well within the time provided under the Scheme. The only question is with regard to the deficit of Rs. 360, representing deficit of interest, which was explained by the petitioner in exhibit P2, which seems to be bona fide. In the circumstances, I quash exhibit P3 and direct the respondent to accept the declaration as fully satisfied and to give the relief to the petitioner as per the VDI Scheme.

Issues:
1. Validity of declaration submitted under the Voluntary Disclosure of Income Scheme, 1997.
2. Interpretation of provisions under sections 66 and 67 of the Scheme.
3. Effect of non-payment of interest on the tax due within the specified time frame.

Issue 1: Validity of declaration under the Voluntary Disclosure of Income Scheme, 1997
The petitioner, an advocate, submitted a return under the VDI Scheme, declaring income and tax payable. The petitioner failed to remit the tax along with the declaration but paid it later with interest. A deficit in interest payment led to the respondent treating the declaration as invalid. The petitioner argued that the delay in interest payment should not nullify the declaration, citing provisions of section 67(1) and (2) of the Scheme. The standing counsel contended that non-payment within the stipulated time renders the declaration invalid, supported by the Supreme Court's decision in Hemalatha Gargya v. CIT [2003] 259 ITR 1.

Issue 2: Interpretation of provisions under sections 66 and 67 of the Scheme
The court analyzed sections 66 and 67 of the VDI Scheme, emphasizing the importance of timely payment of tax and interest. Section 67(1) allows declarants to file without immediate tax payment but mandates tax and interest payment within three months. The court noted that section 67(2) only addresses non-payment of tax, not interest. The court differentiated between tax and interest, concluding that non-payment of interest within the specified time does not automatically invalidate the declaration.

Issue 3: Effect of non-payment of interest on the tax due within the specified time frame
The court deliberated on whether non-payment of interest within the stipulated time under section 67(1) would render the declaration null and void. The court held that the Scheme primarily focuses on timely tax payment, allowing discretion for reasonable delay in interest remittance. The court highlighted that the Supreme Court's decision in Hemalatha Gargya's case pertained to tax payment delays, not interest. Considering the petitioner's timely tax payment and immediate rectification of the interest deficit, the court quashed the decision treating the declaration as invalid, directing the respondent to accept it as fully satisfied under the VDI Scheme.

In conclusion, the court ruled in favor of the petitioner, emphasizing the importance of distinguishing between tax and interest payments under the VDI Scheme and allowing for reasonable delays in interest remittance without nullifying the declaration.

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