2001 (6) TMI 4 - HC - Income Tax

Kar Vivad Samadhan Scheme - The show-cause notice dated July 16 1997 was issued to the company as well as its directors demanding the duty and it was also proposed to impose penalties. The replies had been filed to this notice and the proceedings were pending till September 1 1998 when the Kar Vivad Samadhan Scheme was introduced. Under this Kar Vivad Samadhan Scheme 1998 which came into force on September 1 1998 the declarations were to be made on or before December 31 1998. Under the said scheme the company settled the matter and the settlement became final with the payment of 50 per cent. of the tax as envisaged by the Scheme itself. However the declarations made on behalf of the directors and others i.e. co-noticees were not accepted and the order was passed on October 30 1998 against them. Thereafter an order was passed on November 30 1998 imposing penalties on the directors and others.

Summary

Issues Involved:
Interpretation of Kar Vivad Samadhan Scheme (Removal of Difficulties) Order, 1998 and its retroactive effect on pending penalties against directors and co-noticees.

Analysis:
The judgment involved the interpretation of the Kar Vivad Samadhan Scheme (Removal of Difficulties) Order, 1998, which came into force on September 1, 1998. The order provided that if a dispute had been settled by a company, proceedings would be concluded against other directors or co-noticees if the notice was pending as of the declaration date. The petitioners argued that their liability ended with the company's settlement under the scheme. The respondents contended that penalties had already been imposed before the order's issuance on December 8, 1998.

The court considered the retroactive nature of the Removal of Difficulties Order effective from September 1, 1998. It rejected the respondents' argument to uphold penalties imposed post the order's issuance. The court highlighted that denying relief based on the timing of penalty orders would lead to unjust outcomes. The court emphasized that the order aimed to resolve disputes once dues were settled by the company. It deemed penalties imposed after the order's effective date as non-existent.

Consequently, the court allowed all six petitions, ruling that penalties imposed in October and November 1998 should not be enforced against the petitioners. The court directed that the proceedings initiated against the petitioners under the show-cause notice from July 16, 1997, be terminated. The judgment clarified that the petitioners' cases were settled under the Kar Vivad Samadhan Scheme (Removal of Difficulties) Order, 1998. The court emphasized that the petitioners' representation made post the order's issuance should have been accepted, closing the proceedings against them.

In conclusion, the court granted relief to the petitioners, setting aside the penalties imposed and terminating the pending proceedings against them. The judgment underscored the importance of honoring the statutory order's retroactive effect and ensuring fair treatment in resolving disputes under the scheme.