2002 (2) TMI 81 - HC - Income Tax

Summary

Issues Involved:
1. Legality of the revisional order dated December 12, 1978, passed by the Commissioner of Income-tax under section 264 of the Income-tax Act, 1961.
2. Partial waiver of interest under section 215(1) read with rule 40 of the Income-tax Rules, 1962.
3. Applicability of sub-rules (1) and (5) of rule 40 for waiver of interest.
4. Judicial discretion and requirement of reasons in the exercise of discretion by the Commissioner of Income-tax.

Detailed Analysis:

1. Legality of the Revisional Order:
The writ petition challenges the revisional order dated December 12, 1978, passed by the Commissioner of Income-tax, Delhi, under section 264 of the Income-tax Act, 1961. The petitioner's application for exemption from payment of interest under section 215(1) read with rule 40 of the Income-tax Rules, 1962, was allowed in part. The petitioner contended that the demand of interest was attributable to additions and disallowances for which he was not responsible and which he disputed.

2. Partial Waiver of Interest:
The Commissioner waived interest for the period from July 1, 1976, to June 21, 1978, but not for the period from April 1, 1975, to June 30, 1976. The petitioner argued that the Commissioner erred in not fully waiving the interest, as the delay in assessment was not attributable to him. The Commissioner's order did not provide sufficient reasons for the partial waiver, which is a requirement under the principles of natural justice.

3. Applicability of Sub-rules (1) and (5) of Rule 40:
The petitioner argued that sub-rules (1) and (5) of rule 40 are distinct and separate, and the Commissioner should have considered both. Sub-rule (1) allows for waiver when the assessment is delayed beyond one year without the assessee's fault, while sub-rule (5) provides for waiver at the discretion of the Inspecting Assistant Commissioner under justified circumstances. The petitioner relied on several precedents, including CIT v. Bennett Coleman and Co., Sir Shadilal Enterprises Ltd. v. CIT, and P. M. Manuel v. ITO, which support the independent applicability of these sub-rules.

4. Judicial Discretion and Requirement of Reasons:
The court emphasized that the Commissioner must exercise discretion judicially and provide reasons for his decisions. Discretion cannot be exercised whimsically or fancifully. The judgment cited several cases, including J.K. Jute Mills Co. Ltd. v. ITO and Amrit Narain v. CIT, to underscore that the exercise of discretion must be guided by law and reason. The court reiterated that assignment of reasons is a basic ingredient of natural justice, as highlighted in Siemens Engineering and Manufacturing Co. of India Ltd. v. Union of India.

Conclusion:
The court concluded that the Commissioner's order lacked sufficient reasons for the partial waiver of interest. The matter was remitted to the Commissioner of Income-tax for reconsideration in line with the observations made. The petitioner was also allowed to approach the Inspecting Assistant Commissioner if permissible under law. The writ petition was allowed, and the impugned order was set aside, with no order as to costs.