2010 (4) TMI 754 - AT - Income Tax

Disallowance - Deduction u/s 80-IB(10) - There is no dispute on the fact that the assessee filed its return declaring total income of Rs. 1.30 crores on which the tax payable by way of advance tax/self-assessment tax was to the tune of Rs. 43.83 lakhs which was admittedly not paid by the assessee along with the return of income - where the assessee did not file any return for the relevant year and still the assessment was made the assessee can file first appeal even without the payment of tax provided he satisfies the CIT(A) for the reasons of non-payment of tax - It is trite law that omission to comply with a mandatory requirement renders the action void whereas omission to do the directory requirement makes it only defective or irregular - The pre-requisite is that the payment of such tax in the category of cases in which tax is paid after the filing of return should be before the admission of first appeal - the defect in the appeal due to non-compliance of a directory requirement of paying such tax before the filing of the appeal stood removed - Appeal is allowed

Summary

Issues:
Appeal maintainability under section 249(4) for non-payment of tax due on returned income.

Analysis:
The appeal arose from the Commissioner of Income-tax (Appeals) dismissing it as not maintainable due to non-payment of self-assessment tax by the assessee. The assessee argued financial constraints prevented timely tax payment, leading to dismissal. The appeal was filed without paying the tax due, and subsequently, the tax was paid in instalments. The issue revolved around the interpretation of section 249(4) concerning the payment of tax on income returned before admission of appeal.

The provision of section 249(4) mandates payment of tax due on the returned income before the admission of appeal. The provision distinguishes between mandatory and directory requirements, with non-compliance leading to different consequences. The High Court's rulings highlighted the distinction, emphasizing that non-compliance with a mandatory requirement renders the action void, while non-fulfillment of a directory requirement makes it defective but not void. The requirement of filing audit reports for deductions under Chapter VI-A was cited as an example of a directory provision where subsequent compliance validated the action.

The judgment discussed the objective behind section 249(4) to ensure tax payment before appeal admission. It emphasized that the payment of tax after filing but before disposal of appeal validated the defective appeal. The payment of tax was deemed mandatory, but the timing of payment before filing the appeal was considered directory. The judgment underscored that once the defect (non-payment of tax) was rectified, the appeal became valid, allowing for consideration on merits.

In a related case, the High Court held that subsequent tax payment rectified the non-compliance with section 249(4), supporting the revival of the appeal for consideration on merits. The judgment clarified that the payment of tax after appeal dismissal but before consideration validated the appeal, ensuring justice for the assessee. The ruling emphasized that the payment of tax on returned income before appeal admission was a directory requirement, allowing for subsequent compliance to rectify the defect and revive the appeal.

Considering the facts of the case where tax was paid after appeal dismissal, the judgment set aside the order and restored the matter to the Commissioner of Income-tax (Appeals) for disposal on merits. The decision allowed for the revival of the appeal based on subsequent tax payment, aligning with the interpretation of section 249(4) as a directory requirement for timely tax payment before appeal admission.