2017 (4) TMI 621 - HC - Income Tax

Payment of the compounding fee - Held that - The CBDT cannot arrogate to itself on the strength of Section 279 or the Explanation thereunder the power to insist on a pre-deposit of sorts of the compounding fee even without considering the application for compounding. Indeed Mr Kaushik was unable to deny the possibility even if theoretical of the application for compounding being rejected despite the compounding fee being deposited in advance. If that is the understanding of para 11(v) of the above Circular by the Department then certainly it is undoubtedly ultra vires Section 279 of the Act. The Court accordingly clarifies that the Department cannot on the strength of para 11(v) of the Circular dated 23rd December 2014 of the CBDT reject an application for compounding either on the ground of limitation or on the ground that such application was not accompanied by the compounding fee or that the compounding fee was not paid prior to the application being considered on merits. The question of payment of the compounding fee if any would arise only if upon considering the application on merits the Department is of the view that the prayer should be allowed subject to terms that are reasonable and subserve the object of Section 279 of the Act. Whether in the garb of a Circular the CBDT can prescribe the compounding fee in the absence of such fee being provided for either in the statute or prescribed under the rules? - However at this stage when the Petitioner s application is yet to be decided afresh the said question may be academic. The Court accordingly while directing the CCIT to consider afresh the Petitioner s application for compounding of offence under Section 279 of the Act and communicate to the Petitioner the decision thereon in writing consistent with the present judgment within a period of six weeks from today leaves it open to the Petitioner to urge the larger question which has not been decided in this writ petition in the event that the Petitioner is aggrieved by the fresh order passed by the CCIT.

Issues:
1. Exorbitant compounding charges levied before considering the application.
2. Validity of circular setting out compounding fee.
3. Rejection of application based on delay in filing.
4. Power of CBDT to require upfront payment of compounding fee.

Issue 1: Exorbitant compounding charges levied before considering the application

The petitioner filed a writ petition challenging the circular dated 23rd December, 2014, which required the payment of a substantial sum of &8377; 69,67,699 as compounding charges even before considering the application. The petitioner argued that such charges were excessive and lacked legal authority. The court noted that the circular did not specify a limitation period for filing the application for compounding. The court emphasized that the purpose of compounding offences is to provide closure to cases pending for long periods in the judicial system. The court held that the rejection of the application based solely on the delay in filing was not justified. The court set aside the rejection order and directed the authorities to reconsider the application.

Issue 2: Validity of circular setting out compounding fee

The court examined whether the CBDT had the power to require upfront payment of the compounding fee before considering the application. The court referred to a Supreme Court decision regarding the power of the CBDT to issue instructions for the compounding of offences. However, the court found that the circular's provision requiring upfront payment of the fee contradicted the purpose of Section 279 of the Income Tax Act. The court clarified that the CBDT cannot reject an application for compounding based on the non-payment of the fee before considering the merits of the application. The court emphasized that the question of the fee payment should only arise after considering the application on its merits.

Issue 3: Rejection of application based on delay in filing

The Department rejected the petitioner's application for compounding citing an inordinate delay of 9 years in filing the application. The court noted that the rejection was not in line with the guidelines issued by the Department. The court held that the rejection based solely on the delay was not a valid ground. The court set aside the rejection order and directed the authorities to reconsider the application based on the merits.

Issue 4: Power of CBDT to require upfront payment of compounding fee

The court analyzed whether the CBDT had the authority to insist on the upfront payment of the compounding fee before considering the application. The court found that such a requirement was not supported by the Income Tax Act or its provisions. The court clarified that the CBDT cannot reject an application based on non-payment of the fee before evaluating the application on its merits. The court directed the authorities to reconsider the petitioner's application and communicate the decision within a specified timeframe.

In conclusion, the court ruled in favor of the petitioner, setting aside the rejection of the application for compounding and directing the authorities to reconsider the application without insisting on upfront payment of the compounding fee.

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