2018 (2) TMI 1596 - HC - Income Tax

Declaration under the Kar Vivad Scheme - petitioner paid the tax at 40% on the disputed income and sought complete waiver of interest in terms of the Kar Vivad Scheme - Held that - We find that there is nothing on record to indicate that the tax arrears of 87/have been adjusted with the tax refund of 10, 800/for the Assessment Year 1997-98. Petitioner has on instructions stated before us that till date the petitioner has not received any order passed under Section 245 of the Act by the authorities under the Act adjusting the tax arrears of 87/payable for Assessment Year 198485 with the refund of 10, 800/. For the first time we find that in the affidavit dated 22nd July 1999 of the respondent no.1 such a claim has been made. Moreover it merely states that the tax arrears of 87/has been adjusted against the refund of 10, 800/due to the petitioner. However it is completely silent as to the date when this adjustment took place nor has the affidavitinreply annexed to it the order passed under Section 245 of the Act which made the adjustment. In view of the affidavit being silent on the date on which the adjustment was done an adverse inference must be drawn that the adjustment if any had not taken place before filing of the declaration on 22nd December 1998. Thus on the date when the declaration was filed on 22nd December 1998 tax arrears of 87/was payable by the petitioner to the Revenue and 40% of the disputed tax amount which would be 52/which would be payable under the Scheme. Thus if the amount of 52/is paid it would resulted in a complete waiver of the interest payable by the petitioner. Thus the collection of amounts on account of interest consequent to the Certificate dated 19th February 1999 is outside the Kar Vivad Scheme and retention thereof by the State is without authority of law. Thus it would be appropriate to direct the respondent no.1 to modify / amend its Certificate dated 19th February 1999 under Kar Vivad Scheme and grant a complete waiver of interest payable under the Act in view of there being tax arrears on disputed income as on the date of filing of the declaration. The petition is allowed in terms of prayer clause (b1). The respondent no.1 is directed to amend the Certificate dated 19th February 1999 issued under Section 90(1) of the Kar Vivad Scheme to grant complete waiver on payment of interest.

Summary

Issues Involved:
1. Validity of the Certificate dated 19th February, 1999 issued under the Kar Vivad Samadhan Scheme.
2. Entitlement to complete waiver of interest under the Kar Vivad Samadhan Scheme.
3. Adjustment of tax arrears against the refund due.

Issue-wise Detailed Analysis:

1. Validity of the Certificate dated 19th February, 1999 issued under the Kar Vivad Samadhan Scheme:

The petitioner sought to quash the Certificate dated 19th February, 1999 issued by the respondent under Section 90(1) of the Kar Vivad Samadhan Scheme, 1998, or alternatively, to direct the respondent to modify/amend the Certificate to waive the interest payable under the Income Tax Act, 1961. The petitioner argued that the Certificate was a consolidated one for two declarations filed on 22nd December, 1998, and 22nd January, 1999. The petitioner contended that the consolidated Certificate should have resulted in a complete waiver of interest as per the Kar Vivad Scheme.

The Court noted that the Department's action of issuing a single Certificate for two separate declarations indicated non-compliance with the CBDT's instructions, which required separate declarations and Certificates for each pending appeal. However, the Court proceeded on the assumption that a single Certificate could dispose of two declarations and found that the petitioner’s declaration dated 22nd December, 1998, mentioned tax arrears of ?87, which should have resulted in a complete waiver of interest.

2. Entitlement to complete waiver of interest under the Kar Vivad Samadhan Scheme:

The petitioner argued that the tax arrears of ?87 as declared in the first declaration should have qualified for a complete waiver of interest under the Kar Vivad Scheme. The Court observed that there was no record indicating that the tax arrears of ?87 had been adjusted against the refund of ?10,800 due for the Assessment Year 1997-98 before the filing of the declaration. The Court drew an adverse inference that the adjustment, if any, had not taken place before the filing of the declaration on 22nd December, 1998. Thus, the tax arrears of ?87 were payable at the time of filing the declaration, and 40% of the disputed tax amounting to ?52 should have been paid, resulting in a complete waiver of interest.

3. Adjustment of tax arrears against the refund due:

The petitioner claimed that the adjustment of tax arrears of ?87 against the refund of ?10,800 was not adjudicated by any speaking order and was not communicated to the petitioner. The Court noted that the affidavit filed by the respondent was silent on the date of adjustment and did not annex any order under Section 245 of the Act. The Court concluded that the adjustment, if any, had not taken place before the filing of the declaration, and thus, the petitioner was entitled to a complete waiver of interest under the Kar Vivad Scheme.

Conclusion:

The Court directed the respondent to modify/amend the Certificate dated 19th February, 1999, to grant a complete waiver of interest payable under the Act. The Court also directed the respondents to refund the amount of ?3,29,071 collected from the petitioner. The petition was allowed in terms of prayer clause (b1), with no order as to costs.