2016 (9) TMI 209 - HC - Income Tax

Power of compounding of offences - Held that - The power of compounding is exercisable when proceedings are pending. In the case on hand, the sentence imposed on the petitioner has been suspended by the Appellate Court and the appeal is still pending. Therefore, it has to be seen as to whether that conviction by the Criminal Court should be the only reason for rejecting the petitioner s application for compounding the offence. Clause 4.4 of the guidelines states that cases not to be compounded. It commences with a non obstante clause stating that notwithstanding anything contained in the guidelines, the category of cases mentioned in clauses (a) to (g) should normally not be compounded. Thus, the guidelines does not specifically place an embargo on the competent authority to consider the application for compounding merely on the ground when the assessee has been convicted by a court of law. The expression used in the guidelines should normally not be compounded , as pointed out earlier Clause 4.4 commences with a non obstante Clause. Therefore, the competent authority is entitled to examine the merits of each matter and to take a decision as to whether the facts make out a case for compounding even in cases where there is a conviction by a Court of law. Thus the guidelines did not place any fetters on the power of the competent authority to examine cases for compounding. However, this cannot be an universal yardstick and these observations are made by this court considering the peculiar facts and circumstances of the case as pointed out earlier. The petitioner is a senior citizen aged more than 70 years, she has lost her husband and she lost her son and she is the sole proprietrix of the small firm dealing in Electrical and Electronic Appliances. Thus considering the overall factual position, the competent authority, namely, the Chief Commissioner, Income Tax Department, Chennai should consider the petitioners case taking note of the peculiar facts and take a decision on merits uninfluenced by any observations or findings rendered by the authorities on an application moved by the petitioner before the Hon ble Finance Minister. The above direction shall be complied with within a reasonable time and the petitioner may be permitted to appear for personal hearing through her authorised representative as it appears that she is not very illiterate.

Summary

Issues:
1. Petitioner penalized for belated filing of returns and criminal prosecution leading to conviction.
2. Petitioner's compounding application under Section 279(2) of the Income Tax Act pending before Principal Chief Commissioner.
3. Rejection of petitioner's case for compounding by Finance Minister based on guidelines.
4. Interpretation of guidelines regarding compounding of offences when a court conviction is involved.

Analysis:
1. The petitioner, a 71-year-old widow penalized for belated filing of returns and facing criminal prosecution resulting in a conviction with imprisonment and fine. The sentence is suspended pending appeal. The petitioner seeks compounding under Section 279(2) of the Income Tax Act, having paid all taxes owed previously.

2. The compounding application is pending before the Principal Chief Commissioner, with a show cause notice issued to the petitioner. The Finance Minister rejected the petitioner's plea based on guidelines without specifying reasons, citing the petitioner's criminal conviction as a factor.

3. The rejection raised questions on the interpretation of guidelines under Clause 4.4, stating cases not normally compounded, especially when a court conviction exists. However, the guidelines do not outrightly prohibit consideration based solely on a conviction, allowing for a case-by-case assessment by the competent authority.

4. The court referred to a previous case where compounding was allowed even with a pending appeal post-conviction. The judgment emphasized the wide interpretation of "proceedings" to include appellate stages, supporting the petitioner's plea for compounding despite the pending appeal.

5. Considering the petitioner's age, personal circumstances, and compliance with tax payments, the court directed the Chief Commissioner to review the case without influence from previous rejections, ensuring a fair assessment based on merits. The petitioner was granted a personal hearing through a representative for a just decision.

6. The judgment concluded by disposing of the writ petition without costs, emphasizing the need for a timely and unbiased review of the petitioner's compounding application in light of the specific circumstances and legal provisions.