2018 (3) TMI 804 - HC - Income Tax

Rejection of the declaration under the Pradhan Mantri Garib Kalyan Yojna, 2016 (PMGK Scheme) - Payment of tax, surcharge and penalty under the PMGK Scheme in respect of undisclosed income - Held that - In the present case we perceive that an equitable resolution is possible on interpretation of the provisions without undermining the object and purpose behind the Amendment Act. Thus while we have rejected the argument that advance tax of ₹ 85,50,000/- can treated as payment of tax, surcharge and penalty under PMGK Scheme, we would hold that the declaration made under PMGK Scheme should not have been entirely rejected in view of the peculiar and specific factual background in the present case. We have given the aforesaid direction and finding keeping in mind and being sensitive to the petitioner's predicament and adverse consequences propounded by the respondents though the law enforcers were equally responsible in the lapse occasioned. Thus we direct (i) Deposit of ₹ 34,48,954/- will be treated as payment of tax, surcharge and penalty under the PMGK Scheme in respect of undisclosed income of ₹ 69,11,731.46. ₹ 34,48,954/- is 49.9% of ₹ 69,11,731.46. (ii) In respect of the balance undisclosed income of ₹ 1,71,34,268.54, the petitioner would take recourse to the first option under Section 115BBE. The petitioner would accordingly pay tax @ 60% on the aforesaid amount under Section 115BBE, surcharge @25% of the tax and cess as applicable. ₹ 85,50,000/- paid as advance tax would be counted. (iii) The petitioner would be also liable to pay interest on the late payment of taxes, surcharge, cess and late filing of return. (iv) ₹ 60,11,500/- deposited by the petitioner under Section 199F of the Finance Act will be refunded to the petitioner without interest after a period of four years in accordance with the deposit scheme. We perceive and believe that by giving the aforesaid directions, we have not interfered with the provisions of the Amendment Act. We have not directed refund of ₹ 34,48,954/-, which would be contrary to Section 199K of the Finance Act. We have also not directed that the advance tax of ₹ 85,50,000/- paid by the petitioner should be treated as payment of tax, surcharge and penalty under the PMGK Scheme, which as held above, is impermissible. Violation of Section 199M on account of misrepresentation or suppression of facts in the declaration is not alleged. Requirement of Section 199M of payment of tax, surcharge and penalty under Sections 199D and 199E is not violated when we treat the declaration as valid in respect of undisclosed income of ₹ 69,11,731.46 on which tax, surcharge and penalty was paid. For the balance undisclosed income of ₹ 1,71,34,268.54 the petitioner must exercise first option and pay 60% tax, 25% surcharge on tax and cess under Section 115BBE read with Section 2(9) of the Finance Act. No provision prohibits or bars an assessee, who had made true and correct disclosure, to partly take benefit of the option under Section 115BBE and partly exercise the second option in the form of declaration under PMGK Scheme. The sections do not prohibit part declarations under both options, provided entire undisclosed income has been accounted for in the declaration made under PMGK Scheme and Section 115BBE. Such recourse to both or any option was available to the petitioner on or after the Amendment Act was notified on 15th December, 2016.

Summary

Issues Involved:
1. Rejection of the declaration under the Pradhan Mantri Garib Kalyan Yojna (PMGK Scheme).
2. Credit of advance tax paid under the PMGK Scheme.
3. Interpretation and application of Sections 115BBE, 271AAC, 199A-199M of the Finance Act, and the PMGK Scheme.
4. Equitable resolution and interpretation of tax laws.

Detailed Analysis:

1. Rejection of the Declaration under the PMGK Scheme:
The petitioner, an advocate and income-tax practitioner, filed a writ petition against the rejection of his application under the PMGK Scheme. The rejection implied forfeiture of ?34,48,954/- deposited as tax, surcharge, and penalty, and ?60,11,500/- deposited as Pradhan Mantri Garib Kalyan Cess, refundable without interest after four years.

2. Credit of Advance Tax Paid under the PMGK Scheme:
The petitioner admitted to depositing ?2,40,46,000/- in cash in various banks and paying ?85,50,000/- as advance tax before the PMGK Scheme was introduced. He sought credit for the advance tax paid under the PMGK Scheme, citing confusion and guidance from tax authorities. The court noted that the PMGK Scheme did not envisage adjustment or credit of advance tax paid as tax, surcharge, and penalty under the scheme.

3. Interpretation and Application of Relevant Sections:
The court analyzed Sections 115BBE and 271AAC of the Income Tax Act, which prescribe higher tax rates and penalties for undisclosed income, and Sections 199A to 199M of the Finance Act, which outline the PMGK Scheme. The PMGK Scheme required payment of tax at 30%, surcharge at 33% of the tax, and a penalty of 10% on the undisclosed income, totaling 49.90%. Additionally, 25% of the undisclosed income had to be deposited under the PMGK Deposit Scheme for four years without interest.

The court highlighted that the PMGK Scheme and the provisions under the Income Tax Act created distinct and separate charges. The petitioner could not claim credit for advance tax paid under the PMGK Scheme, as it was a self-contained code that did not allow for such adjustments.

4. Equitable Resolution and Interpretation:
Despite rejecting the petitioner's claim for credit of advance tax under the PMGK Scheme, the court acknowledged the confusion and guidance provided by tax authorities. The court aimed for a fair resolution without undermining the legislative intent. Thus, the court directed:

1. Deposit of ?34,48,954/-: This amount would be treated as payment of tax, surcharge, and penalty under the PMGK Scheme for undisclosed income of ?69,11,731.46.
2. Balance Undisclosed Income: For the remaining undisclosed income of ?1,71,34,268.54, the petitioner must pay tax at 60%, surcharge at 25% on the tax, and cess under Section 115BBE. The advance tax of ?85,50,000/- would be counted towards this payment.
3. Interest and Late Payment: The petitioner would be liable to pay interest on late payment of taxes, surcharge, cess, and late filing of returns.
4. Refund of Deposit: The amount of ?60,11,500/- deposited under Section 199F of the Finance Act would be refunded without interest after four years.

The court concluded that the directions provided a balanced resolution, ensuring compliance with the legislative framework while addressing the petitioner's predicament. The court emphasized that the petitioner should not be penalized for the confusion and guidance provided by tax authorities, provided the legislative purpose was not compromised.