2019 (4) TMI 1058 - HC - VAT and Sales Tax

Eligibility for compounding for the A.Y. 2002-03 - on the date of initial rejection of his application for compounding for that year, assessee was in arrears of compounding fee for the A.Y. 2001-02 - Section 7D of the U.P. Trade Tax Act, 1948 - HELD THAT - In the first place, each assessment year is a separate unit. Even if it is assumed that the assessee could have made an application for compounding for the A.Y. 2002-03 while continuing to stand in default for the earlier assessment year, it is difficult to accept that such an application could be allowed in view of the default having survived on the date of rejection of that application. Thus, the assesseee may have had time till his application for compounding of A.Y. 2002-03 was pending to remove the default towards payment of compounding fee for the earlier year. However, that having not been done, the ineligibility to be allowed to pay compounding fee in lieu of tax (on assessment basis), was rightly adjudged against the assessee. The question of law is answered in the negative i.e. in favour of the revenue and against the assessee.

Summary

Issues:
1. Whether subsequent acceptance of compounding for A.Y. 2001-02 entitles the assessee to apply for compounding for A.Y. 2002-03 despite being in arrears of compounding fee for A.Y. 2001-02 at the time of initial rejection of the application for A.Y. 2002-03?

Analysis:
The judgment pertains to a revision arising for the assessment year 2002-03, where the assessee, who operated a brick kiln, had applied for compounding under the U.P. Trade Tax Act, 1948. The issue revolved around the eligibility of the assessee to apply for compounding for 2002-03 due to defaults in payment of compounding fee for the previous year, 2001-02. The compounding scheme for 2002-03 stipulated that an applicant must have cleared any default from the earlier year to be eligible for compounding in the current year.

The Assessing Authority rejected the application for 2002-03 due to defaults in the previous year, which was upheld in the first and second appeals, leading to the revision. The applicant argued that after the rejection of the first appeal, the defaults for 2001-02 were cleared, thus curing the defect for 2002-03. However, the Standing Counsel contended that the right to claim compounding is subject to fulfilling conditions, and the defaults existing at the time of rejection for 2002-03 application barred the assessee from seeking compounding for that year.

The court emphasized that each assessment year is distinct, and compounding is governed by contractual principles. The state government's offer for compounding for 2002-03 included the condition of no defaults from the previous year. The court held that even if the assessee could have applied for compounding for 2002-03 while in default for 2001-02, the application could not be allowed if defaults persisted at the time of rejection. The court concluded that the assessee lost the right to seek an alternative to assessment due to the defaults, but no prejudice arose as the assessee remained obligated for tax assessment.

The subsequent clearance of defaults for 2001-02 did not impact the rights of the parties for 2002-03. Therefore, the court answered the question of law in the negative, favoring the revenue and dismissing the revision without costs.

This judgment underscores the importance of fulfilling conditions for alternative assessment methods and highlights the separation of assessment years in tax matters. It clarifies that defaults in previous years can impact eligibility for alternative assessment options in subsequent years, emphasizing compliance with stipulated conditions for such schemes.