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TMI Blog2013 (12) TMI 542X X X X Extracts X X X X X X X X Extracts X X X X ..... ry crimes. It is directed that the penalty amounts under Section 18(1)(c) of the WT Act relating to assessment years 1991-92 and 1992-93 cannot be recovered from the petitioner. With regard to the income tax demand including penalty for the assessment year 1995-96, relating to S.C. Mangal, it is open to the respondents to initiate recovery proceedings after deciding the dispute by passing an order under Section 170(3) of the Act. While passing an order under Section 170(3), the assessing officer will decide whether penalty amount under Section 271(1)(c) of the IT Act can be recovered from the petitioner, even when the liability was determined subsequent to the date of succession - Decided partly in favor of assessee. - Writ Petition (Civil) No. 6531/1998 - - - Dated:- 20-11-2013 - MR. SANJIV KHANNA AND MR. SANJEEV SACHDEVA, JJ. For the Appellant: Mr. Salil Aggarwal, Advocate. For the Respondent: Mr. Anmol Sinha, Sr. Standing Counsel JUDGEMENT SANJIV KHANNA, J. Impugned notices/ communications/penalty orders passed by Assistant Income Tax Commissioner, Circle 7(4), New Delhi, direct Moongipa Securities Ltd, the petitioner to pay liabilities and dues of S.C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re and brokerage business of S.C. Mangal Co. together with its assets and liabilities. As and from the date thereof, Sanjay Jain shall be exclusively entitled to all benefits and rights whatsoever attached to the said shares and the said brokerage business. Defendants therein would put Sanjay Jain in possession of all books of accounts, documents, and other assets of S.C. Mangal Co. in his possession to assist Sanjay Jain in determining the correct and proper liabilities of the said business and also to enable him and his nominees with immediate effect to reopen, start and conduct business. Paragraph (e) of the said compromise and the said application reads as under:- - e. The plaintiff shall be exclusively responsible to pay and discharge all proper liabilities of the said brokerage business conducted under the name and style of S.C. Mangal Company.‖ 6. Pursuant to the application, statements of parties were recorded in the Court and a compromise decree dated 12th May, 1994 was passed. Delhi Stock Exchange Association Limited was also a party to the suit as defendant No. 4. The compromise decree clarified that Delhi Stock Exchange Association Limited was not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of India granted certificate of registration to the petitioner under Section 12 of the Securities and Exchange Board of India Act, 1992 and Regulation 6 of SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 on 16th May, 1995. Subsequently, Delhi Stock Exchange Association Limited granted corporate permission to the petitioner on 25th May, 1995 under a different code. Thus, there was no succession of business. (c) Liabilities created by the penalty orders under Section 271(1)(b) and (c) of the IT Act cannot be recovered from the petitioner as the penalty orders were passed against S.C. Mangal in his personal capacity and for personal lapses, after the compromise decree dated 12th May, 1995 and even after the petitioner was granted corporate membership on 25th May, 1995. The penalty orders under the IT Act were received on 5th October, 1998. (d) There was no provision in the WT Act for recovery of dues from a successor. There was/is no equivalent provision or Section like Section 170(3) of the IT Act, in the WT Act. (e) Penalty under Section 18(1)(c) of the WT Act was personal. Lapses or defaults were on the part of S.C. Mangal. Said penalty orders were received on 5th Octo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pound and hold that no separate order under Section 170(3) could be passed by an Assessing Officer. Of course the Act does not bar/prohibit a common order. 10. The petitioner himself has contended and in our opinion rightly that in case an Assessing Officer feels that any sum payable in respect of income from business or profession which cannot be recovered from the predecessor for the year in which succession took place upto the date of succession or the year preceding it, then the Assessing Officer shall record a finding to that effect and the sum payable by the predecessor shall thereafter be payable and recoverable from the successor. Successor is, however, entitled to recover from the predecessor any sum so paid. Explanation to section 170(3) was introduced to get over the difficulty and the position in law expounded by the Supreme Court in CIT vs. K.H. Chambers (1965) 55 ITR 674. Scope of the Section by a deeming fiction now includes any income or gain arising from the transaction in which succession of business or profession took place. Under the Income Tax Act, 1922, income or gain as a result of transaction resulting in succession was personal liability of the predecesso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nalty amount can be recovered from the successor under the said section, though the penalty order is subsequent to the date of succession. This brings us to the second issue regarding recovery proceedings on penalties initiated under the WT Act. 14. The penalty order under Section 18(1)(c) of the WT Act, was passed as noticed above sometime in the end of September/October 1999 (penalty order is undated but the petitioner claim that they received the penalty order on 5th October, 1998). The penalty order, it appears, refers to assessment proceedings under Section 16(5) of the WT Act which concluded on 20th March, 1998. It appears that wealth tax liability pursuant to the said order is not subject matter of challenge in the writ petition and possibly the department does not seek to recover the dues from the petitioner herein. At this instance, we notice that the WT Act does not have any para materia or equivalent section as under the IT Act i.e. section 170(3) of the IT Act for recovery of dues of the predecessor from the successor. The contention of the Revenue, however, is that the petitioner had taken over the liabilities payable by S.C. Mangal and, therefore, under the common l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... garded as an additional tax in certain facts and for certain purposes, it was not possible to hold that penalty proceedings were essentially continuation or proceedings relating to assessment where return was filed. Madras High Court in Commissioner of Wealth Tax vs. V. Vardharajan (1980) 122 ITR 1014 has observed that IT Act carries within it a dichotomy of treating the tax and penalty separately. In the said case, the question raised was whether penalty imposed under Section 18(1)(a) of the WT Act could be recovered from the legal heirs. Referring to the then applicable Section including Section 19 of the WT Act, it was observed that legal heirs were not liable as there was no relevant corresponding provision in the WT Act as in Section 159(2)(b) of the IT Act. Reference was made to decision of Andhra Pradesh High Court in Smt. Yawarunnissa Begum Vs. Wealth Tax Officer, A Ward (1975) 100 ITR 645, wherein writ petition under Article 226 of the Constitution was allowed and notice for penalty issued to the legal heirs after the death of the assessee, was set aside. It was observed that the penalty could not be levied on the legal representatives of the deceased assessee for belatedl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ability qua penalty arises only when an order imposing penalty stands/was passed by the appropriate authority. Until then, there was no liability whatsoever. Thus, liability to pay an amount by way of penalty cannot be equated or compared with tax liability which remains certain, though may be quantified at a later date. Whether or not penalty was to be imposed and the amount of penalty could be only ascertained and accrued for the first time when the penalty order was passed by the appropriate authority. Thus, liability on account of penalty was not a case of liability in praesenti. Such being the nature of liability of penalty, it was not a debt which could be deducted. The aforesaid reasoning would equally be applicable to the liability of penalty under Section 18(i)(c) of the WT Act. The said liability was not in existence on the date of the compromise i.e. 12th May, 1994 and, therefore, it is not recoverable and cannot be fastened and forced upon the petitioner. 20. During the course of hearing, learned counsel for the petitioner has produced before us copies of two orders dated 27th August, 2013 passed by the Commissioner (Appeals) deleting penalties imposed under Section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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