Delhi High Court

Prakash Tubes Ltd. vs Union Of India & Ors. on 1 May, 2009

Author: Vikramajit Sen

*    IN THE HIGH COURT OF DELHI AT NEW DELHI

+    W.P.(C) 2237/1985

#    PRAKASH TUBES LTD.     ..... Petitioner
                 Through: Mr. C.S. Aggarwal, Sr.
                          Adv. with Mr. Prakash
                          Kumar, Adv.

                 versus

$    UNION OF INDIA & ORS. ...... Respondent
^                 Through: Mr. R.D. Jolly, Sr.
                           Standing Counsel with
                           Ms. Rani Kiyala, Adv.

                      Date of Hearing : April 27, 2009

%                     Date of Decision : May 01, 2009

     CORAM:
*    HON'BLE MR. JUSTICE VIKRAMAJIT SEN
     HON'BLE MR. JUSTICE RAJIV SHAKDHER
     1. Whether reporters of local papers may be
        allowed to see the Judgment?                     Yes
     2. To be referred to the Reporter or not?           Yes
     3. Whether the Judgment should be reported
        in the Digest?                                   Yes

VIKRAMAJIT SEN, J.

1. This Petition under Article 226 of the Constitution of

India seeks the issuance of a writ to waive the interest

levied under Section 220 (2) of the Income Tax Act, 1961

(IT Act for short) pertaining to three consecutive years in

respect of which the original Demand had already been

paid. The Petitioner has contended that for the

Assessment Years 1980-81, 1981-82 and 1982-83, the

Revenue has raised a demand of Rupees 2,84,546/-,

Rupees 6,95,479/- and Rupees 15,23,079/- respectively in

regard whereof Demand Notices were served on

30.03.1983, 27.04.1983 and 27.04.1983 respectively. The

Petitioner was under a bonafide belief that he was entitled

to some additional relief under the unamended provisions

of Section 80-J of the IT Act. As a consequence it had

moved the Hon'ble Supreme Court of India through a writ

petition in the course of the hearing of which the operation

and effect of the amended provisions of Section 80-J of the

IT Act had been stayed. The Petitioner had also moved

applications dated 08.04.1983 and 25.05.1983 for the stay

of the aforesaid Demand; and the same was stayed by the

Inspecting Assistant Commissioner vide his letters dated

12.04.1983 and 01.06.1983 for a period of six months.

These interim orders were further extended till 31.03.1985

vide orders dated 11.01.1985. However, on 25.01.1985 the

Hon'ble Supreme Court was pleased to dismiss the Writ

Petitions, upholding the validity of the retrospective

amendment of Section 80-J of the IT Act. Mr. C.S.

Aggarwal, learned Senior Counsel for the Petitioner,

contends that the pending demands were thereupon paid

on 4.3.1985. Subsequently, the Revenue issued a notice

under Section 221(1) claiming amounts of Rupees 31,330/-,

Rupees 1,06,761/- and Rupees 2,58,362/- ostensibly

towards penalty although in the body of the notice Section

220 has been mentioned. Eventually, these demands were

further raised to Rupees 46,889/, Rupees 1,19,410/- and

Rupees 2,80,425/- chargeable under Section 220(2A) vide

its Order dated 2.09.1985, indicating that the claim was

towards interest.

2. The question posed before us is whether the

Petitioner is entitled to waiver of the said interest under

Section 220(2A) in light of the above mentioned facts; and

whether interest can be levied without the service of a

specific order raising the demand under Section 220(2A) of

the Act together with a separate demand notice under

Section 156 of the Act; and whether the impugned Order is

liable to be set aside since the Assessee was not afforded

any opportunity of personal hearing.

3. It has been contended on behalf of the Petitioner that

inasmuch as interest has been charged for the period prior

to 25.1.1985, till which date the interim Orders of the

Supreme Court were effective, the demand is palpably

illegal. The following Table will clarify the position:-

Assessment       Amount      Paid on        Interest     Amount(Rs.)
Year             Demanded                   charged from
1980-81          2,84,546    4.3.1985       1.4.1983       46,887
1981-82          6,95,479    4.3.1985       26.5.1983    1,19,410
1982-83          15,23,079   4.3.1985       26.5.1983    2,80,425

This contention raised on behalf of the Petitioner has only

to be stated to be rejected forthwith, as it is devoid of all

merits. The Petitioner was one amongst several others who

had challenged the vires or the retrospective operation of

Section 80-J of the IT Act. This challenge was decided on

25.1.1985 in Lohia Machines Ltd. -vs- Union of India,

[1985] 152 ITR 308. The opening sentence of this Judgment

clarifies the controversy in these words - "These writ

petitions raise an interesting question of law relating to the

interpretation of s.80J of the I.T. Act, 1961, and on the

basis of certain interpretation, they challenge the validity

of rule 19A of the I.T. Rules, 1962, and also call in question

the constitutionality of the retrospective amendment made

in s.80J, by the Finance (No.2) Act, 1980". The contention

is that in the interregnum when interim orders passed by

the Court were in operation it insulated the Petitioner from

all claims on account of interest.

4. It should not be forgotten that there is always a

presumption in favour of the constitutionality or legality or

validity of a statute. In the present case, this presumption

was, in fact, eventually vindicated. There was no embargo

or impediment, whatsoever, on the Petitioner to pay the

assessed tax without prejudice to the outcome of its

petition pending in the Supreme Court. Had that been

done, it would have certainly removed and eradicated the

liability for payment of interest. We find it legally

preposterous to suggest that the liability to pay tax is not

just postponed but is totally neutralized in the duration of

interim orders. The argument that interest could not be

charged till the dismissal of the writ petition (which

coincided with the withdrawal of interim orders) is

summarily rejected, it being devoid of merits. The following

extract from Kanoria Chemicals & Industries Ltd. -vs- UP

State Electricity Board, (1997) 5 SCC 772 clarifies the legal

position -"....It is equally well settled that an order of stay

granted pending disposal of a writ petition/suit or other

proceeding, comes to an end with the dismissal of the

substantive proceeding and that it is the duty of the court

in such a case to put the parties in the same position they

would have been but for the interim orders of the court.

Any other view would result in the act or order of the court

prejudicing a party (Board in this case) for no fault of its

and would also mean rewarding a writ petitioner in spite of

his failure. We do not think that any such unjust

consequence can be countenanced by the courts. As a

matter of fact, the contention of the consumers herein,

extended logically should mean that even the enhanced

rates are also not payable for the period covered by the

order of stay because the operation of the very notification

revising/enhancing the tariff rates was stayed. Mercifully,

no such argument was urged by the appellants. It is

ununderstandable how the enhanced rates can be said to

be payable but not the late payment surcharge thereon,

when both the enhancement and the late payment

surcharge are provided by the same notification - the

operation of which was stayed".

5. It has also been contended that before any interest

can be claimed/levied, it must be preceded by a notice

under Section 156 of the IT Act which stipulates that -

"When any tax, interest, penalty, fine or any other sum is

payable in consequence of any order passed under this Act,

the Assessing Officer shall serve upon the assessee a notice

of demand in the prescribed form specifying the sum so

payable ...". Section 220(2) of the IT Act prescribes that if

the amount specified in any notice of demand under

Section 156 is not paid within thirty days, the assessee

shall be liable to pay simple interest at twelve per cent per

annum. According to the learned Senior Counsel for the

Petitioner, as has already been noted above, no demand for

payment of interest had been served on the Petitioner.

However, this argument flies in the face of the pleadings in

paragraph 11 of the Writ Petition which read as follows:-

11. The present petition is in respect of Assessment Years 1980-81, 1981-82 & 1982-83. Regular assessments in the said matter were completed on 30.3.83, 27.4.83 & 27.4.83

respectively and the demands of Rs.2,84,456/-, Rs.6,95,470 & Rs.15,23,076/- were created. The demand notice in respect whereof were served on the assessee company on 30.3.83, 27.4.83 and 27.4.83 respectively".

The factual foundations are contrary to the case now

projected on behalf of the Petitioner. State of Kerala -vs-

Joy Varghese, 1999 STC 657 has no application since

Demand Notices have been served. In view of the extracted

admission, we also consider it unnecessary at this late

stage to investigate into the question as to whether or not

the Demand Notices adhered to Form No.7. Certainly, this

precise objection has not been ventilated prior to the stage

of final arguments. This submission is accordingly

rejected.

6. We shall now consider the legal propriety of the

impugned Order dated 2.8.1995 declining to waive the

interest which reads thus:-

Subject :- Waiver of Interest u/s 220(2A) of the Income-tax Act, 1961 - regarding I am directed to refer to your petition No. NIL dated 1-3-85 on the subject mentioned above and to say that your petition has been considered by the

Board. It is regretted that your request cannot be acceded to.

7. It is not in controversy that the Petitioner was not

granted any hearing by the concerned authority prior to

the passing of the impugned order. It has accordingly been

contended by learned Senior Counsel for the Petitioner

that there has been a serious breach of the broader and

ubiquitously applicable principles of natural justice which

would result in the impugned Order being completely

vitiated. This argument is posited on S.L. Kapoor -vs-

Jagmohan, AIR 1981 SC 136 which decision indubitably

continues to hold the field. On the other hand, the

contention on behalf of the Revenue is that Section

220(2A), having been introduced into the IT Act with effect

from 1.10.1984, has no bearing or applicability on

Assessment Years 1980-81, 1981-82 and 1982-83 and

hence the Chief Commissioner did not possess the power to

reduce or waive interest. The argument goes on to posit

that since this is plain from a mere reading of Section, it

was not considered necessary to grant a hearing to the

Petitioner.

8. Since Mr. Aggarwal, learned Senior Counsel for the

Petitioner, has laid substantial store on the decision of a

learned Single Judge of the Calcutta High Court in Apeejay

Industries Ltd. -vs- CIT, [2001] 250 ITR 414 , we shall

deal with it in some detail. While immediately clarifying

that Apeejay Industries is distinguishable on facts, it is

our view that Section 220(2A) is substantive and not

procedural law, and that it will be the law as was prevailing

on the date of the demand for payment of interest that will

govern the case. In other words, the Assessment Years in

question will be irrelevant. In Apeejay Industries the

learned Single Judge has opined that the actual demand

stood crystallized on 19.12.1989 when the Assessing

Authority had given effect to the Order of the Appellate

Authority; which order must be deemed to be service of a

demand notice under Section 156 of the IT Act; that

interest under Section 220 would become payable after the

expiry of thirty days from the passing of the Order, viz.,

19.12.1989. In Apeejay Industries the Assessment Years

1973-74 and 1974-75 were in question. Nevertheless, the

Court concluded that Section 220 (2A) was attracted

obviously because the Assessment was open till

19.12.1989. In the case in hand, although the Assessment

Years in question are 1980-81, 1981-82 and 1982-83, that

is, prior to the date on which Section 220(2A) came into

force, it would be the date on which the Assessment had

crystallized that would be relevant. Inasmuch as Demand

Notices were served on 30.03.1983, 27.04.1983 and

27.04.1983 for the three years in question, the said

provision would not be available.

9. On behalf of the Petitioner reliance has been placed

on Kishan Lal -vs- Union of India, [1998] 230 ITR 85

wherein their Lordships have enunciated the law in these

words:-

When an application is filed under Sub-section (2A) of Section 220 the authority concerned is called upon to take a quasi judicial decision. If it is satisfied that the reasons contained in the application would bring the case under Clauses (i)

(ii) and (iii) of Section 220(2A) then it has the power either to reduce or waive the amount of interest. Even though in the said Sub-section it is not stated that any reasons are to be recorded in the order deciding such an application, it appears to us that it is implicit in the said provision that whenever such

an application is filed the same should be decided by a speaking order. Principles of natural justice in this regard would be clearly applicable. It will be seen that a decision which is taken by the authority under Section 220(2A) can be subjected to judicial review, as was sought to be done in the present case by filing a petition under article 226, this being so and where the decision of the application may have repercussion with regard to the amount of interest which an assessee is required to pay it would be imperative that some reasons are given by the authority while disposing of the application. Mr. Salve, the learned senior counsel for the appellant has strongly relied upon the observations of this Court in The Siemens Engineering and Manufacturing Co. of India Ltd. V. Union of India, AIR 1976 SC 1785 : (1976) 2SCC 1981, where at page 986 it has been stated that where an authority makes an order in exercise of its quasi judicial function it must record its reasons in support of the order it makes. In other words, every quasi judicial order must be supported by reasons. In our opinion, the observations in that case would apply in the present case also.

10. The impugned Order would be indefensible in view of

the above if Section 220(2A) was already in force and

applicable to the case in hand. This provision was

introduced into the statute with effect from 1.10.1984,

before which date not only had the Assessment been

framed, but even notices of demand had been served on

the Petitioner. The Kishan Lal ratio, therefore, does not

apply to the facts of the present case. This is also the

answer ventured by Mr. Jolly what has been perceived by

Mr. Aggarwal as a breach of the broad and ubiquitously

applicable principles of natural justice, viz. failure to grant

the Petitioner an opportunity of being heard.