Case Law Details

Case Name : Earnest Business Services Pvt. Ltd., Vs The Commissioner  of Income Tax (Bombay High Court)
Appeal Number : Writ Petition No. 616 OF 1998
Date of Judgement/Order : 10/03/2017
Related Assessment Year :
Courts : All High Courts (2395) Bombay High Court (464)

A person seeking to avail the benefit of the Scheme of 1997 Act must strictly satisfy its provisions as held by the  Supreme Court in Hemalatha Gargya v/s. CIT 259 ITR 1. The Apex Court held that the person seeking the benefit of the  Scheme of 1997 Act is bound to strictly comply with its conditions like any fiscal legislation and equitable considerations  can have no place in construing it.

15. Before dealing with the other contentions, it would be appropriate at the very outset to decide/examine whether the  tax payable under the Scheme of 1997 Act is the same tax that is payable under the 1961 Act i.e. is the charge/ subject matter of tax the same or different. For, if the charge is different, then the tax paid under the Scheme of 1997 Act is not tax under the 1961 Act. Consequently, the TDS i.e. the tax deducted at source of income tax under the 1961 Act is not the  tax payable under the Scheme of 1997 Act. Therefore, it cannot be taken into account to determine the tax payable under the Scheme.

EXTRACT OF THE JUDGMENT

This Petition under Article 226 of the Constitution of India challenges a communication dated 18th March, 1998 of the  Commissioner of Income Tax, Mumbai CityIII and the Circular dated 25th July, 1997 of the Central Board of Direct Tax  (CBDT). The impugned communication dated 18th March, 1998, rejected the Petitioner’s claim that the tax deducted at source under the Income Tax Act, 1961 (1961 Act) be adjusted against the tax payable on the undisclosed income declared  by it under the Voluntary Disclosure of Income Scheme under the Finance Act, 1997 (the Scheme of 1997 Act). The basis of the impugned communication dated 18th March, 1998, disallowing adjustment of tax deducted at source, was Circular No. 755 dated 25th July, 1997 issued by the CBDT.

2. This petition was admitted on 23rd March, 1998. However, interim relief was refused. This resulted in the petitioner  making the payment of tax on the undisclosed income declared by it on 31st December, 1997 under the Scheme on 31st March, 1998, without taking  the benefit of the Income tax deducted at source under 1961 Act the on it svoluntarily disclosed income under the Scheme of 1997 Act.

3. The Scheme was introduced as a part of the Finance Act, 1997, i.e. Chapter IV titled as “The Voluntary Disclosure of Income Scheme 1997” commencing from Section 62 upto Section 78 thereof. This Scheme of Finance Act, 1977 (1977 Act) came into force w.e.f. 1st July, 1997. It is a part of Act 1997 and not a part of the 1961 Act. Undisputedly, the Scheme of 1997 Act, is distinct and different from the 1961 Act. However, it, inter alia, provided an opportunity to a person who had not paid full taxes under the 1961 Act, in the past as a consequence of nondisclosure of its income under the Act, to voluntarily disclose the same and pay the tax thereon at the rates specified in Scheme of 1997 Act.

4. To appreciate the controversy arising in this petition, it would be appropriate to take an overview of the provisions of  the Scheme of Act, 1997 as under:

(a) Section 63 of the Scheme being the definition section inter alia provides that the words and expressions used but not defined in the Scheme will have the meaning assigned to them under the 1961 Act, or the Wealth Tax Act, 1957;

(b) Section 64 is the charging section of the Scheme of 1997 Act and it provides that it would apply to any person who  makes a declaration of undisclosed income chargeable to tax under the 1961 Act. This declaration is to be made on or after 1st July, 1997 but on or before 31st December, 1997. The declarant would be required to pay tax at the flat rate of 35% in case of a company and/or a firm and at the flat rate of 30% in case of others;

(c) The disclosed income chargeable to tax under the Scheme of 1997 Act would be the income on which the tax is  payable under the 1961 Act but which income had not been disclosed under the 1961 Act, by reason of any of the  following:

(i) By failing to furnish a return of income under the 1961 Act;

or

(ii) By failing to disclose income in its return of income filed under the 1961 Act, before the commencement of the Voluntary Scheme; or

(iii) By any income chargeable to tax escaping Assessment by reason of any omission or failure on the part of a declarant to fully and truly disclose necessary facts for the purpose of Assessment or otherwise under the 1961 Act;

It further provides that the declarant will pay the tax at the rates specified under the Scheme of 1997 Act notwithstanding anything contained in the 1961 Act or in any Finance Act.(d) Section 65 of the Scheme of 1997 Act, provides that the person shall make declaration in a prescribed form duly  verified to the Commissioner of Income Tax. The prescribed form requires the declarant not only to declare the  undisclosed income, but also state the tax payable on the same and the tax already paid. Further, any declaration once made is final and further declaration if made, shall be void ;

(e) Section 66 of the Scheme of 1997 Act, provides that the declaration made under the Scheme in respect of the  undisclosed income shall be accompanied by proof of such payment of tax;

(f) Section 67 of the Scheme of 1997 Act gives an option to the declarant to pay the tax under the Scheme on the  declared undisclosed income within three months of the filing of the declaration with the simple interest of 2% per  month or part thereof;

(g) Section 70 of the Scheme of 1997 Act provides that any amount of tax paid in pursuance of a declaration made  under Section 64 of the Scheme shall not be refundable under any circumstances;

(h) Section 71 of the Scheme of 1997 Act provides that nothing contained in the declaration will be used against the  declarant for imposition of any penalty or prosecution under the Act, 1961 or under the Wealth Tax Act;

(i) Section 76 of the Scheme of 1997 Act empowers the Central Government to issue orders to remove difficulties in implementing the above Voluntary Scheme of 1997 Act;

(j) Section 77 of the Scheme of 1997 Act empowers the CBDT to make Rules for the implementation of the same; and

(k) Section 78 of the Scheme of 1997 Act excludes certain class of persons from its benefit.

Brief facts:

5. The Petitioner was incorporated in the year 1991. The Petitioner had not filed its return of income under Section 139 of  the 1961 Act, since its incorporation. This in spite of the Petitioner having income by way of rent and interest  chargeable to tax under the 1961 Act, during the Assessment Years 199596, 199697 and 199798. Therefore, on promulgation of the Scheme of 1997 Act, the Petitioner made a declaration of its undisclosed income in the  prescribed form on 31st December, 1997 in terms of Sections 64 and 65 of the above Scheme. This was on the basis that it had not filed its return of income under the Act for Assessment Years 199596, 199697 and 199798. Therefore,  the declaration filed by the Petitioner declared an income of Rs.5,00,63,885/being the undisclosed income in the  aggregate for the Assessment Years 199596, 199697 and 199798 and the Income tax payable on it under the Scheme was in the aggregate of Rs.1,75,22,360/ at the rate of 35%. The Petitioner had also stated in its above declaration  that no amount of income tax has been paid on or before the filing of declaration i.e. 31st December, 1997.

6.  The Petitioner had in terms of Section 67 of the Scheme of1997 Act opted to pay the tax within three months of the filing of the declaration along with interest as provided thereon. In the above view, the Petitioner was required to pay the tax under the above Scheme along with interest thereon, aggregating to Rs.1,85,73,702/ on the declared undisclosed  income of Rs.5,00,63,885/ on or before 31st March, 1998.

7. Just before the last date (31st March, 1998) of making the payment of tax along with interest under the Scheme of 1997 Act, the Petitioner on 16th March, 1998 addressed a letter to the Commissioner of Income Tax, inter alia, pointing out that it had filed a declaration under the Scheme of 1997 Act on 31st December, 1997 disclosing income aggregating to Rs.5,00,63,885/ relating to Assessment Years 199596 to 199798. This disclosed income was earned on account of rent and interest. It was further pointed out that the aforesaid rent/ interest received by it had already suffered tax under the  Act, 1961 as an amount of Rs.1,59,74,149/ was the tax deducted at source (on its behalf) by the payer. In the above view, the Petitioner contended that the tax deducted at source being also a payment of tax, should be given credit so as to determine the tax payable on the declared undisclosed income under the Scheme of 1997 Act. Therefore, it was submitted that the obligation to pay tax of Rs.1,75,22,360/ on the declared undisclosed income would be partly discharged by the  taxes deducted at source of Rs.1,59,76,149/leaving a balance of Rs.15,48,211/ as tax along with interest from 31stDecember, 1997. Thus, the total payment of tax and interest now payable after proposed adjustment aggregated to  Rs.16,41,104/. Thus, the Petitioner sought clarification whether on payment of Rs.16,41,211/ being the tax along with interest, would it be entitled it to a Certificate under Section 68(2) of the Scheme of 1997 Act.

8. On 18th March, 1998, the Commissioner of Income Tax rejected the Petitioner’s request made in the letter dated 16th March, 1998. The content of the letter extracted in its entirety reads as under:

“ Please refer to your letter dated 16th March, 1998 requesting for adjustment of tax deducted at source against tax payable on income declared under VDIS 97.

Your above request is rejected in view of the specific circulars issued by Board on this subject dtd.10.06.1997 and 25.07.1997.”

9. It is an agreed position between the parties that only Circular No.755 dated 25th July, 1997 and question No.30 and  reply thereto is relevant to the present controversy. The same reads as under:

“Q.No.30: Will the tax payable in respect of the disclosed income be adjusted by the tax deducted at source earlier in respect of that income ?

Ans. No.”

10. However, as the Petitioner was of the view that the impugned communication dated 18th March, 1998 as well as the  impugned Circular dated 25th July, 1997 were contrary to the clear provisions of the Scheme of 1997 Act, it moved this Petition. On 23rd March, 1998, this Petition was admitted. However, no interim relief was granted to the Petitioner.

11. This resulted in the Petitioner paying on 31st March, 1998 the entire amount of tax of Rs.1,75,22,360/ along with  interest of Rs.10,52,342/ aggregating to Rs.1,85,73,702/ into the treasury. These facts (subsequent to the filing of the Petition) are brought on record by an affidavit dated 17th October, 2016 of Ms. Snehal Mane, on behalf of the Petitioner. The RespondentRevenue has not disputed the contents of the affidavit dated 17th October, 2016, filed by Ms. Mane. It is  also pertinent to note that no reply affidavit is filed by the Revenue to the Petition.

Submissions:

12. On the aforesaid facts, Mr. Mistri, learned Senior Counsel in support of the Petition, submits as under:

(i) The impugned communication dated 18th March, 1998 of the Commissioner of Income Tax has not considered the  clear provision  under Sections 64 and 66 of the Scheme of 1997 Act while rejecting the Petitioner’s application for  adjustment of tax deducted at source. It merely relied upon CBDT Circular Nos. 754 and 755 dated 10th June, 1997 and  25th July, 1995 to reject the Petitioner’s application/ representation dated 16th March, 1996. Thus, a total abdication of  responsibility by the Commissioner of Income Tax;

(ii) Section 66 of Scheme of 1997 Act requires the declarant of undisclosed income to provide proof of tax paid. It is  submitted that the tax is payable by various modes such as Advance Tax, Tax deducted at Source and Self Assessment  Tax. The payment of tax by the method of tax deducted at source by the payer, is a payment of tax by the payee as held by this Court in CIT v/s. Vikram Singh S. Vallabhdas 113 ITR 605. Reliance is placed on Sections 198, 199 and 205  of the 1961 Act. In fact, Section 205 of 1961 Act provides that where tax is deducted at source by the payer, the payee (recipient of the amounts) shall not be called upon to pay the tax. Therefore, the party is entitled to the credit of tax  deducted at source as evidenced by a Certificate of tax deducted at source issued by the payer. Even otherwise, under the  general law of contract, the Petitioner will be entitled to credit of tax declared at source in computing the tax payable under the Scheme of 1997 Act. This even in the absence of the provisions of Sections 198, 199 and 205 of the 1961 Act being invoked;

(iii) In any event, the only applicable Circular, i.e. Circular No.755 dated 25th July, 1997, runs counter to the clear provisions of law. Therefore, no reliance can be placed upon it. Besides, Circular No.755 dated 25th July, 1997 issued by the CBDT is issued without any authority of law. The CBDT has not invoked its powers under Section 119 of the Act, 1961 while issuing the Circular. This, of course, is without prejudice to the submission that Circulars under the 1961 Act cannot govern the Scheme of 1997 Act. Nor does the Circular invoke any provision of the Scheme of 1997 Act. Therefore, it is without jurisdiction and cannot govern the interpretation of the Scheme of 1997 Act ;

(v) In any case, even if it is assumed that the Circular issued by the CBDT is under Section 119 of the Act, 1961 yet it  cannot govern the interpretation of the Scheme as the Circular No.755 dated 25th July, 1997 as it is admittedly prejudicial to the Assessee;

(vi) The payment of tax on 31st March, 1998 to the extent of Rs.1,59,74,149/ (being the amount of tax already deducted  at source) consequent to the impugned communication is a sum collected beyond the provisions of the Scheme. Thus,  being without authority of law, the bar against refund under any circumstances, as provided in Section 70 of the Act, will  not apply; and

(vii) However in response to our query, Mr. Mistri on behalf of the etitioner submitted that the tax which is paid under  the Scheme is, in fact, income tax under the 1961 Act, and no different. This in view of the definition Sections in Scheme  of 1997 Act and alsoon the basis of general law of contract i.e. dehors Sections 198, 199 and 205 of the 1961 Act. Thus, no  warrant to hold that the tax payable under the Scheme of 1997 Act is different from the income tax payable under the  1961 Act. In fact, Mr. Mistri, very eloquently put it by calling the tax under the scheme of 1997 Act and of 1961 Act, the  ‘same animal’ and not ‘a different animal’. Thus, the benefit of tax deducted at source under the 1961 Act will be available to pay the tax under the Scheme of 1997 Act.

13. As against the above, Mr. Kotangle, learned Counsel appearing for the Revenue supports the impugned order and  CBDT Circular dated 25th July, 1997. We requested the Counsel to give his submissions (propositions) in writing. The  same are reproduced as under:

(a) The Voluntary Scheme cannot be used for regularization of earlier years’ return.

(b) When tax is deducted at source, it is presumed that it is disclosed income, which cannot take benefit of the Voluntary Scheme.

(c) If TDS has not been claimed in the past years, when the period of filing of return has lapsed, the Assessee cannot claim benefit of TDS through the Voluntary Scheme.

(d) It is contrary to the memorandum explaining the scheme.

Thereafter, Mr. Kotangle placed reliance upon the decision  of the Calcutta High Court in Sushila Devi Mohata v/s. CIT 2004(1) Cal. L. J. 128 and of the Orissa High Court in Orissa Rural Housing Development Corporation Ltd., v/s. Asst. CIT 343 ITR 316 to contend that the Petitioner is not entitled to benefit of adjustment/ refund of any excess paid under the Scheme of 1997 Act.

Consideration:

14. A person seeking to avail the benefit of the Scheme of 1997 Act must strictly satisfy its provisions as held by the  Supreme Court in Hemalatha Gargya v/s. CIT 259 ITR 1. The Apex Court held that the person seeking the benefit of the  Scheme of 1997 Act is bound to strictly comply with its conditions like any fiscal legislation and equitable considerations  can have no place in construing it.

15. Before dealing with the other contentions, it would be appropriate at the very outset to decide/examine whether the  tax payable under the Scheme of 1997 Act is the same tax that is payable under the 1961 Act i.e. is the charge/ subject matter of tax the same or different. For, if the charge is different, then the tax paid under the Scheme of 1997 Act is not tax under the 1961 Act. Consequently, the TDS i.e. the tax deducted at source of income tax under the 1961 Act is not the  tax payable under the Scheme of 1997 Act. Therefore, it cannot be taken into account to determine the tax payable under the Scheme.

16. Before proceeding further, it would be convenient to re-produce the charging provisions under the 1961 Act, and  under the Scheme of 1997 Act.

(a) Section 4 of the 1961 Act is its charging provision and is as under:

“Charge of Incometax

Section 4: (1) Where any Central Act enacts that income tax shall be charged for any assessment year at any rate or  rates, incometax at that rate or those rates shall be charged for that year in accordance with, and [subject to the  provisions (including provisions for the levy of additional incometax) of, this Act] in respect of the total income of the  previous year or every person:

Provided that where by virtue of any provision of this Act incometax is to be charged in respect of the income of a period other than the previous year, incometax shall be charged accordingly.

(2) In respect of income chargeable under subsection (1),incometax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of this Act.”

(b) While Section 64 is the Scheme of 1997 Act – its charging provision, is as under:

“64: Charge of tax on voluntarily disclosed income – (I) Subject to the provisions of this Scheme, where any  person makes, on or after the date of commencement of this Scheme but on or before the 31st day of December, 1977, a  declaration in accordance with the provisions of section 65 in respect of any income chargeable to tax under the Income Tax Act for any assessment year

(a) for which he has failed to furnish a return under section 139 of the Income Tax Act;

(b) which he has failed to disclose in a return of income furnished by him under the Income Tax Act before the date of commencement of this Scheme;

(c) which has escaped assessment by reasons of the omission or failure on the part of such person to make a return under the Income Tax Act or to disclose fully and truly all material facts necessary for his assessment or otherwise;

then, notwithstanding anything contained in the Income tax Act or in any Finance Act, income tax shall be charged in respect of the income so declared (such income being hereinafter referred to as the voluntarily disclosed income) at the rates specified hereunder, namely:

(i) in the case of a declarant, being a company or a firm, at the rate of 35 per cent, of the voluntarily disclosed income;

(ii) in the case of a declarant, being a person other than a company or a firm, at the rate of 30 per cent, of the voluntarily disclosed income.

(2) Nothing contained in subsection (1) shall apply in relation to

(i) the income assessable for any assessment year for which a notice under section 142 or section 148 of the Income Tax  Act has been served upon such person and the return has not been furnished before the commencement of this Scheme;

(ii) the income in respect of the previous year in which a search under section 132 of the Income Tax Act was initiated or requisitioned under Section 132A of the Income Tax Act was made, or survey under Section 133A of the Income Tax Act  was carried out or in respect of any earlier previous year.”

This Section, when applied to companies, brings to tax income chargeable to tax but not disclosed under the 1961 Act,  and declared now under Section 64 of the Scheme of 1997 Act at the rate of 35% in case of Petitioner. Section 64 of the  Scheme of 1997 Act, is the charging provision. Section 4 of the 1961 Act, is not the charging provision for the tax payable under the Scheme of 1997 Act.

17. We note that the Scheme is a part of the Finance Act, 1997 and it is self contained. The Scheme of 1997 Act is a  different and distinct statute from the 1961 Act. The subject matter of tax and rate of tax are different under the Scheme  of 1997 Act and under the 1961 Act. Therefore, even though the tax which is payable under the Scheme of 1997 Act, is a tax on Income, it is not a charge to tax under Section 4 of the 1961 Act, but an Income tax charged to tax under Section  64 of the Scheme of 1997 Act.

18. As held by the Supreme Court in Mathuram Agarwal v./s. State of M. P. 1999 (8) SCC 667, a taxing statute should  convey three components of a taxing statute, i.e. person to be taxed, subject matter of tax and rate of tax. Undisputedly, the subject matter and rate of tax in the case of Scheme of 1997 Act is different from that of the 1961 Act. The subject matter of tax in case of the above Scheme as evident from the charge of tax therein is on voluntarily disclosed income,  which, though chargeable to tax under the 1961 Act, had not been disclosed earlier thereunder. The charge under the 1961 Act, is on the total income of the previous year and the scope of the total income is income received/ deemed to be received/ accrued/ arisen during the previous year. As against the above, the charge under the Scheme of 1997 Act, is the undisclosed income under the 1961 Act which is voluntarily disclosed. There is no obligation under the Scheme of 1997 Act that every person who has not disclosed his income under the 1961 Act is required to disclose and pay taxes. It is  optional. This unlike the 1961 Act, which obliges every person by whom tax is payable to disclose and pay the tax payable on its income at the peril of penalty and prosecution, if income is not disclosed and taxes thereon not paid. Similarly, the  rate of tax is also different under the 1961 Act from that under the Scheme of 197 Act. In fact, it is one flat rate and not at a progressive rate as under the 1961 Act. Therefore, as the tax payable under the Scheme is different and distinct from the tax payable under the 1961 Act, the benefit of tax paid on the undisclosed income as and by way of tax  deduction at source under the 1961 Act, cannot be availed under the Scheme. This is also evident from Section 64 of the Scheme providing “notwithstanding anything contained in the Income Tax Act or Finance Act, income shall be charged in respect of income so declared……….” Thus, the charge is different.

19 This is further supported by Section 66 of the Scheme,which reads as under:

66: Time for payment of tax – The tax payable under this Scheme in respect of the voluntarily disclosed income shall be paid by the declarant and the declaration shall be accompanied by proof of payment of such tax.”

Therefore, the proof of payment of tax to be provided is of the tax payable under the Scheme of 1997 Act and not the tax  paid under the 1961 Act.

20. Mr. Mistri, in support of his submission states that the tax payable under the Scheme of 1997 Act is the income tax  payable under the 1961 Act. According to him, it is the ‘same animal’ and, therefore, the benefit of TDS i.e. tax deducted at source under the 1961 Act is available for payment of tax under the Scheme of 1997 Act. Our attention is invited to the definition section viz: Section 63 of the Scheme of 1997 Act, which reads as under:

Section 63 Definitions  In this Scheme, unless the context otherwise requires

(a) “declarant” means a person making the declaration under subsection(1) of section 64:

(b) “Incometax Act” means the Incometax Act, 1961 (43 of 1961);

(c) “Wealthtax Act” means the Wealthtax Act, 1957 (27 of 1957);

(d) all other words and expressions used in this Scheme but not defined and defined in the Incometax Act or the Wealth tax Act shall have the meanings respectively assigned to them in those Acts.”

In particular, he relies upon subsection (d) of Section 63 of the Scheme. This, according to him, mandates that the word  ‘tax’ as defined in the Income Tax Act i.e. 1961 Act will have to be given the same meaning even in the Scheme of 1997 Act. Besides, Mr. Mistri places reliance upon the decision of the Apex Court in Hemalatha Gargya (supra), particularly, certain observations therein, which after holding the Assessee therein, is not entitled to the benefit of the Scheme of 1997 Act directed the authorities to refund or adjust the amounts already deposited in pursuance of the Scheme of 1997 Act in  accordance with law. This according to the Petitioner is adjustment of tax paid under Scheme of 1997 Act with the tax payable under the 1961 Act. In any event, he submits that in view of the decision of Calcutta High Court in Sushila Devi Mohata (supra), relied upon by the Revenue, the entire issue now stands concluded in favour of the Petitioner. Therefore,  it is submitted that the Incometax deducted is adjustable against the tax payable under the Scheme of 1997 Act.

21. The definition Section i.e. Section 63 of the Scheme of 1997 Act itself is qualified by the phrase ‘unless the context  otherwise requires’. Therefore, it cannot apply while dealing with charging Section i.e. Section 64 of Scheme of 1997 Act.  This is evident from Section 64 of the Scheme of 1997 Act itself providing that the tax payable hereunder is payable  notwithstanding anything contained in the Income Tax Act i.e. 1961 Act. In any case, subsection (d) of Section 63 of the  Scheme of 1997 Act only provides that words and expressions used herein will have the meaning assigned to it under the  1961 Act. However, the aforesaid meaning to be provided to the words used in the Scheme of 1997 Act does not bring about any change in the charging provisions viz: Section 64 of the Scheme of 1997 Act. As pointed out above, the charge of tax under the Voluntary Scheme of 1997 Act is a declaration made of any undisclosed income chargeable to tax under the 1961 Act then such undisclosed income when declared (called voluntarily disclosed income) is charged to tax at the flat rate @ 35% in case of firms/companies and 30% in case of individuals. Thus, the definition Section of the Scheme of 1997 Act on which reliance is placed by the Petitioner is of no avail, as the charge of tax does not undergo any change in view thereof.

22. So far as reliance upon the Apex Court’s decision in Hemalatha Gargya (supra) by the Petitioner is concerned, we note  that the observations being relied upon by the Petitioner, reads as under:

“ As a consequence, in our view, the appeals preferred by the assessees must be and are hereby dismissed whereas the  appeals preferred by the Revenue authorities must be and are hereby allowed. However, having held that the assessees  are not entitled to the benefit of the Scheme since the payments made by them were not in terms of the Scheme,we direct the Revenue authorities to refund or adjust the amounts already deposited by the assessee in purported compliance with the provisions of the Scheme to the concerned assessees in accordance with law. All the appeals are accordingly disposed of without any order as to costs.”

The aforesaid observations do not state that the amount (tax) paid under the Scheme of 1997 Act is Income Tax under the  1961 Act. It merely states that the amounts already deposited in purported compliance of the Scheme of 1997 Act will be refunded or adjusted in accordance with law. Therefore, it does not follow as was submitted by the Petitioners that the amount paid under the Scheme of 1997 Act is Income Tax under the 1961 Act, and the refund payable by the Revenue  would therefore be adjustable under the 1961 Act. If it was so, then the order would have in terms directed the adjustment in terms of Section 245 of the Act, 1961, which provides for adjustment of refunds of tax against income tax payable. The Apex Court merely directed adjustment of the amount paid under the Scheme of 1997 Act against any  demands in accordance with law. Nothing has been shown to us by the Petitioner which in law would permit adjustment of refunds as due on account of excess paid under the Scheme of 1997 Act with the tax payable under the 1961 Act.  Therefore, the above decision in our view also does not assist the Petitioner.

23. It cannot be disputed that the decision of the Calcutta High Court is in Sushila Devi Mohata (supra) is completely in  favour of the Petitioners even though it is passed in the context of Voluntary Disclosure of Income and Wealth Tax Act, 1976 and not under the Scheme of 1997 Act. We have perused the Voluntary Disclosure of Income and Wealth Act, 1976 and found its charging provisions namely – Section 3 thereof to be identical to Section 64 of the Scheme of 1997 Act. For  ease of Reference, we reproduce Section 3 of the Voluntary Disclosure Scheme of Income and Wealth Tax Act, 1976 which reads as under:

“3. Charge of incometax on voluntarily disclosed income.

(1) Subject to the provisions of this Act, where any person makes, on or after the date of commencement of this Act but  before the 1st day of January, 1976, a declaration in accordance with the provisions of section 4 in respect of any income  chargeable to tax under the Indian Incometax Act, 1922 (11 of 1922), or the Incometax for any assessment year 

(a) for which he has failed to furnish a return under section 139 of the Incometax Act, or

(b) which he has failed to disclose in a return of income furnished by him under the Incometax Act before the date of commencement of this Act, or

(c) which has escaped assessment by reason of the omission or failure on the part of such person to make a return under the Indian Incometax Act, 1922 (11 of 1922), or the Incometax Act or to disclose fully and truly all material facts necessary for his assessment or otherwise,

then, notwithstanding anything contained in the Indian Incometax Act, 1922 (11 of 1922), or the Incometax Act or in any Finance Act, incometax shall be charged in respect of the income so declared (such income being hereinafter referred to as the voluntarily disclosed income) at the rate or rates specified in the Schedule.

(2) Nothing contained in subsection (1) shall apply in relation to 

(i) the income assessable for any assessment year for which a notice under section 139 or section 148 of the Incometax Act has been served upon such person and the return has not been furnished before the commencement of this Act;

(ii) where any books of account, other documents, money, bullion, jewellery or other valuable articles or things belonging to the person making the declaration under subsection (1) (hereafter in this section, in sections 4 to 13 and in the  Schedule referred to as the declarant) have been seized as a result of any search under section 132 of the Incometax Act or  Under Section 37A of the Wealthtax Act, the income in respect of the previous year in which such search was made or  any earlier previous year.

(3) In addition to the amount of incometax to be paid under subsection (I), the declarant shall invest a sum equal to five  per cent of the amount of the voluntarily disclosed income in such securities as the Central Government may notify in this  behalf in the Official Gazette.”

It is in the above background that, we shall examine the decision of the Calcutta High Court in Sushila Devi Mohata’s  case (supra) holding that adjustment of tax deducted at source under the 1961 Act, will be allowed against the tax  payable under the Voluntary Disclosure of Income and Wealth Tax Act, 1976. However, it appears that difference in the charging provisions as found in Section 4 of the 1961 Act and as found in Section 3 of the Voluntary Disclosure of Income  and Wealth Act, 1976 was not pointed out to and/or noticed by Calcutta High Court in Sushila Devi Mohata’s case (supra). The charge of tax under Section 3 of the Voluntary Disclosure of Income Tax and Wealth Tax, 1976 is voluntarily disclosed income which is chargeable to tax which has not been disclosed under the 1961 Act for any Assessment Year. It  is this voluntarily disclosed income which is chargeable to tax under the Voluntary Disclosure of Income and Wealth Tax, 1976. The person is qualified to avail of the Voluntary Disclose of Income and Wealth Tax Act, 1976, only if the person  voluntarily discloses undisclosed income on which tax has not been paid for any Assessment Year. It has no nexus/ connection to bring income of the previous year which a person is liable to tax, is obliged to disclose as under Section 4 of the 1961 Act. Therefore, the charge of tax is different in the 1961 Act from the charge of tax on the Voluntary Disclosure of Income and Wealth Tax Act, 1976, even if the tax in both the cases is on Income. Consequently, tax paid under the Voluntary Disclosure of Income and Wealth Tax Act, 1976 is not a tax paid under 1961 Act. Therefore, the benefit of TDS  under the 1961 Act cannot be availed to adjust the tax payable under the Voluntary Disclosure of Income and Wealth Tax, 1976.

24. Therefore, even though the provisions of the Voluntary Disclosure Income and Wealth Act, 1976 which was before the  Calcutta High Court in Sushila Devi Mohata (supra), are identical to the Voluntary Scheme of Act, 1997, yet the above difference between these Acts and Income Tax Act was not considered/ nor present to the mind of the Calcutta High Court while dealing the issue. Therefore, such a decision is rendered sub silentio. Salmond in Chapter 6 of his book – Jurisprudence, 12th Edition states as follo:

“ Circumstances destroying or weakening the binding force of precedent :

A decision passes sub silentio, in the technical sense that has come to be attached to that phrase, when the particular  point of law involved in the decision is not perceived by the court or present to its mind. The court may consciously decide in favour of one party because of point A, which it considers and pronounces upon. It may be shown, however, that  logically the court should not have decided in favour of the the particular party unless it also decided point B in his favour; but point B was not argued or considered by the court. In such circumstances, although point B was logically involved in the facts and although the case had a specific outcome, the decision is not an authority on point B. Point B is said to pass sub silentio.”

The rule that a precedent subsilentio is not authorities goes back at least to 1661 when counsel said: “ An hundred  precedents sub silentio are not material” ; and Twisden, J. agreed : “Precedents sub silentio and without argument are of no moment”.

25. Therefore, we do not consider the aforesaid decision of the Calcutta High Court in Sushila Devi Mohata (supra) as  conclusively laying down the law and which we should follow for the reasons stated therein. It is a settled position in law  that the decisions of another High Court though not binding upon us, would deserve the highest respect and normally be followed for the sake of uniformity and comity of Courts , unless the judgment is rendered, per incurrium or subsilentio.  In this case, we note that the decision of the Calcutta High Court in Sushila Devi Mohata (supra) is rendered subsilentio and, therefore, not being followed. Moreover, as held by our Court in CIT v/s. Thane Electricity Supply Co. Ltd., 206 ITR 727 on an issue of law requiring interpretation, we need not follow the decision of another High Court, if our view is different. Therefore, we do not take the route adopted of the Calcutta High Court in Sushila Devi Mohata (supra) in  deciding the present controversy.

26 Furthermore, Section 64 of the Voluntary Scheme of Act, 1997 itself states that “notwithstanding anything contained  in the Income Tax Act or in any Finance Act, income tax shall be charged in respect of the income so declared then,  notwithstanding anything contained in the Income Tax Act or in any Finance Act, income tax shall be charged in respect of the income so declared (such income being hereinafter referred to as the voluntarily disclosed income) at the rates specified hereunder) at the rates specified hereunder …….”. This itself, de hors the difference in charging Sections of the two Acts, excludes the operation of the Income Tax Act i.e. 1961 Act while charging the voluntarily disclosed income to tax under the Scheme of 1997 Act. Therefore, the reliance upon the decision of the Calcutta High Court in Sushila Devi  Mohata (supra), cannot, in our view, govern the issue for the above reasons.

27. In the above view, a tax payable under the Scheme of 1997 is not a tax under the Act,1961. The tax payable under the  Scheme of 1997 Act is indeed a ‘different animal’ from the tax payable under the 1961 Act. Therefore, the tax deducted at source and/or any other mode of payment of tax under the 1961 Act cannot be used to discharge the obligation to pay tax under the Scheme of 1997 Act on the disclosure of undisclosed income. Thus, it is not permissible to adjust the tax  deducted at source under the 1961 Act to discharge an obligation to pay tax under the Scheme of 1997 Act.

28. We are fortified in our view by the submission of the Petitioner that the Circular issued by the CBDT dated 25th July,  1997 has no application as it applies only to Act,1961 and not the Scheme. This on the basis that the Scheme of 1997 Act is  a separate and distinct enactment from the 1961 Act. In fact, the Petitioner has placed reliance upon the decision of the Apex Court in Hemalatha Gargya (supra) to urge that a Circular of CBDT issued under Section 119 of the Act, 1961 can have no application to the Scheme. The Apex Court had observed in the above case that it is doubtful whether a Circular issued under Section 119 of the Act can have any application to the Scheme of 1997 Act.

29. In the above circumstances, on the view taken by us in law, there is no occasion to consider the other submissions on  the part of the Petitioner. This is particularly because the Petitioner’s submission have proceeded on the basic premise  that tax payable under the Scheme of 1997 Act, is a tax payable under the 1961 Act. This, in our view, is  unsustainable. Therefore, even if we accept that there is merit in the submission on the part of the Petitioner that the impugned communication dated 18th March, 1998 is without application of mind, sending it back to Commissioner of Income Tax  to reconsider the issue is not warranted. More particularly, as this Petition relates to year 1998 and on consideration of the Scheme per se, it is clear to us that the tax payable thereunder is not the tax payable under the 1961 Act.

30. The decisions of this Court in Vikram Singh S. Vallabhdas (supra), relied upon by the Petitioner does not touch upon  the present controversy. It was a case arising under the Indian Income Tax Act, 1922 and the Court held on the basis of Section 18(5) thereof, that the payment of tax by deduction from the amount payable to an Assessee, is a tax paid on behalf of the Assessee. Presently, we are concerned with the Scheme of 1997 Act which does not provide for any credit of  tax payable thereunder to the extent of tax paid under the Act, 1961. Similarly, the decision of the Gujarat High Court in Vasantlal Tulsidas Agarwal v/s. CIT 254 ITR 255 relied upon by the Petitioner where the Court held that any amount paid in excess under the Scheme of 1997 by mistake, would be a payment without authority of law and the Revenue was obliged to return the same, does not support the Petitioner’s case. In the above case, the only issue for consideration by the Court was of excess payment of tax under the Scheme of 1997 Act and not a case of excess payment on account of failure to give credit of tax deducted at source under the 1961 Act. There is no provision under the Scheme of 1997 Act for adjustment of tax paid under the 1961 Act to discharge the obligation of the tax payable under the above Scheme. Nor is  there any provision under the Scheme of 1997 Act for refund of the tax paid under the 1961 Act.

31. Besides, the above position in law, we cannot but refer to one more aspect of this case, i.e. filing of the declaration on  31st December, 1997 by the petitioners and its acceptance by the respondent Revenue. In terms of Section 64 of the  Scheme of 1997, a person seeking to avail the benefit of the same has to file a declaration thereunder on or after 1st July, 1997 but on or before 31st December, 1997. This declaration is voluntary disclosure of undisclosed income chargeable to  tax under the 1961 Act. This declaration has to be in the prescribed proforma and verified in the manner prescribed as provided in Section 65 of the Scheme of 1997 Act. The last date for availing the benefit of the above Scheme is by filing a declaration on or before 31st December, 1997. In terms of Section 66 of the Scheme of 1997 Act, a declarant has to  submit proof of payment of tax payable under the above Scheme. However, Section 67 of the Scheme of 1997 Act provides a facility to a declarant who has filed a declaration under the Scheme on or before 31st December, 1997, to avail of a further period of three months from the date of filing the declaration (provided the same is filed on or before 31st December, 1997) to pay the tax payable under the above Scheme on the basis of the declaration. It is on the basis of the  application made by the declarant, that in terms of Section 68(3) of the Scheme of 1997 Act, the Commissioner of Income  Tax grants a certificate to the declarant.

32. In this case, the declaration was filed on 31st December, 1997 in terms of Sections 64 and 65 of the Scheme of 1997 Act. The petitioner availed of the option in terms of Section 67 of the Scheme of 1997 Act to pay the tax payable in terms  of the declaration within three months of the filing of the declaration with interest at the rate of 2% per annum for every month from the date of the declaration up to the date of payment of the tax payable as declared in the declaration under  the Scheme of 1997 Act. In its declaration dated 31st December, 1997 in the prescribed proforma signed and verified by  its Director, it had declared undisclosed income for Assessment Years 199596, 199697 and 199798 aggregating to Rs.5,00,63,885/ on which no tax had been paid. In fact, the relevant extract of the declaration filed on 31st December,  1997 by the petitioner reads as under :

6. Total amount of voluntarily disclosed income (Rs.) Rs. 500,63,885/

 

7. Income­tax payable thereon (Rs.) (@35%  in  the  case  of  companies  and  firms and @ 30% in the case of others) 175,22,360/­
8. Income­tax  paid  on  or  before  the  date  of declaration (Rs.) (Attach proof of payment) NIL
9. Balance tax payable (Rs.) 17522360

33. Thus, it is very clear that in accordance with the declaration filed by the petitioner, the balance tax payable under the  Scheme as on 31st December, 1997 was Rs.1,75,22,360/. This on income voluntarily declared at Rs.5,00,63,885/ The  basis of the petitioner availing the benefit of the Scheme is its above declaration dated 31st December, 1997 in terms of Sections 64 and 65 of the Scheme of 1997 Act. In fact, Section 65(3) of the above Scheme prohibits a person who has  made one declaration from making any other declaration in respect of the same income. In fact, any further declaration, if made by the person on the same income would be deemed to be void. In this case, the petitioner has itself on 31st December, 1997 in its declaration stated that the balance amount of tax payable is Rs.1,75,22,360/ on the voluntarily  disclosed income of Rs.5,00,63,885/. At the time of filing of the declaration, the petitioner did not claim any credit for the tax deducted at source under the 1961 Act in respect of the tax payable on voluntarily disclosed income under the Scheme as is now being made.

34. In fact, in its application dated 16th March, 1998, addressed to the Commissioner of Income Tax, the petitioner had  for the first time claimed that it is entitled to credit of tax deducted at source of Rs.1,59,74,149/ paid under the 1961 Act to determine the tax payable under the Scheme of 1997 Act. The relevant part of its application dated 16th March, 1998,  reads as under :

“6. Accordingly, the Company proposes to pay the taxes due on income disclosed as under :

a)  Total income disclosed for the years covered under the Return filed under VDIS 1997 on 31.12.1997 Rs. 500,63,885/
b)  Tax payable on the above under the Scheme (at 35%) Rs. 175,22,360/
c) Taxes deducted at source against the income for the above assessment years: (Photocopies of the TDS Certificates along with the list of the same, certificates numbering 72 are enclosed. The originals are being produced for verification and filing as may be advised) Rs. 159,74,149/-
d) Balance Tax Payable Rs.15,48,211/­-
e) Interest payable at 6% of the above Rs.92,893/­-
f) Total tax payable before 31 st March, 1998 Rs.16,41,104/

35. The above application dated 16th March, 1998 was rejected by the impugned communication dated 18th March,  1998. We note that the entire basis of the Scheme of 1997 Act is that the person seeking to avail of its benefit would file a declaration along with the prescribed particulars to the Commissioner of Income Tax on or before 31st December, 1997. Any declaration filed after 31st December, 1997 cannot be entertained under the Scheme of 1997 Act as provided under  Section 64 thereof. Further, the requirement under Section 66 of the above Scheme as referred to herein above is that the  declaration shall be accompanied by proof of payment of the tax payable under the scheme. Section 67 of the above Scheme extends a facility to the declarant to pay the tax within the period of 3 months from the filing of the declaration  along with interest @ 2% for every month from the date of filing of declaration upto the payment of such tax and filing the proof thereof. This facility of payment of tax during the extended time does not entitle a person to file a fresh declaration or modify a declaration which is filed on or before 31st December, 1997. In fact, filing of another declaration  by a declarant is prohibited under Section 65(3) of the Scheme. This would be void as filing of another declaration under the above Scheme, is prohibited.

36. In any event, even if the application dated 16th March, 1998 (relevant part extracted herein above) is understood to  mean an application to amend / modify its earlier declaration filed on 31st December, 1997, and not a fresh declaration, there is no provision under the Scheme of 1997 Act which permits the declarant to amend a declaration already filed on or before 31st December, 1997. Allowing any such modification / rectification to a declaration filed on or before 31st December, 1997, would in effect amount to extending the date of filing the declaration on or before 31st December, 1997.  This is not permissible under the Scheme of 1997 Act. The Scheme of 1997 Act being a fiscal statute, the petitioners seeking benefit thereof, must strictly satisfy its requirements. The Petitioner is seeking to modify / amend its declaration resulting in a different amount of tax payable from that declared on or before 31st December, 1997. Therefore, it does not  strictly satisfy the term of the Scheme of 1997 Act.

37. Moreover, the application dated 16th March, 1998 by the petitioner does not even make an attempt to explain the circumstances in which the declaration filed on 31st December, 1997 allegedly mentioned inaccurate particulars nor does the petition contain any explanation as to the circumstances which led the petitioner to file a declaration which is incorrect. In fact, there is no formal application made by the petitioner even to amend its declaration dated 31st December, 1997. The petitioner continues to stand by the declaration filed on or before 31st December, 1997 and yet proposes to pay taxes in a manner different from that stated in its declaration dated 31st December, 1997.

38. As pointed out above, at the very highest, the impugned communication dated 18th March, 1998 could be faulted  only on the grounds of being without reason and in placing reliance upon CBDT Circular dated 10th June, 1997.  Nevertheless on examination of the scope of the Scheme of 1997 Act, the impugned communication dated 18th March,  1998 rejecting the application dated 16th March, 1998, cannot be faulted. Thus, restoring the issue to the Commissioner  of Income Tax would in the present facts, after having heard the parties in detail, would not be justified.

39. Without prejudice to the above, the petitioner has on 18th October, 2016 filed an affidavit dated 17th October, 2016  of Ms. Snehal Mane, the Authorized Signatory of the Petitioner. With the above affidavit, the petitioners have enclosed a letter dated 31st March, 1998 wherein they have informed the Commissioner of Income Tax that the tax payable under the Scheme along with interest aggregating to Rs.1,85,73,702/ has been paid on 31st March, 1998. The same reads as under :

“ We have filed the Disclosure under the VDIS on 31st December 1997 vide Receipt No. cited.

Under the Scheme, the tax  payment was to be made on or before 31st March, 1998. The amount payable was Rs.1,75,22,360 in our case. With  interest at 6% the aggregate amount payable was Rs.1,85,73,702. The same has been paid into State Bank of India, Nariman Point Branch, Mumbai today, the 31st March, 1998 fully, under the Demand Draft / Banker’s Cheques, the  details of which are as per the Statement enclosed herewith.

As token of evidence of payment for your records, we are also filing a photocopy of a Challan portion along with photocopies of the said Demand Drafts / Banker’s Cheques. Kindly find the same in order and issue the Certificate as provided under the Scheme.

We may further mention here that the Company had only income from rent and interest against which the payers had deducted taxes at source. The income as such disclosed had suffered taxes at source. The amount of deduction was at Rs.1,59,74,149/ for the years under Disclosure. Since the Company had not filed its Returns under Section 139 of the I.T. Act, the disclosure was made under Section 64(1) (a) of the Finance Act, 1997. In view of this situation, since the income disclosed had suffered TDS at source, it was claimed that the TDS should be given credit to against the tax payable under the VDIS. A letter was made to your Honour to that effect on 16th March, 1998. Your Honour, by your letter dated 18th March,1998 numbered CIT- III/VDIS/Misc/188/9798, rejected the request. The Company filed a Writ Petition before the High Court. The High Court while admitting the Writ plea, to be heard in due course, did not grant any interim relief  or reliefs prayed for. Therefore, the Company has fully paid the taxes as payable under the VDIS without deducting the TDS suffered on the income. This is only for your kind information.”

40.  It may be noted that the payment of the tax under the Scheme of 1997 Act was in terms of the declaration made by the petitioner on 31st December, 1997. In its declaration, no claim for the Tax Deducted at Source under the 1961 Act being treated as tax paid under the Scheme was made by the petitioner. Further, it is pertinent to note that the letter dated 31st March, 1998 has been filed by the  petitioner with the Commissioner of Income Tax, not along with the proof of payment of tax under the Scheme but separately and only after the proof  of payment had been submitted to the Revenue. Further, the communication does not  in terms states that the petitioner reserves its rights to claim refund nor does it state that the right to refund is subject to the result of the petition. The payment could not have been made under protest as the payment had already been made prior to addressing the above letter dated 31st March, 1998. The Petitioners’ who seek an equitable relief in Writ, should have been more forthright in its communication to the Revenue. This conduct on the part of the Petitioner is an attempt on the part of the Petitioner to secure the benefit of the Scheme i.e. Protection (insulation) from prosecution and penalty under the 1961 Act, and at the same time challenge the payment made under the Scheme of 1997 Act. Thus, we find no  reason to allow the petition also on the above ground.

41. In the above view, on the basic issue of law, we hold that the payment of tax under the Scheme of 1997 Act is not  payment of tax under the 1961 Act. Thus, adjustment as sought of the tax paid as TDS under the 1961 Act to reduce the tax payable under the Scheme of 1997 Act is not permissible. Therefore, we have not examined the secondary issue raised viz: appropriate interpretation of the Scheme of 1997 Act, proceeding on the premise that it is the same tax under both  the Acts.

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Category : Income Tax (24145)
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Tags : high court judgments (3394) TDS (838)

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