Virag Tiwari Vs. Principal CIT & Others (Delhi High Court)
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 Rs. 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.
In the aforesaid factual matrix, we would direct as under:-
(i) Deposit of Rs. 34,48,954/- will be treated as payment of tax, surcharge and penalty under the PMGK Scheme in respect of undisclosed income of Rs. 69,11,731.46. Rs. 34,48,954/- is 9% of Rs. 69,11,731.46.
(ii) In respect of the balance undisclosed income of Rs. 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. Rs. 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) Rs. 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 Rs. 34,48,954/-, which would be contrary to Section 199K of the Finance Act. We have also not directed that the advance tax of Rs. 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. It is possible to argue that we have interfered with the declaration made by the petitioner in terms of Sections 199A and 199C of the Finance Act, but on the said aspect flexibility and tolerance can be exercised as we would read the contents of the declaration along with and harmoniously with the letters written by the petitioner quoted above. 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 Rs. 69,11,731.46 on which tax, surcharge and penalty was paid. For the balance undisclosed income of Rs. 1,71,34,268.54 the petitioner must exercise first option and pay 60% tax, 25% surcharge on tax and cess under Section 1 15BBE 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 1 15BBE 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. Of course, if the petitioner does not make payment as stipulated under Section 115BBE and applicable surcharge in respect of the aforesaid undisclosed income of Rs. 1,71,34,268.54/-, it will be open to the respondents to treat the declaration under PMGK Scheme as invalid or void on the ground of misrepresentation or suppression of facts. Similarly if subsequently the declaration is found to be bad on account of suppression of facts or misrepresentation. In case tax, interest etc. are paid we believe a fair minded assessing officer would not initiate penalty proceedings under Section 271AAC of the Act. We have made these observations in view of the facts and to stall another round of unnecessary litigation.
FULL TEXT OF THE HIGH COURT JUDGMENT / ORDER IS AS FOLLOWS:-
The writ petitioner, an advocate by profession and a professed income-tax practitioner, has filed the present writ petition strafed by intimation F No. Pr. CIT/Delhi-21/2017-18/619 dated 28th June, 2017 of the Principal Commissioner of Income Tax, Delhi-21 rejecting his application dated 31st March, 2017 under the Pradhan Mantri Garib Kalyan Yojna, 2016 (PMGK Scheme, for short).
2. Rejection of the declaration under the PMGK Scheme, implies that the petitioner would forgo or forfeit without refund Rs. 34,48,954/- deposited as tax, surcharge and penalty. Similarly Rs. 60,11,500/- deposited by the petitioner as Pradhan Mantri Garib Kalyan Cess would be meaningless, refundable without interest after 4 years.
3. PMGK Scheme was notified in the Gazette of India dated 15th December, 2016 vide Taxation Laws (Second Amendment) Act, 2016 [Amendment Act, for short] as an aftermath and in wake of the demonetization of Rs. 500 and Rs. 1000 currency notes, which had ceased to be legal tender post midnight between 8th and 9th November, 2016.
4. The petitioner, like many others, stuck with unaccounted demonetized currency notes had thought that they could side-step adverse impact of demonetization by offering for tax undisclosed cash deposited in bank accounts as income for the current year, i.e. Financial Year 2016-17, at the rate mentioned in Section 115BBE of 30% plus the applicable surcharge and cess. The expectation was that they would pay normal incidence of tax and escape the rigors of penalty and prosecution. This is a matter of common knowledge of which judicial notice should be taken.
5. The petitioner accepts and admits to having deposited substantial sum of Rs. 2,40,46,000/- in cash in Indian Overseas Bank, City Union Bank and Punjab National Bank between 13th November, 2016 and 13th December, The petitioner had also deposited advance tax of Rs. 85,50,000/- for the Assessment Year 2017-18 on different dates between 1st December, 2016 and 15th December, 2016 i.e. on or before introduction of PMGK Scheme vide Amendment Act on 15th December, 2016.
6. The Amendment Act was enacted with a definitive purpose and objective to suppress and stifle such deception and prevent misuse of the existing provisions by suitable substitutions and insertions of Sections 115BBE, 271AAB and 271AAC to the Income Tax Act, 1961 (Act, for short) prescribing higher rate of tax at 60%, surcharge of 25% on tax, and applicable cess. Thereby effective rate of tax on such deposits covered by section 115BBE was increased to 77.25% of the income referred to in Section 68, 69, 69A, 69B, 69C and 69D of the Act. In addition penalty of 10% could also be imposed.
7. To understand the impact and effect of the amendments made we would reproduce Sections 115BBE and 271AAC of the Act, which read as under:-
“(1) Where the total income of an assessee,-
(a) includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D and reflected in the return of income furnished under section 139; or
(b) determined by the Assessing Officer includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, if such income is not covered under clause (a),
the income-tax payable shall be the aggregate of
(i) the amount of income-tax calculated on the income referred to in clause (a) and clause (b), at the rate of sixty per cent.; and
(ii) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (i) ”
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“271AAC. (1) The Asessing Officer may, notwithstanding anything contained in this Act other than the provisions of section 271AAB, direct that, in a case where the income determined includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D for any previous year, the assessee shall pay by way of penalty, in addition to tax payable under section 11 5BBE, a sum computed at the rate of ten per cent. of the tax payable under clause (i) of sub-section (1) of section 115BBE:
Provided that no penalty shall be levied in respect of income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D to the extent such income has been included by the assessee in the return of income furnished under section 139 and the tax in accordance with the provisions of clause (i) of sub-section (1) of section 115BBE has been paid on or before the end of the relevant previous year.
(2) No penalty under the provisions of section 270A shall be imposed upon the assessee in respect of the income referred to in sub-section (1).
(3) The provisions of sections 274 and 275 shall, as far as may be, apply in relation to the penalty referred to in this section.”
For the purpose of the present decision, as it is not a search case, we need not refer to Section 271AAB of the Act.
8. Section 115BBE of the Act provides that where the total income declared by an assessee in his return includes income referred to in Sections, 68, 69, 69A, 69B, 69C & 69D, or is determined by the Assessing Officer to include such income, the assessee would be liable to pay tax at the rate of 60% on such income. In other words, such assessee would not get benefit of the lower rate of tax earlier prescribed. Under Section 271AAC, Assessing Officer is entitled to levy penalty of 10% of the tax payable under Section 115BBE(1)(i) in addition to the tax already payable under Section 115BBE. This penalty is not payable where the assessee has declared such income referred to in Sections, 68, 69, 69A, 69B, 69C & 69D in his return of income furnished under Section 139 of the Act and has paid tax in accordance with Section 115BBE(1)(i) of the Act on or before end of the relevant previous year.
9. Amendment Act had also omitted the figures/letters 115BBE in the third proviso in Chapter II, in Section 2(9) of the Finance Act and inserted Seventh proviso to the said Sub-Section for imposition of surcharge @25% on the tax. Seventh proviso to Section 2(9) of the Finance Act, reads ;-
“Provided also that in respect of any income chargeable to tax under clause (i) of sub-section (1) of Section 115BBE of the Income-tax Act, the “advance tax”computed under the first proviso shall be increased by a surcharge, for the purposes of the Union, calculated at the rate of twenty-five per cent of such advance tax;”
Thus, an assessee was also liable to pay surcharge @ 25% on tax on the income chargeable to tax under clause (i) of Section 115BBE (1) of the Act in addition to 60% tax. In addition cess under Sub-sections (11) and (12) to Section 2 of the Finance act of 2% and 1% of the income tax and surcharge was also payable.
10. Amendment Act also introduced PMGK Scheme by adding Chapter IXA to the Finance Act, 2016 (Finance Act) with the heading Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojna, 2016, albeit as a second option for the delinquent assessee. We begin by reproducing Sections 199A to 199G of the Finance Act enacted and introduced by the Amendment Act, which read:-
“199A. (1) This Scheme may be called the Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016.
(2) It shall come into force on such date as the Central Government may, by notification, in the Official Gazette, appoint.
199B. In this Scheme, unless the context otherwise requires,-
(a) “declarant” means a person making the declaration under sub-section (1) of section 199C;
(b) “Income-tax Act” means the Income-tax Act, 1961;
(c) “Pradhan Mantri Garib Kalyan Deposit Scheme, 2016” (hereinafter in this Chapter referred to as “the Deposit Scheme”) means a scheme notified by the Central Government in consultation with the Reserve Bank of India in the Official Gazette; and
(d) all other words and expressions used in this Scheme but not defined and defined in the Income-tax Act shall have the meanings respectively assigned to them in that Act.
199C. (1) Subject to the provisions of this Scheme, any person may make, on or after the date of commencement of this Scheme but on or before a date to be notified by the Central Government in the Official Gazette, a declaration in respect of any income, in the form of cash or deposit in au account maintained by the person with a specified entity, chargeable to tax under the Income-tax Act for any assessment year commencing on or before the 1st day of April, 2017.
(2) No deduction in respect of any expenditure or allowance or set-off of any loss shall be allowed against the income in respect of which a declaration under sub-section (1) is made.
Explanation.- For the purposes of this section, “specified entity” shall mean-
(i) the Reserve Bank of India;
(ii) any banking company or co-operative bank, to which the Banking Regulation Act, 1949 applies (including any bank or banking institution referred to in section 51 of that Act); (iii) any Head Post Office or Sub-Post Office; and
(iii) any Head Post Office or Sub-Post Office; and
(iv) any other entity as may be notified by the Central Government in the Official Gazette in this behalf.
199D. (1) Notwithstanding anything contained in the Income-tax Act or in any Finance Act, the undisclosed income declared under sub-section (1) of section 199C within the time specified therein shall be chargeable to tax at the rate of thirty per cent. of the undisclosed income.
(2) The amount of tax chargeable under sub-section (1) shall be increased by a surcharge, for the purposes of the Union, to be called the Pradhan Mantri Garib Kalyan Cess calculated at the rate of thirty-three per cent. of such tax so as to fulfill the commitment of the Government for the welfare of the economically weaker sections of the society.
199E. Notwithstanding anything contained in the Income-tax Act or in any Finance Act, the person making a declaration under sub-section (1) of section 199C shall, in addition to tax and surcharge charged under section 199D, be liable to pay penalty at the rate of ten per cent. of the undisclosed income.
199F. (1) Notwithstanding anything contained in the Income-tax Act or in any other law for the time being in force, the person making a declaration under sub-section (1) of section 199C, shall deposit an amount which shall not be less than twenty-five per of the undisclosed income in the Pradhan Mantri Garib Kalyan Deposit Scheme, 2016.
(2) The deposit shall bear no interest and the amount deposited shall be allowed to be withdrawn after four years from the date of deposit and shall also fulfil such other conditions as may be specified in the Pradhan Mantri Garib Kalyan Deposit Scheme, 2016.
199G. (1) A declaration under sub-section (I) of section 1 99C shall be made by a person competent to verify the return of income under section 140 of the Income-tax Act, to the Principal Commissioner or the Commissioner notified in the Official Gazette for this purpose and shall be in such form and verified in such manner, as may be prescribed.”
Any person could make a declaration under the PMGK Scheme in the form prescribed on or before the first day of April, 2017 in respect of any income in the form of cash or deposit in an account maintained by the person chargeable to tax under the Act for any assessment year commencing on or before 1st day of April, 2017. Declaration was to be made to the Principal Commissioner or the Commissioner notified in the Official Gazette and the form could be signed by the person competent to verify the return of income under Section 140 of the Act. No deduction in respect of any expenditure, allowance or set-off of any loss was allowed. As per Sub-section (1) to Section 199D tax at the rate of 30% was chargeable on the undisclosed income. In addition, as per Sub-section (2) to Section 199D, the declarant was liable to pay 33% of such tax as surcharge called Pradhan Mantri Garib Kalyan Cess so as to fulfill the commitment of the Government for welfare of the economically weaker sections of the society. Further, as per Section 1 99E, in addition to tax of 30% and the cess equal to 33% of the tax, the declarant was liable to pay penalty @10% on the undisclosed income. In other words, the total amount of tax, surcharge and penalty payable on the undisclosed income was 49.90 per cent. Lastly, the declarant under sub-section (1) to Section 199F was to deposit 25% of the undisclosed income under Pradhan Mantri Garib Kalyan Yojna, 2016 and comply with the conditions specified in the PMGKY Scheme. The deposits made were to earn no interest and could be withdrawn only after four years. Sections 199D and 199E imposing payment of tax @ 30% and surcharge @ 33% of the tax payable and penalty of 10% began and were conferred with non obstante primacy to override anything to the contrary contained in the Acts i.e. the Income-tax Act or the Finance Act.
11. Sections 199H, 199I, 199K and 199M are relevant and, therefore, are being reproduced below:-
“199H. (1) The tax and surcharge payable under section 199D and penalty payable under section 199E in respect of the undisclosed income, shall be paid before filing of declaration under sub-section (1) of section 199C.
(2) The amount referred to in sub-section (1) of section 199F shall be deposited before the filing of declaration under sub-section (1) of section 199C.
(3) The declaration under sub-section (1) of section 199C shall be accompanied by the proof of deposit referred to in sub-section (1) of section 1 99F, payment of tax, surcharge and penalty under section 199D and section 199E, respectively.
199-I. The amount of undisclosed income declared in accordance with sub-section (1) of section 199C shall not be included in the total income of the declarant for any assessment year under the Income-tax Act.
199K. Any amount of tax and surcharge paid under section 199D or penalty paid under section 199E shall not be refundable.
199M. Notwithstanding anything contained in this Scheme, where a declaration has been made by misrepresentation or suppression of facts or without payment of tax and surcharge under section 1 99D or penalty under section 1 99E or without depositing the amount in the Deposit Scheme as per the provisions of section 199F, such declaration shall be void and shall be deemed never to have been made under this Scheme.”
As per Section 1 99H of the Finance Act, tax and surcharge payable under Section 199D, and penalty payable under Sections 199E had to be paid before filing of the declaration. Deposit in the Deposit Scheme was also to be made before filing the declaration. Every declaration as per mandate of Sub-section 3 to Section 199H was required to be accompanied with proof of payment of tax, surcharge and penalty and proof of deposit under the Deposit Scheme. As per Section 199-I the amount of undisclosed income declared was not to be included in the total income of the declarant for any assessment year. In terms of Section 199K, no amount of tax and surcharge paid under Section 199D and penalty paid under Section 199E was refundable. Section 199M states that where a declaration has been made by misrepresentation or suppression of facts or without payment of tax, surcharge and penalty or without depositing the amount in the Deposit Scheme, such declaration shall be treated as void and shall be deemed to have never been made under the Scheme.
12. A reading of the aforesaid provisions introduced and enacted vide the Amendment Act, would indicate that the guilty and remiss assessees had two separate and distinct options. They could declare unaccounted cash deposited in the bank accounts in the return of income filed under section 139 of the Act and pay tax, surcharge and cess as per Section 115BBE of the Act and Section 2 of the Finance Act post amendment at the effective rate of tax of 77.25%. Penalty @ 10% under the Section 271AAC could be imposed by the assessing officer on conditions being satisfied. Alternatively, the assessees could as a second option file a declaration under Section 199C, which would require them to deposit tax at the rate of 30%, surcharge at the rate of 33% on tax deposited and penalty of 10% on the undisclosed income i.e. total of 49.9%. In addition the declarants were required to deposit 25% of the undisclosed income as per Sub-section (1) to Section 199F for a period of four years under the Deposit Scheme, to be repaid without interest.
13. Obviously the intention was to tax persons or assessees, who had tried to circumvent and minimize consequences of demonetization by depositing advance tax on the unaccounted for cash in the bank accounts, as a separate class to be taxed differently. Such assessees could opt for the PMGK Scheme by paying tax, surcharge and penalty under Sections 199D and 199E and deposit under Section 199F of the Finance Act, and thereafter seek refund of the advance tax paid in accordance with law. PMGK scheme did not envisage adjustment or credit of advance tax paid as tax, surcharge and penalty paid under the PMGK Scheme.
14. Distinction between the two options, real or effective rate of taxation under the two options and the manner in which more beneficial PMGK Scheme option could be exercised, appears to be clear and apparent with benefit of hindsight and on in-depth and intricate interpretative examination. However, facts of the present case exposit confusion and uncertainty that had prevailed for the difference between the two options and the manner in which PMGK option could be exercised was not appreciated and understood by the petitioner and even by the enforcers i.e. tax authorities. This has resulted and is the cause of the present litigation. It is important, at this stage, to refer to the facts.
15. In the evening of 24th March, 2017 a team of income tax officers from Range-61, being aware of the cash deposits made by the petitioner had visited his office at Laxmi Nagar, Delhi. As the petitioner had by then left his office, he was followed and traced at his colleague’s office in Safdarjang Enclave. The petitioner was asked to give details of his PAN, sources of income, bank accounts etc. and his statement under Section 131 of the Act was partly recorded at Safdarjang Enclave and continued at the office of the petitioner at Laxmi Nagar till 3.a.m. on 25.3.2017. Relevant portion of the statement reads:-
“Q. 16. Please explain the source of cash deposit of Rs. 2,40,46,000/- in your different bank accounts after demonetization.
A. 17 Actually, the cash deposited indifferent bank accounts are my uncounted (sic) cash income which were deposited before the announcement of scheme PMGKY, 2016. Hence, I had no option except declare amount as my professional receipts, hence I deposited advance tax also at this income.
Q. 17. Now what do you want to say?
A. 17. Since cash deposit of Rs. 2,40,46,000/- is my uncounted (sic) income, hence I would like to declare this income under the scheme PMGKY, 2016 with request to adjust the advance tax amount with this scheme which is approx Rs. 1 crore which I have already deposited.
Q. 19. Do you want to say anything else?
A. 19. Nothing specific once again, I repeat cash deposited of Rs. 2,40,46,000/- is my uncounted (sic) income and I surrender the same in PMGKY, 2016 for the guarantee of the same. I am submitting the following mentioned post dated cheques.
