Case Law Details
Kanhaiyalal Dudheria Vs Chief Commissioner of Income Taxes (Karnataka High Court)
The Karnataka High Court examined the legality of an order passed under Section 119(2)(a) of the Income Tax Act, 1961, by which a request for waiver of interest levied under Section 234C for the assessment year 2008–09 was partly rejected. The petitioner, a partnership firm engaged in iron ore mining, contended that its business remained dormant for several years and commenced only after renewal of the mining licence in the later part of the financial year. Interest under Section 234C was levied for non-payment of advance tax instalments, and waiver was sought by relying on Section 119(2)(a) read with the CBDT order dated 26.06.2006.
In the impugned order dated 15.09.2022, the authority denied waiver of interest relating to the second and third advance tax instalments on the ground that the assessee had failed to establish that the income was neither anticipated nor contemplated, as required under the CBDT instructions. The petitioner challenged this part of the order as arbitrary and unreasoned, arguing that the authority failed to undertake an instalment-wise factual examination mandated by the CBDT order. It was asserted that the income accrued only after commencement of mining operations and after the due dates of the relevant instalments, bringing the case within the parameters for waiver.
The respondents defended the order, contending that interest under Section 234C is statutory and that waiver under Section 119(2)(a) is discretionary, subject to strict satisfaction of the CBDT conditions. According to them, the petitioner failed to demonstrate that the income relating to the second and third instalments was not anticipated or contemplated.
The High Court held that while waiver under Section 119(2)(a) is discretionary, such discretion must be exercised objectively and in accordance with the binding CBDT instructions. The Court observed that a mere statement that the assessee failed to establish non-anticipation of income, without supporting factual analysis or reasons, does not amount to a reasoned exercise of jurisdiction. The impugned order, insofar as it related to denial of waiver for the second and third instalments, was found to be cryptic and vitiated by non-application of mind.
Accordingly, the writ petition was allowed in part. The impugned order was set aside only to the extent it denied waiver of interest under Section 234C for the second and third advance tax instalments. The matter was remanded to the authority for fresh consideration confined to those instalments, with a direction to pass a reasoned and speaking order in accordance with the CBDT order dated 26.06.2006. All other findings in the impugned order were left undisturbed, and the contentions of both parties were kept open to the limited extent of the remand.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
The petitioner has called in question the order dated 15.09.2022, passed by respondent No.1 under Section 119 (2)(a) of the Income Tax Act, 1961 (‘Act’ for short), whereby, the request of the petitioner for waiver of interest levied under Section 234C of the Act for assessment year 2008-09 has been partly rejected.
2. The petitioner is a partnership firm engaged in Iron Ore Mining. The case of the petitioner is that the business had remained dormant for several years and commenced only after renewal of the mining licence in later part of the financial year. Interest under Section 234C of the Act came to be levied on the ground of non-payment of advance tax installments. The petitioner sought waiver of such interest by invoking Section 119 (2)(a) of the Act read with Central Board Direct Taxes (CBDT) order dated 26.06.2006.
3. Insofar as the second and third installments of advance tax was concerned, the authority has recorded in the impugned order that the petitioner does not qualify for waiver, on the ground that the assessee has not been able to establish that the income was neither anticipated or contemplated, as required under the conditions stipulated in CBDT instructions contained in the board’s order dated 26.06.2006 and on that reasoning waiver of interest relatable to the said installments has been denied.
4. Learned counsel for the petitioner submits that the impugned order dated 15.09.2022 is arbitrary, cryptic and vitiated by non-application of mind, insofar as it rejects the claim of waiver of interest under Section 234C of the Act in respect of the second and third advance tax installments. It is contended that the authority has merely recorded that the assessee failed to establish that the income was neither anticipated nor contemplated, without undertaking an installment vide examination as mandated under the CBDT order dated 26.06.2006.
5. It is submitted that the income in question accrued only after commencement of mining operation and after due dates of the relevant installments, and therefore, the case squarely falls within the parameter prescribed for waiver. It is argued that CBDT instructions being binding on the department, the failure to objectively apply the conditions stipulated therein renders the impugned order unsustainable in law. However, learned counsel does not disputes the finding recorded in the impugned order insofar as they relate to other advance tax installments and seeks interference only to the limited extent as indicated above.
6. Per contra, learned counsel appearing for the respondents supports the impugned order and submits that the interest under Section 234C is statutory in nature and becomes leviable on failure to pay advance tax installment on the due dates. It is contended that waiver of interest under Section 119 (2)(a) is discretionary and the assessee must strictly satisfy the conditions prescribed under the CBDT order dated 26.06.2006. According to the respondents, the petitioner has failed to establish that the income relatable to the second and third installments were neither anticipated nor contemplated and therefore, the authority was justified in denying waiver.
7. It is submitted that the authority has exercised discretion in accordance with law and the impugned order does not warrant interference under Article 226 of the Constitution of India. CBDT order dated 26.06.2006, requires the authority to objectively examine whether the income is in question accrued after the due date of the relevant installments and whether such income could have been anticipated or contemplated.
8. A mere recording that assessee has failed to establish the same, without supporting reasons of factual analysis, does not amount to be a reasoned exercise of jurisdiction and discretion under Section 119(2((a) of the Act.
9. In the above circumstances, this Court is of the considered view that the impugned order insofar as it relates to the second and third installments of advance tax cannot be sustained and calls for consideration. Accordingly, this Court pass the following:
ORDER
i. The writ petition is allowed in part.
ii. The order dated 15.09.2022, passed by respondent No.1 under Section 119(2)(a) of the Income Tax Act, 1961 is hereby set aside.
iii. Only insofar as it relates to denial of waiver of interest under Section 234C of the Act in respect of second and third installments of advance tax, the matter is remanded to respondent No.1 for fresh consideration of the petitioner’s claim for waiver confined to the second and third installments in view of the CBDT order dated 26.06.2006, and by passing a reasoned and a speaking order in accordance with law.
iv. All other findings in the impugned order shall remain undisturbed.
v. Contentions of both the parties are kept open, to the extent indicated above.
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