Translate
Text Highlighter

Bookmark

PDF

Share

Report a problem
AMICUS AI
Citation Codes
Equivalent Citations
citation codes
Case Number
Judges
Acts
Are you a practicing lawyer?
Enhance your digital presence and reach by creating a Casemine profile.
Upload pleading to use the new AI search
Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Judges
Acts
Smart Summary

Factual and Procedural Background

The petitioner challenged rejection of his declaration under the Kar Vivad Samadhan Scheme (introduced by the Finance (No. 2) Act, 1998) on the ground that a revision filed against an order under section 154 (dated January 1, 1998) was treated as infructuous because the section 154 order was made without any objection from the assessee. For assessment year 1994-95 (referenced in the opinion in relation to earlier appellate proceedings for 1996-97 and the allowance of a deduction under section 80-IA), the assessee had a deduction of Rs. 20,80,791 allowed by the Commissioner of Income-tax (Appeals) on March 23, 1997. The Assessing Officer issued a notice under section 154 on December 4, 1997, and an order on January 1, 1998 deleting that deduction; a consequent demand (including additional tax under section 143(1A) and interest under sections 234A/234B) was raised and partly adjusted against payments, leaving unpaid interest for 1994-95.

The petitioner filed a revision under section 264 on January 29, 1999, and made a declaration under section 89 of the Kar Vivad Samadhan Scheme, stating (inter alia) that interest under sections 234A and 234B had been determined prior to March 31, 1998 and remained unpaid, and that a revision in respect of the tax arrear was pending on the date of declaration. The designated officer (the Commissioner of Income-tax) rejected the declaration on the basis that the revision was infructuous because the section 154 order was made without opposition and that the revision had been filed merely to obtain benefit under the Scheme.

Legal Issues Presented

  1. Whether the designated authority under the Kar Vivad Samadhan Scheme may reject a declaration on the ground that a revision filed after an order under section 154 was "infructuous" because the section 154 order was made without objection by the assessee.
  2. Whether, for the purposes of entry into the Kar Vivad Samadhan Scheme, the designated authority may examine the maintainability or merits of a Revision under section 264, or is limited to examining only the existence of the conditions prescribed by the Scheme (i.e., that tax arrear was determined prior to March 31, 1998 and that an appeal/revision/writ was pending on the date of declaration).
  3. Whether the petitioner fulfilled the Scheme's conditions (existence of tax arrear determined prior to March 31, 1998 and pendency of revision in respect of that arrear on the date of declaration) such that the declaration should have been admitted.

Arguments of the Parties

Petitioner's Arguments

  • The designated authority should not go into the merits or maintainability of the pending revision when considering a declaration under the Scheme; he must only verify the existence of the Scheme's conditions (tax arrear and pendency of litigation) as on the date of declaration.
  • The petitioner argued that the Assessing Officer lacked jurisdiction to make the section 154 rectification insofar as the deduction under section 80-I was the subject-matter of an earlier appellate order of the Commissioner of Income-tax (Appeals); any rectification affecting that deduction could only be made by the Commissioner of Income-tax (Appeals).
  • By agreeing to deletion of the deduction under section 80-I, the assessee did not consent to levy of additional tax under section 143(1A); the petitioner had a bona fide grievance in relation to the imposition of additional tax and the levy was, therefore, disputable.
  • The revision filed on January 29, 1999 was within limitation; the fact that it was filed after the Scheme came into operation is not alone a ground to deny the declaration if the statutory conditions for the Scheme were fulfilled.

Revenue's Arguments

  • The Kar Vivad Samadhan Scheme was intended to end existing litigation, not to create new disputes; it cannot be used to generate litigation where none previously existed.
  • The Revenue contended that the revision filed by the assessee was not maintainable and was clearly resorted to solely to obtain the benefits of the Scheme.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The court examined the undisputed factual matrix and the statutory scheme. It identified the two linked purposes of the Kar Vivad Samadhan Scheme: (1) recovery of outstanding arrears which were prevented from being collected due to pending litigation, and (2) termination of the pending litigation upon recovery. The court acknowledged that the Scheme was not intended to curtail legitimate remedies of aggrieved parties nor to prevent parties from prosecuting bona fide disputes.

On the specific facts, the court found that there was a bona fide dispute as to the jurisdiction of the Assessing Officer to make an order under section 154 in respect of a deduction that had been allowed by the Commissioner of Income-tax (Appeals). The court observed that the petitioner had a genuine grievance concerning the levy of additional tax under section 143(1A) which formed part of the demand generated by the section 154 order. The court emphasized that the mere agreement by the assessee to the deletion of a deduction (for settlement or other reasons) could not be construed as acceptance of the levy of additional tax, and that the revision was filed within limitation.

Critically, the court held that the designated authority's role under the Scheme is limited: when a declaration shows that, as on its date, a tax arrear was determined prior to March 31, 1998 and a revision in respect of that arrear was pending, the designated authority should not proceed to examine the maintainability or merits of the pending revision. Determination of maintainability and the merits of the revision is the function of the revising authority. The court noted that an authority who happens also to be the revising authority must not merge the two distinct jurisdictions by deciding the revision on merits while acting in the capacity of designated authority when deciding the declaration; doing so is improper.

The court further observed that if the assessee deposits the amount determined under the Scheme within the prescribed time, the revision is deemed to be withdrawn under section 90(4) of the Finance (No. 2) Act, 1998, reinforcing that the Scheme envisions a separation of roles and does not require the designated authority to adjudicate pending litigation when determining entitlement to the Scheme.

Applying these principles, the court concluded that the designated authority erred in rejecting the petitioner’s declaration on the ground that the revision was "infructuous" because the section 154 order had been made without opposition.

Holding and Implications

Holding: The petition was allowed; the order at annexure A dated February 26, 1999 (rejecting the declaration) was quashed, and the respondent was directed to decide the declaration afresh in accordance with law. Notice was discharged.

Implications:

  • Direct effect on the parties: The petitioner is entitled to have his declaration under the Kar Vivad Samadhan Scheme reconsidered by the designated authority; the earlier rejection is quashed.
  • On the role of the designated authority: The decision clarifies (as applied in this case) that the designated authority must be satisfied only about the existence of the Scheme's conditions as on the date of declaration (tax arrear determined prior to March 31, 1998 and pendency of an appeal/revision/writ) and should not decide the maintainability or merits of the pending revision when admitting a declaration.
  • On litigation strategy: The court recognized that filing a revision after the Scheme's commencement does not, by itself, disqualify an assessee from the Scheme if the statutory conditions are otherwise fulfilled and the revision was filed within limitation.
  • On the final disposition of pending litigation: If the assessee deposits the sum required under the Scheme within prescribed time, the revision is deemed withdrawn under section 90(4) of the Finance (No. 2) Act, 1998.

    Gufic Pharma Ltd. v. J.G Arora

    R. Balia, J.:— This petition challenges rejection of the petitioner's declaration under the Kar Vivad Samadhan Scheme promulgated under the Finance (No. 2) Act of 1998, inter alia, on the ground that a revision against the order under section 154 dated January 1, 1998 on January 29, 1999 was infructuous inasmuch as the order under section 154 was made without any objection from the assessee-petitioner. Such revision has to be ignored. The petitioner cannot be said to be falling within section 95(i)(c) of the said Act.

    2. The undisputed facts which have emerged from the averments made in the petition and replies for the present purposes are that for the assessment year 1996-97 the assessee claimed certain deductions under section 80-I in respect of which the assessee had filed an appeal before the Commissioner of Income-tax (Appeals) which was decided on March 23, 1997, by which the assessee was allowed a deduction of Rs. 20,80,791. The Assessing Officer, namely, the Deputy Commissioner of Income-tax, was of the view that the said sum has wrongly been allowed in the assessment year 1994-95 as the assessee has ceased to be eligible for such deduction after assessment year 1993-94 and this is a mistake apparent on the face of the record. A notice to that effect was issued on December 4, 1997, purporting to be under section 154. The assessee realising that this was a mistake agreed for the deletion of the said amount from the assessment in pursuance of which an order was made on January 1, 1998, deleting the said deduction under section 80-I and to issue demand notice as a consequence of rectification. The demand notice in pursuance of the rectification application showed levy of additional tax which could be charged under section 143(1A) while making adjustments under section 143(1)(a). After making the addition of additional tax the entire liability towards tax and additional tax was adjusted against the amounts paid by the assessee and a demand notice was issued in respect of the interest charged under sections 234A and 234B. The said demand for the assessment year 1994-95 remains unpaid. With effect from September 1, 1998, the Finance (No. 2) Act, 1998, had introduced a scheme known as the Kar Vivad Samadhan Scheme which provided for settlement of “tax arrear”. Under section 87(m), according to which determination in respect of tax, interest or penalty for any assessment year ought to have been made prior to March 31, 1998, subject to any modification that could be made in that computation for giving effect to the appellate orders. To the extent the whole or any part of it remains outstanding as on the date of the declaration, that is to be considered “tax arrear” in respect of the concerned assessment year under the Income-tax Act, 1961, which is one of the direct taxes enactments to which the Kar Vivad Samadhan Scheme was extended. The second condition relevant for the present purposes is that unless in respect of “tax arrear” an appeal, reference or writ petition was admitted and pending, or a revision was pending on the date of declaration, no provision of the Kar Vivad Samadhan Scheme would be operative in the case of such person. Likewise, the whole or any part of the tax determined on or before March 31, 1998 modified by giving effect to the appellate orders should be unpaid as on the date of declaration.

    3. The petitioner filed a revision under section 264 before the Commissioner on January 29, 1999, challenging the order under section 154, dated January 1, 1998 and made a declaration under section 89 of the Kar Vivad Samadhan Scheme, inter alia, stating that the amount of interest under sections 234A and 234B was determined in respect of the assessment year 1994-95 prior to March 31, 1998, and was still unpaid on the date of declaration and that a revision in respect of “tax arrear” was also pending as on the date of declaration the assessee fulfils both the conditions. As noticed above, the designated officer, namely, the Commissioner of Income-tax, rejected the declaration stating that a revision against an order, which was made without objection, was infructuous and was merely to take advantage of the Kar Vivad Samadhan Scheme which cannot be taken note of.

    4. It was urged by learned counsel for the petitioner that, firstly, it is not for the designated authority to go into the merits of the pending revision while considering a declaration under the Kar Vivad Samadhan Scheme if those two conditions, namely, there being a “tax arrear” for the assessment year and pendency of revision in relation thereto before any forum is pending. Maintainability or the merit of the pending case is not to be examined by him. He has to assume that the demand outstanding against the assessee is recoverable and in respect of which determination of the amount payable by the assessee has to be made by him and on payment of such demand by the assessee, pending litigation would come to an end. Secondly, it was contended that it is not that in the present circumstances the revision filed by the assessee cannot be said to be frivolous or raising dispute where none could have been raised. It was pointed out that as per the order under section 154 the amount of deduction of Rs. 20,80,791 under section 80-I was directly the subject-matter of appeal before the Commissioner of Income-tax (Appeals) and the deduction was in fact allowed as per his order. Any alteration, even on the basis of mistake apparent on the face of the record, could have been made by the Commissioner of Income-tax (Appeals) only and the Income-tax Officer or Assessing Officer could not acquire any jurisdiction even by consent of the parties to rectify the order of the Commissioner of Income-tax (Appeals). The order of assessment in respect of deduction under section 80-I stood merged in the order of the Commissioner of Income-tax (Appeals) when the question about deduction under section 80-I was the subject-matter of appeal, even before the notice under section 154 was issued. Likewise, merely because the assessee felt that there existed a mistake in allowing deductions under section 80-I for the assessment year 1994-95, and was a mistake apparent from the record, he did not stand on ceremony for insisting that the competent authority make an order of rectification and allowed the Assessing Officer to make that correction by withdrawing the relevant deduction under section 80-I notwithstanding that he was not competent to rectify the mistake in allowing deduction under section 80-I which was a part of the appellate order, he could never be deemed to have consented for levy of additional tax under section 143(1A) on account of the additions made in that respect, after the order has been made in his favour by the Commissioner of Income-tax (Appeals), more so when the stage for levy of additional tax at the rate of 20 per cent, under section 143(1A) had long ceased to exist. It is not in dispute that the revision filed on January 29, 1999 was within the limitation. The mere fact that the assessee-petitioner preferred his revision after the Kar Vivad Samadhan Scheme came into operation, and it may be one of the reasons for filing a revision or appeal thereafter, by itself, cannot be a ground for denying the consideration of the declaration on merit.

    5. It has been urged by learned counsel for the Revenue, on the other hand, that the Kar Vivad Samadhan Scheme which has been designed to bring an end to the litigation cannot be used for the purpose of creating new litigants where there existed none. The revision in the present case which otherwise was not maintainable has clearly been resorted to by the assessee solely for the purpose of taking the benefit of declaration under the Kar Vivad Samadhan Scheme.

    6. Undoubtedly, the Kar Vivad Samadhan Scheme had two purposes ingrained in it and they do not exist independently and separately. One is to recover outstanding arrears which have been clogged because of the pending litigation and secondly with the recovery of the said arrears, the pending litigation should also come to an end. In other words, the scheme was extended only to those arrears of such assessment years in respect of which litigation was pending at higher forum, which was or could be used by the assessee as a ground for not paying demands already existing. Obviously, a scheme of this nature cannot be made a vehicle for raising new disputes where no dispute really existed or the controversy between the parties stood already settled. If any attempt is made in that regard, perhaps, the court would not be inclined to invoke extraordinary jurisdiction in favour of such litigants. It is also equally true that it is not the condition for operation of the Kar Vivad Samadhan Scheme that the appeal, revision or reference should have come before March 31, 1998, or before coming into force of the scheme. It was not intended to curtail the right of any aggrieved party to prosecute his remedies under law.

    7. However, in the facts and circumstances of the present case, we are satisfied that the designated authority was not justified in rejecting the declaration on the ground that an order under section 154 has come into existence without opposition from the assessee. The facts noticed by us above, about which there is no dispute, clearly go to show the existence of the substance of issue as to the very jurisdiction of the Assessing Officer to make an order under section 154 in respect of a claim to deduction that was the subject-matter of appeal before the Commissioner of Income-tax (Appeals), and which already stood disposed of and bona fide disputing levy of additional tax as a part of the demand created as a result of the order under section 154. The assessee by agreeing to withdraw the deduction under section 80-I certainly cannot be deemed to have agreed to charge of additional demand under section 143(1A). It is also not the case that the revision has not come into existence within the period of limitation, so as to suggest that the assessee has waived his right to challenge that order. The mere fact that the assessee has not filed a revision earlier to the coming into force of the Kar Vivad Samadhan Scheme, in the facts of the case, cannot be held against the assessee. If he can legitimately act within the precincts of the statute for pursuing a bona fide dispute, he can also claim the benefit of the scheme promulgated by Parliament when necessary conditions for availing of such benefit have been shown to exist.

    8. Indisputably, the assessee, as on the date of the declaration, had tax arrear which stood determined prior to March 31, 1998, and had also a dispute pending before the Commissioner of Income-tax by way of revision under section 264 which could not have been ignored by him. The decision that the revision was infructuous would come only later on and not prior to the date. The fact that the order of the Commissioner of Income-tax later on decides to reject the application for any reasons would not result in non-fulfilment of conditions under section 95(i)(c). The assessee having made the declaration fulfilling both the conditions as on the date of the declaration could not have been denied entry to the portals of the Kar Vivad Samadhan Scheme merely because the assessee has agreed to the withdrawal of deduction though at the hands of an authority having no jurisdiction but realising that the deduction was otherwise not sustainable but had bona fide grievance against levy of additional tax under section 143(1A). The designated authority could not examine the merit of issue raised in revision. It was for the revising authority to have determined maintainability or otherwise of the revision before him. He alone could pronounce upon it. When a revision is filed whether it is maintainable or not can only be decided by the revising authority. So also the question about the sustainability of any grounds raised therein rests in the domain of the revising authority. The mere fact that the revising authority also happens to be the designated authority, he cannot merge the two distinct jurisdictions and obligations into one and reflect one order into another. As a designated authority, he has jurisdiction to see only the existence of the conditions which makes the Kar Vivad Samadhan Scheme operative in the case. If requirement of the scheme is that a revision in respect of tax arrears is pending, his jurisdiction as designated authority stops to go further on finding as on the date of declaration a revision in respect of the order determining the tax demand out of which the whole or part sum remains unpaid, is pending. Whether the revision has merit or will be successful, is not his domain. That is the domain of the revising authority. That jurisdiction he may not be called upon to exercise if on determining the amount payable under the scheme the assessee deposits the same within the time prescribed. Because in such event the revision is deemed to be withdrawn under section 90(4) of the Finance (No. 2) Act of 1998. An authority discharging both the functions cannot by deciding a pending revision on merit and reflect that order on merit while acting as designated authority. This is precisely what has been done in the present case. We, therefore, allow this petition, quash the order at annexure A, dated February 26, 1999, and direct the respondent to decide the said declaration afresh in accordance with law.

    9. Notice is discharged.

    Use AI to get other relevant cases.

    Comments

    Gufic Pharma Ltd. v. J.G Arora
    (May 11, 1999)