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Gopal Films v. The Deputy Commissioner Of Income Tax & Others

Karnataka High Court

Feb 18, 1999

Judgment

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Judgment Summary — R.V Raveendran, J.

Factual and Procedural Background

The petitioner firm filed its return of income for assessment year 1995-1996. The Assistant Commissioner of Income Tax, Circle 5(1) Bangalore, determined tax and interest under Section 143(1)(a) by an order dated 29.3.1996 assessing amounts of Rs. 18,33,470/-, Rs. 7,36,698/-, and Rs. 2,15,796/- respectively (Annexure-A). The petitioner paid Rs. 9,52,494/- in several installments between 28.2.1997 and 12.10.1998. The Recovery Officer informed the petitioner by letter dated 15.10.1998 that Rs. 3,60,000/- remained due, comprising interest, penalty, interest on penalty, and costs.

The Kar Vivad Samadhan Scheme (KVS), 1998, came into effect on 1.9.1998 (with the declaration period initially to 31.12.1998 and later extended to 31.1.1999). The petitioner filed an application for revision under Section 264 on 5.1.1999 (after the one‑year limitation) and sought condonation of delay on the ground that its counsel had been ill and had died on 7.8.1996. On 6.1.1999 the petitioner also filed a declaration under Section 88 of the Finance (No.2) Act, 1998 claiming that a revision petition was pending on the date of declaration.

The third respondent dismissed the revision petition on 12.1.1999 as barred by limitation (Annexure-E). Subsequently, by communication dated 29.1.1999 (Annexure-F), the third respondent rejected the declaration under the KVS Scheme on the ground that one mandatory condition—an appeal, revision, or writ petition being "admitted and pending"—was not satisfied. The petitioner challenged the dismissal of the revision, the rejection of the declaration, and a consequential notice (Annexure-G) by filing the present petition.

Legal Issues Presented

Whether the rejection of the revision petition filed under Section 264 of the Income‑Tax Act on the ground of limitation, without hearing the petitioner on the question of delay, required interference by the court.
Whether the third respondent was justified in rejecting the declaration dated 6.1.1999 filed by the petitioner under the Kar Vivad Samadhan Scheme, 1998, by treating it as never to have been made (i.e., whether a belatedly filed revision which has not been condoned can be treated as "pending" for the purposes of the Scheme).

Arguments of the Parties

Petitioner's Arguments

The revision under Section 264 could not have been dismissed on the ground of delay without hearing the petitioner on the question of delay; such dismissal offended principles of natural justice.
For the KVS Scheme, the requirement that an appeal, reference or writ petition be "admitted and pending" applies only to appeals, references and writ petitions; in respect of revisions under Section 264, mere filing and pendency suffices because there is no statutory concept of "admission" for a revision application.
The petitioner contended that because the revision petition was filed on 5.1.1999 and was pending on 6.1.1999 (date of declaration), it qualified as pending litigation for the purposes of filing a declaration under the Scheme.

Respondent / Revenue's Arguments and Actions

The third respondent dismissed the revision petition as barred by limitation because it was filed beyond the one‑year period prescribed by Section 264(3) and no condonation of delay was granted (Annexure‑E).
In rejecting the KVS declaration (Annexure‑F), the third respondent stated that two conditions were mandatory for the Scheme: (i) an arrear as on 31.3.1998; and (ii) an appeal, revision etc. must be "admitted and pending" before the appellate authority/CIT. Because condition (ii) was not satisfied, the declaration was treated as never to have been made.
The respondent implicitly relied on the distinction that a revision filed beyond the limitation period cannot be said to be "pending" unless the delay is condoned (i.e., the revision is admitted by condonation), and that merely filing a belated revision does not create a bona fide pendency for KVS purposes.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
S.L. Kapoor v. Jagmohan (Supreme Court)	Non‑observance of principles of natural justice is itself prejudice; however, where on the admitted facts only one conclusion is possible, courts may refuse to issue a futile writ to enforce procedural safeguards.	The court applied this principle to hold that even if an oral hearing had been required before rejecting the revision on the ground of delay, the outcome would have been the same (there was no sufficient cause), and therefore lack of an oral hearing did not merit interference under Article 226.

Court's Reasoning and Analysis

The court framed two issues: (1) whether the dismissal of the revision under Section 264 for delay without hearing required interference; and (2) whether the declaration under the KVS Scheme was correctly rejected because no revision or other appeal was "admitted and pending" on the date of declaration.

On Point (1) (revision dismissed as time‑barred):

The court examined Section 264(3) which prescribes a one‑year limitation for an assessee to apply for revision, and the proviso which allows the Commissioner to admit a belated application if satisfied of "sufficient cause."
The court explained the test for "sufficient cause": the Revisional Authority must apply its mind and liberally construe "sufficient cause" where there is no negligence or want of bonafides. The Revisional Authority should exercise discretion to further justice. There is a view that an oral hearing should be given when sought by the applicant; here the petitioner did not seek an oral hearing, so it had no ground to complain of absence of oral hearing.
Applying S.L. Kapoor, the court observed that where only one conclusion is possible on the admitted facts, issuing a writ to remedy a procedural defect would be futile. The court then examined the facts: the revision was filed nearly twenty months after the limitation period expired; the only excuse was the death of the petitioner's counsel on 7.8.1996, but there remained more than eight months within which the revision could have been filed. The period from 25.4.1997 to 5.1.1999 remained unexplained. The petitioner had also made payments after the order indicating engagement with the matter.
Given the unexplained, prolonged delay and absence of sufficient cause, the court concluded that even if an oral hearing had been granted, the Commissioner would still have rejected the plea for condonation. Hence, the court found no ground to interfere with the dismissal of the revision on limitation grounds.

On Point (2) (rejection of the KVS declaration):

The petitioner argued that mere pendency of a revision petition sufficed for KVS purposes and that "admission" is irrelevant because revisions have no statutory admission procedure. The court accepted that argument only in part: if a revision is initiated by the Commissioner suo motu or is filed within the limitation period (and thus validly pending), it may be treated as pending for KVS purposes.
However, where a revision is filed out of time, it is not "pending" unless the Commissioner has condoned the delay and thereby admitted the revision. The proviso to Section 264(3) makes condonation a prerequisite to admission and pendency in cases of delay. In the present case, there was no condonation; therefore the belatedly filed revision could not be said to be pending on 6.1.1999.
The court examined the object of the KVS Scheme — to realize revenue locked in bona fide litigations by giving incentives to honest taxpayers — and held that allowing artificially created pendency after the announcement of the scheme to obtain its benefits would defeat the scheme. Consequently, the creation of an artificial pendency by filing a belated revision without condonation was impermissible.
Accordingly, the court held that the third respondent was justified in treating the declaration as never having been made because no bona fide pendency existed on the date of declaration.

Holding and Implications

Holding:

The petition is dismissed. In particular, the court rejected the challenges to:

Annexure‑E (order dated 12.1.1999 dismissing the revision petition as barred by limitation),
Annexure‑F (order dated 29.1.1999 rejecting the KVS declaration), and
Annexure‑G (consequential notice dated 2.2.1999).

The core ruling may be stated as: The petition is rejected and the impugned orders (Annexures E, F and G) are upheld.

Implications:

Direct effect on the parties: The petitioner's revision remains dismissed as not maintainable due to limitation; the declaration under the KVS Scheme is treated as never made; the consequential recovery process (as reflected by the notice) stands. The petitioner was ordered to pay costs of Rs. 2,000/- to the respondents.
No broader precedent beyond the court's application of existing principles was created by this decision; the court applied established principles on condonation of delay, natural justice (as explained in S.L. Kapoor), and the proper interpretation of the KVS Scheme's requirement of bona fide pendency. The court emphasized that belatedly filed revisions are not "pending" for scheme purposes unless delay is condoned.
Administrative consequence noted by the court: Sri M.V. Seshachala (for the Income‑Tax Department) was directed to take notice for the respondents and was permitted to file his Memo of Appearance in six weeks.

End of summary — prepared strictly from the text of the provided opinion.

Show all summary ...

R.V Raveendran, J.:—

Sri M.V Seshachala, learned Counsel for the Income-Tax, Department, is directed to take notice for the respondents.

2. In regard to the return of income submitted by the petitioner firm for the assessment year 1995-1996, the Assistant Commissioner of Income Tax, Circle 5(1) Bangalore, determined the total income tax and interest payable thereon under Section 143(1)(a) of the Income-Tax Act, 1961 (‘the Act’ for short) as Rs. 18,33,470/-, Rs. 7,36,698/-, and 2,15,796/- respectively, as per order dated 29.3.1996 (Annexure-A). Petitioner appears to have paid in all Rs. 9,52,494/- between 28.2.1997 and 12.10.1998 The Recovery officer, Range-5, Bangalore, informed the petitioner by letter dated 15.10.1998 that a sum of Rs. 3,60,000/- is still due in regard to assessment year 1995-1996, made up of Rs. 3,34,771/- towards interest under Section 220(2) and Rs. 18,500/- towards penalty Rs. 3581/- as interest there on and Rs. 3,148/- towards costs and charges.

3. Kar Vivad Samadhan Scheme, 1998 (the Scheme, for short) was introduced with effect from 1.9.1998, by the Finance (No. 2) Act, 1998, for setting tax arrears, locked in litigation, at a substantial discount. Section 88 enables any person to make a declaration to the designated authority in respect of any tax arrear as on 31.3.1998 to avail the benefit of the discounts/concessions provided under the scheme. Such declaration is required to be made after 1.9.1998 and before 31.12.1998 (later extended to 31.1.1999). Section 95 of the Scheme provides that the Scheme will not apply in certain cases. Section 95(i)(c) makes it clear that the Scheme shall not apply in respect of any tax arrear under any direct tax enactment to a case where no appeal or reference or Writ Petition is admitted and pending before any Appellate Authority or High Court or the Supreme Court on the date of filing of declaration or no application for revision is pending before the Commissioner on the date of filing the declaration.

4. When the Scheme came into force on 1.9.1998, no litigation was pending before any Authority or Court in regard to any tax arrears of petitioner relating to the assessment year 1995-1996. The petitioner, however, filed an application for revision on 5.1.1999 (Annexure-C), under Section 264 of the Act before the third respondent challenging the order dated 29.3.1996 passed under Section 143(1)(a) of the Act. As the application was filed beyond the limitation period of one year, the petitioner sought condonation of delay on the following ground:

“The petitioner firm prays before your Honour to kindly condone the delay in filing of the Revision Petition in as much as the appellants Counsel Sri Shivagangappa was sick for a prolonged period and subsequently expired on 7.8.1996 and thereby could not attend to the affairs of the Petitioners which was plunged in pelmel & confusion and as no other person was aware of the state of affairs and true position.”

5. Immediately after filing the said revision petition on 5.1.1999, petitioner also filed a declaration under Section 88 of Finance (No. 2) Act, 1998, on 6.1.1999 claiming the benefit under the scheme, by alleging that a revision petition filed on 5.1.1999 was pending on the date of declaration.

6. The third respondent dismissed the Revision Petition on 12.1.1999 by the following order (Anpexure-E):

“The assessee has filed revision petition under Section 264 on 5.1.1999 for assessment year 1995-1996 against the order under. Section 143(1)(a) dated 29.3.1996 The petition made under Section 264 is beyond the due date prescribed under the Income Tax Act, 1961. Since, the Revision Petition made is out of time, the petition is dismissed as not maintainable.”

7. Thereafter third respondent sent a communication dated 29.1.1999 (Annexure-F) rejecting the declaration dated 6.1.1999 filed by the petitioner under the scheme relating to Assessment year 1995-1996, on the following ground:

“The Kar Vivad Samadhan Scheme, 1998 prescribes two conditions and they are as under:—

i) There should be arrears as on 31.3.1998:

ii) There should be an appeal revision admitted by the appellate authority/CIT:

Both the above conditions are mandatory and if any one of the condition is not satisfied, then the declaration filed under K.V.S.S will be treated as never to have been made.

In your case condition No. (ii) mentioned above is not satisfied. Hence, the declaration filed is treated as never to have been made. This is for your information.”

8. Petitioner is aggrieved. According to the petitioner, the revision filed under Section 264 of the Act could not have been dismissed on the ground of delay without hearing him on the question of delay. He, therefore, submits that the rejection of the revision is opposed to the principles of natural justice. In regard to the rejection of the declaration under the Scheme the petitioner contends that the requirement of the scheme is that an appeal or reference or Writ Petition should be admitted and pending on the date of filing declaration or an application for revision should be pending before the Commissioner on the date of declaration. The petitioner contends that the word ‘admitted’ Section 95 of the Finance (No. 2) Act, 1998 applied only to appeals reference and Writ Petitions; and in so far as revisions are concerned, mere filing of the revision and pendency thereof is sufficient to become eligible to file a declaration under the scheme and there is no requirement that the Revision application should be “Admitted” as there is no provision for admission of a revision under Section 264. He, therefore, contends that the rejection of the declaration by the third respondent is erroneous.

9. Hence, the petitioner has filed this petition for the following reliefs:—

(a) For quashing the order dated 12.1.1999 (Annexure-E) passed by the third respondent rejecting its revision petition filed by petitioner on 5.1.1999 under Section 264 of the Act:

(b) For quashing the order dated 29.1.1999 (Annexure-F) passed by the third respondent rejecting the declaration filed by the petitioner on 6.1.1999 under KVS Scheme:

(d) For a direction to third respondent to accept the declaration dated 6.1.1999 filed by it under KVS Scheme;

(e) For a declaration that the declaration dated 6.1.1999 filed by the petitioner under Section 89 of Finance (No. 2) Act, 1998 is valid, maintainable and in accordance with law.

10. Therefore, two questions arise for consideration: (1) Whether the rejection of the revision filed under Section 264 of the Act on the ground of limitation without hearing the petitioner requires interference. (2) Whether the third respondent was justified in rejecting the declaration dated 6.1.1999 filed by the petitioner under KVS Scheme, by treating it as never to have been made.

Re:— Point (i)

11. Section 264 of the Act provides for Revision by the Commissioner, either suo moto or on an application by the Assesee. Sub-section (3) of Section 264 provides that the period of limitation for making an application for revision by the Assessee, under Section 264 of the Act is one year from the date on which the order was communicated to the assessee or the date on which he otherwise come to know of it, whichever is earlier. The proviso to sub-section (3) enables the Commissioner to admit an application for Revision, after the expiry of that period, if he is satisfied that the assessee was prevented by sufficient cause from making the application within that period.

11.1 Where the revision is filed out of time, with a request for condonation of delay, the Commissioner should apply his mind to find out whether there was sufficient cause for not filing the Revision within the prescribed time and exercise his discretion in furtherance of justice. The words ‘sufficient cause’ should be liberally construed, where there is no negligence or want of bonafides on the part of the assessee and the Revisional Authority will have to condone the delay, if he is satisfied that there was sufficient cause for the delay in filing the Revision. Though there are divergent views as to whether the Revisional Authority should give a hearing to the party concerned before rejecting the request for condonation of delay, the prevalent later view is that an oral hearing should be given, when sought by the applicant. In this case, the petitioner did not seek an oral hearing. Therefore the petitioner cannot have a grievance in regard to absence of an oral hearing before rejection of the revision on the ground of limitation.

11.2 Even assuming that an oral hearing ought to have been given, the question that arises is whether the rejection of the revision petition on the ground of delay without giving a hearing to the petitioner, should be interfered in exercise of the power under Article 226 of the Constitution. The Supreme Court in S.L Kapoor v. Jagmohan, while observing that non-observance of natural justice is itself prejudice and independent proof of prejudice is not necessary, further held that where on the admitted facts or indisputable facts only one conclusion is possible or permissible, the Court may not issue its writ to compel the observance of natural justice, not because it is not necessary to observe natural justice but because Courts do not issue futile writs. Applying the said principle, let me examine the facts of this case.

11.3 The revision was filed on 5.1.1999 against the order dated 29.3.1996 (served on 25.4.1996). The only reason given by the petitioner for seeking condonation of delay is that its Counsel died on 7.8.1996 Even assuming that the petitioner's Counsel died on 7.8.1996, and that some time is required for making alternative arrangements, no cause is made out for the enormous delay. There was still more than 8 months time to file a revision, when petitioner's counsel died. There is absolutely no explanation for the delay beyond the period of limitation, that is from 25.4.1997 to 5.1.1999 It should be remembered that the petitioner went to making payment towards the amount due under the order dated 29.3.1996, on 28.2.1997, 7.7.1997, 8.8.1997, 10.8.1998, 18.9.1998 and 12.10.1998 The period from 25.4.1997 to 5.1.1999 which is nearly Twenty months remains unexplained. Whenever a party wants delay to be condoned, he should show sufficient cause. If no cause is shown at all, the only conclusion that can be reached is that the delay cannot be condoned; particularly when lack of bona fides is evident. Where only one conclusion can be reached, there is no need to send back the matter on the ground that principles of natural justice have been violated by failure to give an oral hearing. Therefore even if an oral hearing was required to be given, the order passed without such oral hearing does not call for interference as I am satisfied that even if an opportunity had been granted, the only conclusion that could have been reached by the Commissioner is that there was no sufficient cause for condoning the delay in filing the application for revision. The petitioner has not made out any ground to interfere with Annexure-E dated 12.1.1999

Re: Point (2)

12. The contention of the petitioner is that mere pendency of the revision petition on 6.1.1999 was sufficient to enable the petitioner to file a declaration under Section 88 of Finance (No. 2) Act, 1988 and there is no need for its admission to hold that the Revision Petition was pending.

12.1 The contention of the petition that ‘admission’ is not condition precedent to hold that revision petition is ‘pending’ for purposes of Section 95 of Finance (No. 2) Act, 1998, may be correct in so far as revisions initiated by the Commissioner on his own motion and revision proceedings initiated on an application made by the assessee within the period of limitation of one year provided under Sub-section (3) of Section 264. But, where a revision is filed beyond time, unless the delay is condoned, it cannot be said that the revision is pending. In such a case only when it is admitted by condoning the delay, the revision proceedings can be said to be pending; and on condonation of delay by the Commissioner and admission, the pendency would relate back to the date of filing of the revision petition. The proviso to Sub-section (3) of Section 264 of the Act, in terms provides that where there is delay in filing a revision petition, the Commissioner should admit the revision by condoning the delay, on sufficient cause being shown. In this case, there is a long unexplained delay and there is no condonation of such delay. Therefore, it cannot be said that a revision was pending on 6.1.1999 Hence, mere filing of belated application seeking revision, on 5.1.1999, will not entitle to petitioner to contend that a litigation was pending in regard to Assessment year 1995-1996 and that therefore a declaration could be made under Section 88.

12.2 The object of the KVS Scheme is to realise the revenue locked up in litigations pending at different levels, by giving incentive to honest tax payers. Having regard to the provisions of KVS Scheme, pendency of a proceedings either by way of appeal or revision or reference or Writ petition should be a bona fide pendency. When a matter has attained finality and when no litigation is pending, creation of an artificial pendency, after the announcement of the scheme, merely to obtain the benefit of the scheme is impermissible. Any attempt to create such artificial pendency merely for availing the benefit of KVS Scheme, would defeat and dilute the scheme. Hence, rejection of petitioner's declaration is proper as no revision or other litigation was ‘pending’ on 6.1.1999 when the declaration was filed.

13. Hence, the challenge to Annexures E, F and G is rejected. The petition is rejected with costs of Rs. 2,000/- payable to the respondents.

14. Sri M.V Seshachala, is permitted to file his Memo of Appearance in six weeks.