D.K Jain, J.:— Rule D.B

2. Since a very short point is involved, with the consent of learned counsel for the parties, we take up the matter for final disposal.

3. An order dated December 10, 2001, passed by the Chief Commissioner of Income-tax, Delhi-Ill, New Delhi, in pursuance of the notification issued by the Central Board of Direct Taxes (for short “the Board”) under section 119(2)(a) of the Income-tax Act, 1961 (for short “the Act”), dated May 23, 1996, for waiver of interest under sections 234A, 234B and 234C of the Act, is under challenge in this writ petition. By the impugned order, the Commissioner has granted partial waiver of the interest charged from the petitioner under section 234B of the Act. The material facts, leading to the filing of this petition may be noticed:

The petitioner, the assessee company, was incorporated on October 3, 1989. It established a three star village resort called “the Heritage Village” at Mane sar, District Gurgaon, Haryana, by raising loans from financial institutions and started construction of the hotel in the month of February, 1993. The hotel commenced its commercial operation with effect from March 28, 1995. During the period prior to the commencement of commercial operation, i.e, after February 1993, and before March 28, 1995, the assessee invested surplus borrowed funds with banks and companies and earned interest thereon and at the same time paid interest on borrowings to the financial institutions. For the assessment year 1993–94, the assessee filed its return of income on December 29, 1992, declaring therein nil income and claiming a refund of Rs. 95,025 as tax deducted at source. During the relevant previous year the interest earned by the assessee on the surplus funds invested was set off against interest payable by it on the borrowings and the balance interest payable was capitalised along with other pre-operative expenses. According to the assessee, this was done as per the generally accepted principles of accounting; in the light of the decision of the Supreme Court in Challapalli Sugars Ltd. v. CIT, [1975] 98 ITR 167 and various other decisions of different High Courts. The said returned income was accepted vide order dated May 31, 1994, passed under section 143(1)(a) of the Act.

4. Subsequently, in view of the decision of the Supreme Court, dated July 8, 1997, in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT, [1997] 227 ITR 172, holding that interest earned on the investment of borrowed funds prior to the commencement of business was assessable to income tax and no deduction or set off of such interest was permissible against the interest payable on borrowed funds, the assessment was reopened by the Assessing Officer by taking recourse to the provision of section 148 of the Act. In the reassessment order, dated October 28, 1999, the interest income earned on the surplus funds prior to the commencement of business was taxed as income from other sources and a demand of Rs. 5,70,730 was raised against the assessee. In addition thereto, interest under section 234B, for default in payment of advance tax for the year, amounting to Rs. 9,03,170 was also charged. Thus, the total demand raised against the assessee was Rs. 14,73,900. Later on, the amount of interest payable was rectified vide order dated May 15, 2001, and the same was reduced to Rs. 7,51,613. The entire tax demand was paid by the assessee.

5. However, in so far as the interest was concerned, on January 25, 2000, the assessee filed a petition before the Chief Commissioner praying for waiver/reduction of interest charged under section 234B of the Act, on the plea that it fulfilled all the conditions as were laid down in the notification issued by the Board on May 23, 1996, as clarified vide their circular dated January 30, 1997.

6. While observing that the assessee's case fell within the scope and ambit of clause (d) of paragraph 2 of the notification dated May 23, 1996, inasmuch as the assessee was under the bona fide belief on account of some High Court decisions that the interest on investment of surplus borrowed funds could be set off against interest paid on the same borrowed funds during the period of construction of the hotel prior to the commencement of business; its stand was supported by the then prevailing accounting guidelines issued from time to time by the Institute of Chartered Accountants of India; the Assessing Officer had also accepted its stand by accepting the returned income and by not taking any proceedings under section 143(2) of the Act; it was only after the decision of the Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd., [1997] 227 ITR 172 that the assessment was reopened under section 148 and the interest income earned prior to the commencement of business was taxed as income from other sources; it was because of the lapse of the Assessing Officer in taking appropriate action after the return was filed that interest under section 234B was levied over a prolonged period starting from April 1, 1993, to the date of assessment, i.e, October 28, 1999, and that there was no decision of the Delhi High Court in favour of the assessee or against his stand prior to or during the relevant previous year 1993–94, it was but natural to presume that the assessee was guided by the then prevailing practice of capitalisation of interest income on the basis of the decision of the Supreme Court in Challapalli Sugars Ltd. ‘s case, [1975] 98 ITR 167, the Chief Commissioner came to the conclusion that the assessee's petition for waiver/reduction deserved to be considered sympathetically. However, he felt that since there was no direct decision of the jurisdictional High Court either in favour or against the assessee, a full waiver of interest could not be granted to it, particularly when interest under the section was compensatory in nature. He, accordingly, directed that interest levied under section 234B be waived by 75 per cent, and the assessee shall be liable to pay the balance 25 per cent, of the interest for having deprived the Department of its tax dues for a long time. Hence, the present petition, praying for full waiver of the interest charged.

7. The petition is resisted by the Revenue. In the reply affidavit filed on behalf of the Chief Commissioner it is stated that he has passed the impugned order after affording full opportunity of hearing to the assessees; has taken into consideration all the relevant factors and the assessee has not pointed out any illegality or irregularity in the order or in the decision making process warranting interference by this court. It is averred that despite the fact that interest payable under section 234B is compensatory in nature for depriving the Government from its legitimate dues for a long period, the Chief Commissioner has taken a very lenient view in favour of the assessee. It is asserted that the order passed by the Chief Commissioner in exercise of his administrative powers cannot be said to be vague or arbitrary in any manner calling for any interference by this court in exercise of its extraordinary jurisdiction under article 226 of the Constitution.

8. We have heard Mr. Rajiv Tyagi, learned counsel for the assessee, and Mr. Sanjiv Khanna, learned senior standing counsel for the Revenue.

9. It is well settled that interest contemplated under section 234B of the Act for deficiency or default in payment of advance tax is mandatory in nature (see CIT v. Anjum M.H Ghaswala, [2001] 252 ITR 1(SC)). There is no provision in the Act authorising any authority to reduce or waive it. However, in order to mitigate the hardships in deserving cases, the Board, in exercise of powers conferred under clause (a) of sub-section (2) of section 119 of the Act has issued a circular/notification No. 400/234/95-IT/B, dated May 23, 1996 (see [1997] 225 ITR (St.) 101), empowering the Chief Commissioner of Income-tax and Director General of Income-tax, to waive or reduce the interest chargeable under section 234B and two other sections in the class of cases or class of incomes, specified in paragraph 2 thereof for the period and to the extent the Chief Commissioner/Director-General deem fit, subject to fulfilment of the conditions enumerated therein. Clause (d) of paragraph (2) of the said notification prescribed the following conditions for waiver/reduction of interest under section 234B of the Act:

(a) “Any income was not chargeable to tax on the basis of any order passed in the case of the assessee by the jurisdictional High Court.

(b) In view of such decision, the assessee did not pay income-tax in relation to such income during the previous year.

(c) Subsequently such income became chargeable as per any retrospective amendment of law or a decision of the Supreme Court in the assessee's own case after the end of the previous year.

(d) On account of the above, the advance tax paid by the assessee during the previous year was found to be less than the amount of advance tax payable on his current income and therefore interest under section 234B or 234C was found to be chargeable.”

10. Vide its order dated January 30, 1997, the Board further clarified that “there shall be no condition that the decision of the High Court or the Supreme Court, as referred to therein, must be given in the assessee's own case. Also the condition that any retrospective amendment of law or the decision of the Supreme Court or the jurisdictional High Court must have been made after the end of the relevant year stands withdrawn”.

11. It is submitted by Mr. Rajiv Tyagi, learned counsel for the assessee, that since in the present case all the conditions enumerated in the Board's aforenoted circulars are fulfilled, the Chief Commissioner has failed to exercise the jurisdiction vested in him by the notification in favour of the assessee. It is urged that the observations of the Chief Commissioner that the case of the petitioner is not fully covered under clause (d) of paragraph (2) because there was no direct decision of the jurisdictional High Court during or prior to the financial year supporting its stand is self-contradictory inasmuch as in the earlier part of the order, he has himself recorded that the assessee's case fell within the scope and ambit of the said paragraph. It is also contended that the Chief Commissioner has failed to consider and apply the ratio of the decisions of the Supreme Court in CIT v. Bokaro Steel Ltd., [1999] 236 ITR 315 and Commissioner Of Income Tax, Karnataka v. Karnataka Power Corporation., [2001] 247 ITR 268, wherein it has been held that in case money is borrowed by a newly started company, which is in the process of constructing and erecting its plant, the interest incurred before the commencement of production on such borrowed money can be capitalised and added to the cost of the fixed assets created as a result of such expenditure. It is, thus, pleaded that the order of the Chief Commissioner being based on erroneous interpretation and misconception of law is illegal and deserves to be set aside.

12. Mr. Sanjiv Khanna, learned senior standing counsel for the Revenue, on the other hand, while justifying the partial waiver of interest as just and fair has vehemently submitted that the Chief Commissioner having taken into consideration all the relevant factors and applied his mind to all the aspects of the matter, by no stretch of imagination the impugned order could be said to be manifestly erroneous or illegal, requiring interference by this court. He would urge that the circulars issued by the Board confer a wide discretion on the Chief Commissioner or the Director-General, as the case may be, to grant partial or complete waiver of interest and the assessee having failed to point out any factual procedural irrationality or impropriety in the order, it is not a fit case for judicial review. It is urged that the scope of judicial review being limited, on the facts of the present case, this court may not like to interfere with the impugned order, even if it feels that instead of a partial waiver the interest charged should have been fully waived. In support of the last proposition, learned counsel has placed reliance on certain decisions of the Supreme Court.

13. From the aforenoted rival stands, the first issue arising for consideration is with regard to the scope of judicial review. The question of judicial review with reference to administrative decisions has come up for consideration before the Supreme Court umpteen, times. However, before we refer to these decisions, we are tempted to quote what Lord Diplock had very succinctly observed on the issue in Council of Civil Service Unions v. Minister for the Civil Service, [1984] 3 All ER 935, 950 : [1985] 1 AC 374 (HL). It was said that (page 410 of [1985] 1 AC) “one can conveniently classify under three heads the grounds upon which administrative action is subject to control by judicial review. The first ground I would call ‘illegality’, the second ‘irrationality’ and the third ‘procedural impropriety’. That is not to say that further development on a case by case basis may not in course of time add further grounds”. “Illegality” was identified as involving requirement that the decision maker must understand correctly the law that regulates his decision making power and must give effect to it and was said to be encompassed by the doctrine of ultra vires; “irrationality” means a decision which is so outrageous in its defiance of logic that no sensible person, who had applied his mind to the question to be decided could have arrived at it; and “procedural impropriety” is the failure by an administrative tribunal to observe procedural rules that are expressly laid down in the legislative instrument by which its jurisdiction is conferred, even where such failure does not involve any denial of natural justice.

14. We may now notice a few decisions of the apex court on the point.

15. In U.P Financial Corporation v. Gem Cap (India) Pvt. Ltd., [1993] 78 Comp Cas 408 (SC) : (1993) 2 SCC 299 : AIR 1993 SC 1435, 1439, while observing that the doctrine of fairness, evolved in administrative law was not supposed to convert the writ courts into appellate authorities over administrative authorities, the apex court said thus (page 415):

“The obligation to act fairly on the part of the administrative authorities was evolved to ensure the rule of law and to prevent failure of justice. This doctrine is complementary to the principles of natural justice which the quasijudicial authorities are bound to observe. It is true that the distinction between a quasi-judicial and the administrative action has become thin, as pointed out by this court as far back as 1970 in A.K Kraipak v. Union of India, (1969) 2 SCC 262 : AIR 1970 SC 150. Even so the extent of judicial scrutiny/judicial review in the case of administrative action cannot be larger than in the case of quasi judicial action. If the High Court cannot sit as an appellate authority over the decisions and orders of quasi-judicial authorities it follows equally that it cannot do so in the case of administrative authorities. In the matter of administrative action, it is well-known, more than one choice is available to the administrative authorities; they have a certain amount of discretion available to them. They have a ‘right to choose between more than one possible course of action upon which there is room for reasonable people to hold differing opinions as to which is to be preferred’ (Lord Diplock in Secretary of State for Education and Science v. Tameside Metropolitan Borough Council, [1977] AC 1014, 1064 (HL)). The court cannot substitute its judgment for the judgment of administrative authorities in such cases. Only when the action of the administrative authority is so unfair or unreasonable that no reasonable person would have taken that action, can the court intervene.”

(emphasis added)

16. In Tata Cellular v. Union Of India., AIR 1996 SC 11 : (1994) 6 SCC 651, while again emphasising that in judicial review the court does not sit as a court of appeal but merely reviews the manner in which the decision was made, it was said that its concern should be: (i) whether a decision-making authority exceeded its powers; (2) committed an error of law; (3) committed a breach of the rules of natural justice; (4) reached a conclusion which no reasonable tribunal would have reached; or (5) abused its powers.

17. In Apparel Export Promotion Council v. A.K Chopra Chopra, (1999) 1 SCC 759 : AIR 1999 SC 625, while reiterating that the judicial review is directed not against the decision, but is confined to the examination of the decision making process, their Lordships of the Supreme Court said (page 771 of [1999] 1 SCC and 631 of AIR 1999 SC):

“Judicial review, not being an appeal from a decision, but a review of the manner in which the decision was arrived at, the court, while exercising the power of judicial review, must remain conscious of the fact that if the decision has been arrived at by the administrative authority after following the principles established by law and the rules of natural justice and the individual has received a fair treatment to meet the case against him, the court cannot substitute its judgment for that of the administrative authority on a matter which fell squarely within the sphere of jurisdiction of that authority.”

18. Therefore, what emerges from these decisions is that this court exercising its jurisdiction under article 226 of the Constitution cannot sit as an appellate authority over the acts and deeds of the administrative authority and seek to correct them. It cannot substitute its own judgment for the judgment of the administrative authority where there is a room for reasonable people to hold differing opinions. However, where the exercise of power by the administrative authority is: (i) manifestly arbitrary, inasmuch as it has been exercised on non-consideration or non-application of mind to the relevant factors or on the basis of facts which do not exist; (ii) by ignoring the relevant law on the issue involved; (iii) in violation of the principles of natural justice; and (iv) such that no reasonable person would have come to the same decision, the court must intervene. In the exercise of power of judicial review, the authority on which a discretion to do some thing is vested can be compelled to exercise the discretion but it cannot be told to exercise it in a particular manner. Generally, a discretion must be exercised by the authority to which it is conferred. While adjudicating the validity of an executive decision, the court must grant a certain measure of freedom of play in the joints to the executive but a palpably arbitrary exercise of power has to be declared as void. Judged in the light of the aforenoted broad principles governing the power of judicial review, it cannot be said that the impugned order suffers from any infirmity, factual or legal, warranting interference. The ground on which the Chief Commissioner has declined full waiver of interest, namely, that there was no direct decision of the jurisdictional High Court during or prior to the relevant financial year, supporting the stand of the assessee, cannot be said to be palpably erroneous or contrary to the Board's circulars. The impugned order reflects the application of mind by the Chief Commissioner on the relevant factors and we find it difficult to hold that no other person acting reasonably would have come to the same conclusion as the Chief Commissioner has come to. We do not find much substance in the stand of learned counsel for the petitioner that the Chief Commissioner has failed to apply the ratio of the decisions of the Supreme Court in Bokaro Steel Ltd., [1999] 236 ITR 315 and Karnataka Power Corporation, [2001] 247 ITR 268. In fact it is observed in the case of Bokaro Steel Ltd., [1999] 236 ITR 315(SC) (page 321) that the issue with regard to the taxability of interest earned on borrowed funds stands concluded by the decision of the Supreme Court in Tuticorin Alkali Chemicals and Fertilizers Ltd., [1997] 227 ITR 172. Therefore, Tuticorin Alkali's case, [1997] 227 ITR 172(SC) still holds the field. Even if we had desired that the assessee should get a full waiver of interest under section 234B in the light of what we have said above, and exercising self-imposed constraints, we would not like to substitute our opinion for that of the Chief Commissioner.

19. For the foregoing reasons, the writ petition, being devoid of merit, is dismissed. However, there will be no order as to costs.