IN HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 01 OF 2015 Commissioner of Income Tax 8, ] ] Room No.214, Aayakar Bhavan, ] M. K. Road, Mumbai 400 020 ] Appellant Versus M/s. Oryx Finance and Investment Pvt. Ltd. ] ] Lok Bharati Complex, Marol Maroshi Road, ] ] Andheri (East), Mumbai 400 059 ] ] PAN : AAACO0662K ] Respondent Mr.Tejveer Singh for Appellant. Mr.Vishnu S. Hadade for Respondent. CORAM : S.V. GANGAPURWALA AND G.S. KULKARNI, JJ. RESERVED ON : 15th JUNE, 2017. PRONOUNCED ON : 01st JULY, 2017 JUDGDMENT (PER S.V. GANGAPURWALA, J.) : 1] Admit. Taken up for final hearing with consent of learned counsel for parties. 1/13 ::: Uploaded on - 01/07/2017 ::: Downloaded on - 04/07/2017 09:31:42 ::: osk Judgment ITX 1 2015.odt 2] Revenue has assailed judgment and order of Tribunal thereby partly allowing appeal filed by Revenue against judgment and order of Commissioner (Appeals). 3] Income Tax Return of Respondent Assessee was processed under Section 143(1) of Income Tax Act (for sake of brevity hereinafter referred to as Act ), demand was raised for Rs.1,64,90,573/ and penalty of Rs.1,19,30,677/ was imposed by Assessing Officer under Section 221(1) of Income Tax Act for default by Assessee in payment of demand. Aggrieved thereby Assessee filed Appeal before Commissioner of Income Tax (Appeals) 17, Mumbai [for short CIT(A) ]. CIT(A) under its order dated 15/03/2010 deleted penalty imposed by Assessing Officer holding that interest component has to be excluded while levying penalty under Section 221(1) and since penalty levied exceeded tax component, it set aside order levying penalty. Aggrieved thereby Department filed appeal before Income Tax Appellate Tribunal, Mumbai [for short ITAT ]. ITAT held that while levying penalty under Section 221(1) of Act 2/13 ::: Uploaded on - 01/07/2017 ::: Downloaded on - 04/07/2017 09:31:42 ::: osk Judgment ITX 1 2015.odt interest component is not to be considered and remitted matter to Assessing Officer with direction to quantify amount of penalty in accordance with provisions of Section 221(1) of Act. Department has assailed said order in present appeal. 4] Department has framed following questions purportedly as substantial questions of law for consideration by this Court. 1) Whether on facts and in circumstances of case and in law, ITAT is justified in holding penalty u/s.221(1) is to be imposed in respect of only tax excluding interest u/s.234A, 234B & 234C without appreciating that section 221(1) does not contain any such condition that penalty imposed under said section should be percentage of only tax excluding interest. 2) Whether on facts and in circumstances of case and in law, ITAT is justified in deleting penalty imposed in respect of arrears of interest u/s.234A, 234B & 234C without appreciating that Section 221(1), Assessing Officer is empowered to impose any amount of penalty 'so, however that total amount of penalty does not exceed amount of tax in arrears and thus term used in said section is tax in arrears and not 'tax', as erroneously 3/13 ::: Uploaded on - 01/07/2017 ::: Downloaded on - 04/07/2017 09:31:42 ::: osk Judgment ITX 1 2015.odt held by Hon'ble Tribunal. 3) Whether on facts and in circumstances of case and in law, ITAT is justified in deleting penalty levied u/s.221(1) in respect of arrears of interest u/s.234A, 234B & 234C, without appreciating that, as held by Hon'ble Supreme Court in case of CIT vs. Anjum Ghaswala & Others and in case of Karanvir Singh Gosssal vs. CIT and Another, interest u/s.234A, 234B & 234C is mandatory in nature and therefore by ratio of above cited decisions interest is integral part of tax. 5] Mr.Tejveer Singh, learned counsel for Appellant strenuously contends that Commissioner (Appeals) and Tribunal have failed to consider Section 221(1) of Income Tax Act (herein referred to as Act ) in its correct perspective. terminology tax in arrears would include interest component also. payment of interest under Section 234(A), 234(B) and 234(C) is mandatory and same would form part of arrears of tax. learned counsel to substantiate his contention relies on judgment of Apex Court in case of Commissioner of Income Tax vs. Anjum M.H. Ghaswala & Ors., reported in (2001) 252 ITR 0001. No powers are given for waiver of interest. 4/13 ::: Uploaded on - 01/07/2017 ::: Downloaded on - 04/07/2017 09:31:42 ::: osk Judgment ITX 1 2015.odt 6] According to learned counsel for Appellant, since interest forms part of amount chargeable under Section 156 of Act, penalty under Section 221(1) is also imposable. order of Tribunal directing Assessing Officer to restrict levy of penalty only to Tax component excluding interest under Section 234(A), 234(B) and 234(C) of Act is per se erroneous. 7] Mr.Hadade, learned counsel for Respondent supports order of Tribunal and submits that tax, interest and penalty are separate components. term tax does not include penalty or interest. learned counsel relies on judgment of Hon'ble Apex Court in case of Harshad Shantilal Mehta vs. Custodian and others, reported in (1998) 231 ITR 871 and another judgment of Division Bench of this Court in case of Commissioner of Income Tax vs. P.B. Hathiramani, reported in (1994) 207 ITR 483. 8] We have considered submissions canvassed by learned counsel for respective parties, so also have gone through 5/13 ::: Uploaded on - 01/07/2017 ::: Downloaded on - 04/07/2017 09:31:42 ::: osk Judgment ITX 1 2015.odt orders passed by Tribunal and authorities. 9] Before we proceed to advert to arguments of learned counsel, it would be appropriate to refer to relevant provisions of Section 2(43) and 221 of Act. Tax is defined under Section 2(43) of Act. Tax in relation to assessment year commencing on 1st day of April, 1965, and any subsequent assessment year means income tax chargeable under provisions of this Act, and in relation to any other assessment year income tax and super tax chargeable under provisions of this Act prior to aforesaid date [and in relation to assessment year commencing on 1 st day of April, 2006, and any subsequent assessment year includes fringe benefit tax payable under section 115 WA. Penalty payable when tax in default 221. (1) When assessee is in default or is deemed to be in default in making payment of tax, he shall in addition to amount of arrears and amount of interest payable under sub section (2) of section 220, be liable, by way of penalty, to pay such amount as [Assessing] Officer may direct, and in case of continuing default, such further amount or amounts as [Assessing] Officer may, from time to time, direct, so, however, that total 6/13 ::: Uploaded on - 01/07/2017 ::: Downloaded on - 04/07/2017 09:31:42 ::: osk Judgment ITX 1 2015.odt amount of penalty does not exceed amount of tax in arrears: Provided that before levying any such penalty, assessee shall be given reasonable opportunity of being heard: [Provided further that where assessee proves to satisfaction of [Assessing] Officer that default was for good and sufficient reasons, no penalty shall be levied under this section.] [Explanation For removal of doubt, it is hereby declared that assessee shall not cease to be liable to any penalty under this sub section merely by reason of fact that before levy of such penalty he has paid tax.] (2) Where as result of any final order amount of tax, with respect to default in payment of which penalty was levied, has been wholly reduced, penalty levied shall be cancelled and amount of penalty paid shall be refunded. 10] moot question for consideration in present matter is whether phraseology amount of tax in arrears as envisaged in Section 221 of Act would in addition to tax include within its fold interest component also. 11] definition of Tax u/Sec.2(43) read in its 7/13 ::: Uploaded on - 01/07/2017 ::: Downloaded on - 04/07/2017 09:31:42 ::: osk Judgment ITX 1 2015.odt entirety suggests that tax means income tax, super tax and/or fringe benefit tax, as case may be chargeable under provisions of Act. definition of tax does not take within its fold interest component. 12] definition of interest as envisaged under Section 2(28 A) of Act would not be relevant in present matter. As said definition is restricted to interest payable in respect of any moneys borrowed or debt incurred. 13] It is elementary rule of interpretation that when language of statute is clear and unambiguous, Courts are to interpret same in its literal sense and not to give meaning that would cause violence to provisions of statute. Each word in statute should be assign meaning as per context. 14] provision imposing penalty will have to be strictly construed. statute being fiscal and provisions of Section 221 dealing with imposition of penalty naturally shall have to be strictly construed. Strict construction is construction in which application 8/13 ::: Uploaded on - 01/07/2017 ::: Downloaded on - 04/07/2017 09:31:42 ::: osk Judgment ITX 1 2015.odt of provision used is limited by words used, so that anything which is not clearly included within scope of language is treated as excluded. 15] Reading Section 221 in its entirety, it is abundantly clear that aspect of default in payment of tax and amount of interest payable are treated as distinct and separate components. section categorically and specifically states that when Assessee is in default or is deemed to be in default in making payment of tax, he shall in addition to amount of arrears and amount of interest payable under Sub Section 2 of Section 220, be liable, to pay penalty, however amount of penalty does not exceed amount of tax in arrears. terminology default in making payment of tax and amount of interest payable are considered to be separate for imposition of penalty and penalty is to be levied on account of default in making payment of tax. However, total amount of penalty shall not exceed amount of tax in arrears. said penalty for non payment of tax is in addition to levy of interest under Sub Section 2 of Section 220. Under no principle of interpretation, arrears of tax as laid down in said Section 9/13 ::: Uploaded on - 01/07/2017 ::: Downloaded on - 04/07/2017 09:31:42 ::: osk Judgment ITX 1 2015.odt would include amount of interest payable under Sub Section 2 of Section 220. amount of penalty will have to be restricted on arrears of tax, which would not include interest component charged under Section 220(2) of Act. 16] Reference can be had to Section 156 viz. notice of demand. In Section 156 also tax, interest, penalty, fine are separately referred to. Even notice of demand issued under Section 156 in 'Form No.7' specifies tax and interest as separate components. 17] Second proviso to Section 221 and explanation would also be relevant. second proviso to Section 221(1) states that, if Assessee proves to satisfaction of Assessing Officer that default was for good and sufficient reason, no penalty shall be levied under said section. Sub Section 2 further says that, whereas result of final order, amount of tax with respect to default in payment of which penalty was levied has been wholly reduced, penalty levied shall be cancelled and amount of penalty paid shall be refunded. This would suggest that payment of penalty is directly commensurate with default in payment of 10/13 ::: Uploaded on - 01/07/2017 ::: Downloaded on - 04/07/2017 09:31:42 ::: osk Judgment ITX 1 2015.odt tax and not of interest. Reference can also be had to judgment of Apex Court in case of Harshad Shantilal Mehta vs. Custodian and others (supra). In said case, Apex Court had framed question No.5 as under; Question No.5 Whether "taxes" under Section 11(2)(a) would include interest or penalty as well? 18] While answering said question, Apex Court observed thus; We are concerned in present case with penalty and interest under Income Tax Act. Tax, penalty and interest are different concepts under Income Tax Act. definition of "tax" under Section 2(43) does not include penalty or interest. Similarly, under Section 156, it is provided that when any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under this Act, Assessing Officer shall serve upon assessee notice of demand as prescribed. provisions for imposition of penalty and interest are distinct from provisions for imposition of tax. learned Special Court judge, after examining various authorities in paragraphs 51 to 70 of his judgment, has come to conclusion that neither penalty nor interest can be considered as tax under Section 11(2)(a). We agree with reasoning and conclusion drawn by Special Court in this connection . 11/13 ::: Uploaded on - 01/07/2017 ::: Downloaded on - 04/07/2017 09:31:42 ::: osk Judgment ITX 1 2015.odt 19] Apex Court observed that definition of tax under Section 2(43) does not include penalty or interest. Tax, penalty and interest are different concepts under Income Tax Act. provisions for imposition of penalty and interest are distinct from provisions for imposition of tax. Apex Court agreed with reasoning and conclusion drawn by Special Court that neither penalty nor interest can be considered as tax under Section 11(2)(a) of Special Court (Trial of Offences relating to transactions in Securities) Act, 1992. said section dealt with priorities for distribution and liability specified under Clause 'A' i.e. All Revenues, Taxes, Cesses and rates due from persons notified. Even in case of Commissioner of Income Tax vs. P.B. Hathiramani (supra), Division Bench of this Court relied on judgment of Calcutta High Court in case of Shreeniwas and Sons vs. ITO, referred in (1974) 96 ITR 562. Wherein it is held that under Section 221, penalty can be imposed only when Assessee is in default in making payment of tax. Since expression tax has been defined in Section 2(43) of Act, there would be no scope for any argument that interest is additional tax. 12/13 ::: Uploaded on - 01/07/2017 ::: Downloaded on - 04/07/2017 09:31:42 ::: osk Judgment ITX 1 2015.odt 20] case of Commissioner of Income Tax vs. Anjum M.H. Ghaswala, referred in (2001) 252 ITR 0001 relied by learned counsel for Revenue would be of no assistance to him, as it only dealt with aspect that interest under Section 234(A), 234(B) and 234(C) is mandatory. issue in present case is in different context. 21] In view of aforesaid discussion and on reading provisions of Section 221 conjointly with definition of tax as detailed under Section 2(43), irresistible conclusion that can be drawn is that phraseology tax in arrears as envisaged in Sec.221 of Act would not take within its realm interest component. It would be abundantly clear that Assessing Officer can impose penalty for default in making payment of tax, but same shall not exceed amount of tax in arrears. Tax in arrears would not include interest payable under Section 220(2) of Act. In result, substantial question of law are answered against Appellant. Appeal stands dismissed. However, no order as to costs. (G.S. KULKARNI, J.) (S.V. GANGAPURWALA, J.) 13/13 ::: Uploaded on - 01/07/2017 ::: Downloaded on - 04/07/2017 09:31:42 ::: TheCommissionerofIncome-tax-8, Mumbai v. OryxFinanceandInvestmentPvt.Ltd