IN HIGH COURT OF JUDICATURE AT MADRAS Reserved on : 11.12.2019 Pronounced on : 31.01.2020 CORAM : HONOURABLE MR.JUSTICE C.SARAVANAN W.P.Nos.15399 & 15400 of 2007 and M.P.No.1 of 2007 M/s.Rayala Corporation Pvt. Ltd., Rep.by its Managing Director, Ranjit Pratap 144/7, Old Mahabalipuram Road, Kottivakkam, Chennai 600 041. .. Petitioner in both W.Ps. vs. 1.The Chief Commissioner of Income Tax, Chennai II, Office of Chief Commissioner Income Tax, 121, Mahatma Gandhi Road, Chennai 600 034. 2.Deputy Commissioner of Income Tax, Company Circle V (3) 121, Mahatma Gandhi Road, Chennai 600 034. .. Respondents in all W.Ps. Prayer in both W.Ps.:Writ Petitions filed under Article 226 of Constitution of India to issue writ of Certiorarified Mandamus to call for records of proceedings of 1st respondent in No.CC II/B(159)/2000-2001 dated 1/20 http://www.judis.nic.in W.P.Nos.15399 & 15400 of 2007 07.03.2007 for assessment year 1991-92 and No.CC II/B(159)/2000-2001 for assessment year 1992-93 to quash same and to further direct 1st respondent to waive interest levied u/s.234 & B of Income Tax Act, 1961. For Petitioner : Mr.Vikram Vijayaraghavan for Subbaraya Aiyar Padmanabhan (in both W.Ps.) For Respondents : M/s. Hema Muralikrishnan Sr.Standing Counsel. ( in both W.Ps.) COMMON ORDER petitioner is aggrieved by impugned order dated 7.3.2007 passed by 1st respondent, Chief Commissioner of Income Tax,-II. By aforesaid order, 1st respondent has dismissed be application filed by petitioner for waiver of interest under section 234 B of Income Tax Act, 1961 for Assessment Years 1990-91 and 1991-92. 2. petitioner was owner of land on which massive infrastructure has been put up. Earlier petitioner had signed joint- 2/20 http://www.judis.nic.in W.P.Nos.15399 & 15400 of 2007 venture agreement dated 30.08.1987 with M/s. Shriram Capital Trust Private Limited (for brevity developer). 3. said joint-venture agreement contemplated payment of Rs.670 lakhs to petitioner by said developer with built up area of 75,000 ft . agreement also contemplated deadlines and timelines for payment of aforesaid amount of Rs.670 lakhs to petitioner. amounts were to be paid from 3.5.1987 to 31.12.1992 in 8 instalments. It appears over period amounts were also paid but developer took time to get approval from CMDA to commence construction. 4. Meanwhile, petitioner and developer signed Memorandum of Understanding(MOU) dated 7.3.1992 which party altered arrangement under Joint Venture Agreement on 13.8.1996. petitioner had filed income tax returns under section 139 of Income Tax Act, 1961 respective assessment years. For assessment years 1988-89 and 1989-90 scrutiny assessments were completed on 12.3.1991 and on 26.3.1992 respectively. In these two assessment years, petitioner had declared total loss of Rs.56,51,991/- and Rs.47,27,993/- and accordingly claimed depreciation loss and business loss. 3/20 http://www.judis.nic.in W.P.Nos.15399 & 15400 of 2007 5. Meanwhile, for assessment years 1990-91, 1991-92 and 1992- 93 regular returns were filed and scrutiny assessment orders were passed under section 143 (3) on 31.3.1990, 31.3.1994 and on 22.3.1999 respectively. 6. completed assessment for assessment years 1988-89 and 1989-90 were reopened and reassessment orders dated 27.3.1995 came to be passed by treating sum of Rs.31,22,667/-as income earned from joint-venture on accrual basis for each of these assessment years. 7. Thus, carry forward loss of petitioner was reduced to Rs.25,29,324/-and Rs.15,99,523/- in respective assessment years which impacted assessment for assessment years 1990-91, 1991-92 and 1992- 93. 8. For assessment year 1990-91 and assessment year 1991-92, rectification petitions were filed by 2nd respondent under Section 154 of Income Tax Act, 1961. Rectification orders dated 22.11.1996 were passed. 4/20 http://www.judis.nic.in W.P.Nos.15399 & 15400 of 2007 9. For assessment year 1991-92, assessment was completed on 31.03.1994 under Section 143 (3) of Income Tax Act, 1961 determining profit receivable at Rs.41,41,790/- and compensation receivble at Rs.43,31,250/- . 10. For assessment year 1992-93, assessment was completed on 22.03.1999 under Section 143(3) read with section 147 of Income Tax Act, 1961 determining capital gain at Rs.63,05,886/- after setting off business loss of Rs.1,01,43,191/-and capital gain of Rs.1,64, 49,077./-. 11. These developments have culminated in levy of interest under section 234 and levy of interest under section 234 B. 12. It is contention of petitioner that levy of interest on petitioner under Section 234 B is purely on account of recasting of taxable income for assessment years 1988-89 and 1989-90 and not because of any fresh income being assessed to tax which petitioner had failed to return. Under these circumstances petitioner filed application for waiver of interest on 16.2.2001 before 1st respondent which came to be rejected by order dated 13.9.2002 by 1st respondent. 5/20 http://www.judis.nic.in W.P.Nos.15399 & 15400 of 2007 13. Under these circumstances petitioner had earlier filed WP Nos.2439-2442 of 2003 to direct 1st respondent herein to consider petitioner s application for waiver of interest under section 234 and 234 B of Income Tax Act, 1961. These writ petitions were disposed on 28.1.2003 with direction to pass orders in accordance with law after giving opportunity to petitioner. 14. By impugned order 1st respondent has rejected application filed by petitioner with following observations:- 9.. In waiver petitions assessee company also submitted that interest unde Section 234A and that under Section 234B were incorrectly levied. This contention was made on basis of following case laws: 164 CTR 200 217 ITR 72 In its petition for waiver assessee- company did not specify as to hoiw above mentioned case laws supported its case. However, I assume that petitioner company intended to put forward argument that since income returned by it for each of two assessment years, 1991-92 & 1992-93, was nil there was no liability to pay advance tax and, therefore,no interest should have been charged, basis of charge being returned income (as decided in two cases referred to by petitioner). I am unable to accept this contention of assessee for reason that these Court decisions had been pronounced on basis of Explanation 4 to Section 234A which has since been deleted by Finance Act, 2001 with restropective effect from 01.04.1989. 6/20 http://www.judis.nic.in W.P.Nos.15399 & 15400 of 2007 Therefore, decisions cited by assessee-company cannot be considered to decide waiver petitions in its favour. 9. In view of discussion made in foregoing paragraphs, two petitions for waiver of interest filed by M/s.Rayala Corporation Pvt.Ltd., for two assessment years 1991-92 and 1992-93 are hereby rejected. 15. It is contention of petitioner that petitioner had not deliberately avoided payment of tax for respective assessment years. tax liability for relevant assessment years namely 1991-92 and 1992-93 was due to cascading effect in reopening of assessments for Assessment Years 1988-89 to 1990-91. petitioner therefore submits that, petitioner s request for waiver of interest under above said provisions should be allowed. 16. It is further submitted that JV agreement dated 30.08.1987 was not acted upon and petitioner did not receive instalments, share of profits and interest on delayed payment specified in aforesaid agreement. Therefore, it is submitted that it cannot be said to that income can be said to have accrued to petitioner in view of alteration of terms of JV agreement vide MOU dated 7.3.1992. 7/20 http://www.judis.nic.in W.P.Nos.15399 & 15400 of 2007 17. Petitioner submits that recasting of income of petitioner for Assessment Years 1988-89 to 1990-91 were without any justifiable basis. Since petitioner chose to avoid litigation for these assessment years tax liability was minimal, petitioner cannot be saddled with interest liability for Assessment Years 1991-92 and 1992-93. 18. It is further submitted that but for reassessment/rectification for Assessment Years 1988-89 to 1990-91, petitioner would not have been exposed to huge interest liability under section 234B amounting to Rs.20,43,792/-for assessment year 1991-92 and Rs.54,82,176/-for assessment year 1992-93. 19. It is submitted that interest under section 234 B cannot be imposed on income which did not accrue to petitioner and therefore it would be unfair to levy interest under aforesaid provision. It is submitted that while filing returns, petitioner did not anticipate that assessment would be reopened or rectified Section 148 of Income Tax Act, 1961 for preceding three assessment years. 8/20 http://www.judis.nic.in W.P.Nos.15399 & 15400 of 2007 20. It is therefore submitted that petitioner s request for waiver of interest under Section 234 of Income Tax Act, 1961 has been wrongly denied by 1st respondent herein. 21. respondents in their counter have defended impugned order stating that petitioner had failed to elaborate how 1st respondent had not considered Board circular while rejecting their application. It is further submitted that appeal filed by petitioner for respective assessment years were decided against petitioner and no further appeal was preferred by petitioner. Having accepted assessment made by 2nd respondent for respective assessment years, it is not open for petitioner to seek waiver of interest payable under Section 234B and C of Income Tax Act, 1961. 22. It is further submitted that as per clause 23 of JV agreement, payments were made to be made through deposit certificates which were issued for every subsequent instalment after due date of earlier instalment and that developer shall make stipulated payments fully and promptly on specified date to owner (petitioner herein) 9/20 http://www.judis.nic.in W.P.Nos.15399 & 15400 of 2007 irrespective of whether commercial complex is put up and/or completed as scheduled and programmed above . 23. I have considered arguments advanced on behalf of petitioner and respondent. I have also considered case of submitted by learned counsel for petitioner and records of case. 24. question to be examined in present petition is whether petitioner is entitled for waiver of interest under section payable under section 234 B of Income Tax Act, 1961. 25. petitioner seeks to assail impugned order in light of Notification No.400/234/95-IT (B) dated 23.5.1996 issued under section 119 (2)(a) of Income Tax Act, 1961. said notification has given guidelines to be followed for reduction or waiver of penal interest. Paragraph 2 of said notification reads as under:- class of incomes or class of cases in which reduction or waiver of interest under Section 234A or Section 234B or, as case may be, section 234C can be considered, are as follows: (a) Where during course of proceedings for search and seizure under Section 132 of Income Tax Act, 10/20 http://www.judis.nic.in W.P.Nos.15399 & 15400 of 2007 or otherwise, books of account and other incriminating documents have been seized and for reasons beyond control of assessee, he has been unable to furnish return of income for previous year during which action under Section 132 has taken place, within time specified in this behalf and Chief Commissioner or, as case may be, Director-General is satisfied having regard to facts and circumstances of case that delay in furnishing such return of income cannot reasonably be attributed to assessee. (b) Where during course of search and seizure operation under Section 132 of Income Tax Act, cash is seized which is not allowed to be utilised for payment of advance tax instalment or instalments as they fall due after seizure of cash and assessee has not paid fully or partly advance tax on current income and Chief Commissioner or Direcor- General is satisfied that assessee is unable to pay advance tax. Where any income chargeable to income-tax under any head of income, other than '' capital gains'' is received or accrues after due date of payment of first or subsequent instalments of advance tax which was neither anticipated nor was in contemplation of assessee and advance-tax on such income is paid in remaining instalment or instalments and Chief Commissioner or Director- General is satisfied on facts and circumstances of case that this is fit case for reduction or waiver of interest chargeable under Section 234C of Income Tax Act. (d) Where any income which was not chargeable to income-tax on basis of any order passed in case of assessee by High Court within whose jurisdiction he is assessable to income-tax in relation to such income in any previous year and subsequently, in consequence of any retrospective amendment of law 11/20 http://www.judis.nic.in W.P.Nos.15399 & 15400 of 2007 or, as case may be, decision of Supreme Court in his own case, which event has taken place after end of any such previous year, in any assessment or reassessment proceedings advance tax paid by assessee during financial year immediately preceding relevant assessment year is found to be less than amount of advance tax payable on his current income, assessee is chargeable to interest under Section 234B or Section 234C and Chief Commissioner or Director-General is satisfied that this is fit case for reduction or waiver of such interest. (e) Where return of income could not be filed by assessee due to unavoidable circumstances and such return of income is filed voluntarily by assessee or his legal heirs without detection by AO. 26. It is contention of petitioner that petitioner was entitled for waiver in terms of situation contemplated in clause (e). According to learned counsel for petitioner, petitioner could not pay tax due to uncertainty in implementation of JV agreement dated 30.8.1987 and therefore claimed higher depreciation loss and business loss during assessment years 1988-89 to 1990-91. Not only assessments were completed but also scrutiny assessment were completed as well. As ongoing requirement under Act petitioner had declared loss during assessment year 1991-92 and 1992-93. 12/20 http://www.judis.nic.in W.P.Nos.15399 & 15400 of 2007 27. In this case, petitioner had accepted assessment which were revised pursuant to proceedings initiated under section 154/148 of Income Tax Act, 1961 for assessment years 1988-89, 1989-90, 1990-91. petitioner has also accepted assessment made by respondents for assessment years 1991-92 and 1992-93 as no further appeal was filed by petitioner against assessments completed for these assessment years. 28. Pursuant to recasting of income for assessment years 1988-89, 1989-90, 1990-91, taxable income for assessment years 1991- 92 and 1992-93 increased, which petitioner has accepted. increase in tax liability for assessment years 1991-92 and 1992-93 are no doubt due to cascading effect on account of recasting of carryforward losses for assessment years 1988-89, 1989-90, 1990-91. 29. It is contention of petitioner that since JV agreement dated 30.8.1987 could not be acted upon, petitioner claimed carry forward loss for assessment years 1988-89, 1989-90 and 1990-91. They were however recast which had cascading effect on tax liability of petitioner for assessment years 1991-92 and 1992-93 and therefore petitioner cannot be held liable to interest. 13/20 http://www.judis.nic.in W.P.Nos.15399 & 15400 of 2007 30. Memorandum of Understanding dated 7.3.1992 which was signed between petitioner and respondent did not substitute JV agreement dated 30.08.1987. commercial arrangement was slightly altered. JV Agreement was not rescinded. MOU contemplated payment of Rs.210 lakhs for year 1992 and petitioner agreed to vacate place by 30/04/1992 by which time developer was required to obtain permit from Madras Metropolitan and Development Authority. 31. petitioner was required to transfer approximately 25% of UDS to nominees of developer on before 31.3.1992 as and when aforesaid amount of Rs.210 lakh was received by petitioner. MOU also acknowledged that with payment of Rs.2 lakhs on date of MOU, petitioner would have received Rs.434 lakhs and developer was to ensure that joint venture nature of agreement was maintained by taking all precautions while carrying out documentation. MOU further records that developer would pay entire balance before 30/03/1992. 32. With reference to delay and consequential interest accruing, it was agreed that petitioner and developer will refer to arbitrator. 14/20 http://www.judis.nic.in W.P.Nos.15399 & 15400 of 2007 33. Under Section 145 of Income Tax Act, 1961 income chargeable under head of Profit and gains of business or professional or Income from other sources shall be subject to provisions of sub-section (2) and be computed in accordance with either cash or mercantile system of accounting regularly employed by assessee. 34. For aforesaid purpose, Central Government may also notify in Official Gazette from time to time accounting standards to be followed by any class of assessee or in respect of any class of income. petitioner has followed mercantile system of accountancy. 35. Honourable Supreme Court in CIT versus Ashok Bhai Chimanbhai (1965) 1 SCR 758:(1965) 56 ITR 42 has held that under Income Tax Act, 1961 income is taxable when it accrues or arises or is received or when it is by fixation, deemed to accrue, arise or is deemed to be received. Court held that receipt is not only test of chargeability of tax. If income accrues or arises it may become liable to tax. After referring to In Re Spanish Prospecting Co. Ltd [(1911) 1Ch 92], Honourable Supreme Court observed For purpose of this case it is unnecessary to dilate upon distinction between income accruing and arising . But there is no 15/20 http://www.judis.nic.in W.P.Nos.15399 & 15400 of 2007 doubt that two words are used to contra- distinguish word receive . Income is said to be received when it reaches assessee: when right to receive income becomes vested in assessee, it is said to accrue or arise. 36. In United Nilgiri Tea Estates Co. Versus Deputy (2012) 210 Tax Man 62 (Mad), this Court held that if accounts are maintained in mercantile system, it is necessary to see whether income could be said to have really accrued taking probability or improbability of realisation in realistic manner. 37. This Court further held that under mercantile system of accounting, accrual had occurred and therefore it has to be treated as income. Recognition of income on accrual basis pre-supposes satisfaction of two conditions, namely that revenue is measurable and that revenues collectible without any uncertainty. 38. In present case, it is not as if amounts were not paid under JV agreement or amounts due were written off by petitioner. petitioner however claimed higher business loss and depreciation loss 16/20 http://www.judis.nic.in W.P.Nos.15399 & 15400 of 2007 during assessment years 1988-89 to 1990-91 as amount was not paid by developer in time as per JV agreement dated 30.8.1986. However, JV agreement dated 30.8.1986 was not frustrated as was projected. project was delayed and during course of time there were further payments made by developer to petitioner and therefore there was accrual of income in books of account of petitioner and therefore petitioner was liable to that extent. 39. assessments for assessment years 1988-89 to 1990-91 were reopened/rectified as petitioner had wrongly claimed business loss and depreciation loss. re-assessments were completed for assessment years 1991-92 and 1992-93 on 22.11.1996 and on 22.3.1999 which resulted in increase of positive income of petitioner. 40. petitioner had however failed to pay advance tax by wrongly claiming business loss/depreciation loss during assessment years 1988-89 to 1990-91. Therefore it cannot be stated that petitioner was entitled to benefit of above notification issued under section 119 (2) (a) of Income Tax Act, 1961. None of situation contemplated under attracted CBDT Notification dated 23.05.1996 17/20 http://www.judis.nic.in W.P.Nos.15399 & 15400 of 2007 41. decision cited in Prime Securities Ltd versus Asst Commissioner of Income Tax(2011) 333 ITR 464 cited on behalf of petitioner deals with situation where assessee could not anticipate increase. There assessee had paid advance tax but had estimated same wrongly. Whereas in this case, petitioner had wrongly claimed business loss and depreciation loss and therefore failed to pay advance tax during 1991-92 and 1992-93. Therefore, said decision of Division Bench of Hon'ble Bombay High Court cannot be applied to facts of case. 42. Similarly decision of Karnataka High Court in Shriram Chits (Bangalore) Ltd versus Joint Commissioner of Income Tax (2010) 325 ITR 0219 and that of this court in Commissioner of Income Tax Versus Revathi Equipment Ltd (2008)298 ITR 67 cited on behalf of petitioner are not applicable to facts of present case. There liability to pay interest arose on account of amendment to provision whereas levy of interest in present case is not account of these factors. 43. Therefore, these decisions cited are of no relevance to facts of case. As passing reference it may also be relevant to refer to 18/20 http://www.judis.nic.in W.P.Nos.15399 & 15400 of 2007 decision cited by learned counsel for respondent in Chief Commissioner of Income Tax VersusRanjinikant and Sons (2017) 396 ITR 171. division bench of this court held that since tax was paid only after revenue had passed reassessment order, waiver from payment of interest cannot be allowed. This is similar to present case. 44. In light of above discussion, I do not find any reasons to interfere with impugned order passed by 1st respondent while rejecting application filed with petitioner for waiver of interest under Section 234 B of Income Tax Act, 1961 in terms of Notification No.400/234/95-IT (B) dated 23.5.1996. Therefore, these writ petitions are hereby dismissed and are accordingly dismissed. Consequently connected miscellaneous petition is closed. No costs. 31.01.2020 Index : Yes/No Internet : Yes/No kkd 19/20 W.P.Nos.15399 & 15400 of 2007 C.SARAVANAN,J. kkd To 1.The Chief Commissioner of Income Tax, Chennai II, Office of Chief Commissioner Income Tax, 121, Mahatma Gandhi Road, Chennai 600 034. 2.Deputy Commissioner of Income Tax, Company Circle V (3) 121, Mahatma Gandhi Road, Chennai 600 034. Pre-delivery Common Order in W.P.Nos.15399 & 15400 of 2007 and M.P.No.1 of 2007 31.01.2020 20/20 Rayala Corporation Pvt. Ltd. v. Chief Commissioner of Income-tax, Chennai-II, Chennai / Deputy Commissioner of Income-tax, Company Circle-V(3), Chennai