W.P.No.12500 of 2010 IN HIGH COURT OF JUDICATURE AT MADRAS Reserved On 04.02.2020 Pronounced On 10.02.2020 CORAM HON'BLE MR.JUSTICE C.SARAVANAN W.P.No.12500 of 2010 and M.P.No.1 of 2010 Tvl. Sanmac Motor Finance Ltd., Represented by its Managing Director, Mr. T. Arunachalam Now carrying on business at Old No. 53 C, Second Floor, Bajanai Koil Street, Choolaimedu, Chennai 600094. ... Petitioner Vs. 1.Chief Commissioner of Income Tax, Ayakar Bhavan, 121, MG Road, Nungambakkam, Chennai 600 034. 2.Assistant Commissioner of Income Tax, Company Circle VI (1), 121, MG Road, Nungambakkam, Chennai 600034. ...Respondents Writ Petition filed under Article 226 of Constitution of India praying to issue Writ of Certiorarified Mandamus, to call for records on file of first respondent herein in C.No.CCII/B(14)2006-07 dated 16.03.2010 and quash impugned order and consequently direct first respondent herein to waive interest u/s 234A, 234B and 234C of Act. http://www.judis.nic.in Page No 1 of 18 W.P.No.12500 of 2010 For Petitioner : Mr.R.Sivaraman For Respondents : Mr.A.N.R.Jayaprathap Standing Counsel. ORDER petitioner is aggrieved by impugned order dated 16.03.2010 passed by 1st respondent Chief Commissioner of Income Tax rejecting request of petitioner for waiver of interest under Section 234A, Section 234B and Section 234C of Income Tax Act, 1961 read with Section 119 (2) (a) of Income Tax Act, 1961 in terms of CBDT s Circular dated 26.06.2006 bearing reference No.400/29/2002-IT(B). 2. Petitioner income tax assessee had filed regular returns under Section 139 of Income Tax Act, 1961 for Assessment Years 1995-96, 1996-97 and 1997-98 on 29.11.1995, 29.11.1996 and 01.12.1997 respectively. 3. For Assessment Year 1995-96, petitioner had declared taxable income of Rs.79,17,837/- and had earlier paid advance tax of Rs.38,75,000/- and adjusted TDS of Rs.22,635/- in their returns. assessment was completed on 16.03.1998. On http://www.judis.nic.in Page No 2 of 18 W.P.No.12500 of 2010 appeal Commissioner of Income Tax (Appeals) by order dated 13.03.1999 remanded case back for re-computation. 4. Pursuant to said remand, order dated 14.09.2000 came to be passed by Joint Commissioner of Income Tax and total income of Rs.1,09,32,490/- was assessed in hands of petitioner. Accordingly, income payable by petitioner was determined at Rs.50,28,945/- and after adjusting payment already made, petitioner was required to pay sum of Rs.11,31,310/-. petitioner has accepted same and was also asked to pay interest under Section 234B and Section 234C of Income Tax Act, 1961. 5. For Assessment Year 1996-97, original assessment was completed on 25.03.1999. assessment was reopened pursuant to notice dated 13.06.1999 issued under Section 148 of Income Tax Act, 1961. said proceeding culminated in revised order of assessment dated 26.03.2002. As against net loss of Rs.10,244/-, positive income of Rs.67,80,870/- was arrived in said proceedings. tax liability was determined as Rs.31,27,945/-. As petitioner had not paid advance tax during aforesaid Assessment Year, interest under Section 234 and ____________ http://www.judis.nic.in Page No 3 of 18 W.P.No.12500 of 2010 234 B for sum of Rs.13,93,893/- and Rs.16,08,338/- was imposed on petitioner. 6. For Assessment Year 1997-98, petitioner had filed returns on 01.12.1997. assessment was completed on 31.03.1999. Thereafter, on 26.03.2002 based on best judgment method petitioner was assessed to total income of Rs.3,27,34,870/- and was required to pay tax of Rs.1,00,90,165/. Petitioner was also called upon to pay interest under Section 234A and 234B of Income Tax Act, 1961 for amount of Rs.21,69,372/- and Rs. 52,97,303/- respectively. 7. It is contention of petitioner that petitioner company was engaged in business of sale of motor vehicles and also operated as Non-Banking Financial Company (NBFC) and it had encountered difficulties in servicing deposits to its depositors as result of which it faced several hardships including arrest of its Managing Director T. Arunachalam. All other directors and principal and responsible officers of petitioner company had resigned, as result of which interest of company could not be protected. official liquidator also failed to protect petitioner. ____________ http://www.judis.nic.in Page No 4 of 18 W.P.No.12500 of 2010 8. petitioner has accepted tax liability but prayed for waiver of interest under Sections 234A, 234B and 234C of Income Tax Act, 1961 before 1st respondent on 07.03.2007, on ground that at time when reassessment proceedings were taken up pursuant to remand order dated 30.03.1999 of Commissioner of Income Tax (Appeals) for Assessment Year 1995-96 and notice dated 30.06.1999 for Assessment Year 1996-97 and notice dated 11.10.2000 for Assessment Year 1997-98 were issued under Section 148, petitioner company was already undergoing financial strains and was on verge of being wound up before this court in C.P.No.323 of 1998. 9. It is submitted that by time re-assessment orders were passed pursuant to notice issued Section 148 of Income Tax Act, 1961 for Assessment Year 1996-97 and Assessment Year 1997-98 on 26.03.2002, petitioner company had been directed to be wound up by order dated 18.06.2001 of this Court in C.P.No.323 of 1998 and said order was set aside by Division Bench of this court only on 27.10.2006 under Sections 391-394 of Companies Act, 1956 and after that petitioner company has been revived and tax that was re-determined pursuant order ____________ http://www.judis.nic.in Page No 5 of 18 W.P.No.12500 of 2010 dated 14.09.2000, 26.03.2002 and 26.03.2002 respectively were paid to credit of Income Tax Department on 27.01.2007. 10. It is therefore submitted that when orders were passed pursuant to remand for Assessment Year 1995-96 and pursuant to reopening of assessment under Section 148 of Income Tax Act, 1961, nobody represented interests of petitioner company. With great difficulty petitioner company has been revived pursuant to order passed by this court on 27.10.2006 in C.P.No.146 of 2006 under Section 391-394 of Companies Act, 1956. 11. 1st respondent has rejected application filed for waiver of interest on ground that case of petitioner did not fall within any of circumstances specified in Central Board of Direct Taxes Notification dated 26.06.2006 bearing reference F.No.400/29/2002-IT(B). 12. In impugned order, it has also been stated that petitioner had sufficient liquidity to pay advance tax and income tax and therefore it cannot be stated that petitioner had encountered any hardship to pay tax or file returns on time. http://www.judis.nic.in Page No 6 of 18 W.P.No.12500 of 2010 13. learned counsel for petitioner relied on decision of this Court in R.Mani Vs. Chief Commissioner of Income Tax, Tiruchirapalli, 2017 SCC OnLine Mad 15884, wherein it was held that circular issued by Board empowering Chief Commissioner to consider waiver petition for waiver of interest under Section 234A as well as 234B would show that even if these provisions are compensatory in nature and are covered by Section 234B, special orders for grant of relaxation could be passed. 14. Per contra, learned Standing Counsel for respondent submitted that issue is squarely covered against petitioner by decisions of Division Bench of this court rendered in Chief Commissioner of Income-tax, Chennai-34 Vs. Rajanikant & Sons, dated 06.06.2017 in W.A.Nos.2020 to 2024 of 2010 and in Tushin T.Mehta Vs. Chief Commissioner of Income Tax, dated 14.08.2019 passed by this Court in W.P.No.15097 of 2007 and therefore impugned order cannot be assailed. 15. In Chief Commissioner of Income-tax, Chennai-34 Vs. Rajanikant & Sons (supra), while dealing with Circular dated http://www.judis.nic.in Page No 7 of 18 W.P.No.12500 of 2010 26.06.2006, Court held that what emanates upon perusal of Circular is that, unless Assessee s case falls under circumstances set out in paragraph 2(a) to 2(d) of Circular dated 26.06.2006, which includes classes of case and/or classes of incomes, Chief Commissioner / Director General of Income Tax has no power to reduce or waive interest. It followed decision of Division Bench of Bombay High Court in De Souza Hotels (P.) Ltd. Vs. Chief of CIT, [2012] 2017 Taxman 84/20 taxmann.com 343, wherein, court held that unless Assessee s case comes within ambit and scope of Circular dated 26.06.2006, Chief Commissioner would have no power to reduce or waive interest under Sections 234A, 234B and 234C. 16. In Tushin T.Mehta (supra), Court held that unless case of assessee can be brought within one of five clauses of 1996 circular, there can be no scope for claiming reduction or waiver. It is not case of petitioner that his case will fall under clause 2 (a) or (b) or (c) or (d) of notification. 17. I have considered arguments advanced on behalf of petitioner and respondents. Section 119 of Income Tax Act, 1961 has been incorporated to grant waiver from payment of ____________ http://www.judis.nic.in Page No 8 of 18 W.P.No.12500 of 2010 interest in case of genuine hardship. Therefore, Central Board of Direct Taxes has given power to issue instructions and direction to be followed while granting waiver of interest. 18. This power is either exercised by Board and/or by senior officers of Income Tax Department like first respondent. CBDT s Notification dated 26.06.2006 bearing reference No.400/29/2002-IT(B) which is relevant to facts of present case, reads as under:- 2.The 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, or otherwise, books of account and other incriminating documents have been seized, and assessee 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/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) Any income chargeable to income-tax under any head of income, other than Capital gains is received or accrued after due date of payment of first or subsequent instalments of advance tax which was neither anticipated nor was in contemplation of http://www.judis.nic.in Page No 9 of 18 W.P.No.12500 of 2010 assessee, and advance tax on such income is paid in remaining instalment or instalments, and Chief Commissioner/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. (c) Where any income was not chargeable to income-tax in case of assessee on basis of any order passed by High Court within whose jurisdiction he is assessable to income-tax, and as result, he did not pay income-tax in relation to such income in any previous year, and subsequently, in consequence of any retrospective amendment of law or decision of Supreme Court of India, or as case may be, decision of Larger Bench of jurisdictional High Court (which was not challenged before Supreme Court and has become final), in any assessment or reassessment proceedings advance tax paid by assessee during such financial year is found to be less than amount of advance tax payable on his current income, and assessee is chargeable to interest under section 234B or section 234C, and Chief Commissioner/Director General is satisfied that this is fit case for reduction or waiver of such interest. (d) 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 Assessing Officer. 19. From reading of above circular, it is evident that case of petitioner is not specifically covered by any of ____________ http://www.judis.nic.in Page No 10 of 18 W.P.No.12500 of 2010 situation contemplated in above notification. Therefore, no fault can be found with impugned order of 1 st respondent as 1st respondent is bound by above notification though petitioner company was ordered to be wound up by order dated 18.06.2001 in C.P.No.323 of 1998. 20. Central Board of Direct Taxes while issuing above notification has not factored situation like present case where assessee is legally incapacitated from making any payments as it was ordered to be wound up. It was under legal disability. 21. Though notification has not considered above situation, I am of view that petitioner is entitled for partial relief for above reason dehors above notification. date of winding up dates back to date of petition and during aforesaid period, there was legal disability to pay tax by company as official liquidator obtained leave of company court under Companies Act, 1956. 22. Since 1st respondent has no power to grant waiver of interest in light of specific instruction of Central Board Of Direct Taxes, Court in exercise of its power under Article 226 ____________ http://www.judis.nic.in Page No 11 of 18 W.P.No.12500 of 2010 of Constitution of India can order waiver applying legal principles applicable in case of winding up of company, 23. effect of order of winding up is to put company into hands of official liquidator for completing process of liquidating it. Till order of Court for distribution of company s assets is obtained and assets are distributed, properties of company continue to be that of company. company under liquidation continues to exist as juristic personality only till order under Section 481 of Companies Act, 1956 is passed for its eventual dissolution. 24. It is only thereafter, company ceases to exist in eye of law. Thus, during period in dispute between 18.06.2001 and 27.10.2006, petitioner company by itself was under disability and could not discharge any liability without permission of court. In this case no attempt was made for recovery of tax from petitioner company by Income Tax Authorities by obtaining suitable orders of this court nor official liquidator took any steps in that direction. http://www.judis.nic.in Page No 12 of 18 W.P.No.12500 of 2010 25. It should also be borne in mind that petitioner had filed income tax return in time which also culminated in separate assessment orders of assessing officers on 16.03.1998, 25.03.1999 and 31.03.1999 respectively for respective Assessment Years. 26. During this period, petitioner company was facing threat of being wound up apart from threat of arrest of its directors. petitioner has also demonstrated that there was en mass resignation by directors of company on account of financial difficulties which plagued petitioner company and that petitioner company was unable to defend itself effectively in these proceedings. Managing Director of petitioner company was also later arrested and was remanded to judicial custody. During aforesaid period, company had become shell company. 27. During aforesaid period, notices under Section 148 of Income Tax Act, 1961 were issued to petitioner for Assessment Year 1996-1997 on 13.06.1999 and for Assessment Year 1997-98 on 11.10.2000 to reopen assessment. http://www.judis.nic.in Page No 13 of 18 W.P.No.12500 of 2010 28. Thus, petitioner company was handicapped from paying tax that was re-assessed as it was ordered to be wound by order dated 18.6.2001 in C.P.No.323 of 1998. At that stage, interest of petitioner was to be represented by Official Liquidator before Income Tax Authorities by filing appeal against re-assessment orders who failed to do so. 29. In fact, prior to winding up of petitioner company, Income Tax Authorities also could have also participated in C.P.No.323 of 1998 by either supporting or opposing winding up of petitioner company. Perhaps, no steps were taken by Income Tax Department to recover arrears of tax which came to be determined since petitioner company was ordered to be wound up. 30. Since company was ordered to be wound up by creditors, attempts were also made to settle dues of various creditors by reviving company. Under these circumstances, C.P.No.146 of 2006 was filed under Sections 391-394 of Companies Act, 1956. http://www.judis.nic.in Page No 14 of 18 W.P.No.12500 of 2010 31. In this proceeding also wide publicity would have been given by way of advertisement under Company Court Rules. It was open for Income Tax Department to participate by either supporting or opposing compromise to protect its interests. However, it appears that Income Tax Department also failed to participate in said proceeding. 32. Eventually, order was passed on 27.10.2006 in C.P.No.146 of 2006. By said order, scheme of arrangement for reconstruction and revival of operation of petitioner company was ordered so as to bind on all secured creditors, unsecured creditors, depositors and members of petitioner company. It is only pursuant to aforesaid order that Official Liquidator was directed to transfer accounts of company and relevant books to Sponsors to enable latter to settle claims of creditors immediately. 33. Thus, Official Liquidator was discharged of his responsibilities only thereafter. said order was followed by final order dated 13.11.2007 in C.P.No.146 of 2006, wherein promoters and directors of petitioner company were also discharged from all pending proceedings. Since petitioner ____________ http://www.judis.nic.in Page No 15 of 18 W.P.No.12500 of 2010 company was being wound up, there cannot be any levy of interest under provisions of Income Tax Act, 1961 as it suffered legal disability to pay tax. 34. As petitioner was under legal disability during period between 18.06.2001 and 27.10.2006, during subsistence of winding up order and since petitioner company was under control of this court and official liquidator, I am of view, this is fit case for granting partial relief to petitioner. 35. Under these circumstances, I am of view that there should be waiver of interest under Section 234A, Section 234B and Section 234C of Income Tax Act, 1961 for period between 18.06.2001 and 27.10.2006 alone. 36. I therefore remit case back to 2nd respondent to compute interest payable by petitioner from due date upto 18.06.2001 and for period commencing from 27.10.2006 upto actual date of payment under aforesaid provision of Income Tax Act, 1961. While computing interest payable by petitioner, 2nd respondent shall exclude period between 18.06.2001 and 27.10.2006. http://www.judis.nic.in Page No 16 of 18 W.P.No.12500 of 2010 37. 2nd respondent shall compute interest and communicate to petitioner for aforesaid period within period of 30 days from date of receipt of copy of this order. Petitioner shall pay amount determined by 2nd respondent within 15 days thereafter. In case, there is failure on part of petitioner to pay amount within aforesaid period, relief granted to petitioner herein shall come to end sine die and impugned order shall stand revived. 38. present Writ Petition stands disposed with above observations. No cost. Consequently, connected Miscellaneous Petition is closed. 10.02.2020 Index :Yes/No Internet :Yes/No jen To 1.Chief Commissioner of Income Tax, Ayakar Bhavan, 121, MG Road, Nungambakkam, Chennai 600 034. 2.Assistant Commissioner of Income Tax, Company Circle VI (1), 121, MG Road, Nungambakkam, Chennai 600 034 http://www.judis.nic.in Page No 17 of 18 W.P.No.12500 of 2010 C.SARAVANAN, J. Jen Pre-Delivery Order in W.P.No.12500 of 2010 and M.P.No.1 of 2010 10.02.2020 http://www.judis.nic.in Page No 18 of 18 Tvl. Sanmac Motor Finance Ltd. v. Chief Commissioner of Income-tax, Chennai / Assistant Commissioner of Income-tax, Company Circle VI(1), Chennai