2008 (10) TMI 2 - SC - Income Tax

Appellant's voluntary offer to sell seized securities under s.220(2-A) must be considered; DD encashment denied for company name

BM MALANI Versus COMMR. OF INCOME TAX & ANR.

SC allowed the appeal. The Court held that the lower authorities erred in not considering the appellant's voluntary offer to sell seized securities under ... Shares and demand draft seized - levy of interest for non-payment of tax - application filed by the appellant herein u/s 220 (2-A) - term 'genuine' - HELD THAT:- Unfortunately, this aspect of the matter has not been considered by the learned Commissioner and the High Court in its proper perspective. The Department had taken the plea that unless the amount of tax due was ascertainable, the securities could not have been sold and the demand draft could not have been encashed. The same logic would apply to the case of the assessee in regard to levy of interest also. It is one thing to say that the levy of interest on the ground of non-payment of correct amount of tax by itself can be a ground for non-acceding to the request of the assessee as the levy is a statutory one but it is another thing to say that the said factor shall not be taken into consideration at all for the purpose of exercise of the discretionary jurisdiction on the part of the Commissioner. Appellant volunteered that the securities be sold. Why the said request of the appellant could not be acceded to has not been explained. It was a voluntary act on the part of the appellant. It was not even a case where sub-Section (3) of Section 226 of the Act was resorted to. As the offer was voluntary, the authorities of the Department subject to any statutory interdict could have considered the request of the appellant. It was probably in the interest of the revenue itself to realize its dues. Whether this could be done in law or not has not been gone into. The same ground, however, was not available to the appellant in respect of the demand draft, as in relation thereto no such request was made. The demand draft was in the name of a Company. It may be true that when any document is seized, a presumption is raised that the same belongs to the person from whose possession or control it was seized as is laid down in sub-Section (4A) of Section 132 of the Act, but such a presumption is a rebuttable one. In the absence of any request made by the Assessee himself, probably at that point of time, the same could not have been encashed. Appellant did not own the same in law. He did not make any request for its enchashment. The appeal is allowed Issues Involved:1. Rejection of application under Section 220(2A) of the Income Tax Act by the Commissioner of Income Tax.2. Determination of genuine hardship caused to the appellant.3. Non-encashment of demand draft and non-selling of shares and securities by the Income Tax Department.4. Levy of interest under Section 220(2) of the Income Tax Act.5. Consideration of the appellant's cooperation with the Income Tax Department.Detailed Analysis:1. Rejection of Application under Section 220(2A):The appellant's application for waiver of interest under Section 220(2A) was rejected by the Commissioner of Income Tax on the grounds that the appellant did not satisfy all three conditions required for waiver. The Commissioner acknowledged the appellant's cooperation with the Department but concluded that the levy of interest did not cause genuine hardship and that the default in payment was not due to circumstances beyond the appellant's control.2. Determination of Genuine Hardship:The Supreme Court emphasized the need to interpret 'genuine hardship' as per its dictionary meaning and legal context. The term 'genuine' means real and not fake or counterfeit. The Court noted that genuine hardship implies genuine difficulty and that possessing large assets does not automatically negate the possibility of hardship. The principle that a person cannot take advantage of their own wrong was highlighted. The Court criticized the Commissioner and the High Court for not adequately considering whether the appellant's circumstances constituted genuine hardship.3. Non-encashment of Demand Draft and Non-selling of Shares and Securities:The appellant had requested the Income Tax Department to sell the seized shares and securities to pay the tax liabilities, but this request was not acceded to. The Court found that the Department should have responded to the appellant's request and taken action. The non-encashment of the demand draft worth Rs. 10 lakhs was also discussed, with the Court noting that no request for its encashment was made by the appellant, and it was in the name of a company, raising a rebuttable presumption of ownership.4. Levy of Interest under Section 220(2):Interest was levied for non-payment of dues as on 8.3.2002 for several assessment years. The Court noted that the levy of interest is statutory and aims to compensate the revenue for the loss suffered due to non-deposit of tax. However, the Court stated that the Commissioner must judiciously exercise discretion when considering a waiver of interest and must be satisfied that the conditions laid down in Section 220(2A) are fulfilled.5. Consideration of Appellant's Cooperation:The Commissioner accepted that the appellant had cooperated with the Department. The Court emphasized that all three conditions under Section 220(2A) must be met for a waiver of interest, including cooperation with the Department.Conclusion:The Supreme Court set aside the impugned judgment and remitted the matter to the Commissioner of Income Tax for fresh consideration, emphasizing the need to judiciously exercise discretion and adequately consider genuine hardship and other relevant factors. The appeal was allowed to the extent of remitting the matter for reconsideration, with no costs awarded.