2017 (8) TMI 750 - HC - Income Tax

Petitions Dismissed Due to Exclusion Clause Interpretation

Parbatbhai J Golakia Huf Versus Principal Commissioner of Income Tax-1

The Court dismissed the petitions as the petitioner's situation fell within the scope of the exclusion clause under the Finance Act, and the term 'tax ... Direct Tax Dispute Resolution Scheme, 2016 - scope of the term 'tax arrear' - CIT was of the opinion that since the additions made for the assessment year 2007-2008 were having bearing on the materials impounded during search in case of Baldevbhai Bhikhabhai Patel, the application for being covered under the Scheme was not maintainable - Penalty u/s 271(1)(c) - Held that:- The term “tax arrear” for the purpose of the said Scheme therefore, had a definite meaning as provided in the said definition. It would include the amount of tax, interest or penalty and would be treated as a tax arrear if against such determination, appeal is pending before the appellate Commissioner on the specified date. The expression used “if it relates to any tax arrear” in subclause( ii) of clause(a) of section 208 therefore, would include penalty also. In view of such clear definition, we are unable to accept the contention of Shri Soparkar that for the limited purpose of subclause( ii), the term “tax arrear” must exclude the penalty. Reference to any tax arrear is not limited to an order of assessment or reassessment but could also be in relation to an assessment or reassessment, clearly indicating the legislative intent not to confine the term “tax arrear” in the said clause to the simplicitor tax exclusive of interest or penalty, contrary to the plain language used in the definition section. The second contention that sub-clause( ii) would not include a situation as in case of the present assessee where he himself was not subjected to survey operation, also cannot be accepted. The language used is “has a bearing if it relates to any tax arrear” and not “if it relates to any tax arrear” or some similar expression. The term “has a bearing” is much wider and must be understood in its plain grammatical meaning as to include assessment or reassessment of which a survey conducted under section 133A of the Act has a bearing. As noted, the very genesis of the reassessment proceedings in case of the petitioner assessee was the documents found and seized during the survey operation. This condition is also therefore, satisfied in the present case. We do not therefore, find any error in view of the Commissioner in rejecting the petitioner's declaration. Issues:1. Eligibility of the petitioner to avail benefits under the Direct Tax Dispute Resolution Scheme, 2016.2. Interpretation of the exclusion clause under section 208 of the Finance Act.3. Whether the term 'tax arrear' includes penalty for the purpose of the Scheme.Analysis:1. The petitioner, a Hindu Undivided Family (HUF), faced reassessment for the assessment year 2007-2008 after a survey operation at the business premises of another individual revealed incriminating documents related to land costs and expenses. Despite initially declaring income of Rs. 51,300, the income was later assessed at Rs. 51.85 lakhs, and a penalty of Rs. 17.28 lakhs was imposed. The petitioner sought to benefit from the Direct Tax Dispute Resolution Scheme, 2016, by making a declaration under the scheme.2. The Scheme outlined provisions for declarants to settle tax arrears by paying a specified amount. However, section 208 of the Finance Act specified cases where the Scheme would not apply. The Commissioner rejected the petitioner's application under subclause(ii) of exclusion clause(a) of section 208, which applied when a survey conducted under section 133A of the Act had a bearing on the assessment or reassessment. The petitioner contended that the exclusion clause did not cover them as they were not the subject of the survey.3. The term 'tax arrear' was crucial for determining eligibility under the Scheme. The definition of 'tax arrear' included the amount of tax, interest, or penalty under the Income Tax Act, pending appeal before the Commissioner. The Court held that for the Scheme, 'tax arrear' encompassed penalties as well. The petitioner's argument that penalties should be excluded was rejected. The Court emphasized that the term 'tax arrear' had a specific definition under the Scheme, and penalties were integral to this definition. The Court also clarified that the phrase 'has a bearing' in the exclusion clause was broad and encompassed situations where survey operations influenced assessments, even if the petitioner was not directly surveyed.In conclusion, the Court dismissed the petitions as the petitioner's situation fell within the scope of the exclusion clause under the Finance Act, and the term 'tax arrear' included penalties for the purpose of the Direct Tax Dispute Resolution Scheme, 2016.