2019 (8) TMI 994 - HC - Income Tax

High Court denies interest waiver on short-term capital gains under Income Tax Act

Tushin T. Mehta Versus The Chief Commissioner of Income Tax, Chennai - II

The High Court upheld the classification of capital gains as short term and denied the waiver of interest under Sections 234A, 234B, and 234C of the ... Waiver or reduction of interest u/ss 234A, 234B and 234C - waiver on account of subsequent adverse decision - reliance on press release instead of formal circular - HELD THAT:- In judicial and quasi judicial proceedings, the possibility is that one's contention may be either accepted or rejected. Rejection of one's legal contention cannot be characterised as an unavoidable circumstance. The decision of the adjudicator is something that is always beyond the control of the assessee and it cannot be foreseen unless of course there is something like match-fixing! The expression “unavoidable circumstance” occurring in clause 2(e) of the circular dated 23.05.1996 cannot obviously encompass outcomes of judicial and quasi judicial proceedings. This is all the more so because, clause 2(d) deals with arising of liability on account of a subsequent decision of the Hon'ble Supreme Court. If adverse judicial or quasi judicial decisions are to furnish a cause for seeking waiver of interest, it would have been expressly stated in clause 2(e) as in clause 2(d). When a person embarks on the journey of litigation, one should always be prepared for an adverse verdict. Therefore, there is nothing unforeseeable about the outcome of judicial or quasi judicial proceeding. As the preambular paragraph of the notification dated 23.05.1996 states, reduction or waiver of penal interest charged under Sections 234 A, 234 B and 234 C can be made only in the classes of cases or classes of income tax specified in paragraph 2 of the order. Unless the case of the assessee can be brought within one of the five clauses, there can be no scope for claiming reduction or waiver. It is not the case of the petitioner that his case will fall under clause 2 (a) or (b) or (c) or (d) of the notification. His case will have to fall only within clause 2(e). That is why, even though the petitioner talks about clause (v) in the earlier part of ground (d) of his affidavit filed in support of the writ petition, he would contend in the very same ground a little later, that he had satisfied the conditions laid under clause (e) of the Board's circular. Rejection of one's stand in a legal proceeding cannot be construed as an “unavoidable circumstance”. The case on hand clearly falls outside the scope of clause 2(e) of the circular dated 23.05.1996. The impugned order is sustained. I find no merit in this writ petition. It stands dismissed. Issues Involved:1. Classification of capital gains as short term or long term.2. Waiver of interest under Sections 234A, 234B, and 234C of the Income Tax Act, 1961.3. Applicability of the Circular issued by the Central Board of Direct Taxes (CBDT) for waiver of interest.Issue-wise Detailed Analysis:1. Classification of Capital Gains as Short Term or Long Term:The primary issue was whether the capital gains from the sale of property should be classified as short term or long term. The assessee claimed long term capital gains, asserting possession of the property since 06.03.1992 based on a builder's agreement, despite the lease deed being registered on 21.04.1994. The assessing officer, however, determined the capital gains as short term, arguing that the legal right to use the property was established only on 20.01.1994 with the assignment of leasehold interest. Consequently, the assessment was completed under Section 143(3) of the Income Tax Act, 1961, treating the gains as short term and determining the total income at Rs. 17,30,930/- with a tax demand of Rs. 5,46,742/-.2. Waiver of Interest under Sections 234A, 234B, and 234C of the Income Tax Act, 1961:The assessee's father filed a waiver petition under Section 119(2)(a) of the Income Tax Act on 18.08.2000, seeking waiver of interest charged under Sections 234A, 234B, and 234C. The petition cited a bonafide belief that the capital gains were long term, and the return was filed voluntarily without detection by the Income Tax Department. The waiver petition was initially rejected, prompting the assessee's father to challenge the decision in WP No.7940 of 2003. The High Court remitted the matter for reconsideration, but the waiver petition was again rejected after a hearing. The petitioner, continuing the battle after his father's death, filed the current writ petition.3. Applicability of the Circular Issued by the Central Board of Direct Taxes (CBDT) for Waiver of Interest:The petitioner argued that the waiver of interest should be considered under Clause (v) of the CBDT's Circular dated 23.05.1996, which allows for waiver where the return is filed voluntarily without detection and due to circumstances beyond the taxpayer's control. However, the Court noted that the formal notification did not contain a Clause (v) as claimed by the petitioner. Instead, the relevant clause was Clause 2(e), which provides for waiver where the return could not be filed due to unavoidable circumstances and was filed voluntarily without detection.Court's Analysis and Conclusion:The Court carefully examined the notification and the arguments presented. It concluded that the rejection of the assessee's claim of long term capital gains by the assessing officer was not an 'unavoidable circumstance' as defined in the circular. The Court emphasized that judicial and quasi-judicial decisions are inherently beyond the control of the assessee and cannot be foreseen, thus not qualifying as unavoidable circumstances. The Court held that the case did not fall within the scope of Clause 2(e) of the circular, and therefore, the petitioner was not entitled to a waiver of interest. The impugned order was sustained, and the writ petition was dismissed with no costs.Conclusion:The High Court dismissed the writ petition, upholding the classification of capital gains as short term and denying the waiver of interest under Sections 234A, 234B, and 234C of the Income Tax Act, 1961, as the case did not meet the criteria specified in the CBDT's circular for waiver of interest.