2008 (5) TMI 757 - HC - Income Tax

Court Rules Timing for Tax Exemption Withdrawal Declarations is Flexible, Must File Before Assessment Completion.

THE COMMISSIONER OF INCOME TAX, NEW DELHI Versus MOSER BAER INDIA LTD.

The court determined that the requirement under Section 10B(7) of the Income Tax Act, 1961, for filing a declaration to withdraw exemption is mandatory, ... - Issues Involved:1. Whether the requirement under Section 10B(7) of the Income Tax Act, 1961 for filing a declaration to withdraw exemption before the due date of filing the return is mandatory or directory.Detailed Analysis:Issue 1: Interpretation of Section 10B(7) RequirementThe primary issue in this case is whether the Income Tax Appellate Tribunal was correct in concluding that the requirement under Section 10B(7) of the Income Tax Act, 1961, for filing a declaration to withdraw exemption before the due date of filing the return is directory.Background:The Revenue challenged the Tribunal's order, which allowed the assessee to file the declaration for withdrawing exemption after the due date. The relevant assessment years were 1996-97, 1997-98, and 1998-99. The assessee had filed the declaration in February 1999, after the due date of filing the return for the assessment year 1996-97, which was 30 November 1996.Arguments and Precedents:1. Revenue's Argument:- The Revenue relied on the Supreme Court's decision in Goetze (India) Ltd. v. Commissioner of Income Tax, which held that a claim for exemption must be made in the original or revised return, and any subsequent claim could be rejected by the Assessing Officer.2. Assessee's Argument:- The assessee argued that the requirement to file the declaration before the due date is directory and not mandatory. They cited the Supreme Court's decision in Commissioner of Income Tax v. Nagpur Hotel Owners' Association, which interpreted similar provisions under Section 11(2) of the Act as mandatory for filing information before the assessment is completed, but not necessarily within the prescribed time.- The assessee also relied on Commissioner of Income Tax v. Hardeodas Agarwalla Trust, where the Calcutta High Court held that procedural provisions should not be construed as mandatory if defects can be rectified later, emphasizing that procedural laws are meant to advance justice.Court's Analysis:1. Mandatory vs. Directory:- The court examined the purpose of filing a declaration under Section 10B(7), which is to inform the Assessing Officer of the assessee's intent to withdraw the exemption claim. The mandatory nature of filing the declaration was acknowledged, but the court questioned whether the timing was equally mandatory.- The court noted that procedural requirements should not disadvantage the assessee, especially when the statute does not explicitly provide consequences for late filing. The absence of specific sanctions for late declarations indicated that the timing requirement could be considered directory.2. Supporting Judgments:- The court referred to Kailash v. Nanhku, where the Supreme Court held that procedural provisions, even if worded negatively, could be directory if they did not specify penal consequences.- The court agreed with the Calcutta High Court's view that procedural provisions should not cause substantial injustice and should allow for rectification.Conclusion:The court concluded that while the requirement to file a declaration under Section 10B(7) is mandatory, the time limit for filing it before the due date of the return is directory. The declaration must be filed before the assessment is completed, but the assessee should not be disadvantaged if the declaration is filed after the due date but before the assessment is framed.Judgment:The substantial question of law was answered in the affirmative, favoring the assessee and against the Revenue. The appeal was disposed of accordingly.