Garden Silk Weaving Factory vs Commissioner of Income Tax

M.B. Shah, J.—For the assessment year 1968-69, the petitioner submitted a return of income of Rs. 3,83,300 on October 17, 1968. Before the assessment proceedings started, the petitioner made an application dated March 29, 1971, for settlement to the Commissioner, disclosing voluntarily an amount of Rs. 3,00,000 being profit on sale of import licences and on the next day, i.e., on March 30, 1971, filed a revised return including the above voluntarily disclosed income. The Income Tax Officer did not accept that the import licence was sold for Rs. 3,00,000 and he estimated the profit on sale of yarn and made additions in profit and investment said to have been made in the disposal of import licences. He estimated the income at Rs. 11,14,179. On appeal, the Appellate Assistant Commissioner reduced the said amount to Rs. 7 21,438. The order passed by the Appellate Assistant Commissioner was confirmed by the Tribunal.

Thereafter, the Inspecting Assistant Commissioner passed an order dated August 3, 1976, u/s 271(1)(c) imposing penalty of Rs. 11,02,000. The Tribunal reduced the penalty to Rs. 7,92,820. The petitioner paid the amount of penalty and interest over it on September 1, 1977.

Thereafter, the petitioner filed an application dated September 28, 1977, u/s 273A(4) of the Income Tax Act, 1961, for waiver of the above penalty. In the said application it was, inter alia, pointed out by the petitioner that the petitioner and its partners had already suffered financial liability of Rs. 18,90,100 in respect of the transaction. It was prayed that the Commissioner may exercise the power u/s 273A(4) and waiver the penalty as otherwise it would cause genuine hardship to the petitioner and it was also pointed out that the petitioner had co-operated in all inquiry relating to the assessment and in the proceeding for the recovery of any amount due from it. The petitioner also pointed out the financial hardship which would be caused to it by the imposition of the said penalty.

That application was rejected by the order dated December 18, 1979, (annexure "K"), passed by the respondent u/s 273A(4) on the ground that the petitioner had already paid the penalty and, therefore, section 273A(4) was not available to him. The Commissioner arrived at the conclusion that the words used in sub-section (4) are "any penalty payable" which would indicate that when the amount of penalty is outstanding then the power of waiver of penalty can be exercised. That order (annexure "K") is challenged by filing petition.

In our view, the ground for rejection of the petitioner''s application that it has already paid the amount of penalty and, therefore, the is no genuine hardship caused to the assessee, cannot be said to be a valid reason for rejection of an application u/s 273A(4). By considering the scheme of section 273A and, particularly sub-section (4), it is apparent, that if the penalty which is imposed is paid, it would definitely indicate that the assessee has co-operated in the proceeding for recovery of any amount due for him and it would be a factor which is required referring to sub-section (4) of section 273A which empowers the Commissioner to reduce or waiver the amount of penalty payable by the assessee. Sub-section (4) reads as under :

"273. (4) Without prejudice to the powers conferred on him by any other provision of this Act, the Commissioner may, on an application made in this behalf by an assessee, and after recording his reasons for so doing, reduce or waiver the amount of any penalty payable by the assessee under this Act or stay or compound any proceeding for the recovery of any such amount, if he is satisfied that -

(i) to do otherwise would cause genuine hardship to the assessee, having regard to the circumstances of the case; and

(ii) the assessee has co-operated in any enquiry relating to the assessment or any proceeding for the recovery of any amount due from him."

Reading this sub-section it is clear that for grant of relief, the Commissioner is required to consider whether, (i) in the facts of the case there would be genuine hardship to the assessee if relief is not granted, and (ii) the assessee has co-operated in any inquiry relating to the assessment or any proceeding for the recovery of any amount due from him. That would mean that clause (i) or sub-section (4) requires consideration of hardship and clause (ii) requires that the Commissioner should verify that the assessee has co-operated, (a) in any inquiry relating to the assessment, or (b) in any proceeding for the recovery of any amount due from him. The second part of clause (ii) would certainly indicate that if he has co-operated in recovery of the amount of penalty payable by him, then it cannot be said that the Commissioner would have no jurisdiction to entertain the assessee''s application. In our view, the conditions precedent for exercise of quasi-judicial power u/s 273A(4) are the two-objective criteria mentioned in clauses (i) and (ii) and not whether the assessee has nor has not paid the penalty. As observed by the Division Bench of this court in the case of Kherunissa Allibhai Vs. Commissioner of Income Tax, the whole concept u/s 273A is the mitigating circumstances or certain circumstances are specified in the section for the purpose of getting the penalty waived or reduced : when the assessee approaches the Commissioner u/s 273A, he does not dispute his liability to pay the penalty; all that he says is that he should be given the relief of reduction or waiver by the fact that the conditions specified in section 273A are satisfied. So, what is meant in the context of the scheme of section 273A is, whether mitigating circumstances for waiver or reduction of the penalty are satisfied or not. If such conditions are satisfied, it would not mean that he is not entitled to get relief. Further, considering the scheme of section 273A, the phrase "reduce or waive the amount of any penalty payable by the assessee under this Act" would cover a case where penalty is payable or paid by the assessee. Where considering the word "payable" used in section 7(1) of the Public Premises (Eviction of Unauthorised Occupants) Act, 1958, the Supreme Court in the case of New Delhi Municipal Committee Vs. Kalu Ram and Another, has observed that the word "payable" is somewhat indefinite in its import and its meaning must be gathered from the context in which it occurs; "payable" generally means that which should be paid. In the context of section 273A, the word "payable" would mean that the assessee is liable to pay a particular sum as penalty. Even if the liability to pay penalty is discharged, it would not mean that he is not entitled to get relief u/s 273A as otherwise no assessee would pay the penalty till the proceedings u/s 273A are over.

In our view, as the Commissioner has rejected the application of the petitioner on a totally irrelevant ground, the order passed by him requires to be quashed and set aside.

In the result, the petition is allowed. The impugned order dated December 18, 1979 (annexure "K"), passed by the respondent is quashed and set aside. The Commissioner is directed to decide the application filed by the petitioner afresh on the merits in accordance with law. Rule made absolute to the aforesaid extent with no order as to costs.