Namrita Choudhary vs Commissioner of Income Tax

This is an appeal filed by the appellant under section 2(1) of the MP Uchcha Nyayalaya (Khand Nyaypeeth Ko Appeal) Adhiniyam, 2005, calling in question tenability of an order-dated 4.7.2006, passed in Writ Petition No. 1032/1999.

Facts in brief go to show that for the Assessment Years in question i.e... for the years 1994-95 and 1995-96, appellant had submitted a settlement claim and declaration under the Kar Vivad Samadhan Scheme 1998, promulgated by the Finance Act No.2, 1998. Appellant made a declaration for settlement of tax payable under section 88 of the Scheme. The declaration was made in respect of arrears of tax, which was disputed. Be it as it may be, when the assessment proceedings on the basis of the settlement and declaration made by the appellant was undertaken, the Assessing Officer added certain additional tax to the declaration made by the appellant and the appellant challenged this additional addition of tax by way of additional tax under section 143(1)(a), by saying that in a settlement scheme undertaken under the Kar Vivad Samadhan Scheme 1998, additional tax could not be levied.

The writ Court took note of the aforesaid objection, considered the provision of section 87 of the Scheme; meaning of the word ''tax arrears''; and, the explanation given by the Central Board of Direct Taxes and held that ''additional tax'' is also part of the tax as payable and imposed under section 147 and, therefore, no error has been committed by the Revenue in adding the additional tax while assessing the income of the appellant for the years in question, under the Kar Vivad Samadhan Scheme 1998. The prayer of the appellant/petitioner having been rejected by the writ Court, this appeal has been filed.

Shri Mukesh Agrawal, learned counsel appearing for the appellant, invited our attention to a judgment of the Supreme Court in the case of Commissioner of Income Tax Vs. Hindustan Electro Graphites Limited, Vol. 243 ITR 2000 Page 49, to say that ''additional tax'' imposed is in the nature of penalty and could not be imposed in the manner done while processing the claim under the Kar Vivad Samadhan Scheme 1998.

Refuting the aforesaid Shri Sanjay Lal, learned counsel for the respondents, argued that the Kar Vivad Samadhan Scheme 1998 has been held to be constitutionally valid by the Delhi High Court in the case of All India Federation of Tax Practitioners Vs. Union of India and Others, and once the claim is held to be constitutionally valid, then all action taken under the Scheme and the Circular issued by the department in pursuance to the Scheme is valid and no case is made out for interference.

That apart, learned counsel for the respondents places reliance on a Division Bench judgment of this Court in the case of Sanctus Drugs Pharmaceuticals Private Ltd. and Another Vs. Union of India (UOI) and Others, , to say that ''additional tax'' can be imposed. Learned counsel further places reliance on a judgment of the Karnataka High Court in the case of Bidar Sahakari Sakkare Kharkhane Niyamat, Ramanashree Enterprises, Ramanashree Shopping Arcade (P) Ltd. and Ramanashree Associates Vs. Union of India (UOI) and Others, , to say that ''additional tax'' is only a tax and is not a penal provision as canvassed by Shri Mukesh Agrawal.

We have heard learned counsel for the parties and have considered the rival contentions.

The only question warranting consideration in this appeal is as to whether ''additional tax'' imposed is a tax which can be added to the amount payable as tax under the Scheme in question or it is prohibited from adding the element of ''additional tax'' while assessment is being made under the Scheme in question.

The question as to what is the nature of tax which is added as ''additional tax'', has already been considered and decided by the Supreme Court in the case of Hindustan Electro Graphites Limited (supra). In the aforesaid case, after taking note of various provisions including section 143(1)(a) of the Income Tax Act, the Hon''ble Supreme Court has held that levy of ''additional tax'' bears all the characteristics of a penalty. It is held that when ''additional tax'' has the imprint of penalty, the revenue cannot say that levy of ''additional tax'' is automatic under section 143(1)(a) of the Income Tax Act. The Supreme Court says that if ''additional tax'' could be levied in the manner as claimed by the revenue, it will amount to punishing the assessee for no fault of his and this cannot be the legislative intent. Finally, it is held by the Supreme Court in the aforesaid case that ''additional tax'' being in the nature of penalty, it cannot be levied in the manner done and has quashed similar action taken of adding ''additional tax''.

As far as the judgments relied upon by Shri Sanjay Lal, learned counsel for the respondents, are concerned, they are prior to the judgment of the Supreme Court in the case of Hindustan Electro Graphites Limited (supra) and once the Supreme Court has clearly held in its judgment that ''additional tax'' whenever levied has the imprint of penalty, we cannot ignore the aforesaid judgment and the law laid down by the Supreme Court and accept the contention of Shri Sanjay Lal.

Keeping in view the principle of law laid down by the Supreme Court in the case of Hindustan Electro Graphites Limited (supra), we have no hesitation in allowing this appeal. The order impugned passed by the learned Single Bench is quashed and it is held that imposition of ''additional tax'' in the facts and circumstances of the case as done is not permissible. The ''additional tax'' levied under the Scheme be deleted and the matter is remanded back to the Assessing Officer for proceeding to assess the matter afresh after taking note of the principle of law laid down by the Supreme Court, as indicated hereinabove, and followed by us in the aforesaid order.

The appeal stands allowed and disposed of.