Precot Mills Ltd. vs Central Board of Direct Taxes and Others

D. Murugesan, J.—This writ appeal raises a common question as to whether in exercise of the power u/s 119(2)(a) of the Income Tax Act,

1961, the Central Board of Direct Taxes would be entitled to entertain application from an individual assessee against the order of the Assessing

Officer declining the waiver of interest chargeable u/s 234C of the Income Tax Act and if so, whether the Board should give reasons while

considering and passing orders on such application ?

The facts giving rise to the above two issues are as follows : The appellant is a public limited company and they filed the return of income on

December 31, 1990, for the assessment year 1990-91. As the company did not have any taxable income for the said year under the normal

provisions of the Income Tax Act by virtue of Section 115J of the Act, the book profit was disclosed in the return of income. The assessee has

also paid advance tax for the financial year 1990-91 in the following manner, namely, a sum of Rs. 16,00,000 on September 14, 1989, a sum of

Rs. 60,00,000 on December 14, 1989 and a sum of Rs. 23,00,000 on March 30, 1990. At a later point of time, the assessee claimed the waiver

of interest. We are not elaborating in detail the above subsequent events, as our consideration is very limited in this petition.

The assessee filed an application on December 12, 1991, before the Central Board of Direct Taxes (for short, ""the Board"") seeking for waiver

of interest. That application was rejected by the following communication:

Annexure C

F. No. 400/21/92-IT(B)

Government of India,

Ministry of Finance,

Department of Revenue,

Central Board of Direct Taxes.

New Delhi, the 7th January, 1993.

To

The Vice President (Finance),

Precot Mills Ltd.,

Suprem, P. B. No. 3888,

Race Course, Coimbatore 641 018.

Sub. : Request for waiver of interest chargeable u/s 234C of the Income Tax Act, 1961.

Sir,

I am directed to refer to your letter No. CO/P/VPF dated 12th December, 1991, regarding waiver of interest chargeable u/s 234C of the Income

Tax Act and to state that the Board regrets its inability to intervene in the matter.

Yours faithfully,

(Sd)...,

(Rajesh Chandra),

Under Secretary to the

Government of India.

The said communication was questioned by the assessee in the writ petition primarily on the ground that the said communication did not contain

any reason whatsoever. The challenge to the said communication before the learned single judge See Precot Mills Ltd. Vs. Central Board of Direct

Taxes and Others, did not find favour with the assessee. According to the learned judge, the provisions of Section 119(2)(a) relate to the power of

the Board to issue from time to time general or special orders in respect of any class of income or class of cases by way of relaxation of any of the

provisions mentioned thereunder including Sections 234A, 234B and 234C for the purpose of proper and efficient management of the work

relating to assessment or collection of revenue. According to the learned judge, in contrast to Clauses (b) and (c) of Section 119(2)(a) of the Act,

the Board need not give any reasons while dealing with an application made by the assessee u/s 119(2)(a) of the Act.

Mr. Srinath Sridevan, learned Counsel appearing for the appellant-asses-see would submit that while the application is entertained by the Board

and it is considered and disposed of, the Board acts as a quasi-judicial functionary. If that be so, the Board should certainly give reasons for

rejecting the application. In support of the said submission, the learned Counsel would rely upon an unreported judgment of a learned single judge

of this Court made in a batch of writ petitions in W.P. Nos. 2528 of 1993 etc., dated December 13, 1993 (Sivanandha Steels Ltd. v. CBDT).

The learned Counsel would submit that though the said judgment was cited before the learned single judge, it was distinguished on the ground that

the difference between the provisions of Section 119(2)(a), (b) and (c) of the Act was not at all considered thereunder. Hence, the learned

Counsel would submit that as the issues raised in this appeal are squarely covered by the said judgment, the order under appeal is liable to be

interfered with.

On the other hand, Mr. J. Naresh Kumar, learned senior standing counsel for the Revenue would submit that there is no obligation cast on the

Board to entertain any application from the individual assessee for its consideration. However, the Board, as a matter of practice, entertains the

application filed by the assessee and in exercise of the power u/s 119(2)(a) passes orders and in that process, the Board is not expected to give

any reasons. Hence, the learned standing counsel would submit that the order under appeal need not be interfered with.

We have considered the rival submissions. The provisions of Section 119(2)(a), (b) and (c) read as under:

119.(2) Without prejudice to the generality of the foregoing power,:

(a) the Board may, if it considers it necessary or expedient so to do, for the purpose of proper and efficient management of the work of

assessment and collection of revenue, issue, from time to time (whether by way of relaxation of any of the provisions of Sections 115P, 115S,

115WD, 115WE, 115WF, 115WG, 115WH, 115WJ, 115WK, 139, 143, 144, 147, 148, 154, 155, 158BFA, Sub-section (1A) of Section

201, Sections 210, 211, 234A, 234B, 234C, 271 and 273 or otherwise), general or special orders in respect of any class of incomes or fringe

benefits or class of cases, setting forth directions or instructions (not being prejudicial to assessees) as to the guidelines, principles or procedures to

be followed by other Income Tax authorities in the work relating to assessment or collection of revenue or the initiation of proceedings for the

imposition of penalties and any such order may, if the Board is of opinion that it is necessary in the public interest so to do, be published and

circulated in the prescribed manner for general information;

(b) the Board may, if it considers it desirable or expedient so to do for avoiding genuine hardship in any case or class of cases, by general or

special order, authorise any Income Tax authority, not being a Commissioner (Appeals) to admit an application or claim for any exemption,

deduction, refund or any other relief under this Act after the expiry of the period specified by or under this Act for making such application or claim

and deal with the same on merits in accordance with law;

(c) the Board may, if it considers it desirable or expedient so to do for avoiding genuine hardship in any case or class of cases, by general or

special order for reasons to be specified therein, relax any requirement contained in any of the provisions of Chapter IV or Chapter VI-A, where

the assessee has failed to comply with any requirement specified in such provision for claiming deduction thereunder, subject to the following

conditions, namely:

(i) the default in complying with such requirement was due to circumstances beyond the control of the assessee; and

(ii) the assessee has complied with such requirement before the completion of assessment in relation to the previous year in which such deduction is

claimed:

Provided that the Central Government shall cause every order issued under this clause to be laid before each House of Parliament.

As far as the provisions of Section 119(2)(b) and (c) are concerned, the finding in the order under appeal itself is that the Board, under those

provisions, acts as quasi-judicial functionary. To this extent, there is no dispute. The controversy is only in respect of Section 119(2)(a) of the Act

as to whether an application can be made by the assessee as a matter of right to the Board and that if such application is entertained, the Board is

obligated to consider the same and pass orders giving its reasons. While exercising the power u/s 119(2)(a), the Board, by issuance of guidelines,

is also entitled to consider the principles or procedures to be followed by the other Income Tax authorities in the work relating to assessment or

collection of revenue or the initiation of proceedings for the imposition of penalties, etc. That power of the Board conferred under the said

provision includes the power to issue guidelines, principles and procedures to be followed in matters of initiation of proceedings for imposition of

penalties, will necessarily include the waiver of interest as well. When a grievance is made before the Board by way of an application and when

once that application is entertained, certainly, the Board should consider whether the request was either against imposition of penalty or for waiver

of interest and pass orders giving its reasons. In the judgment relied upon by the learned Counsel for the appellant in W. P. No. 2528 of 1993

dated December 13, 1993, the learned single judge had also relied upon a Division Bench judgment of the Karnataka High Court in H.S.

Anantharamaiah Vs. Central Board of Direct Taxes and others, , where the Division Bench has held that while an application is considered and

disposed of by the Board u/s 119(2)(a), the Board acts as quasi-judicial authority. We are entirely in agreement with the finding rendered in the

said judgment. It is not in dispute that such applications from individual assessees are also entertained by the Board and disposed of. In our

opinion, no difference could be seen from either of the Clauses (a), (b) and (c) of Section 119(2)(a) of the Act for the reason that even though

Section 119(2)(a) only relates to the power of the Board to issue certain guidelines and principles on specific matters, while it entertains the

application and disposes of the same, it acts as a quasi-judicial authority and if that be so, a quasi-judicial authority is expected in law to give

reasons on consideration of the materials available before it. A statutory discretion or power, whether it be administrative or quasi-judicial, is

subject to certain implied conditions or limitations. Any violation of these conditions or limitations can give rise to judicial review. The conditions

are based on the solemn principle that the person on whom the power is conferred must exercise the same in good faith for furtherance of the

object of the statute and the decision should not amount to arbitrariness, unfairness and summary disposal. In Ridge v. Baldwin [1963] 2 All ER 66

(HL), it has been held that conferment of quasi-judicial power further implies that the person concerned must follow the rule of natural justice. In

Wiseman v. Borneman [1969] 3 All ER 275 (HL), it has been held that a quasi-judicial authority, while discharging his functions as such, must give

reasons for making the order which he is empowered to make. The apex court has also laid down the above principles in the judgment in Mrs.

Maneka Gandhi Vs. Union of India (UOI) and Another, . We may also observe that except in cases where the requirement has been dispensed

with expressly or by necessary implication, an administrative authority, exercising judicial or quasi-judicial functions, is required to record the

reasons for its decision, as this requirement can be regarded as one of the principles of natural justice. The duty to give reasons is the function of

due process and therefore of justice. It encompasses itself two principal aspects, namely, fairness and the application of mind by the authorities. To

support the above, we may refer to the judgments of the apex court in Vasudeo Viswanath Saraf v. New Education Institute AIR 1985 SC 2105

and in S.N. Mukherjee Vs. Union of India, .

As we have held that the Board while disposing of an application u/s 119(2)(a) is acting as quasi-judicial authority, it should certainly give

reasons even though the provision does not explicitly refer to the provision of such reasoning in the order.

Of course, the learned senior standing counsel for the Revenue would rely upon a judgment of the apex court in Carborundum Universal Ltd.

Vs. Central Board of Direct Taxes, New Delhi, . In our opinion, that judgment relates to a claim for personal hearing before an application that has

been entertained by the Board is disposed of. In the absence of any provision for personal hearing, the apex court has held that no personal

hearing could be asked as a matter of right. Nevertheless, we are of the considered view that from the very same judgment we could gather that

when an application is entertained, it should be disposed of by giving reasons and to this extent, the aforesaid judgment of the apex court could be

relied upon in favour of the appellant -assessee.

For all the above reasons, the order under appeal is liable to be set aside. Accordingly, the order is set aside and the appeal is allowed. It is

now represented by the learned Counsel on either side that the power to entertain and dispose of the application has been now entrusted to the

Chief Commissioner of Income Tax. In view of the above, the matter is remitted back to the Chief Commissioner of Income Tax for fresh

consideration of the application filed by the appellant-assessee regarding the waiver of interest for the assessment year 1990-91 and the Chief

Commissioner of Income Tax is expected to dispose of the application as expeditiously as possible after the receipt of the copy of the order from

the appellant. No costs.