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Judgment
P.D. Dinakaran, C.J.—The Assessee is the writ Petitioner. The relevant Assessment Years are 1995-1996 and 1996-1997. The Assessee has challenged the order of assessment dated 11.12.2009 on the file of the 4th Respondent, namely, Assistant Commissioner of Income Tax, Circle - I, Siliguri, confirming, the earlier assessment orders dated 09.07.2001 and 28.03.2001 for the Assessment Years 1995-1996 and 1996-1997 respectively based on the best judgment order passed under Sections 144/147 of the Income Tax Act, 1961.
The impugned assessment order dated 11.12.2009 is passed in continuation of the Orders of this Court dated 15.07.2009 in W.P.(C) Nos. 31 and 38 of 2001.
A perusal of the said Order dated 15.07.2009 in W.P.(C) Nos. 31 and 38 of 2009 reveals that the said writ petitions were originally disposed of by an Order dated 21.07.2005, which reads as hereunder:
In the result, the writ petition is closed on withdrawal with a direction to the parties to maintain status quo with regard to the matter till the final decision in the matter is taken by the Committee concerned. However, it is made clear that the Committee shall expedite the matter and dispose of the same, thus taking a decision in the matter as early as possible, preferably within 3 (three) months from the date of receipt of this order.
...The parties are given liberty to approach this Court if they are aggrieved by the decisions of the Committee, if so advised....
Concededly the issue, then, was: whether the income of the non-Sikkimese residing in Sikkim is taxable? As the said question was referred to a Committee and the decision of the Committee was pending, this Court passed an Order dated 21.07.2005, as referred to above.
However, as being mentioned, the said writ petitions No. 31 and 38 of 2001 were taken for further hearing on 27.04.2006 and this Court passed an Order dated 27.04.2006 in W.P.(C) Nos. 31 and 38 of 2001, which reads as hereunder:
[1]....
[2] This Writ Petition was allowed to be withdrawn with a direction to the parties to maintain status quo in regard to the matter till the final decision is taken by the Committee. Vide Order dated 02.03.2006, on the prayer made by the State for extension of time as mentioned in Court''s order dated 21.7.2005 the office was directed to list the main Writ Petition on 05.06.2006 for necessary orders.
[3] The issue, which was involved in this Writ Petition is under consideration in Writ Petition No. 13 of 2006.
[4] Let this Writ Petition be listed under heading To Be Mentioned on 15.05.2006 along with Writ Petition No. 13/2006.
By virtue of Section 4 of the Finance Act, 2008, Section 10(26AAA) of Income Tax Act, 1961 was inserted, which reads as hereunder:
In Section 10 of the Income Tax Act,-
(a) after Clause (26AA) as omitted by the Finance Act, 1997, the following clause shall be inserted and shall be deemed to have been inserted with effect from the 1st day of April, 1990, namely:
(26AAA) in case of an individual, being a Sikkimese, any income which accrues or arises to him-
(a) from any source in the State of Sikkim; or
(b) by way of dividend or interest on securities;
Provided that nothing contained in this clause shall apply to a Sikkimese woman who, on or after the 1st day of April, 2008, marries an individual who is not a Sikkimese.
Explanation.- For the purpose of this clause, "Sikkimese" shall mean-
(i) an individual, whose name is recorded in the register maintained under the Sikkim Subjects Regulation, 1961 read with the Sikkim Subject Rules, 1961 (hereinafter referred to as the "Register of Sikkim Subjects"), immediately before the 26th day of April, 1975; or
(ii) an individual, whose name is included in the Register of Sikkim Subjects by virtue of the Government of India Order No. 26030/36/90-I.C.I., dated the 7th August, 1990 and Order of even number dated the 8th April, 1991; or
(iii) any other individual, whose name does not appear in the Register of Sikkim Subjects, but it is established beyond doubt that the name of such individual''s father or husband or paternal grandfather or brother from the same father has been recorded in that register;
(emphasis supplied)
Both the Writ Petitions (C) No. 31 and 38 of 2001 were, thus, taken along with the Writ Petition No. 13 of 2006 on 15.07.2009. However, the result was the same, as this Court by an Order dated 15.07.2009, once again, reiterated the earlier Order dated 21.07.2005, as hereunder:
In consideration of the above facts and circumstances and also upon hearing of the learned Counsel for the parties, we reiterate the order dated 21.07.2005 and with a liberty to the parties to approach this Court or any other appropriate/competent authority or forum for rederssal of any grievances in this regard.
In the meanwhile, the Central Board of Direct Taxes (for short, ''CBDT''), namely 5th Respondent herein, by exercising the power conferred on them u/s 119(2)(a) of the Income Tax Act, 1961 passed Instruction No. 8 of 2008 dated 29.07.2008, which reads as hereunder:
INSTRUCTION No. 8/2008, Dated: July 29, 2008 ORDER u/s 119(2)(a) OF THE INCOME TAX ACT, 1961
Vide Finance Act, 2008, a new Clause (26AAA) has been inserted in Section 10 of the Income Tax Act, 1961 (''Act'') with retrospective effect from assessment year 1990-91. Under the said clause, the following income accruing or arising to a Sikkimese individual is exempt from tax-
(a) income from any source in the State of Sikkim; or
(b) income by way of dividend or interest on securities.
For the purpose of the clause, "Sikkimese" has been defined in the Explanation thereto.
Income accruing or arising to a non-Sikkimese individual residing in the State of Sikkim continues to be liable to tax under the Act, in the case of such individuals, it has been decided that-
(a) For assessment year 2007-08 or any preceding assessment year, no assessment or reassessment shall be made with regard to the income-
(i) income from any source in the State of Sikkim; or
(ii) income by way of dividend or interest on securities.
(b) In case any proceedings have been initiated for assessment year 2007-08 or any preceding assessment year for not filing the return of income, such proceedings shall be dropped.
(c) In case any assessment or reassessment proceeding has been initiated for assessment year 2007-08 or any preceding assessment year and assessment orders have not been passed, the aforesaid income shall be accepted as per the return.
(d) For the assessment year 2008-09 and subsequent assessment years, assessment or re-assessment, if required, shall be made in accordance with the provisions of the Income Tax Act, 1961.
These instructions shall apply only to non- Sikkimese individuals residing in the State of Sikkim.
F. No. 153/19/2007-TPL
(Vandana Ramachandran) Under Secretary to the Govt. of India.
(emphasis supplied)
9.1 It is with this backdrop of the case, the Assessing Officer, 4th Respondent passed the impugned assessment order dated 11.12.2009 against the Assessee for the Assessment Years 1995-1996 and 1996-1997 confirming the earlier orders of assessment dated 09.07.2001 and 28.03.2001 based on the best judgment under Sections 144/147 of the Income Tax Act, 1961, respectively holding that the writ Petitioner-Assessee is liable to pay the income tax demanded, and has also reserved the right to levy interest u/s 220(2) of the Income Tax Act, 1961 for default in payment of tax separately,
9.2 The impugned order of assessment dated 11.12.2009 reads as under:
OFFICE OF THE ASSISTANT COMMISSIONER OF INCOME TAX, GANGTOK CIRCLE (Ministry of Finance, Department of Revenue) BHANUPATH, GANGTOK: SIKKIM
No. ACIT/Cir-Gangtok/2009-10/920
Dated: 11/12/2009
To Sri Chhabil Das Agarwal, Singtam Bazar, East Sikkim.
Subject: Writ Petitions I No. 38 & 31 of 2001
In the case of-
Shri Chhabil Dass Agarwal v. UOI and Ors.
Ref: Your reminder letter No. Nil dated
07/11/2009
Received on 09/11/2009.
****
Kindly refer to the above.
The above Writ Petitions have been disposed of by the Hon''ble High Court of Sikkim, Gangtok vide Hon''ble Court''s order dated 15/07/2009 with the observation that the new Clause (26AAA) inserted in Section 10 of the I.T. Act, 1961 of the has apparently taken care of the grievance of the Assessee as projected in the above Writ Petitions thereby giving liberty to the Assessee to approach the competent authority or forum, including the Hon''ble High Court if the Assessee is aggrieved in any manner.
Relying on the order of the Hon''ble High Court dated 15/07/2009, you had, vide a petition dated 7th August, 2009 addressed to the DCIT, Cir-Gangtok, Sikkim sought cancellation of order u/s 144/147, tax demand and withdrawal of penalty proceedings in view of Instruction No. 8/2008 dated 29.07.2008 and the Order of the Hon''ble High Court of Sikkim dated 15/09/2009.
Subsequently, you were requested to appear and explain your case vide letter No. ITO/Gangtok/2009-10/739 dated 17/09/2009 fixing compliance for hearing on 24/09/2009. In response you appeared on 24/09/2009 and sought adjournment till the end of November, 2009 on the ground that you have recently undergone major prostate surgery and has been advised complete rest for 2 months. You also took the plea that you have not been able to contact your representative who is based in Kolkata. However, your case has to be considered within the purview of Board''s Instruction No. 8 of 2008 dated 29/07/2008. Your contention as reflected in your petitions dated 7th August 2009 and 09th Nov. 2009 is therefore, not tenable and cannot be acceded to on the following grounds-
Board''s Instruction No. 8/2008 dated 29/07/2008 states that Clause (26AAA) of Section 10 of the I.T. Act, 1961 exempts from tax in respect of income arising or accruing to a Sikkimese individual in relation to income accruing to him/her from (a) any source in the State of Sikkim; or (b) by way of dividend or interest on securities.
Para 2(a) of the Instruction states that for assessment year 2007-08 or any preceding assessment years, no assessment or reassessment shall be made with regard to the income (a) from any source in the State of Sikkim, or (b) income by way of dividend or interest on securities.
Para 2(b) of the Instructions states that in case any proceedings have been initiated for assessment year 2007-08 or any preceding assessment year for not filing the return of income, such proceedings shall be dropped.
Para 2I of the Instruction states that in case any assessment or re-assessment proceedings has been initiated for 2007-08 or any preceding assessment year and assessment orders have not been passed, the aforesaid income shall be accepted as per the return.
Para 2(d) of the Instruction states that for the AY 2008-09 and subsequent assessment years, assessment or re-assessment, if required, shall be made in accordance with the provisions of the I.T. Act, 1961.
Para 3 of the Instruction states that these instructions shall apply only to non-Sikkimese individuals residing in the State of Sikkim.
In the instant case, you will be assessed as a non-Sikkimese individual and hence your income is not exempt within the meaning of Section 10(26AAA) of the I.T. Act, 1961.
Order u/s 144/147 of the I.T. Act, 1961 for Ays 1995-96 and 1996-07 was passed on 09/07/2001 and 28/03/2001 respectively. Since the assessment u/s 144/147 of the I.T. Act, 1961 were completed long before the amendment inserting Clause (26AAA) in Section 10 of the I.T. Act, 1961 was made vide Finance Act, 2008, your plea for cancellation of orders u/s 144/147, withdrawal of tax demand and dropping of penalty proceedings do not stand the test of Board''s Instruction No. 8/2008 dated 29/07/2008. Your case does not fall under the parameter of Para 2(a), 2(b), 2(c) or 2(d) of the Instruction 8/2008 dated 29/07/2009 as proceedings u/s 144/147 of the I.T. Act, 1961 was completed long before the insertion of Clause (26AAA) in Section 10 of the I.T. Act, 1961.
In view of the above, you are liable to pay the demand as indicated below-
Assessment Year 1995-96: Rs. 2,45,87,625 4. Assessment Year 1996-97: Rs. 6,05,474 ---------------- Total : Rs. 2,51,93,099 ----------------
Interest u/s 220(2) of the I.T. Act, 1961 for default of tax will be computed separately.
You are therefore, requested to pay the outstanding demand within seven days of the receipt of this letter failing which appropriate recovery measures as per law will be initiated against you.
Sd/- (Anju Sherpa) DCIT, Cir-Gangtok, SIKKIM
(emphasis supplied)
Mr. A.K. Upadhyaya, learned Senior Counsel appearing for the writ Petitioner-Assessee contends:
(i) that the impugned order is violative of principles of natural justice, because, even though the writ Petitioner-Assessee requested for an opportunity of being heard, he was not given a fair and reasonable opportunity on the ground that his case is not falling under any of the clarifications referred to in para 2(a), (b), (c) and (d) of the Instruction No. 8 of 2008 dated 29.07.2008, as his income for the Assessment Year 1995-96 and 1996-97 were already initiated and assessed as early as 09.07.2001 and 28.03.2001 based on ''best judgment'';
(ii) that the Assessing Officer has committed an illegality in confirming the earlier orders of assessment dated 09.07.2001 and 28.03.2001 for the Assessment Years 1995-96 and 1996-97 respectively which were made on ''best judgment'';
(iii) that the case of the writ Petitioner-Assessee could not be equated to any of the failure mentioned u/s 144 of the Indian Income Tax Act, 1961 warranting a best judgment assessment;
(iv) that the case of the Assessee differs from the cases of failure mentioned u/s 144 of the Income Tax Act, 1961, on account of the insertion of Section 10(26AAA) of the Income Tax Act, 1961, read with Instruction No. 8 of 2008 dated 29.07.2008 issued by the CBDT which provides certain benevolent relief to the non-Sikkimese residing in the State of Sikkim, in as much as the Instruction No. 8 of 2008 dated 29.07.2008 issued by CBDT, exercising its power u/s 119(2) of the Income Tax Act, 1961 is binding on the Assessing Officer;
(v) that Section 10(26AAA) of the Act, as well as the Instruction No. 8 of 2008 dated 29.07.2008 have retrospective effect from 01.04.1990 and, therefore, reconfirming the earlier assessment orders passed on 09.07.2001 and 28.03.2001, ignoring the Instruction No. 8 of 2008 dated 29.07.2008 of the CBDT is arbitrary and unreasonable;
(vi) that the refusal of the benefit under Instruction No. 8 of 2008 dated 29.07.2008 to the writ Petitioner-Assessee alone is also discriminatory, because the assessment proceedings initiated against similarly placed persons are dropped; and
(vii) that, in any event, the Assessing Officer failed to appreciate that the writ Petitioner-Assessee is also entitled for the benefit of the Instruction No. 8 of 2008 dated 29.07.2008 of the CBDT.
Per contra Mr. A. Moulik, learned Senior Counsel appearing for the Respondent-revenue contends:
(i) that Section 10(26AAA) of the Income Tax Act, 1961 does not provide any benefits to the non-Sikkimese individual;
(ii) that even though, Instruction No. 8 of 2008 dated 29.07.2008 provides certain benefits to the non-Sikkimese residing in the State of Sikkim namely, viz.:
(a) For assessment year 2007-08 or any preceding assessment year, no assessment or reassessment shall be made with regard to the income-
(i) income from any source in the State of Sikkim; or
(ii) income by way of dividend or interest on securities.
(b) In case any proceedings have been initiated for assessment year 2007-08 or any preceding assessment year for not filing the return of income, such proceedings shall be dropped.
(c) In case any assessment or reassessment proceeding has been initiated for assessment year 2007-08 or any preceding assessment year and assessment orders have not been passed, the aforesaid income shall be accepted as per the return.
(d) For the assessment year 2008-09 and subsequent assessment years, assessment or re-assessment, if required, shall be made in accordance with the provisions of the Income Tax Act, 1961,
the case of the Petitioner does not come under either of the said cases, as rightly viewed and held by the Assessing Officer in the impugned proceedings dated 11.12.2009;
(iii) that it may not be proper for this Court to read into the statute, which is not expressly provided in the fiscal law;
(iv) that straining and stretching the provisions of the tax laws beyond its limit, by exercising the power of judicial review under Article 226 of the Constitution of India, is not permissible; and
(v) that the Assessing Officer has rightly rejected the contention of the writ Petitioner-Assessee and confirmed the earlier assessment orders dated 09.07.2001 and 28.03.2001 for the Assessment Years 1995-96 and 1996-97 respectively as the case of the writ Petitioner-Assessee is not governed under the instruction No. 8 of 2008 dated 29.07.2008.
I have given my careful consideration to the submissions of both the sides.
The resultant effect in the impugned proceedings dated 11.12.2009 is nothing but confirming the earlier orders of the best judgment passed on 9.07.2001 and 28.03.2001 for the assessing years 1995-96 and 1996-97 respectively.
It is apparent on the face of the records that Section 10(26AAA) of the Income Tax Act, 1961 as well as Instruction No. 8 of 2008 dated 29.07.2008 issued by the CBDT have come into force w.e.f. 01.04.1990 even before the disposal of the Writ Petitions(C) No. 31 and 38 of 2001 by order dated 15.07.2009.
Both the Petitioner-Assessee as well as Respondents- revenue were under impression that Section 10(26AAA) of the Income Tax Act, 1961 would apply to the case of the Petitioner- Assessee, a non-Sikkimese residing in the State of Sikkim and the same is evident from Para 51 of the order dated 15.07.2001, which reads hereunder:
According to Mr. Moulik, since the relevant provision is amended as noted above, the grievance of the Petitioner so projected in the writ petition appears to have been well taken care of and if the Petitioner is aggrieved in any manner, he may have the liberty to approach the competent authority or forum including this Court as was already observed in the order dated 21.07.2005 whereby parties were given liberty to approach this Court.
(emphasis supplied)
Accordingly, the writ Petitioner-Assessee filed a petition dated 07.08.2009 for cancellation of the demand of tax and for withdrawal of penalty proceedings in view of the Instruction No. 8 of 2008 dated 29.07.2008. The Assessing Officer, however, by the impugned proceedings dated 11.12.2009 held that:
(i) Section 10(26AAA) of the Income Tax Act, 1961 is not at all attracted to the case of the Petitioner-Assessee, a non-Sikkimese, and, therefore, the Petitioner-Assessee cannot seek any benefit under Instruction No. 8 of 2008 dated 29.7.2008 nor seek the withdrawal of penalty proceedings; and
(ii) the case of the Petitioner is also not governed by the Instruction No. 8 of 2008 dated 29.07.2008 issued by the CBDT as neither of the clarification provided in Sub-clauses (a), (b), (c) and (d), referred thereunder would cover the Petitioner''s case, because assessment proceedings of the Petitioner-Assessee were already initiated and his income for the Assessment Years 1995-96 and 1996-97 were already assessed by best judgment orders dated 09.07.2001 and 28.03.2001.
It is true that this Court in the case of fiscal laws, particularly relating to withdrawal of tax demand and dropping of penalty proceedings under the Income Tax provisions, has its own limitation.
However, it is a settled law, that instruction of CBDT issued u/s 199(2) of the Income Tax Act, 1961 are binding on the Income Tax authorities, even if they deviate from the provisions of the Act, so long as they seek to mitigate the rigour of a particular section for the benefit of the Assessee Vide: UCO Bank, Calcutta Vs. Commissioner of Income Tax, West Bengal, . Thus, the circulars and instructions issued by the C.B.D.T. exercising the power u/s 119(2)(a) of the Income Tax Act, 1961 is not only binding on the department i.e. Assessing Officer, but they can also deviate from certain statutory provisions; and such deviation is permitted, where they are made for just and fair administration of law. The Instruction No. 8 of 2008 dated 29.07.2008 undoubtedly mitigates the rigour of the statutory provisions of the Act. In that view of the matter it is not open for the department to raise contention which is contrary to the intention of the circular or instruction validly issued by CBDT Vide: Commissioner of Income Tax Vs. Abdul Ahad Najar, . Therefore, in my considered opinion the question of stretching the provision beyond its limit, as provided by Instruction No. 8 of 2008 dated 29.07.2008 by the CBDT, does not arise.
The impugned assessment order dated 11.12.2009 of the Assessing Officer is illegal and violative of principles of natural justice as the Assessing Officer had confirmed the earlier orders of the best judgment dated 09.07.2001 and 28.03.2001 for the Assessment Years 1995-96 and 1996-97 respectively, even though the case of the Petitioner-Assessee can not be compared to any of the deliberate defaults mentioned under Sections 144/147 of the Income Tax Act, 1961 which warrants the best judgment order.
Section 144 provides for passing a ''best judgment assessment'' under four deliberate defaults committed by the Assessee. viz.
(i) Where the Assessee has failed to make the return required u/s 139(1) and has not made a return u/s 139(4) or a revised return u/s 139(5);
(ii) where there has been a failure to comply with the terms of a notice issued u/s 142(1) requiring the Assessee to produce accounts or other documents or information specified therein;
(iii) where the Assessee has failed to comply with the AO''s direction u/s 142(2A) for getting the accounts audited and furnishing the audit report; or
(iv) where the return has been made, and the AO serves a notice u/s 143(2) upon the Assessee requiring his appearance or the production by him of evidence in support of his return, but the Assessee does not comply with the terms of the notice.
But, in the instant case the Petitioner-Assessee has not committed any of the above defaults but claims certain privileges and rights conferred on the non-Sikkimese residing in the State of Sikkim based on Instruction No. 8 of 2008 dated 29.07.2008 issued by the CBDT exercising their power conferred u/s 119(2)(a) of the Income Tax Act, 1961 in consequence of Section 10(26AAA) of the Income Tax Act, 1961 which came into force w.e.f. 01.04.1990. Such benevolent reliefs provided to the Petitioner-Assessee cannot be rejected by the Assessing Officer by confirming the earlier best judgment dated 09.07.2001 and 28.03.2001 for the Assessment Years 1995-96 and 1996-97 respectively, even without providing a fair and reasonable opportunity to the writ Petitioner-Assessee. The Assessing Officer, therefore, failed to be guided by judicial consideration and by rules of justice, equity and good conscience in compliance of principles of natural justice, in spite of the request of the Assessee for adjournment on medical ground; but had chosen to proceed technically, interpreting Section 10(26AAA) of the I.T. Act. 1961 as well as Instruction No. 8 of 2008 dated 29.07.2008 of CBDT and that they do not cover the case of the Petitioner as his assessment had already been initiated and completed, even before the insertion of Section 10(26AAA) and Instruction No. 8 of 2008 dated 29.07.2008 came into force, over looking the fact that the said Section 10(26AAA) of the Income Tax Act, 1961 and the Instruction No. 8 of 2008 dated 29.07.2008 are given retrospective effect from 01.04.1990.
That apart, the Assessing Officer had committed an error in holding that the Instruction No. 8 of 2008 dated 29.07.2008 is not applicable to the case of the Petitioner-Assessee, as his assessments are already completed, because the said Instruction No. 8 of 2008 dated 29.07.2008 is applicable even in the case of reassessment, in view of the word ''reassessment'' used in Paras 2(a) and 2(c) of the Instruction No. 8 of 2008 dated 29.07.2008, providing certain benefits of income tax with regard to the income accruing or arising to a non-Sikkimese individual residing in the State of Sikkim. The question of ''re-assessment'' would arise only after assessment. Therefore, to hold that in the case of the Petitioner-Assessee, assessment proceeding had already been initiated and assessment orders had also been passed based on best judgment as early as 09.07.2001 and 28.03.2001 for the assessment years 1995-96 and 1996-97 respectively and, therefore, the Instruction No. 8 of 2008 dated 29.07.2008 of the CBDT is not applicable to the Petitioner-Assessee, is arbitrary, discriminatory and unreasonable. There is an element of discrimination in refusing the benefits of the Instruction No. 8 of 2008 dated 29.07.2008 to the Petitioner merely because the assessment order had already been initiated and passed the best judgment orders dated 09.07.2001 and 28.03.2001 for the assessment years 1995-96 and 1996-97 respectively, overlooking the clarification dated 29.07.2008 that the same is applicable even in the case of re-assessment.
It is the settled law that benevolent circulars (Instruction No. 8 of 2008 dated 29.07.2008) providing administrative relief to the Assessee have to be given effect to even if they are issued subsequent to the decision (best judgment orders dated 09.07.2001 and 28.03.2001) by an authority under the Act Vide: B.S. Bajaj and Sons Vs. Commissioner of Income Tax, .
Hence, I am convinced to interfere with the impugned order dated 11.12.2009 for the assessment years 1995-96 and 1996-97 and to quash the same for the reasons stated above. Accordingly, the same is quashed.
However, it is open for the Assessing Officer to proceed with the matter, if he is so advised, of course, after getting necessary clarifications from the CBDT as referred to above.
The writ petition is ordered accordingly. No cost.