SANT LAL Vs. UNION OF INDIA

JUDGEMENT

(1.) THESE petitions are being decided by a common order because in all the petitions the vires of Sections 234A, 234B and 234C of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), have been challenged and the petitioners have prayed for declaring these provisions to be ultra vires the provisions of the Constitution of India. They have also prayed for quashing of the orders issued by the Central Board of Direct Taxes rejecting their prayer for waiver of interest, etc.

(2.) FOR the purposes of this order, it will be appropriate to make reference to a few facts from C. W. P. No. 748 of 1994. The petitioner Sant Lal, is a partner of Samkhon Wala Brothers, which is carrying on business of gold at Sirsa. Search and seizure operations were conducted on the business and residential premises of the petitioner on February 10, 1982. Cash amounting to Rs. 3,71,000 and gold ornaments/bullion worth Rs. 55,65,852 were recovered during the search and seizure operations. Out of this, the petitioner-Sant Lal had a share of Rs. 2 lakhs in the cash and Rs. 4,00,140 in the jewellery, etc. Gold worth Rs. 12,64,743 was released and the rest was seized. The petitioner says that immediately after the seizure was done he made an application to the Assistant Commissioner to adjust the amount of tax due from the assessee. Further allegation of the petitioner is that in order to file a return of income for the year 1988-89, he had made requests, vide annexures "P-2" to "P-7" to the Departmental authorities to make available all the copies of the statements recorded during the search operation and also to supply the copies of books/documents seized by the Department, but, respondent No. 3 did not pay any heed to the request made by the petitioner. Not only this, opportunity of inspection was also not given to the petitioner. Photostat copies of the material seized were made available in the year 1990, but, those were also incomplete. At the time of filing of the return, the petitioner is said to have given a detailed note indicating reasons for his inability to file the return in time. The petitioner says that ignoring his request for return of documents and for adjustment of the amount seized during operation towards the tax, the assessing authority made provisional assessment and levied interest amounting to Rs. 5,80,884 under Sections 234A, 234B and 234C of the Act. Regular assessment was framed on December 30, 1992, wherein interest was charged up to the period of making of assessment under Section 234B of the Act. The petitioner has challenged the vires of Sections 234A to 234C of the Act on the ground of arbitrariness. His contention is that prior to the insertion of these provisions, the competent authority had the power to reduce or waive the interest in accordance with the provisions of the statute but with the insertion of these provisions, no such power is left with the authorities and even the amount of interest has been enhanced from 15 per cent. per annum to two per cent. per month in cases of default in the payment of advance tax, deferment of advance tax or late filing of return. The petitioner has also contended that the impugned provisions are penal in character and, therefore, these provisions are beyond the legislative competence of Parliament. The petitioner further states that an application was submitted before the Central Board of Direct Taxes for waiver of interest, but, the Board has declined this request by a cryptic order, dated October 22, 1993. This order has been challenged on the ground of non-application of mind and violation of principles of natural justice.

(3.) SECTIONS 234A to 234C of the Act have been inserted in the Act with effect from April 1, 1989. Prior to this the provisions contained in SECTIONS 139, 215 and 216 of the Act occupied the field. Section 139(8) provided levy of simple interest at the rate of 15 per cent. per annum in case of failure of the assessee to furnish the return by the specified date, but, the proviso to that section empowered the Assessing Officer to reduce or waive the interest payable by the assessee under Sub-section (8) of Section 139. Section 215 also provided for levy of interest at the rate of 15 per cent. per annum where the advance tax paid by the assessee was found to be less than seventy-five per cent. of the assessed tax. Section 216 provided for levy of simple interest at the rate of 15 per cent. per annum in the cases covered by SECTIONS 209 or 212 or 213 of the Act. SECTIONS 234A to 234C replaced the old provisions as is evident from the Direct Tax Laws (Amendment) Bill, 1987. A plain reading of the Statement of Objects and Reasons incorporated in the Bill shows that a Committee was constituted by Parliament for simplification and rationalisation of direct taxes. The Committee took into consideration the views of Members of Parliament, economists and industrialists apart from those expressed by new taxpayers. On the basis of the recommendations of the Committee, the Bill was introduced with a view to provide mechanism for simplification of the law and procedure relating to direct taxes. One of the objects behind the Bill was to remove the uncertainty in the matter of assessment by cutting down areas of subjective decisions of taxing authorities with a view to ensure uniform treatment to the persons similarly placed and to reduce litigation because it was felt that the existing provisions gave unlimited discretionary powers to the assessing authorities to levy different penalties and interest for similar defaults. Therefore, the Government thought it proper to replace the existing system by introducing a provision of mandatory interest to compensate the Government for the loss of revenue. No doubt, one of the purposes sought to be achieved by the new provisions is to deter the assessees from repeatedly committing defaults, but, only on that ground it is not possible to hold that the impugned provisions are penal in character.