By TIOL News Service

MUMBAI, MARCH 21, 2018: THE issue is - Whether when assessee knowingly did not pay the taxes even after failing in arguments before the Tribunal and the High Court, it can still save itself from the claws of interest due on the tax liability. NO is the verdict.

Facts of the case

The Assessee-Firm, engaged in the business of production and sale of Video Cassettes and purchase and sale of video copy-rights of cinematographic films. A search operation was carried out in the case of the Assessee u/s 132 of the Act and accordingly, assessment was completed u/s 158BC for the block period 1st January, 1985 to 24th August, 1995. Thereafter, the final amount determined to be payable as tax consequent to the block assessment proceedings was Rs.1,10,72,290/-, which the Assessee finally paid only in September, 2016. However, the Assessee in April, 2016, before paying the taxes in full, filed an application to the CCIT seeking waiver of interest payable on the taxes determined for such block period to the extent there was delay in making the payment of taxes to the Revenue. However, the said application was rejected by the CCIT on ground that the Assessee did not satisfy the conditions as laid down u/s 220(2A). It was also contended by the CCIT that the demand relating to the period 1985 to 1995 was confirmed by the Tribunal in 2001 and by the High Court in 2004, but except Rs.23 lakhs out of Rs.1.10 crores, the Assessee had not paid the principal amount for over fourteen years. It also noted the fact that, the partners of Assessee had funds available with them to meet the demand. Further, it held that, mere prolonged litigation was not a sufficient cause for delayed payment and the Assessee had not co-operated in expeditious disposal of the assessment as it had retracted its statement. Accordingly, it was held that no waiver of interest payable u/s 220(2) of the Act could be granted u/s 220(2A) of the Act.

After hearing the parties, the High Court held that,

++ the demand of taxes on which interest is now payable, relates to the block period 1st January, 1985 to 24th August, 1995. This demand was caused as a consequence of search on undisclosed income of the Assessee. The Assessee contested the assessment and did not pay the taxes even when its challenge was negatived by the Tribunal in 2001 and by the High Court as far back as in the year 2004. On the contrary, it had discharged its obligation with regard to the taxes fully as late as in September, 2016. The order places reliance upon the report of the Assessing Officer of which a copy was given to the Assessee. This report indicated that the partners of the assessee firm were in possession of sufficient funds to meet its obligation. The challenge to such finding is that, it is for the Income-Tax Department to proceed against the partners of the firm and recover the money from them. This, it submitted is for the reason that the Assessee's hardship should be seen on a stand alone basis without considering the financial position of its partners. This submission to say the least is preposterous. This submission cannot be accepted, particularly in view of Section 188A of the Act which makes the partners jointly and severally liable for the tax payable by the firm under the Act. The fact that the partners of the Assessee have funds to meet the tax demands of the firm was neither challenged before the Commissioner or even before us. Infact, non-payment of taxes and interest thereunder by the Assessee when its partners who are severally liable to pay the dues of the firm even when they are possessed of funds would dis-entitle the Assessee to any reliefs under Article 226 of the Constitution of India;

++ it is an undisputed fact that the tax payable is in respect of the period 1985 to 1995. The Assessees have chosen not to pay the tax even though it was conscious of the fact that in case it fails in its challenge, it would have to pay the interest due on the same. Thus, it was a call which the Assessee took at a time when the demand was confirmed by the Assessing Officer. Moreover, the Commissioner, in the order, also found that during the assessment proceedings, statements were made and retracted. This would by itself establish the fact that, full co-operation was lacking during the assessment proceedings. Thus holding the Assessee is not entitled to waiver;

++ in matters like this, the decisions would be case specific and decisions of higher forums are of assistance only if it deals with a principle of law. In so far as the case of J. Jayalalitha is concerned, the facts in that case were completely different. It was a case, where the Assessee's bank accounts had been frozen by the Vigilance and Anti-Corruption Department. Therefore, on such facts the Court found that as bank accounts have been frozen and properties have been attached, the non-payment of taxes and interest was beyond the control of the Assessee. In the present facts, there is no such supervening impossibility which had made it difficult or impossible for the Assessee to pay the taxes for the block period 1985 to 1995;

++ so far as the decision of the Apex Court in B. M. Malani is concerned, the Apex Court, while pointing out the genuine hardship could mean genuine difficulty. Further, the Apex Court had held that, mere having of large assets would not by itself lead to the conclusion that, there was no genuine hardship. The Court, further observed that in such applications one would have to also keep in mind, the legal principles that a person cannot take advantage of its own wrong and that the statutory authority would act within the four corners of the statute. After so observing, in the case of B.M. Malani, the issue was restored to the Assessing Officer to reconsider the issue of genuine hardship. The Court find that, in this case, the Assessees have not pointed out any difficulty in the partners paying the amount of taxes. Further, in the facts arising in the present case, the principle that the person cannot take advantage of his own wrong would apply as the Assessee has failed to pay his taxes conscious of the fact that non-payment will be visited with interest, if its plea is not accepted in appeal. Thus, such decision will have no application to the present facts.

(See 2018-TIOL-495-HC-MUM-IT)