High Courts
Summary and Review of Case Laws Decided by High Courts
Monday, 19 March 2018 15:43

Advance Tax paid Cannot be Treated as payment of tax, surcharge and penalty under PMGK Scheme - Delhi High Court

Written by
Rate this item
(0 votes)
VIRAG TIWARI vs PCIT VIRAG TIWARI vs PCIT Taxpundit.org

Whether credit of advance tax paid, tax deducted at source (TDS), tax collected at source (TCS), in respect of an income declared under the Scheme would be available in PMGK Scheme? - Held No

 

In the present case we perceive that an equitable resolution is possible on interpretation of the provisions without undermining the object and purpose behind the Amendment Act. Thus while we have rejected the argument that advance tax of Rs.85,50,000/- can treated as payment of tax, surcharge and penalty under PMGK Scheme, we would hold that the declaration made under PMGK Scheme should not have been entirely rejected in view of the peculiar and specific factual background in the present case. We have given the aforesaid direction and finding keeping in mind and being sensitive to the petitioner's predicament and adverse consequences propounded by the respondents though the law enforcers were equally responsible in the lapse occasioned.

We perceive and believe that by giving the aforesaid directions, we have not interfered with the provisions of the Amendment Act. We have not directed refund of Rs.34,48,954/-, which would be contrary to Section 199K of the Finance Act. We have also not directed that the advance tax of Rs.85,50,000/- paid by the petitioner should be treated as payment of tax, surcharge and penalty under the PMGK Scheme, which as held above, is impermissible. It is possible to argue that we have interfered with the declaration made by the petitioner in terms of Sections 199A and 199C of the Finance Act, but on the said aspect flexibility and tolerance can be exercised as we would read the contents of the declaration alongwith and harmoniously with the letters written by the petitioner quoted above. Violation of Section 199M on account of misrepresentation or suppression of facts in the declaration is not alleged.

Requirement of Section 199M of payment of tax, surcharge and penalty under Sections 199D and 199E is not violated when we treat the declaration as valid in respect of undisclosed income of Rs.69,11,731.46 on which tax, surcharge and penalty was paid. For the balance undisclosed income of Rs.1,71,34,268.54 the petitioner must exercise first option and pay 60% tax, 25% surcharge on tax and cess under Section 115BBE read with Section 2(9) of the Finance Act. No provision prohibits or bars an assessee, who had made true and correct disclosure, to partly take benefit of the option under Section 115BBE and partly exercise the second option in the form of declaration under PMGK Scheme. The sections do not prohibit part declarations under both options, provided entire undisclosed income has been accounted for in the declaration made under PMGK Scheme and Section 115BBE. Such recourse to both or any option was available to the petitioner on or after the Amendment Act was notified on 15th December, 2016. Of course, if the petitioner does not make payment as stipulated under Section 115BBE and applicable surcharge in respect of the aforesaid undisclosed income of Rs.1,71,34,268.54/-, it will be open to the respondents to treat the declaration under PMGK Scheme as invalid or void on the ground of misrepresentation or suppression of facts. Similarly if subsequently the declaration is found to be bad on account of suppression of facts or misrepresentation. In case tax, interest etc. are paid we believe a fair minded assessing officer would not initiate penalty proceedings under Section 271AAC of the Act. We have made these observations in view of the facts and to stall another round of unnecessary litigation.

The writ petitioner, an advocate by profession and a professed income-tax practitioner, has filed the present writ petition strafed by intimation F No. Pr. CIT/Delhi-21/2017-18/619 dated 28th June, 2017 of the Principal Commissioner of Income Tax, Delhi-21 rejecting his application dated 31st March, 2017 under the Pradhan Mantri Garib Kalyan Yojna, 2016 (PMGK Scheme, for short).

2. Rejection of the declaration under the PMGK Scheme, implies that the petitioner would forgo or forfeit without refund Rs.34,48,954/- deposited as tax, surcharge and penalty. Similarly Rs. 60,11,500/- deposited by the petitioner as Pradhan Mantri Garib Kalyan Cess would be meaningless, refundable without interest after 4 years.

3. PMGK Scheme was notified in the Gazette of India dated 15th December, 2016 vide Taxation Laws (Second Amendment) Act, 2016 [Amendment Act, for short] as an aftermath and in wake of the demonetization of Rs.500 and Rs.1000 currency notes, which had ceased to be legal tender post midnight between 8th and 9th November, 2016.

4. The petitioner, like many others, stuck with unaccounted demonetized currency notes had thought that they could side-step adverse impact of demonetization by offering for tax undisclosed cash deposited in bank accounts as income for the current year, i.e. Financial Year 2016-17, at the rate mentioned in Section 115BBE of 30% plus the applicable surcharge and cess. The expectation was that they would pay normal incidence of tax and escape the rigours of penalty and prosecution. This is a matter of common knowledge of which judicial notice should be taken.

5. The petitioner accepts and admits to having deposited substantial sum of Rs.2,40,46,000/- in cash in Indian Overseas Bank, City Union Bank and Punjab National Bank between 13th November, 2016 and 13th December, 2016. The petitioner had also deposited advance tax of Rs.85,50,000/- for the Assessment Year 2017-18 on different dates between 1st December, 2016 and 15th December, 2016 i.e. on or before introduction of PMGK Scheme vide Amendment Act on 15th December, 2016.

6. The Amendment Act was enacted with a definitive purpose and objective to suppress and stifle such deception and prevent misuse of the existing provisions by suitable substitutions and insertions of Sections 115BBE, 271AAB and 271AAC to the Income Tax Act, 1961 (Act, for short) prescribing higher rate of tax at 60%, surcharge of 25% on tax, and applicable cess. Thereby effective rate of tax on such deposits covered by section 115BBE was increased to 77.25% of the income referred to in Section 68, 69, 69A, 69B, 69C and 69D of the Act. In addition penalty of 10% could also be imposed.

7. To understand the impact and effect of the amendments made we would reproduce Sections 115BBE and 271AAC of the Act, which read as under:-

“(1) Where the total income of an assessee,—

(a) includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D and reflected in the return of income furnished under section 139; or

(b) determined by the Assessing Officer includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, if such income is not covered under clause (a), the income-tax payable shall be the aggregate of—

(i) the amount of income-tax calculated on the income referred to in clause (a) and clause (b), at the rate of sixty per cent.; and

(ii) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (i).”

XXX “271AAC. (1) The Assessing Officer may, notwithstanding anything contained in this Act other than the provisions of section 271AAB, direct that, in a case where the income determined includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D for any previous year, the assessee shall pay by way of penalty, in addition to tax payable under section 115BBE, a sum computed at the rate of ten per cent. of the tax payable under clause (i) of sub-section (1) of section 115BBE: 

Provided that no penalty shall be levied in respect of income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D to the extent such income has been included by the assessee in the return of income furnished under section 139 and the tax in accordance with the provisions of clause (i) of sub-section (1) of section 115BBE has been paid on or before the end of the relevant previous year.

(2) No penalty under the provisions of section 270A shall be imposed upon the assessee in respect of the income referred to in sub-section (1).

(3) The provisions of sections 274 and 275 shall, as far as may be, apply in relation to the penalty referred to in this section.”

For the purpose of the present decision, as it is not a search case, we need not refer to Section 271AAB of the Act.

8. Section 115BBE of the Act provides that where the total income declared by an assessee in his return includes income referred to in Sections, 68, 69, 69A, 69B, 69C & 69D, or is determined by the Assessing Officer to include such income, the assessee would be liable to pay tax at the rate of 60% on such income. In other words, such assessee would not get benefit of the lower rate of tax earlier prescribed. Under Section 271AAC, Assessing Officer is entitled to levy penalty of 10% of the tax payable under Section 115BBE(1)(i) in addition to the tax already payable under Section 115BBE.

This penalty is not payable where the assessee has declared such income referred to in Sections, 68, 69, 69A, 69B, 69C & 69D in his return of income furnished under Section 139 of the Act and has paid tax in accordance with Section 115BBE(1)(i) of the Act on or before end of the relevant previous year.

9. Amendment Act had also omitted the figures/letters 115BBE in the third proviso in Chapter II, in Section 2(9) of the Finance Act and inserted Seventh proviso to the said Sub-Section for imposition of surcharge @25% on the tax. Seventh proviso to Section 2(9) of the Finance Act, reads ;-

Virag Tiwari

“Provided also that in respect of any income chargeable to tax under clause (i) of sub-section (1) of Section 115BBE of the Income-tax Act, the “advance tax” computed under the first proviso shall be increased by a surcharge, for the purposes of the Union, calculated at the rate of twenty-five per cent of such advance tax;”

Thus, an assessee was also liable to pay surcharge @ 25% on tax on the income chargeable to tax under clause (i) of Section 115BBE (1) of the Act in addition to 60% tax. In addition cess under Sub-sections (11) and (12) to Section 2 of the Finance act of 2% and 1% of the income tax and surcharge was also payable.

10. Amendment Act also introduced PMGK Scheme by adding Chapter IXA to the Finance Act, 2016 (Finance Act) with the heading ‘Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojna, 2016, albeit as a second option for the delinquent assessee. We begin by reproducing Sections 199A to 199G of the Finance Act enacted and introduced by the Amendment Act, which read:-

"199A. (1) This Scheme may be called the Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016.

(2) It shall come into force on such date as the Central Government may, by notification, in the Official Gazette, appoint. 199B. In this Scheme, unless the context otherwise requires,- (a) "declarant" means a person making the declaration under subsection (1) of section 199C; (b) "Income-tax Act" means the Income-tax Act, 1961; (c) "Pradhan Mantri Garib Kalyan Deposit Scheme, 20 16" (hereinafter in this Chapter referred to as "the Deposit Scheme") means a scheme notified by the Central Government in consultation with the Reserve Bank of India in the Official Gazette; and (d) all other words and expressions used in this Scheme but not defined and defined in the Income-tax Act shall have the meanings respectively assigned to them in that Act. 199C. (1) Subject to the provisions of this Scheme, any person may make, on or after the date of commencement of this Scheme but on or before a date to be notified by the Central Government in the Official Gazette, a declaration in respect of any income, in the form of cash or deposit in au account maintained by the person with a specified entity, chargeable to tax under the Income-tax Act for any assessment year commencing on or before the 1st day of April, 2017. (2) No deduction in respect of any expenditure or allowance or setoff of any loss shall be allowed against the income in respect of which a declaration under sub-section (1) is made. Explanation.- For the purposes of this section, "specified entity" shall mean(i) the Reserve Bank of India; (ii) any banking company or co-operative bank, to which the Banking Regulation Act, 1949 applies (including any bank or banking institution referred to in section 51 of that Act); (iii) any Head Post Office or Sub-Post Office; and (iv) any other entity as may be notified by the Central Government in the Official Gazette in this behalf.

199D. (1) Notwithstanding anything contained in the Income-tax Act or in any Finance Act, the undisclosed income declared under sub-section (1) of section 199C within the time specified therein shall be chargeable to tax at the rate of thirty per cent. of the undisclosed income.

(2) The amount of tax chargeable under sub-section (1) shall be increased by a surcharge, for the purposes of the Union, to be called the Pradhan Mantri Garib Kalyan Cess calculated at the rate of thirty-three per cent. of such tax so as to fulfil the commitment of the Government for the welfare of the economically weaker sections of the society.

199E. Notwithstanding anything contained in the Income-tax Act or in any Finance Act, the person making a declaration under subsection (1) of section 199C shall, in addition to tax and surcharge charged under section 199D, be liable to pay penalty at the rate of ten per cent. of the undisclosed income.

199F. (1) Notwithstanding anything contained in the Income-tax Act or in any other law for the time being in force, the person making a declaration under sub-section (1) of section 199C, shall deposit an amount which shall not be less than twenty-five per cent. of the undisclosed income in the Pradhan Mantri Garib Kalyan Deposit Scheme, 2016.

(2) The deposit shall bear no interest and the amount deposited shall be allowed to be withdrawn after four years from the date of deposit and shall also fulfil such other conditions as may be specified in the Pradhan Mantri Garib Kalyan Deposit Scheme, 2016.

199G. (1) A declaration under sub-section (I) of section 199C shall be made by a person competent to verify the return of income under section 140 of the Income-tax Act, to the Principal Commissioner or the Commissioner notified in the Official Gazette for this purpose and shall be in such form and verified in such manner, as may be prescribed."

25. The writ petition exposits that notwithstanding economic complexities and exceptional skills required for drafting tax provisions, it is imperative to have simple and clear tax legislations on tax implications and procedures which should be explicit and easily understood by commoners. The need and advantage of having two schemes or options being a policy matter could be beyond and outside the scope of judicial review. As recorded above statutory provisions are not under challenge. Nevertheless as an adjudicator we have to find a just, fair and equitable answer to the conundrum. The petitioner must be penalised as a transgressor yet as long as the purpose behind legislation is not incapacitated and impaired, the petitioner should not be persecuted for the mistake in making the wrong choice when the authorities were equally confounded. As an interpreter we need to believe and accept as a principle that no legislation would like to penalise their subjects for inoffensive and credulous mistakes given the complexities and uncertainties that could prevail at the given point of time on interpretation, provided the purpose and objective of the legislation is not sacrificed and undermined. Legislations do not and cannot deal with all circumstances with abstract symmetry. When interpretation and understanding of legal provisions and applicability in a peculiar factual matrix was ambiguous and nebulous at the given point of time and confusion had prevailed, the Courts should provide succour to the party who would suffer an infelicitous and odious harm, subject to purpose of the legislation not being defeated and subdued. In Shailesh Dhairyawan Vs. Mohan Balkrishna Lulla (2016) 3 SCC 619, referring to the principle of constructive interpretation or construction, the Supreme Court observed that the court is supposed to attach that meaning to the provision which serves the purpose behind the provision and should ascertain what the provision is designed to accomplish. This means examination of three components i.e. language, purpose and discretion. Language though restrictive can reveal range of possibilities given the semantic use. Therefore purpose is the core of the text. Within the language which is designed to effectuate the purpose there is scope for the court to exercise discretion. It is in this context we have interpreted PMGK Scheme. 

26. In Parisons Agrotech (P) Ltd. v. Union of India, (2015) 9 SCC 657 after quoting and referring to R.K. Garg v. Union of India and Others, (1981) 4 SCC 675, the Supreme Court had observed:-

"The Court must always remember that „legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex, that many problems are singular and contingent, that laws are not abstract propositions and do not relate to abstract units and are not to be measured by abstract symmetry‟; „that exact wisdom and nice adaption of remedy are not always possible‟ and that „judgment is largely a prophecy based on meagre and uninterpreted experience‟. Every legislation particularly in economic matters is essentially empiric and it is based on experimentation or what one may call trial and error method and therefore it cannot provide for all possible situations or anticipate all possible abuses."

27. On the question of confusion and doubt, respondents submit and rely upon circular No.2 of 2017 issued by the Central Board of Direct Taxes dated 18th January, 2017, wherein in response to question No.6, it was clarified:

“Question No. 6: Whether credit of advance tax paid, tax deducted at source (TDS), tax collected at source (TCS), in respect of an income declared under the Scheme would be available?

Answer. No credit for advance tax paid, TDS or TCS shall be allowed under the Scheme.”

28. In the present case we have rejected the petitioner‟s contention that the advance tax paid should be treated as payment under the PMGK Scheme. The said circular in question No.9 had also dealt with the issue if a person does not disclose his undisclosed income under PMGK Scheme, whether the undisclosed deposit would attract tax under Section 115BBE.Question 11 had dealt with adjustment of cash seized during search operations. Answer to question 9 and 11 and clarifications given to the same circular are as under:

“Question No. 9: If a person does not declare undisclosed cash deposited in an account between 01.04.2016 to 15.12.2016 under the Scheme, then whether such undisclosed deposit shall attract tax at the rate provided in the Taxation Laws (Second Amendment) Act, 2016?

Answer: The amended provisions of section 115BBE of the Income-tax Act, 1961 shall apply to A.Y.2017-18, relating to F.Y. 2016-17. Hence, undisclosed deposits between 01.04.2016 to 15.12.2016 shall also attract tax at the rate provided in the Taxation Laws (Second Amendment) Act, 2016.” XXX

“Question No.11: Whether the cash seized during a search and seizure action of the Department and deposited in Public Deposit Account is allowed to be adjusted against the payments required to be made under the Scheme?

Answer: The adjustment of cash seized by the Department and deposited in the Public Deposit Account may be allowed to be adjusted for making payment of tax, surcharge and penalty under the Scheme on the request of the person from whom the cash is seized. However, the said amount shall not be allowed to be adjusted for making deposits under the Pradhan Mantri Garib Kalyan Deposit Scheme.”

Thus, in case of seized cash/money deposit adjustment for payment of tax, surcharge and penalty was permitted.

29. Despite the circular, facts narrated in some detail do show that the Amendment Act had equally puzzled and flummoxed the tax law enforcers with whom the petitioner was in constant interaction and had sought guidance and assistance. Tax officers certainly had failed to appreciate and understand the difference between the two options and the procedure, and have substantially contributed to the muddle. The petitioner we would accept was prompted, if not clearly directed to file declaration and make deposits as made under the PMGK Scheme as the right course and option. Role of an assessing officer or the Income-tax authorities has been described as that of solicitude to the public exchequer with the inbuilt fairness to the assessee. Respondents as tax authorities being law enforcers and having acted as facilitators should have explicated doubts, when they had counselled the petitioner to make taxes etc. under the PMGK Scheme. On the question of official guidance and proprietary of the officers' conduct, reference can be appropriately made to Lord Browne-Wilkinson in Regina v. Inland Revenue Commissioners [1994] 1 WLR 334;-

„…taxpayers frequently need to know the tax consequences of a transaction before carrying it through. To meet this need, the Revenue are prepared in certain circumstances to give advance assurances as to the tax repercussions of a transaction so that the parties can proceed with confidence. This practice is of the greatest benefit to taxpayers and it would not be in the public interest to discontinue it…… If the Revenue have made it known that in particular categories of transaction advance clearance can only be given effectively at a particular level and clearance is not obtained from that level, there is in my judgment no abuse of power if the Revenue seek to extract tax on a basis different from that contained in the assurance. If the taxpayer either knows or (by reason of Revenue circulars) ought to have known that a binding clearance can only be obtained in a particular way and a purported clearance has been obtained in a different way, there is nothing unfair if the Revenue say that the purported clearance (being to the knowledge of the taxpayer given without authority) is of no effect and does not bind them.‟

30. In the present case we perceive that an equitable resolution is possible on interpretation of the provisions without undermining the object and purpose behind the Amendment Act. Thus while we have rejected the argument that advance tax of Rs.85,50,000/- can treated as payment of tax, surcharge and penalty under PMGK Scheme, we would hold that the declaration made under PMGK Scheme should not have been entirely rejected in view of the peculiar and specific factual background in the present case. We have given the aforesaid direction and finding keeping in mind and being sensitive to the petitioner's predicament and adverse consequences propounded by the respondents though the law enforcers were equally responsible in the lapse occasioned.

31. In the aforesaid factual matrix, we would direct as under:-

(i) Deposit of Rs.34,48,954/- will be treated as payment of tax, surcharge and penalty under the PMGK Scheme in respect of undisclosed income of Rs.69,11,731.46. Rs.34,48,954/- is 49.9% of Rs.69,11,731.46.

(ii) In respect of the balance undisclosed income of Rs.1,71,34,268.54, the petitioner would take recourse to the first option under Section 115BBE. The petitioner would accordingly pay tax @ 60% on the aforesaid amount under Section 115BBE, surcharge @25% of the tax and cess as applicable. Rs.85,50,000/- paid as advance tax would be counted

(iii) The petitioner would be also liable to pay interest on the late payment of taxes, surcharge, cess and late filing of return.

(iv) Rs.60,11,500/- deposited by the petitioner under Section 199F of the Finance Act will be refunded to the petitioner without interest after a period of four years in accordance with the deposit scheme.

We perceive and believe that by giving the aforesaid directions, we have not interfered with the provisions of the Amendment Act. We have not directed refund of Rs.34,48,954/-, which would be contrary to Section 199K of the Finance Act. We have also not directed that the advance tax of Rs.85,50,000/- paid by the petitioner should be treated as payment of tax, surcharge and penalty under the PMGK Scheme, which as held above, is impermissible. It is possible to argue that we have interfered with the declaration made by the petitioner in terms of Sections 199A and 199C of the Finance Act, but on the said aspect flexibility and tolerance can be exercised as we would read the contents of the declaration alongwith and harmoniously with the letters written by the petitioner quoted above. Violation of Section 199M on account of misrepresentation or suppression of facts in the declaration is not alleged. Requirement of Section 199M of payment of tax, surcharge and penalty under Sections 199D and 199E is not violated when we treat the declaration as valid in respect of undisclosed income of Rs.69,11,731.46 on which tax, surcharge and penalty was paid. For the balance undisclosed income of Rs.1,71,34,268.54 the petitioner must exercise first option and pay 60% tax, 25% surcharge on tax and cess under Section 115BBE read with Section 2(9) of the Finance Act. No provision prohibits or bars an assessee, who had made true and correct disclosure, to partly take benefit of the option under Section 115BBE and partly exercise the second option in the form of declaration under PMGK Scheme. The sections do not prohibit part declarations under both options, provided entire undisclosed income has been accounted for in the declaration made under PMGK Scheme and Section 115BBE. Such recourse to both or any option was available to the petitioner on or after the Amendment Act was notified on 15th December, 2016. Of course, if the petitioner does not make payment as stipulated under Section 115BBE and applicable surcharge in respect of the aforesaid undisclosed income of Rs.1,71,34,268.54/-, it will be open to the respondents to treat the declaration under PMGK Scheme as invalid or void on the ground of misrepresentation or suppression of facts. Similarly if subsequently the declaration is found to be bad on account of suppression of facts or misrepresentation. In case tax, interest etc. are paid we believe a fair minded assessing officer would not initiate penalty proceedings under Section 271AAC of the Act. We have made these observations in view of the facts and to stall another round of unnecessary litigation.

32. In view of the aforesaid discussion and observations, the writ petition is partly allowed in terms of directions in paragraph 31 above. There would be no order as to costs.

Cases Referred to

1. Mr. P. Varadarajan Vs. Central Board of Direct Taxes and Ors., (2017) 393 ITR 599 (Del)

2. Delhi Chartered Accountants Society (Regd.) Vs. Union of India, (2013) 29 STR 461 (Del)

3. Commissioner of Central Excise, Bolpur Vs. Ratan Melting and Wire Industries, (2008) 231 ELT 22 (SC)

YOU CAN ALSO SEARCH FOR YOUR DESIRED TOPICS:

If You Appreciate What We Do Here On TaxPundit, You Should Consider:

We are thankful for your never ending support.

Recommended Articles

 

Additional Info

  • Order Date: Monday, 12 March 2018
  • Court: High Courts
  • Cout Name: Delhi High Court
  • Section: 115BBE, 271AAB, 271AAC, 68, 69, 69A, 69B, 69C, 69D, 139, 270A, 274, 275, 11
  • Favouring: Partly
Read 1650 times Last modified on Tuesday, 20 March 2018 12:49
Deepak Kumar

A Post Graduate and Chartered Accountant Deepak Sinha is a member of Taxpundit's core team. An analytical, result oriented professional with more than 10 years of combined experience in industry and consultancy.

This email address is being protected from spambots. You need JavaScript enabled to view it.

Media

Video Tutorials for Searching Case Laws Taxpundit.org

Leave a comment

Thank you for reading! We welcome and appreciate your comments, but at the same time, make sure you are adding something valuable to this article. If you have any serious queries, suggestions or anything related to this article, feel free to share them, we really appreciate that.

If you want to give us any feedback or report any errors, you can email your concerns on taxpundit@taxpundit.org and we'll revert back soon.

Have you done Analysis of any Case? Tell Us About It.

ABOUT TAXPUNDIT

Taxpundit.org provides Income Tax Case Laws, Circulars, Notification, Orders, Press Releases etc. to Members without any subscription.

Subscription is for extra tools, features and functionalities.

Newsletter

Subscribe to our newsletter and stay updated on the latest developments and special offers!

Create your own website as per ICAI guidelines. Plan starts at Rs. 15000/- with Free Premium Membership. Read more
Toggle Bar