In Ms.Grihalakshmi Films v. JCIT & Ors, the Kerala High Court held that appeals related to penalty proceedings can be settled through the recent Direct Tax Dispute Resolution Scheme, 2016.
The petitioners in the instant case are engaged in the production and distribution of cinematographic films and other allied activities. Penalties were imposed on them under Sections 271D, 271E and 272A (2) (C) of the Income Tax Act alleging that they had accepted loans/deposits otherwise than by way of account payee cheques and/or draft, by repaying loans/deposits, otherwise than by way of account payee cheques and/or draft and by not filing statements as required by Section 285B regarding the film production carried on by them. Petitioners challenged the above order before the first appellate authority.
Last year, the Central Government introduced the Direct Tax Dispute Resolution Scheme, 2016 as per which, the assessee can make a declaration of tax arrears under the Income Tax Act in respect of which an appeal is pending before the appellate authority as on 29.02.2016. The Scheme also envisages that, in the case of a pending appeal related only to penalty, the amount payable by an eligible declarant would be 25% of the minimum penalty leviable, along with the tax and interest payable on the total income finally determined.
The petitioners opted to settle their income tax case pending before the first appellate authority under the said scheme. In the declaration, the petitioners had offered to pay 25% of the mandatory penalties that were imposed on them. However, the department rejected the said application by pointing out that the penalty imposed on the petitioners, were not linked to any assessment proceedings. It pointed out that as per the Amnesty Scheme, the tax arrears in the case of penalty necessarily referred only to such penalty as was linked to the total income finally determined.
Aggrieved by the order, the petitioners approached the High Court.
Before the High Court, the department relied on the CBDT circular which states penalty order under Section 271(C) or 271 (C) (A) of the Income Tax Act, which are not linked to assessment proceedings, would not be covered under the Scheme.
Rejecting the contentions, Justice Jayasankaran Nambiar, who penned the judgment said that “on an overall consideration of the Scheme, however, I do not see any scope for such a restrictive interpretation of the ambit of the Amnesty Scheme, in the manner suggested by the learned counsel for the respondents.”
He noted that the definition of “tax arrears” does not exclude a situation where the dispute of an assessee is only in respect of a penalty that has been determined against him under the Income Tax Act. “While the procedure envisaged includes the filing of a declaration solely in respect of penalty, the Scheme suggests that when a declaration is only with regard to penalty, the obligation of the declarant is to pay 25% of the minimum penalty levied, and also to pay the tax and interest payable on the total income finally determined for the assessment year in question,” he said.
While concluding, he added that “the object of the Scheme appears to be to ensure that, while a person seeking an Amnesty Scheme only in respect of the penalty that is imposed on him, avails the benefit of the Scheme to that extent, it should also be ensured that the said declarant discharges the tax and interest liability under the Income Tax Act for the assessment year in question. In other words, a person, who defaults on the tax and interest liability under the Income Tax Act for the assessment year, cannot claim the benefit of amnesty in respect of the penalty alone. It is also significant to note that the exclusions from the Scheme, that are enumerated in Section 208 of the Finance Act, 2016, also do not expressly provide for the exclusion of a declaration, such as those filed in the instant writ petition, where the amnesty is sought only in respect of a penalty that is imposed under the Income tax Act.”
Read the full text of the Judgment below.
