@)) IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No 1862 of 1999 For Approval and Signature: Hon'ble MR.JUSTICE R.BALIA. and MR.JUSTICE A.R.DAVE ============================================================ 1. Whether Reporters of Local Papers may be allowed to see the judgements? 2. To be referred to the Reporter or not? 3. Whether Their Lordships wish to see the fair copy of the judgement? 4. Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the Civil Judge? -------------------------------------------------------------- MOHIT SHANTILAL SHAH Versus COMMISSIONER OF INCOME TAX GUJARAT - III -------------------------------------------------------------- Appearance: MR SN DIVATIA for Petitioner MR MANISH R BHATT for Respondent No. 1 -------------------------------------------------------------- CORAM : MR.JUSTICE R.BALIA. and MR.JUSTICE A.R.DAVE Date of decision: 05/05/99 ORAL JUDGEMENT [Per R. Balia, J.] 1. This petition is challenging the order of designated authority rejecting the application of the petitioner under Kar Vivad Samadhan Scheme as introduced by the Finance Act No.2 of 1998. The order is dated 23rd February 1999. 2. First noticing the facts, the petitioner filed a return of his income for Assessment Year 1996-97 on 31st August 1996. He claimed certain amount received by him as arrears of professional fees after he ceased to be a practising advocate as not liable to tax relying on decision of Calcutta High Court in Commissioner of Income Tax v/s Justice R.M.Datta 180 ITR 86, and Bench of Income Tax Appellate Tribunal, at Delhi in the case of Kuldip Singh v/s Income Tax Officer. The petitioner paid the tax on the basis of return submitted by him in terms of section 140-A of the Income Tax Act. Income Tax Officer acting u/s 143 [1] [a] computed on the basis of such return the amount of tax or interest, if any, payable by the assessee and he found that some interest was payable by the assessee on the basis of such return u/s 234-B and 234-C computed thus the amount of tax payable and after adjusting the amount paid by the assessee. The amount so payable was intimated to the assessee as required under clause [i] of section 143[1] [a]. No other adjustment was made in terms of proviso to section 143[1][a]. The intimation of the tax due was made on 10/1/97. That amount was also paid and no objection thereto was raised by the petitioner at any time. However, as to assessee's claim to the exemption from tax in respect of arrears of professional fees received after he ceased to carry on the profession, notice u/s 143[2] was issued fixing the date of hearing on 19th June 1997. The regular assessment u/s 143 [3] ultimately came to be made on 18th January 1999 holding that the arrears of professional fees were taxable receipts and accordingly, demand was raised. The assessee filed an appeal against the said assessment of 25th January 1999. During this period, with the enactment of Finance [No.2] Act of 1998 which came into effect w.e.f. 1/4/1998, the provisions popularly known as Kar Vivad Samadhan Scheme [for short 'KVSS' hereinafter] came into force which inter alia provided that an assessee who has tax arrears can make a declaration to that effect before the Designated Authority from 1st September 1998 until 31st December 1998. On such declaration being made, the amount payable by such assessee shall be determined by Designated Authority in terms of section 88 of the Finance [No.2] Act of 1998; on the payment of which, the assessee would obtain certain immunities, to which we shall refer later and were to be discharged from all liabilities in respect of `tax arrears' under declaration. The last date for filing declaration had been extended upto 31st January 1999. Apart from the fact that an assessee in order to invite operations of KVSS has to be in respect of a determined liability under relevant taxing statutes, it was further pre-conditioned that in respect of such tax arear under the relevant enactment as on the date of declaration, there must be pending an appeal, reference or writ petition or revision before the appropriate forum. Though assessee in anticipation of pending proceedings u/s 143 [3] had made a declaration in the first instance on 29th December 1998, even before the assessment u/s 143 [3] had come into existence, on completion of assessment u/s 143[3], he filed an appeal against it, and a fresh declaration was made before 31st January 1999, the extended date inter alia contending that regular assessment having come into existence u/s 143[3], it results in modification of tax already determined u/s 143[1][a] and an appeal against such order having been admitted and pending before the CIT [Appeals] as on the date of declaration, the applicant is entitled to benefit of KVSS. By impugned order, the petitioner was informed that the tax for the impugned assessment year had not been determined before 31/3/98 but was determined only on 18th January 1999, whereas the scheme is applicable only in cases where tax arrear exists in respect of such liability is determined on or before 31/3/98 and such demand remains unpaid until date of declaration and pending in respect of tax arrears on 31st March 1998. Aggrieved with the aforesaid order, this petition has been filed. 3. Before we embark upon an inquiry on the question raised before us, it would be appropriate to scan the scheme in brief. The scheme has been introduced as a consolidated measure on effecting recovery of outstanding arrears of tax which have been clogged as a result of litigations surrounding it. Moving the Finance Bill, the Finance Minister in his speech explained the object of the scheme in the following terms :- "Litigation has been the bane of both direct and indirect taxes. A lot of energy of the Revenue Department is being frittered in pursuing large number of litigations pending at different levels for long periods of time. Considerable revenue also gets locked up in such disputes. Declogging the system will not only incentives honest tax payers, enable Government to realize its reasonable dues much earlier but coupled with administrative measures, would also make the system more user - friendly. I therefore propose to introduce a new Scheme called Samadhan." The Scheme is contained in Chapter IV of the Finance Act No.2 of 1998 and comprising in section 86 to section 98. 4. Section 88 declares that, subject to the provisions of this Scheme, where any person makes, on or after the 1st day of September, 1998 but on or before the 31st day of December, 1998, a declaration to the designated authority in accordance with the provisions of section 89 in respect of 'tax arear', then, notwithstanding anything contained in any direct tax enactment or indirect tax enactment or any other provision of any law for the time being in force, the amount payable under this Scheme by the declarant shall be determined at the rates specified thereunder. Section 89 provides that a declaration under section 88 shall be made to the Designated Authority and shall be in such form and shall be verified in such manner as may be prescribed. Section 90 provides for the time and manner of payment of 'tax arear' and consequences that follow as apparently been provided u/s 90 and 91. Section 90 in the first instance directs the Designated Authority to determine within 60 days from the date of receipt of the declaration u/s 91, the amount payable by the declarant in accordance with the provisions of the Scheme and grant a certificate in such form as may be prescribed to the declarant setting forth therein the particulars of the 'tax arrear' and the sum payable after such determination towards full and final settlement of 'tax arrear'. Within 30 days of the passing of the order passed by the designated authority, the declarant is required to pay the amount so determined by the Designated Authority and intimate the facts of such payment to the Designated Authority along with proof thereof. On receipt of such intimation alongwith proof of payment, the Designated Authority is required to issue a certificate to the declarant to that effect under section 90 [2]. More importantly, under sub-section [3] of section 90, every order passed under sub-section [1], the determination of sum payable under this Scheme, shall be conclusive as to the matter covered by such order shall not be reopened in any other proceeding under the direct tax enactment or indirect tax enactment or under any other law for the time being in force. On the date on which the order referred to in sub-section [2] is passed, that is to say, the certificate issued, on receiving the proof of payment of the amount determined by the designated authority, where the declarant has filed an appeal or reference or a reply to the show cause notice against any order or notice giving rise to the tax arear before any authority or Tribunal or Court, then notwithstanding anything contained in any other provisions of any law for the time being in force, such appeal or reference or reply shall be deemed to have been withdrawn on the date of the order passed u/s 90[2], provided further that where the declarant has filed a writ petition or appeal or reference before any High Court or Supreme Court against any order in respect of the 'tax arear', the declarant shall file an application before the High Court or the Supreme Court for withdrawing such writ petition, appeal or reference and after withdrawal of such writ petition, appeal or reference with the leave of the Court, furnish proof of such withdrawal alongwith the intimation referred to in sub-section [2]. On fulfillment of aforesaid conditions, u/s 91, the designated authority shall, subject to the conditions provided in section 90, grant immunity from instituting any proceeding for prosecution for any offence under any direct tax enactment or indirect tax enactment, or from the imposition of penalty under any of such enactments, in respect of matters covered in the declaration u/s 88. Under section 92, no appellate authority shall proceed to decide any issue relating to the disputed chargeable expenditure, disputed chargeable interest, disputed income, disputed wealth, disputed value of gift or tax arear specified in the declaration and in respect of which an order had been made under section 90 by the designated authority or the payment of the sum determined under that section. The proviso to section 92 has since been held to be ultra vires by the Delhi Court in 236 ITR PAGE 1, which has been accepted by Union of India by issuing a press note on 28th November, 1998. Section 95 declares that the provisions of the Scheme shall not apply in respect of 'tax arear' under any direct tax enactment in a case where prosecution for concealment has been instituted on or before the date of filing of the declaration u/s 88 under any direct tax enactment in respect of any assessment year, to any tax arear in respect of such assessment year under such direct tax enactment or in respect of a person who has been convicted for concealment on or before the date of filing the declaration or where the tax arear relates to direct tax in relation to which neither any appeal, reference nor writ petition has been admitted, and pending before appellate authority or High Court or Supreme Court or no Revision is pending before Commissioner. Similar provisions also govern the operation of KVSS in respect of indirect taxes. Thus, the central theme of the scheme is existence of tax arrear and pendency of dispute in the appropriate forum as on the date of filing declaration, and culmination of such pending proceedings or dispute on payment of amount determined under it. This inheres that the scheme applies in respect of tax liability which has been determined in some way and that could be subjected to dispute. The present controversy has to be viewed in this backdrop. 5. Under Section 87[m], term 'tax arrear' has been defined. 'Tax arear' in relation to direct tax enactment means the amount of tax, penalty or interest determined on or before the 31st day of March, 1998 under that enactment in respect of an assessment year as modified in consequence of giving effect to an appellate order but remaining unpaid on the date of declaration. The 'tax arrear' in relation to indirect tax enactment means, "the amount of duties [including drawback of duty, credit of duty or any amount representing duty], cesses, interest, fine or penalty determined as due or payable under that enactment as on the 31st day of March 1998 under that enactment but remaining unpaid on the date of making a declaration u/s 88 or the amount of duties [including drawback of duty, credit of duty or any amount representing duty], cesses, interest, fine or penalty which constitutes the subject matter of a demand notice or a show cause notice issued on or before the 31st day of March 1998 under that enactment but remaining unpaid on the date of making a declaration u/s 88, but does not include any demand relating to erroneous refund and where a show cause notice is issued to the declarant in respect of seizure of goods and demand of duties, the tax arear shall not include the duties on such seized goods where such duties on the seized goods have not been quantified." 6. The KVSS is woven around the thread of unpaid tax in respect of a particular assessment year under direct tax enactment which has been determined on or before the 31st day of March 1998, and existence of a dispute relating to such 'tax arrear' which has to be pending. The twin object is collection of revenue and end of the dispute by settling the amount payable against such 'tax arrear' on payment of which the pending litigation in respect of settled 'tax arrear' ends and assessee is granted immunity from liability to interest, penalty and prosecution in respect of such 'tax arear'. The two objects do not exist independent of each other but go hand in hand. 7. At this juncture, it will be profitable to notice that this part of the Scheme was subjected to challenge on the anvil of being ultra vires the provisions of the Constitution on the ground of being violative of Article 14 before the Delhi High Court. Amongst many grounds, one that found favour with the Delhi High Court was that no distinction can be made about the applicability of the Scheme and consequences to follow on the basis of the status of litigating parties as to who is the appellant and who is the respondent. It therefore struck down the proviso to section 92 and read down the definition of tax arear u/s 87[m] by expanding it to such amount of tax determined which though has been reduced or set aside in appeal or other proceedings under the act on the relevant date, but is still intended to be carried further in litigation by the Department by not accepting the verdict in favour of the assessee, thus, making it conform to the twin objects of clearing the tax arrears with settlement of pending litigation by not making any distinction between at whose instance the litigation is pending. The decision is reported in 236 ITR page 1 and as noticed by us above, it has been accepted by the Union of India as well. Therefore, the controversy before us has to be examined in the light of these provisions. 8. The assessee claims that in the first instance he has received intimation u/s 143[1][a] of tax payable by him. That is a determination of tax within the meaning of section 87[m]. As per explanation appended to section 143[1][a], such intimation is considered to be appealable order. When regular assessment is made u/s 143[3], the order u/s 143[1][a] is replaced by the regular assessment. This amounts to modification of determination made u/s 143[1][a]. Demand created as a result of such modified determination is unpaid. Such unpaid tax is `tax arrear' within the meaning of section 87[m] of the act of 1998. He contends, inasmuch as under the Income Tax Act, for assessment year 1996-97, the tax has been determined firstly u/s 143[1][a] before the 31st day of March 1998 which stands modified as a result of regular Assessment under section 143[3] before the declaration was made, giving rise to demand of tax which was unpaid on the date of declaration. He has also filed an appeal u/s 246 before the CIT [Appeals] and as he has paid the tax as per the return submitted by him, he also fulfils the condition of admitting any appeal under section [4] of section 249 of the Income Tax Act which saves him from inhibition of section 95 of the KVSS. He further contends that the expression 'as modified giving effect to an appellate order' must be construed in the light and context of the object with which the scheme has been floated and should receive purpose oriented meaning, in preference to literal meaning. It was urged that in its literal sense, modification in consequence of giving effect to an appellate order will take into account only orders made in appeal and which will leave modification of order even by way of revision out of consideration. In giving such a meaning to `modification of determination made prior to 31st day of March 1998' in its literal sense, the very purpose of requiring the pendency of a dispute whether by way of reference, writ petition or revision in addition to appeal as an alternative, would be rendered meaningless. Moreover, the modification of tax determination under the Act does not necessarily come by way of an appellate order, but it comes under very many provision of the enactment under which such determination has been made. Since the purpose is to recover `unpaid tax' as on the date of declaration, all orders made under the relevant enactment which has the effect of modifying the `existing tax determination' in its broader sense, must be held to fall within the expression 'an appellate order' resulting in modification of the determination made on or before the 31st March 1998. For advocating such rule of, interpretation reliance was placed on the cases reported in C.B.Gautam v/s Union of India & ors. 199 ITR 530, Director of Enforcement V/s Deepak Mahajan [AIR 1994 SC 1775] and Commissioner of Income Tax, Bombay v/s Gwalior Rayon Silk Mfg. Co. Ltd. [AIR 1992 SC 1782]. 9. On the other hand, it has been urged by the learned counsel for the Revenue firstly that, computation of tax made u/s 143[1][a] cannot in any sense of the term be held to be a determination of the amount of tax penalty or interest. U/s `143 [1] [a], mere computation of tax is made on the basis of information furnished by the assessee without examining the merit of claim and the adjustment which can be made are at best is expression of prima facie opinion of the assessing officer without calling upon the assessee to explain the same. Such an expression or opinion which is bound to be considered during regular assessment, if raised by the assessee and can be revised by the very same authority, cannot amount to be a determination within the meaning of section 87 [m]. It was further submitted that, assuming that intimation u/s 143[1][a] amounts to a determination within the meaning of section 87[m] of the Act of 1998 and an assessee can avail of KVSS in respect of such determination, it can only relate to the dispute relating to adjustments actually made and intimated, and modification to such determination, if any, that may take place before the date of declaration, but cannot include any question which fell outside the scope of determination u/s 143[1][a] which has not in fact been determined by the assessing officer. The regular assessment is not modification of any determination made u/s 143[1][a], but is an order independent of determination on its own. At best, it can be said that such an order can result in modification of intimation u/s 143[1][a] only and no more. 10. At the centre of entire controversy, key expression is 'determination on or before the 31st day of March 1998'. On the one hand, the view canvassed by the petitioner is that the word 'determination' is of wide connotation and takes within its purview, the determination of tax by way of self assessment under the Income Tax Act relate with which we are presently concerned, and is the assessment made u/s 143[1][a]. It is not required necessarily that such determination must be by way of final adjudication of any issue. On the other hand, the contention of the revenue is that, in the context in which the term appears and in the context of the scheme, it can have only meaning to be a determination by application of mind by an authority under the relevant enactment, resulting in final disposal of an issue so far as he is concerned. Anything which has not been so determined by any of the concerned authority before the 31st day of March 1998, determination of a question for the first time thereafter under any proceedings would not fall within the expression used in KVSS and its determination subsequently to the date of 31st day of March 1998 would not bring the case of an assessee who has not paid the tax in pursuance of determination, cannot be covered under the Scheme. 11. It has to be noticed and about which there is no dispute that, if literal meaning is given to expression 'as modified in consequence of giving effect to an appellate order', which will not include any order except made in appeal and will not include any order made in revision or by a court in writ or reference, the case of the petitioner does not fall within section 87[m], assuming that intimation u/s 143[1][a] amounts to determination of tax on or before the 31st day of March 1998, inasmuch as no amount of tax determined vide intimation dated 10/1/1997 u/s 143[1][a] was unpaid on the date of declaration. No appeal, reference, writ or revision was pending in respect of the determination u/s 143[1][a]. There being no appellate order by accepting literal meaning of an appellate order, no modification can be spelt out in the tax determined vide the intimation dated 10/1/97 within the meaning of section 87[m]. 12. We are of the opinion that accepting such literal interpretation in the context of the scheme would be too narrow and inapt which will result in defeating the very object of the scheme, taking into consideration also the fact that the definition has been read down by the Delhi High Court and such reading down has been accepted by the Union of India as noticed by us above. 13. One object of the scheme is to clear the existing 'tax arear' as on the date of declaration on payment of amount determined by the designated authority. The first feature of the scheme is that what is intended to be settled under the KVSS was the 'tax arear' existing as on the date of declaration. Not only that there has to be in existence a tax arear on the date of declaration, but in respect of such tax arear, there has to be a pending dispute. If the quantum of 'tax arear' had no relation to its inacceptability, and likelihood of its modification in the pending dispute, the imposition of such condition would be meaningless inasmuch as in that event the actual amount spelt out on that date would have served the purpose. It is relevant to notice that effect of determination of amount u/s 90 and its payment by the assessee results in further declaration that no matters covered by such orders shall be reopened under