IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE S.SIRI JAGAN TUESDAY, THE 29TH SEPTEMBER 2009 / 7TH ASWINA 1931 OP.No. 18355 of 2001(I) --------------------------------- PETITIONER: ------------------- DR. K.M. ASHIK, MOIDU'S MEDICARE (P) LTD., INDIRA GANDHI ROAD, CALICUT – 673 001. BY ADV. MR.ANIL K.NARENDRAN. RESPONDENTS: ------------------------ 1. DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, CALICUT. 2. COMMISSIONER OF INCOME TAX (CENTRAL), DESIGNATED AUTHORITY, 108, UTHAMAR GANDHI SALAI, CHENNAI – 600 034. R1 & R2 BY MR. JOSE JOSEPH, S.C., I.T. THIS ORIGINAL PETITION HAVING BEEN FINALLY HEARD ON 29/09/2009, ALONG WITH O.P. NO. 18404/2001 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: O.P. NO 18355/2001-I: APPENDIX PETITIONERS' EXHIBITS: EXT.P.1(A): COPY OF THE CERTIFICATE OF INTIMATION FOR THE ASSESSMENT YEARS 1989-90 AND 91-92 DTD. 09/12/1998. EXT.P.1(B): COPY OF THE CERTIFICATE OF INTIMATION FOR THE ASSESSMENT YEAR FOR 1992-93 DTD. 05/02/1999. EXT.P.1(C): COPY OF THE CERTIFICATE OF INTIMATION FOR THE ASSESSMENT YEAR FOR 1994-95 DTD. 12/02/1999. EXT.P.1.(D): COPY OF THE CERTIFICATE OF INTIMATION FOR THE ASSESSMENT YEAR FOR 1995-96 DTD. 12/02/1999. EXT.P.2: COPY OF THE LETTER ADDRESSED TO THE R.2. DTD. 01/01/1999. EXT.P.3: COPY OF THE JUDGMENT IN O.P. NO. 6385/99 DTD. 11/03/1999. EXT.P.4: COPY OF THE LETTER BY THE PETITIONER TO THE R.2. DTD. 10/11/1999. EXT.P.5: COPY OF THE COMMUNICATION ISSUED BY THE R.2. DTD. 26/11/1999. EXT.P.6: COPY OF THE PETITION ADDRESSED TO THE R.2. BY THE PETITIONER DTD.03/07/2000. EXT.P.7: COPY OF THE COMMUNICATION ISSUED BY THE R.2. DTD. 26/07/2000. EXT.P.8: COPY OF THE ASSMT. ORDER FOR 1989-90 DTD. 30/03/1998. EXT.P.8.B: COPY OF THE ASSMT. ORDER FOR 1990-91 DTD. 08/12/1997. EXT.P.8.C: COPY OF THE ASSMT. ORDER FOR 1991-92 DTD. 08/12/1997. RESPONDENTS' EXHIBITS: NIL. //TRUE COPY// P.S. TO JUDGE. Prv. S. Siri Jagan, J. =-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-=-= O.P. Nos. 18355, 18404, 18968 & 18988 of 2001 =-=-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-= Dated this, the 29th September, 2009. J U D G M E N T The petitioners in these four original petitions are partners of more than one firm. They chose to avail of the benefits of the Kar Vivad Samadhan Scheme, 1998 introduced by Finance (No.2) Act, 1998. They filed individual declarations showing their individual income as well as share income from the partnership firms in which they were partners. Pursuant thereto, their declarations were accepted and certificates were issued as contemplated under the Scheme and they were directed to pay arrears of tax at the rate of 40% of the income for certain assessment years. The rate of tax applied is under challenge in these original petitions. 2. The contention raised by the petitioners is that in normal case, where the tax arrear does not include tax, interest or penalty determined in any assessment on the basis of search and seizure proceedings under Section 132 for Section 132A of the Income Tax Act, the rate applicable is 30%, whereas if the tax arrear includes tax, interest or penalty determined on the basis of search and seizure, the higher rate of 40% would apply. The petitioners' contention is that in the assessment orders assessing the income of the petitioners, there is no mention of any material collected during search and seizure as the basis of the assessment and therefore in respect of the declarations filed by the petitioners, the lower rate of 30% should be applied. 3. The learned standing counsel for the Income-tax Department would contend that the petitioners were partners of different firms. Search and seizure were conducted in the premises of the common managing partner of all the firms, who is none other than the father/husband of the petitioners along with whom the petitioners O.P. No. 18355/2001. -: 2 :- also resided in the same house where the search and seizure were conducted, based on materials collected in which, the firm was assessed to income tax and proportionate share of that income of that firm was included in the assessment of the petitioners for the purpose of individual assessment. Since the firms' income was determined based on the materials collected during search and seizure, the proportionate income included in the assessment of the petitioners is also tarred by the same brush and therefore that income attracts the higher rate of 40%, which only has been done in the present case, is the contention of the standing counsel. 4. I have considered the rival contentions in detail. 5. The relevant clause in the Kar Vivad Samadhan Scheme is Section 88(1), which reads thus: “88. Settlement of tax payable:- 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 arrear, 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 hereunder, namely:- (a) where the tax arrear is payable under the Income-tax Act, 1961 (4 of 1961).-- (i) in the case of a declarant, being a company or a firm, at the rate of thirty five per cent of the disputed income; (ii) in the case of a declarant, being a person other than a company or a firm, at the rate of thirty percent of the disputed income; (iii) in the case where tax arrear includes income-tax, interest payable or penalty levied, at the rate of thirty five per cent of the disputed income for the persons referred to in clause (i) or thirty per cent of the disputed income for the persons referred to in clause (ii); O.P. No. 18355/2001. -: 3 :- (iv) in the case where tax arrear comprises only interest payable or penalty levied, at the rate of fifty per cent of the tax arrear; (v) where the tax arrear includes the tax, interest or penalty determined in any assessment on the basis of search and seizure proceedings under Section 132 or section 132A of the Income-tax Act. (A) in the case of a declarant, being a company or a firm, at the rate of forty five per cent of the disputed income; (B) in the case of a declarant, being a person other than a company or a firm, at the rate of forty per cent of the disputed income; xx xx xx” Clause a(v) is the provision where the department is empowered to apply a higher rate of income tax. That sub-section is couched in very wide terms. It stipulates that when the tax arrear includes assessment on the basis of search and seizure, higher rate of tax would be attracted. Therefore, if the income assessed on the petitioners has been arrived at on the basis of search and seizure, then naturally, in respect of that arrear, the higher rate would apply for the purpose of the Scheme. In this case, the petitioners were partners in several firms. One of the firms had filed a declaration under the Scheme. In respect of the declaration by a firm under the Scheme, the Scheme itself provides that in respect of that declarant, no separate declaration is necessary by the individual partners insofar as the individual partners are not liable to pay tax on their share income from the firm under the Kar Vivad Samadhan Scheme. But, admittedly, the other firms in which also the petitioners were partners did not chose to file any declaration under the Scheme. Admittedly, the assessment of those firms were finalised on the basis of income disclosed on the basis of materials collected during search O.P. No. 18355/2001. -: 4 :- and seizure. After assessing the income of the firm on the basis that the material collected by search and seizure, the proportionate share of income of each partner was assessed in their individual assessments. Therefore, the character of the share income of the petitioners in those firms is that of income assessed on the basis of materials collected during search and seizure. I am of opinion that in respect of that income, Section 88(a)(v) would be attracted. In that view, there is no merit in these original petitions and accordingly, they are dismissed. Sd/- S. Siri Jagan, Judge. Tds/ O.P. No. 18355/2001. -: 5 :- S. Siri Jagan, J. =-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-=-= O.P. Nos. 18355, 18404, 18968 & 18988 of 2001 =-=-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-= J U D G M E N T 29th September, 2009.