REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.  5950     OF 2008 (Arising out of SLP (C) No. 4091 of 2007)

B.M. MALANI      … APPELLANT

Versus

COMMR. OF INCOME TAX & ANR.              … RESPONDENTS

J U D G M E N T

S.B. Sinha, J.

1. Leave granted.

2. This  appeal  is  directed  against  the  judgment  and  order  dated

27.7.2006 passed by the High Court of Judicature of Andhra Pradesh at

Hyderabad in Writ Petition No. 2672 of 2003 whereby and whereunder

the  Writ  Petition  filed  by  the  appellant  herein  against  an  order  dated

26.11.2002  passed  by  the  Commissioner  of  Income Tax  rejecting  the

application filed by the appellant herein under Section 220 (2-A) of the

Income Tax Act, was dismissed.

3. Appellant  had  been  carrying  on  money-lending  business  and

trading  in  shares  and  securities.  On  or  about  4.9.1994,  a  raid  was

conducted  in  his  residential  premises  by  the  authorities  in  exercise  of

their  power under Section  132 of  the  Income Tax Act  (for  short,  “the

Act”).  Amongst others, shares worth market value of Rs. 61.38 lakhs and

a  demand  draft  worth  Rs.  10  lakhs  in  the  name  of  PAN  Clothing

Company  Limited  were  seized.   By  a  letter  dated  15.12.1994,  a

declaration  was  made  by the  appellant  in  terms of  sub-Section  (4)  of

Section 132 of the Act, by reason whereof he opted to pay taxes from out

of the seized shares and securities stating that the shares be expeditiously

disposed  of  and  the  sale  proceeds  therefrom be  appropriated  towards

taxes.    

The said letter dated 15.12.1994 reads as under :

“Please  refer  to  your  letter  cited  in  reference above in the matter of payment of taxes.  I had made  declaration  U/s.  132(4)  of  the  Act  and pursuant declaration opted to pay taxes from out of the assets namely shares and securities under seizure,  as  I  have  no  further  funds.   I  have therefore  delivered  my consent  and  requested the Asst. Director of Income Tax (Inv.) Unit-2 (3), to dispose of the shares as expeditiously as possible for appropriating the proceeds towards taxes  and  advance  tax.   In  the  above circumstances  I  request  you sir  to  arrange  for sale of Shares, Securities under seizure to meet the tax liabilities and oblige.”

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Indisputably, the said request of the appellant was not acceded to.

However, the fact that such an offer had been made by the appellant is not

denied or disputed.  It is furthermore not disputed that the Income Tax

Department demanded and recovered a sum of Rs.40 lakhs in between the

period January and March 1995, the details whereof are as under:

“  Assessment Year   Date of Payment Amount (Rs.) 1993-94 17.01.1995 7,50,000/- 1994-95 17.01.1995 7,50,000/- 1992-93 18.01.1995 50,000/- 1991-92 20.03.1995 10,00,000/- 1991-92 24.03.1995 10,00,000/-

Total 40,00,000/-“

Indisputably,  the  appellant  filed  an  application  in  terms of  sub-

Section  (1)  of  Section  245C  before  the  Settlement  Commission  on

2.1.1996 whereupon an order was passed by the Settlement Commission

on 2.12.1999.    

The demand draft drawn in the name of PAN Clothing Company

Limited worth Rs. 10 lakhs which was seized during the course of search

was encashed by the Income Tax Department in July 2000 after the same

was got revalidated.   

By an order dated 8.3.2002, the Income Tax Officer, Ward – 10(1),

Hyderabad levied interest for a sum of Rs. 31,41,106/- under Section 220

(2) of the Act for the assessment years 1990-91 to 1995-96.   

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Appellant thereafter filed an application for waiver of interest on

diverse  dates  i.e.  3.4.2002,  14.5.2002  and  16.9.2002.   The  same  was

rejected by the Commissioner of Income Tax reason of an order dated

26.11.2002  opining  that  the  appellant  did  not  satisfy  all  the  three

conditions which were required for allowing a waiver petition.  It was,

however, accepted that the appellant cooperated with the Department.  So

far  as  the  request  of  the  appellant  to  sell  the  shares  and  securities  is

concerned,  it  was  opined  that  the  levy  of  interest  did  not  cause  any

genuine hardship to him and the default in payment of the amount of tax

on which interest has been paid or was payable under Section 220(2A)

was due to circumstances beyond his control.  It was furthermore opined

that  the  dues  as  against  the  appellant  could  be  crystallized  only  after

passing of the order of the Settlement Commission 2.12.1999.  

The Commissioner held:

“Further,  as  per  the  enquiry  report  dated 22.11.2002,  obtained  from  the  Income  Tax Officer  Ward-10  (1),  indicates  that  Sri B.M.Malani  has  been  residing  in  a  house bearing  No.  1-11-219,  Begumpet,  Hyderabad. The  property  is  located  in  posh  area  near Airport in Begumpet.  The area of the property is about 6000 sq. yds., and value will be around Rs. 2 crores.  Thus, property as referred above belongs  to  HUF  and  the  assessments  under consideration were passed in the status of HUF. From the details gathered by the Department, it was  revealed  that  the  assessee  possesses  good resources and he is financially sound and it will

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not cause any hardship in discharging legitimate tax liability which is in the form of interest u/s 220 (2A) and the tax liability that would have arisen out of his inordinate delay in liquidation of taxes.”

By reason of the impugned judgment, the High Court opined:

“The  hardship  claimed by the  petitioner  is  on account of lack of resources either moveable or immoveable.  Even after the conclusion of this Court  that  the  finding  of  the  1st respondent regarding the property at Begumpet is justified, the fact remains that the petitioner had assets by way of units  in the Unit  Trust of India by the date of the Settlement Commission determined his liability of tax.  The fact that a distress sale conducted by the Unit Trust fetched a lower rate in our view does not make any difference for the consideration of the application of the petitioner for  the  waiver  of  interest.   The  UTI  did  not follow according to the Division Bench of this Court  the  requisite  procedure  in  resorting  to distress  sale.   That  is  a different  matter.   But, nothing prevented the petitioner from encashing the said units and pay the tax liability in time. The submission of the learned counsel  for  the petitioner that such a premature sale of the units would result in a financial loss to the petitioner is irrelevant in the context of the application for waiver of  interest.   If  the petitioner  is  already found  liable  and  due  to  pay  tax  under  the Income Tax Act,  the  petitioner  cannot  choose the time for encashing the assets he had to get the post  price  for  the  asset  and  still  complain that  the  levy  of  interest  would  cause  undue hardship to him.  Apart  from that by virtue of the Division Bench judgment of this Court, the UTI is  already directed to make good the loss suffered  by  the  petitioner  by  virtue  of  the distress sale undertaken by the UTI.”

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Applicability of the second condition specified in Section 220(2A)

of the Act was not gone into on the premise that the appellant had not

been able to establish that payment of interest would cause any genuine

hardship to him.    

4. Before adverting to the contentions raised by the parties, however,

we  may  notice  that  the  Settlement  Commission  did  not  accept  the

incomes declared by the appellant in his returns filed on 1.1.1996 under

Section 148 of the Act and enhanced the amount of taxable income.  It

also estimated the income for earlier Assessment Year 1989-90 in terms

of Section 245-E of the Act, although, his application did not cover that

Assessment Year, the details whereof are as under:

“Assessmen t Year  

Income admitted by petitioner  

(in Rs.)

Income determined by Settlement

Commission (in Rs.)

1988-89 8,090 26,21,090 1990-91 10,75,310 33,51,574 1991-92 28,67,040 29,92,880 1992-93 13,62,100 56,35,038 1993-94 64,505 11,27,964 1994-95 56,880 1,52,880 1995-96 52,880 9,27,880 Total 54,82,805 1,68,09,306”

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The amount of tax quantified by the Assessing Officer in terms of

the order of the Settlement Commission for different Assessment Years

were as under:

“Assessment Year Tax demand payable (in Rs.)

1988-89 13,54,284 1990-91 37,29,992 1991-92 33,68,567 1992-93 61,39,448 1993-94 7,21,192 1994-95 65,145 1995-96 3,99,023

Total 1,57,77,651”

Demand notices were issued accordingly.  Taxes were payable in

terms thereof on or before 1.4.2000.  All amounts paid by the appellant

before the said date were adjusted.  The appellant had deposited a total

amount of Rs.1,60,66,947/- on or before 8.3.2002. The amount of interest

calculated at a sum of Rs.31,41,106/- was levied for non-payment of the

dues as on 8.3.2002 for Assessment  Years  1990-91,  1991-92,  1992-93

and 1995-96.  The amount so determined, however, stood rectified for the

four Assessment Years to the extent of Rs.24,36,352/- in stead and place

of Rs.31,41,106/- as would appear from the following chart.

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“Assessmen t Year  

Tax demand payable

(Rs.)

Levied Int. U/s. 220 (2)

(Rs.)

Demand paid/ recovered till

8.3.2000 (Rs.)

1988-89 13,54,284 NIL 13,54,284 1990-91 37,29,992 1,91,996 37,27,992 1991-92 33,68,546 4,58,463 33,68,546 1992-93 61,39,448 16,53,560 64,30,765 1993-94 7,21,192 NIL 7,21,192 1994-95 65,145 NIL 65,192 1995-96 3,99,023 1,32,333 3,99,023

Total 1,57,77,630 24,36,352 1,60,66,947”

5. Section  220(2A)  of  the  Act  contains  a  non-obstante  clause.  It

confers a jurisdiction upon the Chief Commissioner or Commissioner to

reduce or waive the amount of interest  paid or payable by an assessee

thereunder, if he is satisfied that:

(i) Payment of such amount has caused or would cause genuine

hardship to the assessee;

(ii) Default in the payment of amount on which interest has been

paid or was payable under the said sub-section was due to

circumstances beyond the control of the assessee; and

(iii) Assessee  has  co-operated  in  any  inquiry  relating  to  the

assessment or any proceeding for the recovery of any amount

due from him.  

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6. The submission of Mr. Verma is that non encashment of demand

draft worth Rs. 10 lakhs as also non-selling of the shares and securities as

prayed for by the appellant caused genuine hardship to the assessee, in

support  whereof  reliance has been placed on the New Collins Concise

English Dictionary, Words and Phrases Permanent Edition Vol.  18 and

Black’s Law Dictionary.   

It  was  furthermore  submitted  that  had  the  shares  and  securities

been sold when the request therefor was made, which was worth Rs. 30

lakhs  at  the relevant  time, the tax burden of the  appellant  would have

been reduced; particularly when after adjusting the amount of Rs.117.04

lakhs deposited by the appellant, only a sum of Rs. 40.73 lakhs remained

due.  

7. Ms.  Rajni  Ohri  Lal,  learned  counsel  appearing  on  behalf  of  the

respondents, however, drew our attention to the nature of the business,

the appellant had been carrying on and the magnitude thereof to contend

that the appellant did not suffer any genuine hardship.   

8. The  term  ‘genuine’  as  per  the  New  Collins  Concise  English

Dictionary is defined as under:

‘Genuine’  means  not  fake  or  counterfeit,  real, not pretending (not bogus or merely a ruse)”

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For interpretation of the aforementioned provision, the principle of

purposive construction should be resorted to.  Levy of interest although is

statutory in nature, inter alia for re-compensating the revenue from loss

suffered by non-deposit of tax by the assessee within the time specified

therefor.   The said principle should also be applied for the purpose of

determining  as  to  whether  any  hardship  had  been  caused  or  not.   A

genuine hardship would, inter alia, mean a genuine difficulty.  That per se

would not lead to a conclusion that a person having large assets would

never be in difficulty as he can sell those assets and pay the amount of

interest levied.   

The ingredients of genuine hardship must be determined keeping in

view the dictionary meaning thereof and the legal conspectus attending

thereto.  For the said purpose, another well—known principle, namely, a

person cannot  take advantage of  his  own wrong,  may also  have to  be

borne in mind.   The said principle, it is conceded, has not been applied

by the courts below in this case, but we may take note of a few precedents

operating in the field to highlight the aforementioned proposition of law.

[See  Priyanka Overseas Pvt. Ltd. & Anr.  v.  Union of India & ors.  1991

Suppl.  (1)  SCC 102, para 39,  Union of India & ors. v.  Major General

Madan Lal Yadav (Retd.) (1996) 4 SCC 127 at 142, paras 28 and 29,

Ashok Kapil v. Sana Ullah (dead) & ors. (1996) 6 SCC 342 at 345, para

7, Sushil Kumar v. Rakesh Kumar (2003) 8 SCC 673 at 692, para 65, first

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sentence, Kusheshwar Prasad Singh v. State of Bihar & ors. (2007) 11 scc

447, paras 13, 14 and 16).   

Thus, the said principle, in our opinion, should be applied even in a

case of this nature.  A statutory authority despite receipt of such a request

could have kept mum.  It should have taken some action.  It should have

responded to the prayer of the appellant.

However, another principle should also be borne in mind, namely,

that a statutory authority must act within the four corners of the statute.

Indisputably, the Commissioner has the discretion not  to accede to the

request of the assessee, but that discretion must be judiciously exercised.

He has  to  arrive  at  a  satisfaction  that  the  three  conditions  laid  down

therein have been fulfilled before passing an order waiving interest.   

Compulsion to pay any unjust dues per se would cause hardship.

But a question, however, would further arise as to whether the default in

payment of the amount was due to circumstances beyond the control of

the assessee.   

Unfortunately, this aspect of the matter has not been considered by

the learned Commissioner and the High Court in its proper perspective.

The Department had taken the plea that unless the amount of tax due was

ascertainable,  the securities  could  not  have  been sold  and  the demand

draft could not have been encashed.  The same logic would apply to the

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case of the assessee in regard to levy of interest also.  It is one thing to

say that  the  levy of  interest  on  the  ground  of  non-payment  of  correct

amount of tax by itself can be a ground for non-acceding to the request of

the assessee as the levy is a statutory one but it is another thing to say that

the said factor shall not be taken into consideration at all for the purpose

of  exercise  of  the  discretionary  jurisdiction  on  the  part  of  the

Commissioner.  Appellant  volunteered that the securities be sold.  Why

the said request of the appellant  could not be acceded to has not been

explained.  It was a voluntary act on the part of the appellant.   

It was not even a case where sub-Section (3) of Section 226 of the

Act was resorted to.  As the offer was voluntary, the authorities of the

Department subject to any statutory interdict could have considered the

request of the appellant.  It was probably in the interest of the revenue

itself to realize its dues.  Whether this could be done in law or not has not

been gone into.   

9. The same ground, however, was not available to the appellant in

respect of the demand draft,  as in relation thereto no such request was

made.  The demand draft was in the name of a Company.  It may be true

that when any document is seized, a presumption is raised that the same

belongs to the person from whose possession or control it was seized as is

laid  down in  sub-Section  (4A) of  Section  132  of  the  Act,  but  such  a

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presumption is a rebuttable one.  In the absence of any request made by

the Assessee himself, probably at that point of time, the same could not

have been encashed.  Appellant did not own the same in law.  He did not

make any request for its enchashment.   

Whether  such  a  presumption  should  be  raised  or  not  was  the

subject matter of consideration by the Assessing Officer at  the time of

making its final assessment as the appellant himself filed an application

before the  Settlement  Commission  in  terms of  Section  245C(1) of  the

Act.   

10. We are, therefore, of the opinion that interests of justice would be

subserved if the impugned judgment is set aside and the matter is remitted

to  the  Commissioner  of  Income  Tax  for  consideration  of  the  matter

afresh.  

11. The appeal  is  allowed accordingly to  the aforementioned extent.

No costs.

……………….…..………….J. [S.B. Sinha]

..………………..……………J.    [Cyriac Joseph]

New Delhi; October 01, 2008

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