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CASE NO.: Appeal (civil)  4411 of 2003

PETITIONER: Commissioner of Income Tax,Rajkot.                                       

RESPONDENT: Shatrusailya Digvijaysingh Jadeja        

DATE OF JUDGMENT: 01/09/2005

BENCH: B.P. SINGH & S.H. KAPADIA

JUDGMENT: J U D G M E N T

KAPADIA, J.         The question which arises for determination in this civil  appeal filed by the department is \026 whether the department was  right in rejecting the Kar Vivad Samadhan Scheme declarations  filed by the respondent-assessee on the ground that the  assessments had become final in the year 1992-93 (when the  assessee’s appeals were dismissed for failure to pre-deposit  self-assessed tax) and that the respondent herein had filed  revisions under the Income Tax Act and Wealth Tax Act in  November/December, 1998 only to obtain the benefit of Kar  Vivad Samadhan Scheme, 1998, which came into force w.e.f.  1.9.1998.  According to the department, the revisions filed by  the assessee were time barred and as such they were not  "pending" in terms of  section 95(i)(c) of the said Scheme.   

       The undisputed facts which lie within a very narrow  compass are as follows:

       In respect of assessment years 1984-85 to 1991-92, the  assessee was liable to pay tax under assessment orders passed  vide section 143(3) of the Income Tax Act, 1961 and also under  the assessment orders passed under the Wealth Tax Act, 1957.

       Being aggrieved by the assessment orders, the assessee  herein, preferred appeals to the Commissioner (A) under  section 246 of the said Act.  However, the assessee failed to  pre-deposit the self-assessed tax and consequently, the appeals  came to be dismissed in the year 1992-93.   

       The Finance (No.2) Act, 1998 introduced a scheme  called Kar Vivad Samadhan Scheme (for short "the Scheme").   The said Scheme was contained in Chapter IV of the Finance  Act and consisted of sections 86 to 98 (both inclusive).  The  said scheme came into force w.e.f. 1.9.1998 in respect of tax  arrears outstanding as on 31.3.1998 and was in force up to  31.1.1999.

       On 28/29.12.1998, the assessee herein filed appeals and  revisions as mentioned in the statement given herein below:

STATEMENT OF APPEALS AND REVISION PETITION VIS-@-VIS DECLARATIONS  IN RESPECT OF KVSS UNDER INCOME TAX ACT. Assessment  year Appeals/

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Revision  Petition  Filed Date of filing of  Appeal /  Revision  Petition Date of filing  KVSS  declaration Date of order  on KVSS  Declarations Status on  KVSS  declarations Date of order on  application for  condonation of  delay in filing of  Appeal/ Revision Status on the  application for  condonation of  delay in filing  Appeal/  Revision 1980-81 Appeal 13/15.01.99 Last Week of  Jan., 1999 15/22/23.2.99 &  5.3.99 Accepted

Delay  condoned 1981-82 Appeal 13/15/01.99 Last Week of  Jan., 1999 15/22/23.2.99 &  5.3.99 Accepted

Delay  condoned 1984-85 Revision 26.11.98 to  8.12.1998 28/29.12.98 9.2.1999 Rejected 31.3.2000 Delay  not  condoned 1985-86 Revision 26.11.98 to 8.12.1998 28/29.12.98

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9.2.1999 Rejected 31.3.2000 Delay not  condoned 1986-87 Revision 26.11.98 to 8.12.1998 28/29.12.98 9.2.1999 Rejected 31.3.2000 Delay not  condoned 1987-88 Revision 26.11.98 to 8.12.1998 28/29.12.98 9.2.1999 Rejected 31.3.2000 Delay not  condoned 1988-89 Appeal 13/15.01.99 Last Week of  Jan., 1999 15/22/23.2.99 &  5.3.99 Accepted

Delay  condoned 1988-89 Revision 26.11.98 to 8.12.1998 28/29.12.98 9.2.1999 Rejected 31.3.2000 Delay  not  condoned 1989-90 Appeal 13/15.01.99 Last Week of  Jan., 1999 15/22/23.2.99 &  5.3.99 Accepted

Delay  condoned 1989-90 Revision 26.11.98 to 8.12.1998 28/29.12.98 9.2.1999 Rejected 31.3.2000

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Delay not  condoned 1990-91 Appeal 13/15.01.99 Last Week of  Jan., 1999 15/22/23.2.99 &  5.3.99 Accepted

Delay  condoned 1990-91 Revision 26.11.98 to 8.12.1998 28/29.12.98 9.2.1999 Rejected 31.3.2000 Delay not  condoned 1991-92 Appeal 13/15.01.99 Last Week of  Jan., 1999 15/22/23.2.99 &  5.3.99 Accepted

Delay  condoned 1991-92 Revision 26.11.98 to 8.12.1998 28/29.12.98 9.2.1999 Rejected 31.3.2000 Delay not  condoned 1992-93 Appeal 13/15.01.99 Last Week of  Jan., 1999 15/22/23.2.99 &  5.3.99 Accepted

Delay  condoned 1993-94 Appeal 13/15.01.99 Last Week of  Jan., 1999 15/22/23.2.99 &  5.3.99 Accepted

Delay

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condoned

       On the above facts, the department’s case before us is  that the scheme was enacted to resolve the pending litigation;  that the purpose of the scheme was not to create artificial  pendency of litigation; that the revisions were not pending on  1.9.1998 when the scheme came into force as the revisions were  filed in November and December, 1998 along with applications  for condonation of delay and consequently, such revisions did  not come within the meaning of the word "pendency" as  mentioned in section 95(i)(c) of the said Scheme.  On behalf of  the department, it was further pleaded that under the IT Act,  there was a difference between an appeal and a revision; that  the remedy of filing an appeal is available to an assessee under  section 246 as a matter of right whereas the remedy of filing  revision under section 264 was a discretionary remedy.  On  facts, it was pleaded that the revisions filed by the assessee  were not bonafide as the appeals under section 246 stood  dismissed in the year 1992-93 for failure to pre-deposit self- assessed tax; that the revisions filed were also not bona fide as  they were filed only to obtain the benefit of the said scheme;  that the revisions were filed under section 264 before the  commissioner after a long delay and they were rightly  dismissed by the commissioner subsequently for want of  sufficient cause to condone the delay.   

       Shri K.P. Pathak, learned ASG appearing on behalf of the  department would submit that the scheme was a self-contained  Code; that it stood on its own force different from the Income  Tax Act/Wealth Tax Act; that the intention of the Scheme as  reflected in the speech of former finance minister indicated that  the purpose of the Scheme was to bring to an end pending  litigation and not to create an artificial litigation in respect of  assessments which had attained finality.  In this connection,  learned counsel pointed out that in the present case the  department had in fact resorted to execution proceedings and a  part of the arrears was also realized through the auction sale of  the lands of the assessee and, therefore, there was no bona fide  pendency of litigation on the date when the assessee filed his  declarations under the Scheme.  The learned counsel submitted  that there was a difference between an appeal under section 246  and revisions under section 264 of the IT Act; that under the  proviso to section 264, the commissioner was empowered to  condone the delay in filing of revision if he was satisfied that  the assessee was prevented by sufficient cause from preferring  the revision within the prescribed time.  It was submitted that  the revision petition was not pending in terms of section  95(i)(c) of the Scheme; that the delay in filing the revisions was  not condoned and, consequently, the assessee was not eligible  to take the benefit of the scheme.  In this connection, learned  counsel placed reliance on the judgment of this Court in the  case of Computwel Systems P. Ltd v. W. Hasan & Another  reported in (2003) 260 ITR 86.

       Per contra, Shri M.L.Varma, learned senior counsel  appearing on behalf of the assessee submitted that revisions and  appeals were filed by the assessee along with the condonation  applications; that, however, declarations pertaining to the  assessment years covered by the appeals under sections 246  were accepted by the designated authority (for short "DA")  under the Scheme though the applications for condonation of  delay were pending decision whereas the DA rejected the  declarations filed by the assessee covered by the revisions  without waiting for the commissioner to exercise his authority

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to condone the delay under the proviso to section 264 of the IT  Act.  Learned counsel made the grievance that no reason has  been given by the department for rejecting one set of  declarations concerning revisions under section 264 while  accepting declarations concerning appeals under section 246 of  the IT Act, though in both the cases, applications for  condonation of delay were filed and pending.

       On the question of law, learned counsel invited our  attention to section 95(i)(c) and submitted that the scheme was  a Code by itself; that the object of the scheme was to recover  the taxes locked in the pending litigation and for the purposes  of the applicability of the scheme, appeals, references,  revisions, writ petitions pertaining to the tax cases were all put  at par under section 95(i)(c) of the Scheme.  It was urged on  behalf of the assessee that if a revision or an appeal was  pending on the date of the filing of the declaration under the  Scheme, it was not open to the DA to hold that the  appeals/revisions were sham, ineffective or infructuous.  In this  connection, reliance was placed on the judgment of this Court  in the case of Dr. Mrs. Renuka Datla & Others v.  Commissioner of Income-Tax & Another reported in  (2003)  259 ITR 258.  

       The basic point which we are required to consider in this  case is the meaning of the word "pending" in section 95(i)(c) of  the said Scheme.

       The object of the scheme was to make an offer by the  Government to settle tax arrears locked in litigation at a  substantial discount.  It provided that any tax arrears could be  settled by declaring them and paying the prescribed amount of  tax arrears, and it offered benefits and immunities from penalty  and prosecution.  In several matters, Government found that  large number of cases were pending at the recovery stage and,  therefore, the Government came out with the said Scheme  under which it was able to unlock the frozen assets and recover  the tax arrears.   

       In our view, the Scheme was in substance a recovery  scheme though it was nomenclatured as a "litigation settlement  scheme" and was not similar to the earlier Voluntary Disclosure  Scheme.  As stated above, the said Scheme was a complete  Code by itself.    Its object was to put an end to all pending  matters in the form of appeals, reference, revisions and writ  petitions under the IT Act/WT Act.  Keeping in mind the above  object, we have to examine section 95(i)(c) of the Scheme,  which was different from appeals under section 246, revisions  under section 264, appeals under section 260A etc. of the IT  Act and similar provisions under the W.T. Act.  Under the I.T.  Act, there is a difference between appeals, revisions and  references.  However, those differences were obliterated and  appeals, revisions and references were put on par under section  95(i)(c) of the Scheme.  The object behind section 95(i)(c) in  putting on par appeals, references and revisions was to put an  end to litigation in various forms and at various stages under the  IT Act/Wealth Tax Act and, therefore, the rulings on the scope  of appeals and revisions under the IT Act or on Voluntary  Disclosure Scheme, will not apply to this case.

       One more aspect needs to be looked into.  The Finance  (No.2) Act, 1998 introduced a Scheme called Kar Vivad  Samadhan Scheme, 1998.  It was a recovery scheme.  Under the  Scheme, the tax arrear had to be outstanding as on 31.3.1998.   Under section 87(f), "disputed tax" was defined to mean total

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tax determined and payable under the IT Act/Wealth Tax Act in  respect of an assessment year but which remained unpaid as on  the date of making of the declaration from which TDS, self- assessed tax, advanced tax paid, if any, had to be deducted  under section 90; the DA had to determine the amount payable  and for that purpose, he had to determine the tax arrear as well  as the disputed amount as defined under section 87(f). Thus, the  DA had to make an assessment of tax arrears, disputed amount  and amount payable for each year of assessment; that appeal  was barred against the order under section 90 (see section 92);  that such determination had to be done within 60 days from the  receipt of the declaration and based thereon the DA had to issue  a certificate. In other words, till the completion of the  aforestated exercise, the appellant could not have paid the  amount of tax and, therefore, the appellant was not liable to pay  interest as his liability accrued only after the ascertainment of  the amount payable under section 90.  In the present matter, that  exercise has been completed; that taxes have been recovered by  sale of lands; that amounts have been paid pursuant to the  determination by the DA, may be under the orders of the High  Court and, therefore, we do not wish to reopen the matter.  

       In the case of Dr. Mrs. Renuka Delta (supra), this Court  has held on interpretation of section 95(i)(c) that if the appeal or  revision is pending on the date of the filing of the declaration  under section 88 of the Scheme, it is not for the DA to hold that  the appeal/revision was "sham", "ineffective" or "infructuous"  as it has.   

       In the case of Raja Kulkarni v. The State of Bombay  reported in AIR 1954 SC 73, this Court laid down that when a  section contemplates pendency of an appeal, what is required  for its application is that an appeal should be pending and in  such a case there is no need to introduce the qualification that it  should be valid or competent.  Whether an appeal is valid or  competent is a question entirely for the appellate court before  whom the appeal is filed to decide and this determination is  possible only after the appeal is heard but there is nothing to  prevent a party from filing an appeal which may ultimately be  found to be incompetent, e.g., when it is held to be barred by  limitation.  From the mere fact that such an appeal is held to be  unmaintainable on any ground whatsoever, it does not follow  that there was no appeal pending before the Court.

       To the same effect is the law laid down by the judgment  of this Court in the case of Tirupati Balaji Developers (P) Ltd.  v. State of Bihar & Others reported in (2004) 5 SCC 1, in  which it has been held that an appeal does not cease to be an  appeal though irregular and incompetent.

       For the aforestated reasons, orders of the designated  authority rejecting the declarations filed by the assessee are  quashed.  We do not find any infirmity, to this extent, in the  impugned judgment of the High Court.  The appeal is  accordingly dismissed, with no order as to costs.