1. Hanuman Ram Mahabir Ram (petitioner No. 1) is a partnership firm of which Mohan Lal Gupta (petitioner No. 2) is one of the several partners. The petitioners and the Revenue are in dispute over the way the latter is raising demands against the firm and its partners, purportedly on the basis of an order passed by the Settlement Commission under Section 245D of the Income Tax Act. According to the petitioners, after the order of the Settlement Commission the Revenue sat over the matter for a very long time and did not give them the benefit of adjustment of their liabilities of tax and interest against the value of the instruments admittedly in their hands. Now, it tries to pass over to the assessees the interest liability under Section 245D(6A) of the Act that accrued in the mean while due to its own inaction.
2. The facts of the case are brief and for the most part without any dispute. On 21.12.1994 the officers of the Revenue made a search at the business premises of the firm and its individual partners. In course of the search the Revenue seized a large amount of unaccounted cash and a number of valuable instruments and share certificates etc. The assessees went before the Settlement Commission under Section 245D of the Act and disclosed their income for a number of assessment years commencing from 1986-87. The Settlement Commission after hearing the parties and on a detailed consideration of the materials presented before it disposed of the matter by its order, dated 15.10.2001. Before the Settlement Commission it was the admitted position that the amount of cash sezied from the business premises of Hanuman Ram Mahabir Ram and its different partners amounted to Rs. 44.19 lakhs and taking into account the other instruments and share certificates etc. the total value of the seizure amounted to Rs. 61.87 lakhs. The Commission in para 18 of the order, recorded the statement made by the C.I.T. (DR), representing the Revenue as follows:
Regarding cash and bank accounts, the CIT (DR) reiterated that cash seized was Rs. 44.19 lakhs and alongwith the balances in benami bank of (sic) accounts including those of employees was Rs.61.87 lakhs. This did not include balance of accounts of the partners Shri Kanhyalal, Shri Kedar Nath and Shri Anil Kumar which could not be seized. In respect of stock valued at Rs. 20 lakhs by the CIT, Shri Sachan was of the opinion that only 15 lakhs worth of stock could be accepted on the basis of earlier years balance-sheets as explained by the applicants. Shri Sachan emphasized that the sundry debtors as on the date of search have now been correctly computed from the seized documents at Rs. 88.72 lakhs. The details comprise, receivable from UDL Rs. 8.54 lakhs, MDL Rs. 72.33 lakhs and other debtors at Rs. 7.84 lakhs. Regarding the investment in 15 vehicles taken at 35 lakhs and 15 lakhs in his report, CIT (DR) stated that the cost of construction of truck bodies and capsules to transport molasses needs to be further considered. He conceded that loans, if any, taken for the funding of purchase of trucks had not been adjusted.
3. Coming to the operative part of the order, the Commission found and held that the total surrender made by the five assessees before it (including the two petitioners) would aggregate to Rs. 1,74,07,416/- for assessment years 1986-87 to 1995-96 for the group. Having, thus, found and held as to what was the total income of the five assessees for the assessment years in question, the Commission gave the following directions with regard to the payment of tax(es):
Payment of tax - The unpaid tax liabilities will first be adjusted against the movable assets already seized and lying with the I.T. Department immediately within 35 days of the service of the order. Balance of the tax liability shall be paid in two-monthly twelve instalments within two years starting from the date of service of the order along with interest under Section 245D(6).
(emphasis added)
4. In regard to interests under Sections 234A, 234B and 234C of the Act, the Tribunal gave the following directions:
(i) Interest under Section 234A leviable for assessment years 1989-90 to 1992-93 would be levied as per law.
(ii) Interest under Section 234B would be charged from assessment years 1992-93 to 1994-95 upto the date of filing of return or processing of return or assessment whichever is later.
(iii) Interest under Section 234B for assessment years, 1989-90 to 1992-93 would be charged as per the provisions of Section 234B(4).
(iv) Interest under Section 234C would be levied as per law.
5. Apart from interests as indicated above the Commission also imposed a token penalty of Rs. 5 lakhs against the five assessees under Section 245D of the Act.
6. As noted above, the direction to the Revenue was to adjust the unpaid tax liabilities of the five assessees against the moveable assets already seized and lying with the I.T. Department 'immediately within thirty five days of the service of the order' and as we would see presently the key to resolving the dispute between the parties lies in finding out how far the Revenue complied with the Commission's directions in letter and spirit.
7. It is nowhere stated in the countless counter affidavits filed on behalf of the Rerenue is to when the order of the Commission was received in its office. Mr. Prakash Sahay, learned Counsel, Standing counsel, Income Tax Department, however, fairly stated that the order would normally reach the office within thirty days. We stretched the date further and assumed that the Commission's order would be served on the Revenue by December 31, 2001. In terms of the order, therefore, the unpaid tax liabilities of the five assessees were required to be adjusted against the moveable assets lying in the office of the I.T. Department by February 4, 2002. It is not known when the adjustments were actually made in the office records and the plethora of papers on record also fail to disclose as to when the initial demand was made to the assessees with regard to their balance liabilities of tax and interests.
8. In this proceeding, however, statements were submitted before the court as Annexure 'A' series to the additional counter affidavit filed on behalf of the Revenue. From the statements titled as 'Summary of Group Cases of M/s. Hauman Ram Mahabir Ram, Mirganj, Gopalganj' it appears that on the basis of the Commission's order the collective tax liability of the five assessees was fixed at Rs. 74,09,108/-. The assessees, including the two petitioners, accept it without any whisper of protest. The copartment fixed the collective liability of interest under Sections 234A, 234B and 234C at Rs. 10,10,373/- and this is the subject of a little controversy. The Revenue further fixed the collective liability of the five assessees with regard to the interests under Section 235D(6A) at Rs. 10,62,688/- and this is the main bone of contention between the parties.
9. To follow the way the amount of interest (Rs. 10,62,688/-) is calculated under Section 245D(6A) of the Act, it would be necessary to examine the way the adjustments of the tax liabilities were allowed in the summary of statements submitted by the revenue.
10. The amount of pre-paid taxes by the five assessees is shown as Rs. 2,59,038/- and the amount of collective adjustments against their unpaid tax liabilities is to the tune of only Rs. 24,06,8487-. Thus, the total tax collectively paid by the assessees comes to Rs. 26,65,886/- leaving the balance amount of tax at Rs. 47.43.220/-. In other words it is the sum of Rs. 47,43,222/- on which interest @ 15% is levied under Section 245D(6A) to arrive at the amount of interest of Rs. 10,62,688/-.
11. Mr. D.V. Pathy strongly contended that the amount of which adjustment was allowed against the petitioners' tax liability was prima facie wrong and incorrect. His mode of calculation was simple and straight-forward. He submitted that the total tax liability fixed by the revenue was Rs. 74,09,108/-. As against this, the admitted amount of seizure lying in the hands of the department amounted to Rs. 61.87 lakhs. Added to this, the admitted amount of pre-paid tax was Rs. 2,59,038/-. Thus, the balance amount of tax payable by the petitioners would be around Rs. 10 lakhs and not Rs. 47,43,222/- shown in the summary of statements given by the Revenue. Resultantly the amount of tax under Section 245D(6A) would be considerably lower than the amount mentioned in the summary of statements given by the Revenue.
12. Another statement of account was submitted before the court by Mr. Krishna Prasad, Advocate, who has filed an intervention petition on behalf of another partner of the firm, namely, Kanhaiya Lal. (The issue on which intervention is sought to be made will be considered presently). We would like to observe that the statement submitted by Mr. Prasad proved to be quite useful to the court in clearly following the issues on which the assessees and the Revenue were in conflict.
13. Mr. Prasad basically adopted the same line as Mr. Pathy though with greater clarity. In his statement of account the taxes and the interests under Sections 234A, 234B and 234C leviable against the firm and its four partners are shown separately. As noticed above there is no dispute with regard to the amount of tax leviable on the income assessed by the Commission, The difference on the amounts of interests under Sections 234A, 234B and 234C is also quite small. With regard to that small difference Mr. Prasad explained that the revenue had calculated interests under the aforesaid three provisions applying the rate of 1.5% per month. According to him, the lawfully applicable rate would be 1.25% per month because the rate of interest was reduced to 1.25% w.e.f. 1.6.2001, i.e. a few months before the order of the Commission. (It is made clear that we have only noted Mr. Prasad's contention with regard to lawfully applicable rate in computing interests under Sections 234A, 234B and 234C of the Act but we do not propose to make a final pronouncement here in that regard).
14. In Mr. Prasad's statement of account too the basic difference with the Revenue is on the question of computation of interest under Section 245D(6A) of the act. According to the Mr. Prasad, after taking into account the pre-pard taxes as per the Rerenue records, the total collective tax liabilities along with interest under Sections 234A, 234B and 234C of the Act, of all the five assessees would come to Rs. 78,98,196/-. From this he deducts the amount of cash seized (Rs. 44,03,576/-) plus the amounts from the bank accounts and the value of NSCs, KVPs, SBI Magnums and similar other instruments. After deducting the amount of cash and other securities lying in the hands of the revenue from the total liability of tax and interests under Sections 234A, 234B, 234C, the net balance comes to Rs. 10,79,932/-. Thus, according to the statement of Mr. Krishna Prasad, it is the amount of Rs. 10,79,932/- on which interest would accrue under Section 245D(6A) of the Act and not the sum of Rs. 47,42,222/- as shown in the statement submitted by the Revenue.
15. We have referred to the statements of calculations submitted by the Revenue, Mr. Pathy appearing for the petitioners and Mr. Prasad appearing for the proposed intervenor in some detail. Our purpose in doing so is not to hold that any one of those accounts are correct and the two others are not. That is a matter of accounting into which we are not at all inclined to enter. Our purpose in referring to the different statements was only to gather the exact nature of the controversy between the assessees and the revenue.
16. From the discussions made above it would be plainly clear that the main conflict between the parties revolves around the charge of interest under Section 245D(6A) of the Act.
17. The charge of interest under Section 245D(6A) is levied on the amount of unpaid tasps and with respect to this amount the court has before it three different figures (two of them being in approximation to each other while the third, by the Revenue, being vastly higher). The question, therefore, arises what exactly was the amount of unpaid taxes after adjustment of all the cash and the value of all the securities lying with the Revenue from the search and seizure made on 21.12.1994. That also can be ascertained without much difficulty with referencee to the relevant materials, particularly the order of the Commission. But the main issue of conflict between the Revenue and the assessees is the question of adjustment of the value of moveables other than cash, such as, bank accounts, NSCs, KVPs, share certificates of companies and similar other instruments.
18. According to the assessees, the benefit of adjustment against the net amount of tax with regard to moveables, other than cash, should have been allowed simultaneously with the amount of cash in seizure (Rs. 44.19 lakhs). On the other hand, the Revenue takes a contrary stand. According to the Revenue, it allowed adjustment of the cash in hand against the tax liability shortly after the order of the Commission but would not give the adjustment with regard to the other moveables for reasons strongly advanced before the court and it is this aspect of the matter that calls for an adjudication by the court.
19. Mr. Sahay strongly contended that it was not possible to give adjustment of the other moveables, such as bank accounts, NSCs, KVPs, share certificates of companies and such other instruments as those were not encashed and their conversion into cash took a long time due to non-cooperation by the assessees. He made elaborate submission trying to draw distinction between possession and mere physical custody, having control over and the instruments simply lying in the office, and submitted that in the absence of proper discharge and signatures by the assessees those instruments could not be converted into cash and were, therefore, of no use to the Revenue and accordingly, it was not possible to give adjustment to the assessees in respect of moveables other than cash.
20. We find the submission spacious and without substance both on facts and in law. In point of fact the court is not informed about the dates on which those instruments were converted into cash. Though countless counter affidavits are filed on behalf of the Revenue, none of those contain the dates on which the different bank accounts in the names of the assessees were transferred in favour of the Revenue or the dates on which the NSCs, KVPs, share certificates were converted into cash.
21. At this stage in the dictation of the judgment Mr. Sahay stood up and interjected that those were still lying with the Revenue. To a specific query by the court as to whether the Revenue ever asked the assessees to give formal discharge for those instruments and if it did when did it asks the assessees to give their respective discharge or put their signatures for encashment of those instruments Mr. Sahay was unable to give any satisfactory reply to the question. On record there is no material to indicate that the Revenue ever wrote to the assessees asking for the discharge of the instruments or to supply their signatures on relevant documents for their encashment.
22. In any event, the factual aspect is not of much relevance inasmuch as the submission of Mr. Sahay plainly overlooks the stringent provisions of Sections 132(3) and 226(3) of the Act. The provisions of the Act gives the income tax authorities sufficient power to have the balances in the different bank accounts transferred in the department's favour and to have the securities and other instruments encashed in the department's favour without any help, aid or assistance from the individuals from whose possession those were seized and in case the officers of the Revenue have not done it so far, no one else but they themselves are to be blamed for the omission.
23. On a careful consideration of the entire matter and on hearing counsel for the parties, we are unhesitantly of the view that the petitioners were as much entitled to adjustment of the seized moveables other than cash as the adjustment of the cash amount against their tax liability and the interest under Section 245D(6A) would accrue only on the net balance arrived at after deducting not only the cash but also the value of the other moveables lying with the Revenue from the seizure made on 21.12.1994. We, accordingly, direct the Revenue to redo the accounting after giving the assessees the adjustment of other moveables apart from the cash against their tax liability.
24. As noticed above, we fixed the date of receipt of the Commission's order in the office of the Revenue on December 31, 2001. In terms of the Commission's order the adjustment of the unpaid tax liabilities was to be made within thirty five days of service of the order. The amount of the unpaid tax liability after adjustments as directed above must, therefore, be determined with reference to February 4, 2002 and the interest under Section 245D(6A) would run on that amount from that date. A demand to the assessees on the basis of the revised calculations must be given within six weeks from the date a certified copy of this order is produced before the Income Tax Department.
25. Before closing the records of the case it may be stated that Kanhaiya Lal, another partner in the firm. sought to intervene in the matter in view of the statement made in para 20 of the writ petition. It appears that earlier the Revenue had allowed adjustment of about Rs. 15 lakhs to Kanhaiya Lal with regard to his personal tax liabilities (other than his liability as a partner of the firm). Later on, the Revenue took the stand that the adjustment was allowed to him wrongly and Rs. 15 lakhs was in fact part of the amount seized from the firm. Mr. Krishna Prasad strongly disputed the position. According to him, the amount of Rs. 15 lakhs in question was not part of the seizure made on 21.12.1994 nor was it part of the assets/income disclosed before the Commission and the Revenue was wrong in reviewing its stand after earlier giving Kanhaiya Lal the adjustment.
26. We wish to make it clear that we do not want to enter into this controversy as it clearly falls beyond the scope of the present writ petitions. We are not making any observation for or against Kanhaiya Lal or the firm or its other partners. It will be open to Kanhaiya Lal to satisfy the Revenue authorities about his claim. Needless to say that if it is found that the amount of Rs. 15 lakhs was in fact not part of the seizure or it was not part of the assets income disclosed before the Commission, the Revenue would allow him the adjustment in accordance with law. Otherwise, Rs. 15 lakhs will be taken as part of the money in the hands of the firm and its partners. The claim of Kanhaiya Lal must be considered by the Revenue while re-doing the account of the firm as per the directions given above. It will be open to the parties to appear before the Revenue officer and present their respective cases on the issue.
27. In the result these writ petitions are allowed, subject to the above observations and directions.