The petitioner No. 1 is a private limited company and is an assessee under the Income Tax Act, 1961 (hereinafter referred to as the Act). Its case is being pleaded through petitioner No. 2. It is submitted that the petitioner is a small-scale industrial unit. It is engaged in the manufacture of wheat products. It is further submitted that the Government of Jammu and Kashmir had issued an incentive scheme, whereby certain subsidies were allowed to this assessee. For the assessment year 1991-92, the subsidy which was allowed was to the extent of Rs. 21,55,800 and for the assessment year 1992-93, the amount of subsidy was Rs. 32,69,797. The subsidy which was received by the assessee was claimed as not liable to taxation under the Act. Such was the plea taken before the respondent No. 3. It is further submitted that under Chapter VIA of the Act, special deductions are allowed from the gross total income. These deductions are permissible to new industrial units under sections 80HH and 80I of the Act. According to the petitioner, these deductions are allowed from the gross income as per the provisions of the Act. It is further submitted that section 80A of the Act provides that in computing the total income of an assessee, these shall be deductions as specified in sections 80C to 80U. It is further submitted that deductions are permissible under sections 80HH to 80I to every new industrial unit when conditions laid down in these sections are fulfilled.
According to the petitioner, for the two assessment years referred to above, deductions under sections 80HH and 80I were claimed. The computations made in this regard have been placed on the record as Annexures E and F. It is further submitted that the respondent No. 3 processed the case of the petitioner for the assessment year 1991-92 under section 143(1)(a) of the Act. Subsidy of Rs. 21,55,800 was added to the returned income. Deductions were re-calculated. The respondent No. 3 determined the deductions at Rs. 9,70,110 as against the addition of subsidy and made an addition of Rs. 11,85,690 on account of subsidy to the returned income. The orders passed in this regard have been placed on the record, as Annexures G and H. Against the above appreciation made by the respondent No. 3, an application for re-calculation was filed. This was rejected. Thereafter, the matter was taken before the appellate authority. The appellate authority came to the conclusion that the additions as ordered cannot be permitted under section 143(1)(a) and, accordingly, it deleted the additions. The further fact as pleaded in the petition is that the Income Tax Officer issued a notice in terms of section 143(2) and an order of assessment was passed. The Income Tax Officer again made an addition of subsidy amount of Rs. 21,55,800. The total income was, accordingly, assessed at Rs. 64,27,209. From this income, deductions were allowed in terms of sections 80HH and 80I. The total deduction on this was Rs. 28,26,576. The total taxable income was determined at Rs. 36,00,633. Copy of this assessment order has been placed on the record as Annexure J. Against the additions made by the respondent No. 3, an appeal was preferred before the Commissioner (Appeals). This officer passed an order. Copy of this is Annexure K. This officer came to the conclusion that some additions had been wrongly made and these were deleted. The further fact as pleaded in para 10 of the petition is that the respondent No. 3 preferred an appeal, after order Annexure K was passed on 23-2-1994. The respondent No. 3 excluded the income to the extent of Rs. 23,12,079. This included the amount of central sales tax subsidy of Rs. 21,55,800. The income was determined at Rs. 41,15,133. Deductions under sections 80HH and 80I were allowed to the extent of Rs. 7,86,140, whereas earlier this figure was Rs. 28,26,576. According to the petitioner, the necessity to decrease the deductions became imperative on account of provisions contained in sections 80HH and 80I whereby deductions are permissible to the extent of 20 per cent and 25 per cent, respectively, under each of the sections. The total allowable deduction being 45 per cent. The further fact is that against the determination made vide Annexure K and which was given effect to vide order Annexure L, an appeal was preferred before the Tribunal at Amritsar. The prayer made by the respondent No. 3 was that the deletion of addition to the extent of Rs. 21,55,800 has been wrongly made. It was also contended that there should be further deletion of Rs. 1,35,000, i.e., the amount representing the central investment subsidy. The total additions which were sought by the respondent No. 3, thus, come to Rs. 22,90,800. Copy of the grounds of appeal has been placed on the record as Annexure M. With regard to the assessment year 1992-93, the requisite averments are made in paragraph 12 of the petition. For facility of reference, this para is reproduced below :
'Similarly for the assessment year 1992-93 the petitioner claimed that subsidy amount of Rs. 32,69,767 as not assessable. A return declaring income of Rs. 21,07,960 was filed after claiming deduction under section 80HH of Rs. 6,25,675. The respondent No. 3 did not accept the return. He added subsidy amount along with other disallowances and determined the total income at Rs. 63,52,892 but allowed therefrom deduction on account of section 80HH of Rs. 12,24,391 and determined the taxable income at Rs. 51,28,501 (wrongly typed out in assessment order as Rs. 50,28,501). Here it shall be worthwhile to mention though the petitioner has filed its return after deducting amount of Rs. 6,25,675 on account of deductions under sections 80HH and 80I, the respondent No. 3 while assessing the income increased the deduction to Rs. 12,24,391 as income was increased.'
2. With regard to this assessment year, the deductions which were available to the petitioner as per the learned counsel appearing for the petitioner, were under section 80HH and not under section 80I. The allowable deduction was to the extent of 30 per cent only on the gross income. Copy of the grounds of appeal vis-a-vis assessment year 1992-93 is Annexure 'Q'. The further fact which is being pleaded is that on account of provisions contained in the Finance Act of 1998, a scheme was introduced. This scheme has been termed as Kar Vivad Samadhan Scheme, 1998 (hereinafter referred to as 'the scheme'). It is with regard to the liability which is supposed to be determined under this Scheme, which is required to be gone into in the present petition. The further facts on the basis of this Scheme are being noticed below :
It is pleaded that under the Finance (No. 2) Act, 1998, sections 86 to 98 were added. This was with a view to settle the recovery of disputed payments. A scheme known as Kar Vivad Samadhan Scheme of 1998 was enforced. According to the petitioner, under this Scheme, there was difference vis-a-vis penalty and immunity from prosecution on payment of arrears of tax at the specified rate where the demand had been created before 31-3-1998, and the assessee had filed an appeal or any reference was pending on the date of taxation under the Scheme referred to above. According to the petitioner, on the coming into force of the Scheme, the additions made by the respondent No. 2 should stand deleted except the additions made by the Commissioner (Appeals), Amritsar. It is submitted that in this case as noticed above, appeals stood preferred before the Tribunal. The petitioner submits that in terms of the Scheme, a declaration was filed wherein the petitioner offered to be assessed on the subsidy received for both the assessment years in the declaration filed. The petitioner offered the amount of subsidy to taxed, but wanted benefit of section 80HH and 80I. For the assessment year, this benefit was sought to the extent of 45 per cent and for the assessment year 1992-93, the benefit was sought to the extent of 20 per cent. This was because the later assessment year no benefit was sought in terms of section 80I. According to the petitioner, the calculations should be in the manner as projected in paragraph 18. The facts and figures so given are being reproduced below :
Rs.
'(a)
Assessment year : 1991-92
Subsidy received
21,55,800.00
Less : Deduction under sections 80HH and 80I.
9,70,110.00
Balance amount offered for tax
11,85,690.00
(b)
Assessment year 1992-93
Subsidy received
32,69,767.00
Add. Moisture gain
2,55,750.00
34,95,517.00
Less : Deduction under section 80HH
6,99,103.00
Amount offered for tax
27,96,414.00.'
3. The further fact which is mentioned is that the respondent No. 2 on 24-2-1999 informed the petitioner that the tax which becomes payable under the Scheme for the two assessment years is, as under :
'Assessment year
Amount payable Rs.
1991-92
8,01,780.00
1992-93
16,10,592.00.'
4. The petitioner submits that the figure arrived at by the respondent is not correct and the demand could be raised to the extent of Rs. 4,14,991 and Rs. 9,78,744. The petitioner submits that a reply was sent to the communication dated 1-3-1999. It is submitted that the benefit of tax permissible under sections 80HH and 80I, should be allowed. The communication sent in this regard is Annexure C. To this the reply given is by way of Annexure U. The prayer made vide Annexure C was declined. According to the petitioner, this demand which has been created, is contrary to the mandate of section 90(1) of the Finance (No. 2) Act, 1998. It is submitted that the designated authority on receiving the declaration under section 88 is supposed to determine the amount payable by the declarant and the requisite certificate has to be granted. It is submitted that in the present case, neither any order has been passed nor any copy thereof has been made available. It is submitted that a certificate was required to be issued in terms of rule 4(a) and the form which was required to be used as Form 2A. It is submitted that this has not been done. It is, accordingly, submitted that on account of this technical flaw, nothing more than as suggested can be imposed against the petitioner. Thus, what is sought to be urged is that the petitioner should be given benefit of sections 80HH and 80I and thereafter, requisite order shall be passed in terms of rule 4(a) of Form 2A. As this has not been done, and as demand has been created vide Annexure A, the petitioner has approached this court.
5. As indicated above, the basic argument is that the petitioner is entitled to the deduction as permissible under sections 80HH and 80I. For this, reliance is being placed on Annexure R. This is a circular issued by the department; in particular reliance has been placed on example '1'.
This is as under :
'Ex. 1. Assessment year 1997-98
Rs.
Status
Individual
Total income
1,20,000
Tax on T.I.
21,000
Less : rebate under section 88
5,000
Tax payable
16,000
Tax paid
5,000
Tax arrears
Rs. 11,000
Income relatable to tax paid (Rs. 5,000 + rebate of Rs. 5,000) : Rs. 83,333.'
6. It is submitted that in the example 1 rebate permissible and the tax deposited has been taken note of and thereafter arrears have been calculated. It is submitted that same procedure should be adopted in the present case also. The stand taken by the respondents is that a notice in terms of section 90(i) of the Scheme was issued on 24-2-1995 and the demand of an amount as determined, i.e., Rs. 8,01,780 and Rs. 16,10,592 has been created in accordance with law. It is urged by the counsel appearing for the respondents that the petitioner is not entitled to the benefit of sections 80HH and 80I, therefore, the controversy which requires to be looked into, would be vis-a-vis the question as to whether the petitioner is entitled to deduction in terms of sections 80HH and 80I, and whether a proper order in terms of rule 4(a) and Form 2A has been issued or not.
Factual submission be noticed again.
7. For the assessment year 1991-92, the major dispute is about the amount of subsidy of Rs. 21,55,800 which the assessing officer had added back, but at the same time, allowed 45 per cent deduction on account of sections 80HH and 80I relief. The Commissioner (Appeals) deleted the addition of Rs. 21,55,800 and the assessing officer while giving effect to that order, disallowed corresponding relief under sections 80HH and 80I at the rate of 45 per cent thereof. Net result was that the assessee got tax relief of Rs. 6,13,598 in respect of the deletion of said addition. Tax payable under the scheme at the rate of 35 per cent of Rs. 11,85,696 has been worked out at Rs. 4,14,991. On the other hand, the department has started with the premise that the disputed income is Rs. 21,55,800 and on that basis worked out the tax at the rate of 35 per cent under the Scheme at Rs. 8,01,780.
8. For the assessment year 1992-93, the assessing officer had added a sum of Rs. 32,69,767 towards subsidy and Rs. 2,25,750 as moisture gain. Both these additions were deleted by the Commissioner (Appeals). The assessing officer had initially allowed 20 per cent relief on the above figure of Rs. 34,95,507 under section 80HH. While giving effect to the order of the Commissioner (Appeals), the assessing officer deleted the additions of Rs. 34,95,517 and correspondingly reduced the relief of 20 per cent under section 80HH. The tax relief allowed by the Commissioner (Appeals) with reference to the deletion of above addition worked out to Rs. 16,07,039. The assessee took the figure of Rs. 16,07,039 as tax arrears. Applying the tax rate of 57.5 per cent, the assessee computed the disputed income at Rs. 27,96,414 and worked out the tax payable under the scheme at the rate of 35 per cent at Rs. 9,78,744. As against that the department has not indicated the basis of computation of disputed income taken by it but has worked out the tax payable under the scheme at the rate of 35 per cent at Rs. 16,10,592.
9. The object of the Scheme introduced by the Finance (No. 2) Act, 1998 and consisting of sections 86 and 98 (both inclusive) as also a schedule was to liquidate tax arrears, locked-in-litigation, and thereby to augment resources and reduce litigation by giving a concessional rate of tax. Since the object of the Scheme was to reduce the litigation and realize unpaid taxes, the definition of tax arrears had been made a crucial part of the Scheme. While examining the constitutionality of the provisions of the Scheme, the Delhi High Court in the case of All India Federation of Tax Practitioners v. Union of India (1999) 236 ITR 11, held that all the assessees litigating and in arrears belonged to one class, and that any attempt at carving out further classes by reference to who is the prosecutor/appellant/applicant in the pending litigation was void as based on no intelligible differentia. It was further observed by the High Court that the object of the Scheme would be sought to be achieved could be so done by striking out the proviso to section 92 of the Scheme and reading down the definition of tax arrears in clause (m) of section 87 of the Scheme. Reading down the provisions of a particular section is a well-known tool to maintain that they are constitutionally valid. This was so done by the Supreme Court in the case of Union of India v. A. Sanyasi Rao : [1996]219ITR330(SC) . Again according to the Delhi High Court, the definition of tax arrears should be so read as to mean the amount of tax, penalty or interest determined by any competent authority on or before 31-3-1998, though such determination might have been set aside at a later stage, if such setting aside has not been accepted by the department and continues to remain under challenge before a court or a Tribunal. The Delhi High Court did not, therefore, discriminate between the assessee as a litigant or the department, as a litigant and so read down the definition of tax arrears to make it constitutionally valid; otherwise, the provision would have been discriminatory. The definition of tax arrears would, therefore, remain the same whether the assessee is in appeal or it is the department which has gone in appeal. Section 88 of the Scheme clearly shows that tax payable under the Scheme is to be determined on the basis of disputed income, being 35 per cent of such income. Then disputed income would mean the whole of so much of the total income as is related to the disputed tax. Then disputed tax would mean the total tax determined and payable but which remains unpaid on the date of making a declaration under section 88. This, therefore, represents the tax arrears within the meaning of section 87(m). This tax arrears would represent the tax remitted by the first appellate authority against whose decision an appeal has been filed before the Tribunal. This is the effect of reading down the definition of tax arrears as ordered by the High Court.
10. The question which is, thus, required to be gone into in this writ petition is as to what would be the factor which is to be taken into consideration for arriving at 35 per cent figure under the Scheme. The purpose of this scheme is to see to it that the dispute comes to an end. Therefore, the assessee would not raise any unnecessary dispute with a view to prolong the litigation. This, however, does not mean that the revenue can take un-reasonable view and determine the figure which is unrealistic or could not be otherwise determined. What is ultimately to be taken note of is that what is the disputed income and then disputed amount has to be ascertained. If on account of certain incentives or on account of provisions contained under income-tax Scheme, certain deductions are permissible, then those deductions have necessarily to be given. It is only after giving this deduction that the tax liability would arise. This is precisely what the petitioner wants. He wants rebate or concession as envisaged by the Act. By giving effect to all this, he is rightly relying upon the Example I in Annexure R.
Therefore, the petitioner is right in his submission that when tax liability is created and the disputed tax is found out, this has to be taken note of. The benefits which are available to it under sections 80C to 80U and particularly sections 80HH and 80I are required to be taken note of. It is this limited aspect of the matter regarding which the petitioner is rightly claiming benefit. Therefore, to this extent the petitioner is right. The respondent authorities would take note of this aspect of the matter and would take remedial measures on their own level. Whatever benefit the petitioner is entitled to on account of this exemption and incentives be given to it. Let appropriate order be passed. Meanwhile the petitioner would deposit the tax liability which the petitioner would compute on its own level.
Disposed of as such.