2010 (1) TMI 113 - HC - Income Tax

Waiver of interest under section 119(2) 234C Advance tax The appellant is a public limited company and they filed the return of income on December 31 1990 for the assessment year 1990-91. The assessee filed an application before the Board and sought for waiver of interest. In this case Madras High Court-held that the order is liable to be set aside and the appeal is allowed. The matter is remitted back to the Chief Commissioner of Income-tax for fresh consideration of the application filed by the appellant-assessee regarding the waiver of interest for the assessment year 1990-91 and the Chief Commissioner of Income-tax is expected to dispose of the application as expeditiously as possible after the receipt of the copy of the order from the appellant. No costs.

Summary

The core legal questions considered by the Court were: (1) Whether the Central Board of Direct Taxes (the Board), in exercise of its power under section 119(2)(a) of the Income-tax Act, 1961, is entitled to entertain an application from an individual assessee challenging the Assessing Officer's refusal to waive interest under section 234C of the Act; and (2) If such an application is entertained and disposed of by the Board, whether the Board is obligated to provide reasons for its decision.

The first issue concerns the scope and nature of the Board's power under section 119(2)(a), specifically whether this provision empowers the Board to entertain applications from individual assessees and whether such power is discretionary or subject to any procedural fairness. The second issue relates to the procedural requirements incumbent upon the Board when it exercises this power, particularly the duty to give reasons for its decisions.

Section 119(2) of the Income-tax Act confers on the Board a wide-ranging authority to issue general or special orders for the proper and efficient management of assessment and collection of revenue. Clause (a) of this subsection allows the Board to issue directions or instructions, including relaxation of certain provisions such as sections 234A, 234B, and 234C, which relate to interest and penalties. Clauses (b) and (c) explicitly contemplate the Board acting as a quasi-judicial authority by authorizing relaxation of statutory requirements or admission of belated claims, with the latter clause requiring reasons to be specified in the order.

The Court noted that while clauses (b) and (c) clearly envisage quasi-judicial functions with an obligation to give reasons, clause (a) does not explicitly impose such a requirement. However, the Court emphasized that the Board's power under clause (a) includes issuing guidelines and principles to be followed by income-tax authorities, which necessarily encompasses matters such as waiver of interest. When the Board entertains an application from an individual assessee under this clause and disposes of it, it effectively acts in a quasi-judicial capacity.

In its reasoning, the Court relied on precedent, including a Division Bench judgment of the Karnataka High Court, which held that the Board acts as a quasi-judicial authority when considering applications under section 119(2). The Court also referred to principles established by higher courts in administrative law, notably the requirement that a quasi-judicial authority must act fairly, apply its mind, and provide reasons for its decisions. The Court cited authoritative judgments emphasizing that the duty to give reasons is an essential element of natural justice and due process, ensuring transparency, fairness, and accountability in administrative decision-making.

The Court rejected the Revenue's contention that the Board is not obligated to entertain applications from individual assessees or to give reasons when disposing of such applications under section 119(2)(a). It distinguished the present case from precedents where the question was limited to the right to personal hearing before disposal of an application, noting that the present issue concerns the duty to give reasons after the application has been considered and decided.

Applying these legal principles to the facts, the Court found that the Board had entertained the appellant's application for waiver of interest but rejected it by a brief communication that did not provide any reasons. This amounted to a failure to discharge its quasi-judicial duty. The absence of reasons rendered the decision arbitrary and unfair, warranting judicial intervention.

The Court concluded that when the Board disposes of an application under section 119(2)(a), it must give reasons for its decision. The failure to do so vitiates the order. Accordingly, the Court set aside the Board's communication and remitted the matter to the Chief Commissioner of Income-tax (to whom the power had been delegated) for fresh consideration. The Chief Commissioner was directed to dispose of the application expeditiously and provide reasons for the decision.

Significant holdings include the following verbatim excerpt capturing the Court's core legal reasoning:

"When a grievance is made before the Board by way of an application and when once that application is entertained, certainly, the Board should consider whether the request was either against imposition of penalty or for waiver of interest and pass orders giving its reasons... A statutory discretion or power, whether it be administrative or quasi judicial, is subject to certain implied conditions or limitations... In Ridge v. Baldwin, it has been held that conferment of quasi-judicial power further implies that the person concerned must follow the rule of natural justice. In Wiseman v. Borneman, it has been held that a quasi-judicial authority, while discharging his functions as such, must give reasons for making the order which he is empowered to make... Except in cases where the requirement has been dispensed with expressly or by necessary implication, an administrative authority, exercising judicial or quasi-judicial functions, is required to record the reasons for its decision, as this requirement can be regarded as one of the principles of natural justice."

The Court thereby established the principle that the Board, when acting under section 119(2)(a) in entertaining and disposing of individual applications for waiver of interest or penalties, functions as a quasi-judicial authority and must provide reasoned orders. This principle ensures fairness, transparency, and accountability in the exercise of discretionary powers under the Income-tax Act.

In sum, the Court held that:

1. The Board is empowered under section 119(2)(a) to entertain applications from individual assessees for waiver of interest under section 234C.

2. When the Board entertains and disposes of such applications, it acts as a quasi-judicial authority.

3. As a quasi-judicial authority, the Board is obligated to give reasons for its decisions, even though the statute does not explicitly require it under clause (a).

4. The failure to provide reasons renders the Board's order liable to be set aside on grounds of arbitrariness and breach of natural justice.

5. The matter is remitted for fresh consideration by the delegated authority with directions to dispose of the application expeditiously and with reasoned orders.