TMI Blog2018 (1) TMI 1115X X X X Extracts X X X X X X X X Extracts X X X X ..... his appeal, ought to be directed to be bound down by the same. It is a settlement process voluntarily invoked by the petitioner in order to escape criminal prosecution under the Act. Since an accused may have to suffer severe consequences for non-payment of tax, if he is held to be guilty, it is not open to him to challenge the reasonableness of the same. The petitioner had consciously undertaken to abide by the decision of the Committee constituted for compounding the offences. Accordingly, the petitioner has the option to deposit the compounding charges as determined within a period of four weeks from the date of this order, failing which, the authorities would be entitled to re-compute the compounding charges for the delayed payment and proceed in accordance with law. Petitioner is directed to pay costs of ₹ 50,000/- to the Respondent within a period of four weeks from the date of this order. - W.P.(C) 6268/2017 - - - Dated:- 23-1-2018 - MR. SANJIV KHANNA MS. PRATHIBA M. SINGH JJ. Petitioner Through: Mr. Ashish Mohan, Advocate. Respondents Through: Mr. Santosh Kumar Pandey, Advocate for UOI. Mr. Rahul Kaushik, Sr. Standing Counsel for Income Tax Departme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s after order for framing of charge was passed, the petitioner approached the Commissioner of Income Tax for compounding of offences under Sections 276C and 277 read with Section 278D of the Act for the block assessment period between 1st April, 1986 to 1st November, 1996. This application for settlement was rejected by the Commissioner on 31st July, 2014, primarily on the ground that tax as due and demanded had not been paid by petitioner. 5. On 23rd December, 2014, the CBDT issued revised guidelines for compounding of offences. The petitioner deposited the tax amount of ₹ 8,19,419/- on 13th November, 2014 and thereafter on 20th November 2015, informed the authorities that the interest amount of ₹ 19,33,295/also stood deposited. A further sum of ₹ 90,136/- which was the balance amount of interest was, thereafter, deposited by the Petitioner on 6th January 2016. On 7th January, 2016 a fresh application for compounding was filed. 6. Notice dated 18th January, 2016 was issued to the petitioner informing him that an application for compounding of offences should be made to the Principal CCIT. On 22nd January, 2016 the petitioner submitted the application to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpounding fee, the prosecution establishment expenses and litigation expenses including counsel's fee within a period of 60 days from the receipt of intimation. b) The assessee undertaking to withdraw appeals filed byhim which are pending at appellate level. 11. The imposition of compounding fees to the tune of ₹ 69,75,949/was reiterated vide letters, on 19th May, 2017, 30th May, 2017 and 23rd June, 2017 by the authorities. The petitioner then filed the present writ petition before this Court. On 24th July, 2017, it was directed that the compounding application filed by the petitioner shall not be rejected for non-payment of compounding charges. Thereafter, on 18th August, 2017 the proceedings before the ACMM in CC No. 294032/2016 were also stayed by this Court. We have heard arguments of both sides. Petitioner s submissions 12. Learned counsel appearing for the petitioner submits that the quantum of compounding charges is exorbitant and in fact constitutes a tax or a levy without the sanction of law. It is further submitted that as against the total tax demand of ₹ 8,19,419/-, that remained unpaid, and interest thereon of ₹ 20,23,431/-, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rections for proper composition of offences. Thereafter, the Supreme Court in Y.P. Chawla v. M.P. Tiwari (1992) 2 SCC 672 (for short, Y.P. Chawla SC ) reversed the decision of the Delhi High Court, and affirmatively recognized the power of CBDT to issue guidelines for compounding, including compounding charges. 16. It is the submission of the respondent that compounding charges have a deterrent element, for they compound an offence and by itself, the said charge is one which cannot be assailed on the ground of arbitrariness. Compounding of Offences Concept 17. The concept of compounding of offences in taxation law is not unique to India. Most jurisdictions of the world do provide for such measures even when there is wilful non-payment or evasion of tax which is an offence under the respective laws. Such offences can be compounded on the request of the assessee as per the guidelines provided either in the statutes, judicial precedents, administrative instructions or any other laws. 18. By way of illustration, in the United Kingdom, any person found guilty of an offence of fraudulent evasion of income tax is liable to criminal prosecution with a fine upto the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egulated, dictated or circumscribed in any manner. In Y.P. Chawla DHC (supra), a Division Bench of this Court had quashed instructions of the CBDT to the extent that they curtailed the power of the Commissioner to compound offences. It was observed that the Commissioner exercises judicial or quasijudicial functions and the same cannot be controlled by means of circulars and guidelines. 22. The Supreme Court in Y.P. Chawla SC (supra), reversed the decision of the Delhi High Court, reiterating that the circulars issued by CBDT are binding on all officers and persons employed in the execution of the Act. It was noticed that an explanation had been introduced by the Finance Act (2) of 1991 with retrospective effect from 1st April, 1962. The Supreme Court, thereafter, held: 10. The Explanation is in the nature of a proviso to Section 279(2) of the Act with the result that the exercise of power by the Commissioner under the said section has to be subject to the instructions issued by the Board from time to time. The Explanation empowers the Board to issue orders, instruction or directions for the proper composition of the offences under Section 279(2) of the Act and further speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e etc. For this reason, and in order to maintain uniformity and consistency, circulars and guidelines are required to be issued for compounding of offences. Such guidelines and circulars ensure a degree of objectivity. 25. In view of the decision in Y.P. Chawla SC (supra), the power to issue guidelines is now unquestionable and cannot be challenged. One such guideline was Instruction No. 1317 dated 11th March, 1980 which was the subject matter of the Y.P. Chawla SC (supra). Subsequently also, guidelines and circulars have been issued from time to time. Guidelines on Compounding of Offences, 2014 26. The guidelines under challenge in the present petition were issued on 23rd December, 2014 by the CBDT. The salient features of these guidelines are: The power to compound vests in CCIT/DGIT; Offences under the Indian Penal Code ( IPC ) are not compoundable; Offences under Sections 276, 276B, 276BB, 276DD, 276E, 277, and 278 were categorized as category A offences; Offences under Sections 275A, 275B, 276, 276A, 276AA, 276AB, 276C(1), 276C(2), 276CC, 276CCC, 276D, 277, 277A, and 278 were categorized as category B offences. 27. Eligibilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ishment expenses, litigation expenses, including the counsel s fee, etc. Prosecution expenses, establishment expenses, etc., would be charged @ 10% of the compounding fee, subject to a minimum of ₹ 25,000/-. 32. The guidelines also provide a format for an assessee to make a compounding application, which includes an undertaking to pay the compounding charges. Thus, the guidelines are exhaustive in nature and provide different compounding charges for different offences. The CBDT, while issuing the said guidelines, has obviously borne in mind the various established principles for compounding of offences including gravity of the offences, conduct of the parties, manner in which the offence is sought to be committed, etc. The Explanation to Section 279 clearly vests the CBDT with the powers to issue circulars, orders, instructions or directions for proper composition of offences. The circular does not suffer from any illegality. The guidelines do not reflect any exercise of power which is arbitrary or illegal, inasmuch as such guidelines are issued by authorities for compounding of various kinds of offences. Examples of offences which can be compounded include those under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er s Association (supra), the Supreme Court was considering the increase in license fee with respect to a trade license for running a lodging house, hotel, and restaurant and as to whether the same is in the nature of a tax or a fee. The contention of the Petitioner was that there is no quid pro quo between the fee charged by the Respondent and the services rendered by the respondent to traders. The Supreme Court held that it is not necessary that fee must be charged only a quid pro quo and the same could be even for regulatory purposes. The Supreme Court observed: 9. It is, by now, well settled that a license fee may be either regulatory or compensatory. When a fee is charged for rendering specific services, a certain element of quid pro quo must be there between the service rendered and the fee charged so that license fee is commensurate with the cost of rendering the service although exact arithmetical equivalence is not expected. However, this is not the only kind of fee which can be charged. License fees can also be regulatory when the activities for which a license is given require to be regulated or controlled. The fee which is charged for regulation for such activity w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 30,15,158/- ALL UNDISCLOSED INCOMES WITH RESPECTIVE YEARS Undisclosed income for the AY 1993-94 5,23,875 Undisclosed income for the AY 1994-95 5,05,227 Undisclosed income for the AY 1995-96 13,68,225 Undisclosed income for the AY 1996-97 3,56,694 Undisclosed income for the AY 1997-98 2, 61,137 (This way the total undisclosed income for the block period is worked out at ₹ 30,15,158/- ) 41. Sometime in 2006, notice was issued by the department to the petitioner that the tax amount was not paid. An appeal appears to have been preferred by the petitioner before the ITAT in the year 1997. As on 22nd January, 2007, only revised grounds of appeal were filed. The petitioner has not prosecuted his appeal as is apparent from the record. In any event, with the filing of the compounding application, the petitioner has undertaken to withdraw his appeal. Thus, the appeal before the ITAT would have no bearing on the decision of the present ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Petitioner was informed that the application for compounding had to be made to Pr. CIT, and an application in this regard was made on 22nd January, 2016. However, this application was also rejected on 10th March, 2016, since it was not in the prescribed format laid down in Annexure A to the 2014 Compounding Guidelines. Finally, the application made by the Petitioner on 1st April, 2016 was accepted as being in the correct format. 43. By letter dated 26th April, 2016, the petitioner was informed that deposit of compounding charges amounting to ₹ 69,75,949/- was to be made. The authorities also insisted on a pre-deposit of the compounding charges, which was then dealt with by this court in W.P. (C) 6825/2016. The petitioner was permitted to pursue his application for compounding without pre-deposit of the compounding charges. The pending application was then rejected as being barred by limitation. This came to be dealt with in W.P. (C) 6825/2016. Thereafter, the matter was referred to the Committee and on the recommendation of the Committee, the compounding charges have been determined at ₹ 69,75,949/-. Thus, the compounding application was also treated in a cavalier ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not as per the prescribed guidelines and format, prescribed at that time. Interest as due for 20 years was not paid. It required a full one year of correspondence before the petitioner deposited the interest amounts. Thus, it was almost 20 years after passing of the block assessment order that the petitioner actually even deposited the principal amount and the interest. 47. It is the long delay, which is attributable only to the petitioner that has resulted in the compounding charges, for the delay in payment of taxes, being what they are. As per the guidelines, the compounding charges payable for an offence under Section 276C(1) is 100% of the amount sought to be evaded, and for an offence under Section 276C(2) it is 3% per month of the amount of tax, the payment of which was sought to be evaded, for the period of default. Thus, the monthly 3% charge which constitutes a part of the compounding charges was only due to the petitioner s fault, due to prolonged period of default. The break-up of the compounding charges is as under: Calculation of Compounding Charges Compounding fee u/s 276C(1) 100% of the amount sought to be evaded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anner whatsoever. Moreover, the petitioner has, by seeking compounding, consciously and voluntarily opted for: (a) Compounding of the criminal offence; (b)Undertaking to withdraw the appeal; (c) Undertaking to pay the compounding charges determined; 50. Having filed the compounding application the petitioner cannot attempt to wriggle out of his obligations to pay the compounding charges by alleging that the same are exorbitant. The amount of compounding charges is not to be merely compared with the principal and the interest charged but has to be adjudged from the point of view of the long duration during which there was wilful non-payment of taxes. The conduct of the petitioner brooks no sympathy. The respondent authorities, it appears, were helpless. Even filing of criminal prosecution appears to have made no difference. The judgments discussed above are clear to the effect that in cases of this nature, quid pro quo or proportionality is not always applicable. 51. There is no element of quid pro quo required, inasmuch as, the compounding fee charged is in the nature of tax under the Act. The legislation has vested the CBDT with power to prescribe compounding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C(2) it was 5% per month of the tax, the payment of which was sought to be evaded, for the period of default. Thus, under the older guidelines, the compounding charges leviable against the petitioner may have been much higher. 55. Thus, the Guidelines of 2014, under which the last application for compounding was made, and was accepted to be in the prescribed format, has enured to the benefit of the petitioner and the application has rightly been processed under these Guidelines. The petitioner has not raised a challenge either to the 2008 Guidelines or 2003 Guidelines. It is only after the charges were framed in the criminal proceedings and after filing the applications for compounding and after compounding charges have been determined as per the formula prescribed in the 2014 Guidelines, that the challenge has been raised by the petitioner. 56. The petitioner having voluntarily agreed and undertaken to the department to pay the compounding charges and to withdraw his appeal, ought to be directed to be bound down by the same. It is a settlement process voluntarily invoked by the petitioner in order to escape criminal prosecution under the Act. Since an accused may have to suf ..... X X X X Extracts X X X X X X X X Extracts X X X X
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