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TMI Blog2009 (12) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... er was a partnership firm till 30-9-1996 and it was converted into a joint stock company under part IX of the Companies Act w.e.f. 1-10-1996 and was incorporated under the Indian Companies Act. It returned the income for the assessment year 1994-95, relevant to the previous year ended on 31-3-1994 at Rs. 27,97,650/- and tax due thereon was Rs. 12,69,368/- which was paid. On 31-3-1997, the petitioner was assessed under Section 143(3) of the Income Tax Act at taxable income of Rs. 85,56,100/-. The said order was rectified under Section 154 of the Income Tax Act and the excess claims allowed under Sections 80-H and 80-I were disallowed. The income was accordingly assessed at Rs. 1,24,85,050/- and the tax determined thereon was Rs. 55,93,302/-. Before passing of the rectification order dated 28-12-1998, the petitioner had deposited a sum of Rs. 43,23,360/-. The rectification order was challenged in appeal. During the pendency of appeal, the aforesaid KVSS was enacted by the Parliament and the petitioner filed declaration under the scheme. On the basis of the declaration furnished by the petitioner, the authority concerned has passed the impugned order holding that a sum of Rs. 13,75,13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es that where the amount paid by the assessee under this section falls short of the aggregate of the tax and interest as aforesaid, the amount so paid shall first be adjusted towards the interest payable as aforesaid and the balance, if any, shall be adjusted towards the tax payable. The submission is that the said Explanation is applicable with reference to deposits made under Section 140A of the Act and not otherwise in respect of other deposits made. It necessary follows by implication that the deposits made otherwise under Section 140A of the Act is liable to be adjusted first against the tax due and then towards the interest payable thereon, submits the learned counsel for the petitioner. 9. Learned Standing Counsel, on the other hand, submits that even if Section 140A of the Act is not applicable, the general principle of law is that where part payment has been made against sum due which consists of 'amount due' and the 'interest', in the absence of any contrary instruction by the person making the payment, it should be adjusted first towards the interest accrued and then the remaining amount towards the principal. Even otherwise also, in the present case, there has been cle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax is the amount which remains unpaid on the date of making the declaration. A declarant is required to pay at the specified rate with reference to the disputed income. The 'disputed income' has been defined with reference to the 'disputed tax'. 'Disputed tax' has been defined as the amount which remains unpaid as on the date of making the declaration. The exercise which is required to be undertaken for the purpose of determination of the settlement of the tax payable is tax which remains unpaid. 14. Having noticed the legal provisions, we may now notice the facts of the present case. Notice of demand order under Section 156 of the Act, as rectified under Section 154, has been filed along with writ petition wherein the following have been mentioned: Assessed income Rs. 1,24,85,050/- Tax Rs. 55,93,302/- Prepaid tax Rs. 14,24,427/- ------------------------ Balance Rs. 41,68,875/- Add interest u/s 234B Rs. 30,01,536/- Demand adjusted for A.Y. 92-93 Rs. 4,186/- Refund vouchers issued Rs. 1,60,177/- ----------------------------- Total demand Rs. 73,50,795/- Tax paid on 28-4-97 Rs. 43,23,36/- Total demand payable Rs. 30,27,435/- 15. Disputing the total demand payable at Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee should first be adjusted towards the tax due and not the interest calculated U/s 220(2) of the Income Tax Act. Clauses (c) and (d) of paragraph-3 of the said affidavit are reproduced below:- "(c) The said instruction was issued in consultation with Ministry of Law. The issue to be decided was whether "if the tax paid by the assessee was not sufficient to cover the total demand then should it first be adjusted against the interest". The M/o Law in its opinion observed that both the views are possible, i.e., the payment can be adjusted against the tax or against interest. Therefore, for the sake of uniformity, the CBDT decided that part payment received from the assessee should first be adjusted towards the tax due and not the interest calculated U/s 220(2) of the Income Tax Act. (d) The above principle was followed in drafting clarification to question No. 4 of the FAQs." 18. Undoubtedly, the clarification, as given in the above affidavit, corroborates and supports the legal submission of the petitioner. The said clarification in no uncertain terms provides that Central Board of Direct Taxes, as a policy, for the sake of uniformity, has taken a conscious decision that pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Court by him were accepted by the creditor/decree-holder subject to the condition imposed by him. 20. The aforesaid two decisions have been referred and relied upon in Industrial Credit & Development Vs. Syndicate Now called I.C.D.S. Ltd. Versus Smithaben H. Patel (Smt) and others, (1993) 3 Supreme Court Cases 80. Relevant paragraph-7 from the report is reproduced below:- "7. Order 21 Rule 1 of CPC provides the mode of paying money under the decree. Payments made to the decree-holder out of court are required to be certified for adjustment in terms of Rule 2 of Order 21 CPC. Where any money payable under a decree is paid out of court or is otherwise adjusted in whole or in part to the satisfaction of the decree, the decree-holder is to certify such payment and adjustment towards the court whose duty is to execute the decree. The judgment-debtor has also a right to inform the court of such payment or adjustment applying to the court for the issuance of a notice to the decree-holder to show cause as to why such payment or adjustment be not recorded as certified and if, after service of such notice, the decree-holder fails to show cause why the payment or adjustment should n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t which has to be taken into consideration for the purposes of the said scheme and not any other figure which might or ought to have remained unpaid. There being no dispute that the adjustments in the record were made as per the instructions given by the petitioner through two challans, it is no longer open to contend otherwise for the purposes of the said scheme. 23. We could find out that Andhra Pradesh High Court in CIL Securities Ltd. Vs. Commissioner of Income Tax and another, (2000) 242 ITR 472 had occasion to consider the provisions of KVSS vis-a-vis the tax arrears. In this case it was held that on the date of filing of the declaration under KVSS, if there was no tax arrears remaining unpaid on that date, the assessee cannot take advantage of the said scheme. The scheme came into force w.e.f. 1-9-1988 and will apply only to such persons, besides other things, who were in tax arrears on the date of filing of the declaration under the scheme. It has been held that on a plain reading of the scheme it is clear that if the tax arrear is not existing on the relevant date, the scheme has no application. There is no provision in the scheme empowering the designated authority to go ..... X X X X Extracts X X X X X X X X Extracts X X X X
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