$~26.
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ INCOME TAX APPEAL NO. 586/2014
Date of decision: 11th September, 2014
COMMISSIONER OF INCOME TAX
..... Appellant
Through Ms. Suruchi Aggarwal, Sr.Standing
Counsel.
versus
M/S THE ORIENTAL INSURANCE CO. LTD.
..... Respondent
Through Mr. Mayank Nagi & Mr. Tarun
Singh, Advocates.
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE V. KAMESWAR RAO
SANJIV KHANNA, J. (ORAL):
This appeal by the Revenue relates to Assessment Year 1992-93
and impugns order dated 4th March, 2014 passed by the Income Tax
Appellate Tribunal (Tribunal, for short) upholding the order passed
by the Commissioner of Income Tax (Appeals) deleting penalty of
Rs.44,42,839/- imposed by the Assessing Officer under Section 13 of
the Interest Tax Act, 1974 (Act, for short).
2. The respondent-assessee, a Government of India undertaking,
was engaged in the business of general insurance during the period in
question. Pursuant to the return filed by the respondent-assessee,
ITA No. 586/2014 Page 1 of 16
assessment order dated 20th March, 1995 was passed under Section
8(2) of the Act computing chargeable interest at Rs.3,84,84,910/-.
Subsequently, notice under Section 10 of the Act dated 26th December,
1996 was issued and a return of chargeable interest of Rs.3,92,51,082/-
was filed on 30th January, 1997. By order dated 16th March, 1998, the
Assessing Officer added the following amounts to the chargeable
interest:-
1. Interest on special deposits Chargeable to
tax, as it is intt. on deposit and it with RBI (Rs.
10,08,64,111/-) is from RBI which is not a credit
institution.
2. Interest on deposits with RBI (22,50,000) Not
interest on Loans & Advances but on deposits` and
hence chargeable to tax.
3. Interest on loans to HUDCO (Rs.2,04,00,004/-)
Not chargeable to tax, as it is a credit institution.
4. Interest on loans to GIC Housing finance
(Rs.34,50,000/-) A credit institution. Not chargeable
to tax.
5. Interest from Banks- call money (Rs.2,13,17,614/-)
Interest is not on Loans & Advances` hence
chargeable to tax.
6. Interest from Banks certificate deposit
(Rs.31,18,884/-)
7. Interest from Banks-Bills rediscounting scheme
(Rs.8,74,28,57)
3. The aforesaid additions were made subject matter of challenge
before the appellate authorities, including the Tribunal. The Tribunal
by order dated 21st February, 2006 substantially deleted several
additions, but in respect of following two items restored the matter to
ITA No. 586/2014 Page 2 of 16
the Assessing Officer; (i) interest on call money with bank of
Rs.2,13,17,614/- and (ii) interest on bills re-discounting scheme
Rs.8,74,28,576/-, i.e., total Rs.10,87,46,190/-. The remand order was
passed to determine the nature of interest.
4. By order dated 14th December, 2006, the Assessing Officer
referred to definition of the term interest in Section 2(7) of the Act to
hold that the aforesaid amounts had to be treated as interest under the
said Section. He rejected the contention of the respondent-assessee
relying upon Section 2(5A)(1) of the Act. We shall be referring to the
said contention in detail subsequently. The aforesaid order dated 14th
December, 2006 has attained finality.
5. The Assessing Officer thereafter initiated penalty proceedings
under Section 13 of the Act and by order dated 20 th June, 2007 penalty
of Rs.44,42,839/- was imposed in respect of the two additions. On
appeal, Commissioner of Income Tax (Appeals) vide order dated
31.8.2010, deleted the said penalty after referring to several facts,
which we shall notice below. The Tribunal has in its impugned order
affirmed the aforesaid finding.
6. Learned Senior Standing Counsel for the Revenue has drawn our
attention to Section 2(7), which defines interest to mean interest on
loans and advances made in India and after amendment w.e.f. 1st Oct,
1991, it includes bills discounting. Section 2(7) of the Act, as amended
ITA No. 586/2014 Page 3 of 16
with effect from 1st Oct, 1991, reads as under:-
2(7) interest means interest on loans and
advances made in India and includes--
(a) commitment charges on unutilised portion of any
credit sanctioned for being availed of in India; and
(b) discount on promissory notes and bills of
exchange drawn or made in India,
but does not include--
(i) interest referred to in sub-section (1-B) of Section
42 of the Reserve Bank of India Act, 1934 (2 of
1934);
(ii) discount on treasury bills;
7. Clause (b) is not omnibus but stipulates that that the discounting
on promissory notes and bills of exchange drawn or made in India
would be treated as interest on loans and advances for the purpose of
Section 2(7) of the Act. Thus, with effect from 1st Oct, 1991 there is
no doubt or ambiguity that bill discounting charges on promissory
notes or bills of exchange have to be included in the interest for the
purpose of tax payable under the Act. However, when the appeal had
come up for hearing yesterday, learned counsel for the respondent-
assessee, had submitted that the present case does not include interest
earned on discounting of promissory notes or bills of exchange. He
had referred to item No. 7 in the assessment order dated 16 th March,
1998 wherein the term used was interest from banks -bills re-
ITA No. 586/2014 Page 4 of 16
discounting scheme. At the request of the counsel for the appellant -
Revenue, the appeal was adjourned to enable her to ascertain the
details and know the correct position. Learned Senior Standing
Counsel has filed before us copy of returns filed under the Act on 31 st
December, 1992 and 30th January, 1997. She states that copy of the
scheme was probably not filed by the assessee during the course of the
assessment proceedings and is not available on the record. It is
submitted that earlier similar contention was not raised.
8. It is apparent from the assessment orders dated 16 th March, 1998
and 14th December, 2006 that the respondent-assessee had relied on
Section 2(5A)(1) to contest that interest under the Banks Bills
Rediscounting Scheme amounting to Rs.8,74,28,57/- cannot be
subjected to tax under Section 2(7) of the Act. The amount so stated
had accrued on transactions with the Reserve Bank of India. The
Assessing Officer disagreed, observing that for Section 2(5A)(1), to
apply, the transaction should be with a credit institution, which meant a
banking company to which Banking Regulation Act, 1994 applied.
However ,the Reserve Bank of India, was a statutory authority; the
Central Bank, constituted under a special enactment. The Reserve Bank
of India was/is neither a bank nor a banking company and hence cannot
be treated as a credit institution. In other words, the Assessing Officer
held that in case interest had been earned on the same transactions but
ITA No. 586/2014 Page 5 of 16
with the scheduled banks, it would have been exempt under Section
2(5A)(1) of the Act, but as the transactions were with the Central
Bank, i.e., Reserve Bank of India, the income or interest earned would
be taxable.
9. The stand of the respondent-assessee, that under Section 2(7)
interest means interest on loans and advances and, therefore,
necessarily refers to commercial transactions entered into by the
assessee, was rejected. The submission, that the definition of interest
had been expanded to include discount on promissory notes and bills of
exchange, but it was not the legislative intention to tax interest earned
on transactions with Reserve Bank of India as they did not partake or
have a commercial character, was not accepted.
10. The respondent-assessee may be wrong and may have
erroneously interpreted and relied upon Section 2(5A)(1) of the Act,
but their contention does not and cannot be treated per se without merit
or baseless. The question related to the definition of the term credit
institution and if scheduled banks are included therein, whether or not
Reserve Bank of India should be treated alike and similarly. The
respondent-assessee has filed before us a copy of the written
submissions filed before the Assessing Officer in this regard and the
relevant portion thereof reads as under:-
The above provision clearly suggest that the
ITA No. 586/2014 Page 6 of 16
intention of the legislature was to charge interest tax
on interest accruing or arising on loans and advances
which are in the nature of loans and advances. Since
the interest of Rs.10,87,46,190.00 mentioned above
is not interest on loans and advances, the same is not
chargeable to tax under the Interest Tax Act, 1974.
In fact, even the learned Assessing Officer, vide his
assessment order dated 16.03.1998 specifically
mentioned, inter alia, that the interest on the above
mentioned two items are not on Loans &
Advances, which concurs with our contention.
Without prejudice to the above contention that the
interest on call money with banks and interest on
Bills Rediscounting Scheme are outside the scope of
chargeability to interest tax, the addition of
Rs.10,87,46,190.00 made on these two items by the
learned Assessing Officer is specifically exempt
from the scope of chargeable interest under section 5
read with sub-section 5A of section 2 of the Interest
Tax Act, 1974, which clearly excludes interest
received from other credit institutions from the
scope of Chargeable Interest. The exemption has
not been allowed on these interest received from
other credit institutions, holding that the exemption
under Section 5 is available only on interest not
being in the nature of loans & advances and the
exemption is denied. Section 2(7) defines interest
to be interest on loans and advances. Under the
provisions of Section 5, if the scope of chargeable
interest is interpreted to include interest on call
money with banks and interest on Bills
Rediscounting Scheme treating them to be interest
on loans and advances, the exemption cannot be
denied holding that the interest is not on loans and
advances. It is humbly submitted that the above
instructions of CBDT are not correct interpretation
of the provisions of the Interest Tax Act, 1974. The
exclusionary provision was omitted from the present
version of the Interest Tax Act because the head
Interest on Securities` itself had already been
omitted from the Income Tax Act, as revised in
1991. The purpose of omitting the exclusion clause
ITA No. 586/2014 Page 7 of 16
from the Interest Tax Act was to make it fall in line
with the Income Tax Act and not to cover larger tax
base than the earlier one.
11. The Commissioner of Income Tax (Appeals) and the Tribunal
have also noted and referred to clarification made by Central Board of
Direct Taxes vide instruction No. 1923 dated 14th March, 1995
suggesting that interest on debentures, bonds, securities, etc. and
deposits should be also made subject matter of tax under the Act. The
said circular/instruction was issued after the original return was filed
on 31st December, 1992.
12. Section 13 of the Act reads as under:-
Section 13 - Penalty for concealment of
chargeable interest
If the Assessing Officer or the Commissioner
(Appeals) in the course of any proceeding under
this Act, is satisfied that any person has concealed
the particulars of chargeable interest or has
furnished inaccurate particulars of such interest,
he may direct that such person shall pay by way
of penalty, in addition to any interest-tax payable
by him, a sum which shall not be less than, but
shall not exceed three times, the amount of
interest-tax sought to be evaded by reason of the
concealment of particulars of his chargeable
interest or the furnishing of inaccurate particulars
of such chargeable interest.]
13. This Court had the occasion to interpret Section 13 of the Act in
ITA No. 243/2011, Commissioner of Income Tax-IV versus Fortis
ITA No. 586/2014 Page 8 of 16
Financial Services Limited, decided on 5th July, 2012 and it was held
as under:-
9. The said Section stipulates that penalty can be
imposed when an assessee has furnished inaccurate
particulars of interest or concealed particulars of
chargeable interest. The Section does not use the
word deliberately`, willful` or willfully`.
However, the Section does not have any explanation
as in the case of Section 271(1)(c) of the Income
Tax Act, 1961. To this extent the two provisions are
not para materia. The net effect is that in the absence
of Explanation the onus will not shift to the
assessee. The purport and purpose behind
Explanation to Section 271(1)(c) as explained in
several decisions, is to shift the onus and impose an
obligation on the assessee to prove and establish the
reason/cause, and in case of failure to bonafidely
elucidate and satisfy their conduct, penalty can be
imposed under Section 271(1)(c) of the Income Tax
Act. The Explanation raises a presumption which
has to be rebutted by the assessee. In the absence of
Explanation, the presumption or the shifting of onus
does not take place but this does not mean that
penalty cannot be imposed where an assessee has
furnished inaccurate particulars or concealed
particulars of chargeable interest. The word
conceal` means to hide or to keep secret. As held in
Law Lexicon, the said word is derived from the
latin word concelare` which implies con` &
celare` to hide. It means to hide or withdraw from
observation; to cover or keep from sight; to prevent
discovery of; to withhold knowledge of. However,
the words inaccurate particulars` are much broader
and wider. The word inaccurate` in Webster`s
Dictionary has been defined as not accurate; not
exact or correct; not according to truth; erroneous; as
inaccurate statement, copy or transcript`. The word
particular` means detail or details, details of a claim
or separate items of an account [see Commissioner
of Income Tax vs. Reliance Petroproducts Pvt. Ltd.
[2010] 322 ITR 158 (SC)]. The said part applies
ITA No. 586/2014 Page 9 of 16
when an assessee furnishes inaccurate detail or
details or a claim or a separate item of account.
10. It is settled that when two legal interpretations
were plausible and there was honest and bona fide
difference of opinion, penalty for
concealment/furnishing of inaccurate particulars,
should not and cannot be imposed. If the view taken
by the assessee required consideration and was
reasonably arguable, he should not be penalized for
taking the position. The tax statutes are complex and
there can be a bona fide difference of opinion on
legal interpretation and understanding of a provision.
In such cases, even when the interpretation placed
by the Revenue is accepted, penalty should not be
imposed if the contention of the assessee was
plausible and bona fide. Of course full facts should
be disclosed. The Supreme Court in Reliance
Petroproducts & Anr. (Supra), examined their earlier
judgment in the case of Union of India vs.
Dharmendra Textile Processors, [2008] 306 ITR 277
(SC) and it has been held as under:-
8. A glance at this provision would
suggest that in order to be covered, there
has to be concealment of the particulars of
the income of the assessee. Secondly, the
assessee must have furnished inaccurate
particulars of his income. The present is
not a case of concealment of the income.
That is not the case of the Revenue either.
However, the learned counsel for Revenue
suggested that by making incorrect claim
for the expenditure on interest, the
assessee has furnished inaccurate
particulars of the income. As per Law
Lexicon, the meaning of the word
"particular" is a detail or details (in plural
sense) ; the details of a claim, or the
separate items of an account. Therefore,
the word "particulars" used in the section
271(1)(c) would embrace the meaning of
the details of the claim made. It is an
ITA No. 586/2014 Page 10 of 16
admitted position in the present case that
no information given in the return was
found to be incorrect or inaccurate. It is
not as if any statement made or any detail
supplied was found to be factually
incorrect. Hence, at least, prima facie, the
assessee cannot be held guilty of
furnishing inaccurate particulars. The
learned counsel argued that "submitting an
incorrect claim in law for the expenditure
on interest would amount to giving
inaccurate particulars of such income".
We do not think that such can be the
interpretation of the concerned words. The
words are plain and simple. In order to
expose the assessee to the penalty unless
the case is strictly covered by the
provision, the penalty provision cannot be
invoked. By any stretch of imagination,
making an incorrect claim in law cannot
tantamount to furnishing inaccurate
particulars. In CIT v. Atul Mohan Bindal
[2009] 9 SCC 589, where this court was
considering the same provision, the court
observed that the Assessing Officer has to
be satisfied that a person has concealed the
particulars of his income or furnished
inaccurate particulars of such income.
This court referred to another decision of
this court in Union of India v.
Dharamendra Textile Processors [2008]
13 SCC 369 as also, the decision in Union
of India v. Rajasthan Spg. & Wvg. Mills
[2009] 13 SCC 448 and reiterated in
paragraph 13 that :
"13. It goes without saying that for
applicability of section 271(1)(c),
conditions stated therein must
exist."
9. Therefore, it is obvious that it must be
shown that the conditions under section
ITA No. 586/2014 Page 11 of 16
271(1)(c) must exist before the penalty is
imposed. There can be no dispute that
everything would depend upon the return
filed because that is the only document,
where the assessee can furnish the
particulars of his income. When such
particulars are found to be inaccurate, the
liability would arise. In Dilip N. Shroff v.
Joint CIT [2007] 6 SCC 329#, this court
explained the terms "concealment of
income" and "furnishing inaccurate
particulars". The court went on to hold
therein that in order to attract the penalty
under section 271(1)(c), mens rea was
necessary, as according to the court, the
word "inaccurate" signified a deliberate
act or omission on behalf of the assessee.
It went on to hold that clause (iii) of
section 271(1)(c) provided for a
discretionary jurisdiction upon the
assessing authority, inasmuch as the
amount of penalty could not be less than
the amount of tax sought to be evaded by
reason of such concealment of particulars
of income, but it may not exceed three
times thereof. It was pointed out that the
term "inaccurate particulars" was not
defined anywhere in the Act and,
therefore, it was held that furnishing of an
assessment of the value of the property
may not by itself be furnishing inaccurate
particulars. It was further held that the
Assessing Officer must be found to have
failed to prove that his explanation is not
only not bona fide but all the facts relating
to the same and material to the
computation of his income were not
disclosed by him. It was then held that the
explanation must be preceded by a finding
as to how and in what manner, the
assessee had furnished the particulars of
his income. The court ultimately went on
to hold that the element of mens rea was
ITA No. 586/2014 Page 12 of 16
essential. It was only on the point of mens
rea that the judgment in Dilip N. Shroff v.
Joint CIT was upset. In Union of India v.
Dharamendra Textile Processors, after
quoting from section 271 extensively and
also considering section 271(1)(c), the
court came to the conclusion that since
section 271(1)(c) indicated the element of
strict liability on the assessee for the
concealment or for giving inaccurate
particulars while filing return, there was
no necessity of mens rea. The court went
on to hold that the objective behind the
enactment of section 271(1)(c) read with
Explanations indicated with the said
section was for providing remedy for loss
of revenue and such a penalty was a civil
liability and, therefore, wilful concealment
is not an essential ingredient for attracting
civil liability as was the case in the matter
of prosecution under section 276C of the
Act. The basic reason why decision in
Dilip N. Shroff v. Joint CIT was overruled
by this court in Union of India v.
Dharamendra Textile Processors, was that
according to this court the effect and
difference between section 271(1)(c) and
section 276C of the Act was lost sight of
in the case of Dilip N. Shroff v. Joint CIT.
However, it must be pointed out that in
Union of India v. Dharamendra Textile
Processors, no fault was found with the
reasoning in the decision in Dilip N.
Shroff v. Joint CIT, where the court
explained the meaning of the terms
conceal and inaccurate. It was only
the ultimate inference in Dilip N. Shroff v.
Joint CIT to the effect that mens rea was
an essential ingredient for the penalty
under section 271(1)(c) that the decision
in Dilip N. Shroff v. Joint CIT was
overruled.
ITA No. 586/2014 Page 13 of 16
11. It is, equally well settled that establishment of
mens rea is not the requirement or a condition
precedent to impose penalty. The question of mens
rea etc. is important and relevant in the criminal
proceedings but not for the purpose of civil penalty
under Section 13 of the Act. The nature and
character of the two proceedings is different.
Presence of mental element or mens rea in most
criminal proceedings is mandatory unless the
legislature mandate is to the contrary but not so in
the penalty proceeding under Section 13 of the Act.
The earlier view that penalty proceedings were quasi
criminal in nature and require establishment and
proof of mens rea, has been discarded/disapproved
in the judgment of the Supreme Court in
Dharmanedra Textile Processor`s case (supra). In the
said decision, the view expressed in Dalip N. Shroff
vs. Joint Commissioner of Income Tax, Mumbai &
Anr. (2007) 6 SCC 329, was overruled and after
referring to series of decisions in Director of
Enforcement vs. MCTM Corpn. (P) Ltd. (1996)2
SCC 471, JK Industries Ltd. vs. Chief Inspector of
Factors & Boilers, (1996) 6 SCC 665, R.S. Joshi vs.
Ajit Mills Ltd. (1977) 4 SCC 98, Gujarat Travancore
Agency vs. CIT (1989) 3 SCC 52, Swedish Match
AB vs. SEBI (2004) 11 SCC 641, the following
legal principle:
A penalty imposed for a tax delinquency is
a civil obligation, remedial and coercive in
its nature, and is far different from the
penalty for a crime or a fine or forfeiture
provided as punishment for the violation of
criminal or penal laws.
In Corpus Juris Secundrum, Vol. 85 at p. 580, para
1023, has been approved.
12. We may note here that the Supreme Court in
Union of India vs. Rajasthan Spinning & Weaving
Mills (2009) 13 SCC 448, had examined Section
11AC of the Central Excise Act, 1994 and keeping
in view the express language of the said Section has
ITA No. 586/2014 Page 14 of 16
observed that the word deliberately` used therein
was significant and requires mens rea. Explaining
the said decision, the Supreme Court in
Commissioner of Income Tax, Delhi vs. Atul Mohan
Bindal, (2009) 9 SCC 589, has held that the said
decision was confined to the particular Section i.e.
Section 11AC of the Central Excise Act, 1944 in
view of the peculiar and distinguishable words used
therein.
14. When we apply the aforesaid parameters to the factual matrix of
the present case in relation to interest on Banks-Bills Re-discounting
Scheme, we do not think the Tribunal has erred in upholding the order
of the Commissioner of Income Tax (Appeals) in deleting the penalty.
Learned counsel for the respondent-assessee has also drawn our
attention to the decision of the Calcutta High Court in the case of
National Insurance Company Limited versus Commisioner of
Income Tax and Another, (2011) 339 ITR 573 (Cal.) wherein it was
held that Section 2(5) would override and interest earned on bill
discounting with credit institutions would not be included in interest
under Section 2(7) of the Act.
15. We also record that the counsel for the respondent-assessee has
placed before us decision of the Tribunal in Income Tax Appeal
Nos.11/Cal./1997 and 18/Cal./1999 in respect of Assessment Years
1992-93 and 1995-96 in the case of National Insurance Company
Limited, Kolkata versus DCIT wherein the stand propounded by the
ITA No. 586/2014 Page 15 of 16
respondent-assessee was accepted in respect of call money. The
respondent-assessee in respect of call money with banks has succeeded
in the subsequent assessment years in appeals filed under the Act
before the Tribunal and this factum is recorded in the order passed by
the Commissioner of Income Tax (Appeals) as well as the Tribunal.
In view of the aforesaid position, we do not find any reason to
interfere with the order of the Tribunal affirming deletion of penalty.
The appeal is accordingly dismissed.
SANJIV KHANNA, J.
V. KAMESWAR RAO, J.
SEPTEMBER 11, 2014
VKR
ITA No. 586/2014 Page 16 of 16
|