S. 279: As there is no time limit prescribed for filing an application for compounding of an offense, the CBDT is not entitled to reject an application on the ground of 'inordinate delay'. The CBDT has no jurisdiction to demand that the assessee pay a 'pre-deposit' as a pre-condition to considering the compounding application. The larger question as whether in the garb of a Circular the CBDT can prescribe the compounding fee in the absence of such fee being provided for either in the statute or prescribed under the rules is left open
(i) The circular dated 23rd December, 2014 does not stipulate a limitation period for filing the application for compounding. What the said circular sets out in para 8 are “Offences generally not to be compounded”. In this, one of the categories which is mentioned in sub-clause (vii) is: “Offences committed by a person for which complaint was filed with the competent court 12 months prior to receipt of the application for compounding”.
(ii) The above clause is not one prescribing a period of limitation for filing an application for compounding. It gives discretion to the competent authority to reject an application for compounding on certain grounds. Again, it does not mean that every application, which involves an offence committed by a person, for which the complaint was filed to the competent court 12 months prior to the receipt of the application for compounding, will without anything further, be rejected. In other words, resort cannot be had to para 8 of the circular to prescribe a period of limitation for filing an application for compounding. For instance, if there is an application for compounding, in a case which has been pending trial for, let us say 5 years, it will still have to be considered by the authority irrespective of the fact that it may have been filed within ten years after the complaint was first filed. Understandably, there is no limitation period for considering the application for compounding. The grounds on which an application may be considered, should not be confused with the limitation for filing such an application.
(iii) This has to be also understood in the context of the object of providing for compounding of offences. There is an acknowledgement that the judicial system is not as efficient as it is intended to be. There are trials, even in nonserious offences, that have been pending for decades. It is in the public interest, apart from the interest of the Department itself, that some closure is brought to such cases which may be pending interminably in our Court system. It is for this reason that some discretion has been vested in the officers of the Department to compound offences. It provides an opportunity for some assessees, notwithstanding that their appeals as regards the assessments may be pending, to come forward to have their offences compounded. It does subserve both public interest as well as the interest of the Department itself that on some reasonable terms such offences, which may not be considered serious, are compounded. The guidelines have to be understood only in that context.
(iv) The reason given in the impugned order dated 3rd November, 2016 for rejection of the Petitioner’s application does not satisfy the criteria spelt out in the guidelines issued by the Department by its Circular dated 23rd December 2014. It has proceeded on a ground that is not available to the Department viz., that the application is inordinately delayed. Since there is no other reason given for the rejection of the application, the Court is unable to sustain the order dated 3rd November, 2016 of the CCIT by which the Petitioner’s application for compounding was rejected. The said order is hereby set aside. The Petitioner’s application for compounding will have to considered afresh by the CCIT.
(v) That brings us back to the Petitioner’s principal prayer regarding the validity of the circular dated 23rd December 2014 of the CBDT and in particular para 12 thereof which sets out the compounding fee.
(v) Mr. Rahul Kaushik, learned counsel for the Department, in seeking to justify the levy of the compounding fee in advance, placed reliance on the decision of the Supreme Court in Y.P. Chawla v. M.P. Tiwari (1992) 195 ITR 607 (SC) where the Supreme Court while setting aside the judgment of this Court in M.P. Tiwari v. Y.P. Chawla (1991) 187 ITR 506 (Del) took note of the insertion of the following Explanation under Section 279 of the Act inserted with retrospective effect from 1st April, 1962:
“Explanation. – For the removal of doubts, it is hereby declared that the power of the Board to issue orders, instructions or directions under this Act shall include and shall be deemed always to have included the power to issue instructions or directions (including instructions or directions to obtain the previous approval of the Board) to other income-tax authorities for the proper composition of offences under this section….”
(vi) The Supreme Court reversed the judgment of this Court on the facts of that case and held that the CBDT had the power to issue instruction to authorities, other than the Income Tax authorities, in the matter of compounding of offences. However, that judgment does not answer the principal question that arises for consideration in the present writ petition, viz., whether on the strength of the above Explanation to Section 279 of the Act the CBDT can issue instructions requiring an applicant seeking compounding of an offence, to pay upfront the compounding fee even before the application for compounding can be considered on merits? It would appear from para 11(v) of the impugned Circular dated 23rd December 2014 of the CBDT that where an applicant seeking compounding of the offences does not pay the compounding fee upfront, his application need not be considered at all.
(vii) The Court finds nothing in Section 279 of the Act or the Explanation thereunder to permit the CBDT to prescribe such an onerous and irrational procedure which runs contrary to the very object of Section 279 of the Act. The CBDT cannot arrogate to itself, on the strength of Section 279 of the Act or the Explanation thereunder, the power to insist on a ‘pre-deposit’ of sorts of the compounding fee even without considering the application for compounding. Indeed Mr Kaushik was unable to deny the possibility, even if theoretical, of the application for compounding being rejected despite the compounding fee being deposited in advance. If that is the understanding of para 11(v) of the above Circular by the Department, then certainly it is undoubtedly ultra vires Section 279 of the Act. The Court, accordingly, clarifies that the Department cannot on the strength of para 11(v) of the Circular dated 23rd December 2014 of the CBDT reject an application for compounding either on the ground of limitation or on the ground that such application was not accompanied by the compounding fee or that the compounding fee was not paid prior to the application being considered on merits.
(viii) The question of payment of the compounding fee, if any, would arise, only if upon considering the application on merits, the Department is of the view that the prayer should be allowed subject to terms that are reasonable and subserve the object of Section 279 of the Act.
(ix) The further and larger question that remains to be answered is whether in the garb of a Circular the CBDT can prescribe the compounding fee in the absence of such fee being provided for either in the statute or prescribed under the rules. However, at this stage when the Petitioner’s application is yet to be decided afresh, the said question may be academic. The Court, accordingly, while directing the CCIT to consider afresh the Petitioner’s application for compounding of offence under Section 279 of the Act and communicate to the Petitioner the decision thereon in writing consistent with the present judgment, within a period of six weeks from today, leaves it open to the Petitioner to urge the larger question which has not been decided in this writ petition in the event that the Petitioner is aggrieved by the fresh order passed by the CCIT.