Dr. Manjula Chellur, CJ. - Revenue is before us challenging the judgment of the learned Single Judge in O.P. No.14606 of 2002.
2. We are concerned with the assessment years 1991-92 and 1992-93 pertaining to the party respondents. The facts leading to the present appeal in brief are as under:—
One M/s. Paul Mathews & Sons, Eloor Muri, Kalamassery consist of 5 partners. Assessment of the firm for the year 1989-90 came to be completed on 25.9.1990 wherein unabsorbed depreciation came to be allocated to all the five partners of the firm. Subsequently, Ext.P1 rectification order came to be passed by the Assessing Officer pertaining to the very same firm in the light of the decision of the Supreme Court in its judgment dated 22.03.1991 reported in Garden Silk Weaving Factory v. CIT [1991] 189 ITR 512/56 Taxman 4K wherein their Lordships held that unabsorbed depreciation in the case of a firm cannot be set off at the hands of the partners and it has to be reverted back to the firm's case. This order of rectification came to be made under Section 154 of Income Tax Act (for short the Act) on 21.01.1994.
3. While completing the assessments of the partners for the years 1991-92 and 1992-93, the Assessing Officer disallowed the claim of set off of unabsorbed depreciation pertaining to the firm and determined the tax payable, so also levied interest under Section 234B for non-payment of advance tax. Assessees admittedly filed several representations seeking waiver of interest levied under Section 234B contending that by virtue of the assessment orders pertaining to the assessment year 1989-90 they are entitled to claim unabsorbed depreciation and there was no mistake on their part, so far as claim of such depreciation.
4. Exts.P2, P4 and P7 are the orders rejecting the claim of waiver of interest by the respondents/partners. Aggrieved by the said orders, all partners filed OP No.14606 of 2002 when recovery proceedings came to be initiated as per Ext.P9. Said matter was disposed of opining that petitioners were entitled to the benefit of unabsorbed depreciation, therefore, the impugned orders deserve to be quashed. It was further declared that petitioners were not liable to pay any interest under Section 234B of the Act for the assessment years 1991-92 and 1992-93. Aggrieved by the said judgment of the learned Single Judge, Department is before us.
5. According to learned Standing Counsel for the Revenue, if any of the assessees was to get benefit of waiver of interest, it has to be in accordance with the circulars issued under Section 119(2)(a) of the Act by the Department from time to time. So far as present case is concerned, though we are concerned with circular dated 23.5.1996, there is reference to circular dated 02.5.1994 in some of the impugned orders which were under challenge before learned Single Judge. As a matter of fact, in Ext.P2, circular dated 02.05.1994 was referred to and according to the department, the said circular is not at all applicable to the facts of the case as there was no income that had accrued or arose. So far as 1996 circular, at the time of Ext.P2 it was not in existence. Ext.P4 is dated 25.03.1999 and Ext.P7 is dated 26.07.2000, rejecting the claim of assessees. By this time circular of 1996 was very much in existence. As a matter of fact, in the Original Petition the claim of the petitioners was, the department has totally ignored the circular of 1996.
6. On perusal of circular of 1996, no doubt, it refers to waiver of interest under Sections 234A, 234B, or 234C. However, in order to secure benefit where reduction or waiver of interest could be extended, certain conditions were enumerated at Clauses (a) to (e). In other words, unless these conditions would apply to the facts of the case of the assessees, they were not allowed to enjoy the benefit of either reduction or waiver of interest under Section 234B. On perusal of the judgment of learned Single Judge, there is no reference to any of these conditions to be complied with by the assessees before they make a claim for waiver of interest. The approach of learned Single Judge was entirely on a different footing.
7. According to learned Single Judge, there was no mistake or error on the part of the assessees in seeking the benefit of unabsorbed depreciation and they cannot be blamed because of the judgment of the Apex Court, which persuaded the authorities to rectify the order under Section 154 of the Act. Therefore, for no fault of them, if they did not pay the tax payable by them, they shall not be saddled with liability of interest under Section 234B.
8. One has to approach the controversy raised from two angles, that is, with reference to the conditions enumerated in Circular of 1996 and the factual position. As already stated above, none of the conditions were claimed by the petitioners though a feeble attempt was made by the learned counsel for the respondents/assessees that case of the assessees would fall under clause (d) which reads as under:—
"(d) Where any income which was not chargeable to income-tax on the basis of any order passed in the case of an assessee by the High Court within whose jurisdiction he is assessable to income-tax and as a result, he did not pay income-tax in relation to such income in any previous year and subsequently in consequence of any retrospective amendment of law or as the case may be, the decision of the Supreme Court in his own case, which event has taken place after the end of any such previous year, in any assessment or reassessment proceedings the advance tax paid by the assessee during the financial year immediately preceding the relevant assessment year is found to be less than the amount of advance tax payable on his current income, the assessee is chargeable to interest under section 234B or section 234C and the Chief Commissioner or Director General is satisfied that this is a fit case for reduction or waiver of such interest."
9. On perusal of Clause (d), we are afraid, the facts of the present case would not attract the condition at Clause (d), therefore, the said argument is unsustainable.
10. Then coming to the factual situation, admittedly returns pertaining to 1991-92 came to be filed as early as 30.10.1991 and 1992-93 on 30.10.1992, Judgment in Garden Silk Weaving Factory (supra) was rendered on 22.03.1991 much prior to the submission of returns for both the assessment years by the assessees. Once Supreme Court has laid down the law that depreciation of a firm cannot be allocated to the benefit of partners personally and it shall revert back to the firm, the assessees should have been careful enough to file their returns without claiming such unabsorbed depreciation in the light of the law laid down by the Apex Court. Though 1989-90 assessment of the firm did allocate such unabsorbed depreciation, law of the land declared such allocation as bad. In the light of such observation of the Apex Court the returns ought to have been filed showing the correct income. Apparently, advance tax was not paid, therefore, automatically they are liable to pay interest chargeable under Section 234B of the Act.
In the light of the above reasoning, we are of the opinion, judgment of learned Single Judge deserves to be set aside confirming the opinion of the Department at Exts.P2,P4 and P7. Accordingly, this writ appeal is allowed.