Applicability of Limitation on Compounding of an Offence, and the Stage of Deposit of Compounding Fees under the Income Tax Act

In the case of Vikram Singh Vs. Union of India and others W.P.(C) 6825/2016, (Citation: [2017]394ITR746(Delhi), [2017]247TAXMAN212(Delhi); MANU/DE/0959/2017)the Hon’ble Delhi High Court has held that the Income Tax 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.

 

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".

 

The court held that the  above  clause  is  not one  prescribing  a  period  of  limitation  for  filing  an application  for  compounding.  It gives  a 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.

 

The Hon’ble Court held that 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 non-serious 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.

 

The fourt further held that it found 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. 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.

 

Full judgment can be downloaded from here: http://lobis.nic.in/ddir/dhc/NAW/judgement/12-04-2017/NAW11042017CW68252016.pdf  

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Vijay Pal Dalmia, Advocate
Supreme Court of India and Delhi High Court
Email: vpdalmia@gmail.com
Mobile: +91 9810081079

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