The Income Tax Act, 1961 vests the Central Board of Direct Taxes (CBDT) with inherent powers to issue instructions to its subordinate officers. Such instructions are necessarily for the purpose of better administration of the Act.
For the benefit of the general readers, it is clarified that the CBDT has been granted the liberty to invoke its power under Section 119 to extend the due date for filing of tax returns in case such a need is felt among taxpayers and professionals. CBDT issues a notification exercising its power under this Section which acts as the substituted due date. Since it is an enabling power, for better administration, the effect of such a notification will apply for the period or for the assessment year as will be specified.
Section 119 of the Income Tax Act, which contains the provision giving such inherent powers, is an instruction-issuing power vested with the CBDT to facilitate “proper administration” of the Act. The Board may exercise this power, by a general or special order under three circumstances:
- Firstly, for the purpose of proper and efficient management of the work of assessment and recovery of revenue;
- Secondly, for purpose of avoiding genuine hardship to any person or class of persons, who have failed to make an application or claim for exemption, deduction or any other relief before the expiry of the due date, authorise subordinate authorities to admit any such application or claim etc., as the case may be, and deal with the same on merit in accordance with law.
- And thirdly, for purpose of avoiding genuine hardship to any person or class of persons, relax any of the requirements relating to computation of total income and claiming deductions from total income, by a reasoned order, relax such requirements in the case of such assesses who have not met with the compliance of such requirements, for the purpose of claiming deductions.
Thus, the essential ingredients relating to the exercise of power vested in CBDT by virtue of Section 119 can be analysed as follows:
- Proper and efficient management; and
- Avoiding genuine hardships to assessees
However, such exercise of power is subjected to two essential requirements:
- The exercise of authority, in a case involving relaxation of requirements to comply with the computation of total income and claiming deductions should be accompanied with reasons. Any such order issued without providing reasons behind exercise of power to allow such relaxation will be bad in law and any benefit claimed by an Assessee out of such an order would be non est.
- In case of an order allowing an application to condone delay or extend the time allowed to claim exemptions, deductions, refunds etc. beyond the due date, any decision thereon should be on merits and in accordance with the statute i. e. The Income Tax Act.
The Hon’ble High Court of Patna, in a Writ Petition under Article 226 has emphasised that the concerned authority to whom an application is made for condoning delay in filing of income tax returns caused as a result of genuine hardship, ought to consider such application in the correct perspective. However, while remanding the matter back to the concerned authority, the Hon’ble High Court observed that by exercise of judicial review under Article 226, the Court cannot substitute its own opinion in place of the opinion of the concerned authority. [Patna Metro Rail Corporation Ltd. V. Principal Chief Commissioner of Income Tax]-[2023] 150 taxmann.com 434 (Patna).
The Hon’ble High Court also referred to the judgement of the Hon’ble Supreme Court in B. M. Malani v. Commissioner of Income Tax {[2008] 174 Taxman 363 (SC)} with respect to the Rule of Purposive Construction. The Apex Court has in the Malani judgement (supra) discussed the term “genuine hardship” in para 8. It is stated that to interpret the term “genuine”, the principle of purposive construction should be resorted to. “The ingredients of genuine hardships must be determined keeping in view the dictionary meaning thereof and the legal conspectus attending thereto.”
Conclusion:
Although Section 119 of the Act gives an important power to the CBDT to provide administrative convenience to the authorities under it, the exercise of such authority should necessarily meet the underlying conditions. While the term “genuine hardship” has to be understood using the “principle of purposive construction”, purposive construction cannot be extended to exercise of authority beyond the scope of the Income Tax Act.
In other words, Section 119 cannot be resorted to remedy a wrong committed by the subordinate authorities themselves. Administrative convenience is the rationale but it cannot be invoked to bring the acts of subordinate authorities who misinterpret and misapply the law at par with the genuine hardship of assessees. If the provision of Section 119 is applied contrary, to ameliorate the genuine hardship to assessees, it would, instead, end up causing “undue hardship” to the assessees. The special powers conferred under Section 119 are to avoid “genuine hardship” and not to remedy wrong committed by the subordinate authorities. The scope of ‘proper and effective administration’ of the work of collecting revenue cannot be enlarged to override clearly laid-down provisions, which, in the very first instance, protect the assessees from unlawful exercise of powers vested in tax authorities. What the law does not provide for or allow cannot be assumed by way of administrative acts. Section 119 is essentially an exercise in furtherance of administrative exercise of the act for providing relief to the assessees from genuine hardship and not vice versa.
Sadly, recent events have shown how the provision of Section 119 has been blatantly misused, causing gross inconvenience to assessees, not to mention, the unwarranted rise in litigation that such misuse of powers has resulted in.
Time and of course, the Courts would ultimately tell whether or not there should be additional fetters attached to the exercise of powers under Section 119.
