JUDGMENT S.L. Saraf, J.
1. This is a writ petition challenging the order of the Commissioner of Income-tax under Section 264 of the Income-tax Act, 1961 (hereinafter referred to as "the Act").
2. The facts of the case in a nutshell are as follows :
The petitioner under the orders passed by this court in Civil Miscellaneous Writ Petition No. 70 of 1971 deposited a sum of Rs. 11,49,946 with the District Magistrate, Muzaffarnagar, being the difference of the cane price. The said deposit was made during the assessment year 1972-73. Since the petitioner succeeded in the writ petition it got back the entire money for Rs. 11,49,964 during the assessment year 1975-76. As the assessment for the year 1972-73 was still pending, the entire amount was shown as profit for the said year and a prayer was made that the entire payment of interest under Section 215 on the said amount may be waived or not levied at all. In the facts of this case, the petitioner was also entitled to show the said amount as income for the assessment year 1975-76 as provided under Section 41(1) of the Act. The assessee instead of getting its income assessed for the assessment year 1975-76 got the same assessed as income for the assessment year 1972-73. As such it prayed that the interest payable on advance tax under Section 215 be totally waived and/or be not levied. The matter was dealt with by the Income-tax Assistant Commissioner (Assessment) who on the basis of Rule 40(1) of the Income-tax Rules. (hereinafter referred to as "the Rules", restricted the interest chargeable under Section 215 for a period of eighteen months from April 1, 1972 to September 30, 1973. Thus, out of the interest of Rs. 3,75,795 a sum of Rs. 1,85,675 was waived under Rule 40(1) and the balance interest of Rs. 1,90,120 was retained. Not satisfied with the said reduction, the assessee moved another application for waiver of part of the aforesaid interest of Rs. 1,90,120 under Rule 40(5) of the Rules. The Commissioner considered the matter and felt that though there was a discretion with the assessing authority under Rule 40(5) to waive or reduce interest, the circumstances did not exist for reduction or waiver. As such it dismissed the application under Section 264 of the Act.
3. The petitioner strongly urges before this court that the Commissioner should have exercised the discretion under Rule 40(5) of the Rules and according to counsel this was a most appropriate case where for genuine reasons the petitioner was unable to deposit any advance tax on the said amount of Rs. 11,49,964. The petitioner did not know that the said money would be refunded back to him and he had to pay any advance tax on the same. If the money was available with him by way of profit in the year 1972-73 he would have paid the advance tax. However, since the money was lying with the District Magistrate, Muzaffarnagar, under the orders of this court, the question of payment of any advance tax at this stage did not arise. Subsequently, however, the money was received during the subsequent assessment year but since the assessment for the year 1972-73 was not completed the petitioner thought fit to offer the money for tax during the said assessment year. That was bona fide done and the authorities should have considered the waiver of interest and the Commissioner should have exercised its discretion immediately. Under Rule 40(5) such waiver was permissible, though waiver under Rule 40(1) of the Rules was already granted to the petitioner. The sub-rules of Rule 40 are independent of each other and deal with different situations. Sub-rule (1) would not restrict cases covered by Sub-rule (5). The authorities should exercise their discretion once the conditions under Rule 40(5) are satisfied in view of the decision in the case of CIT v. Bennet Coleman and Co. Ltd. [1996] 217 ITR 216 (Bom). In view of my above observation, I think this is a fit case which should go back on remand to the Commissioner, who will exercise their discretion and pass an appropriate order.
4. With these observations, the writ petition is allowed. The matter is remanded back to the Commissioner. The order dated August 26, 1980, is quashed and set aside. There will be no order as to costs.