2003 (2) TMI 24 - HC - Income Tax

The subject matter of challenge in this writ petition is the determination of amount payable by the petitioner under the Kar Vivad Samadhan Scheme, 1998, and a clarification dated January 5, 1999, issued by the member (Legislation) of the Central Board of Direct Taxes. - the petition partly succeeds. The addition of interest in the determination dated February 23, 1999, is set aside. The petitioner is directed to pay 50 per cent. of the penalty in respect of each of the aforesaid four assessment years together with further interest at the rates provided under section 220 of the Income-tax Act commencing from 30 days after February 23, 1999, until the date of payment. It is made clear that in computing the interest statutory modifications if any of section 220 of the Income-tax Act shall be taken into consideration. Such payment is to be made within 30 days from the date hereof.

Summary

Issues:
- Interpretation of the Kar Vivad Samadhan Scheme, 1998 regarding the determination of the amount payable by the petitioner.
- Whether interest is payable on tax arrears comprising penalty simpliciter under the Scheme.

Analysis:
The High Court of CALCUTTA addressed the challenge in a writ petition concerning the determination of the amount payable by the petitioner under the Kar Vivad Samadhan Scheme, 1998, and a clarification issued by the member (Legislation) of the Central Board of Direct Taxes. The petitioner was made liable to pay penalties for various assessment years, and the Scheme provided rates for determining the amount payable by declarants. The petitioner made a declaration proposing to pay 50% of the penalty for each assessment year. However, the Department added interest on the penalty amount, justifying it with a clarification stating that interest could be charged till March 31, 1998, in certain cases. The petitioner contended that the addition of interest was contrary to the Scheme's provisions.

The Court examined whether the Scheme required payment of interest on tax arrears comprising penalty simpliciter. Section 88 of the Scheme, with a non obstante clause, specified rates for declarants, indicating that interest need not be paid. Even if the tax arrear included income tax, penalty, and interest, the specified percentage of disputed income was payable. The Court concluded that the Scheme did not mandate payment of interest, even if interest was levied during assessment. It held that the addition of interest was unauthorized and not supported by the Scheme or the member's clarification.

The Court partially allowed the petition, setting aside the addition of interest and directing the petitioner to pay 50% of the penalty for each assessment year along with further interest at rates under the Income-tax Act from 30 days after the initial determination until the actual payment date. The petitioner was required to make this payment within 30 days, considering statutory modifications to the interest calculation. Failure to comply would result in dismissal of the petition, with no order as to costs.