2000 (3) TMI 48 - HC - Income Tax

Summary

Issues Involved:
1. Whether interest under section 220(2) of the Income-tax Act, 1961, forms part of "tax arrear" as defined in section 87(m) of the Kar Vivad Samadhan Scheme (KVSS).
2. Whether the same interest could be demanded after the issuance of a final certificate under section 90(2) of the KVSS.

Detailed Analysis:

Issue 1: Whether interest under section 220(2) forms part of "tax arrear" as defined in section 87(m) of the KVSS.

The court examined whether interest payable under section 220(2) of the Income-tax Act, 1961, falls within the ambit of "tax arrear" as defined in section 87(m) of the KVSS. The petitioner, a private limited company, had declared interest under section 215 but not under section 220(2). The court noted that interest under section 220(2) is a statutory levy that is automatic and unconditional. It is determined by the direct tax enactment and becomes payable when the demand is not met within the stipulated time.

The court referred to the definition of "tax arrear" in section 87(m), which includes any amount of tax, penalty, or interest determined on or before March 31, 1998, but remaining unpaid on the date of declaration. The court concluded that since the liability to pay interest under section 220(2) is incurred automatically by operation of law, it constitutes "tax arrear" within the meaning of section 87(m). The court also dismissed the petitioner's reliance on the Central Board of Direct Taxes (CBDT) circular, clarifying that interest under section 220(2) indeed forms part of "tax arrear."

Issue 2: Whether the same interest could be demanded after the issuance of a final certificate under section 90(2) of the KVSS.

The court then addressed whether, after issuing a final certificate under section 90(2) of the KVSS, the designated authority could demand additional interest under section 220(2). The petitioner argued that once a final certificate is issued, no further demands could be made, as the certificate is conclusive under section 90(3). The court, however, noted that the petitioner had failed to include interest under section 220(2) in its declaration, which should have been part of the "tax arrear."

The court emphasized that the KVSS aims to settle tax disputes quickly and voluntarily by offering concessions. Therefore, the designated authority should have rejected the incomplete declaration outright. However, since the authority did not do so and determined the amount payable based on the incomplete declaration, the court found that the authority could issue a fresh certificate demanding the additional amount.

The court held that the designated authority has the inherent power to achieve the ends of justice and prevent abuse of its process, even if specific powers are not provided. Thus, the authority was justified in issuing a fresh certificate for the additional interest under section 220(2) and demanding payment from the petitioner.

Conclusion:
The court dismissed the petition, holding that interest under section 220(2) forms part of "tax arrear" and that the designated authority could demand additional interest even after issuing a final certificate under section 90(2). The petitioner was granted an additional thirty days to comply with the demand, failing which the respondents could take further action as per the law.