1999 (8) TMI 35 - HC - Income Tax

Issues Involved:
1. Validity of the demand of interest under section 220(2) of the Income-tax Act in the certificate of intimation issued under the Kar Vivad Samadhan Scheme, 1998.
2. Whether the designated authority under the Samadhan Scheme has the power to levy interest under section 220(2) of the Income-tax Act.
3. Applicability of section 88(a)(iv) of the Samadhan Scheme regarding the levy of both interest and penalty.
4. Whether the interest under section 220(2) of the Income-tax Act forms part of the tax arrears determined on or before March 31, 1998.
5. Impact of the declarant's omission to include interest under section 220(2) in the declaration form on the validity of the demand.
6. The effect of the Central Board of Direct Taxes (CBDT) clarifications on the inclusion of interest under section 220(2) in the tax arrears.
7. The petitioners' loss of the right to approach the Commissioner of Income-tax for waiver of interest under section 220(2A) of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Validity of the demand of interest under section 220(2) of the Income-tax Act:
The primary issue was whether the demand of interest under section 220(2) in the certificate of intimation issued under the Samadhan Scheme is proper, justified, and valid in law. The court held that the levy of interest under section 220(2) is a statutory levy and arises automatically by operation of law when the amount specified in the notice of demand is not paid within the prescribed time. The interest is determined by the statute itself and does not require a separate order of determination by the assessing authority.

2. Power of the designated authority under the Samadhan Scheme:
The petitioners contended that the designated authority under the Samadhan Scheme had no right to levy interest under section 220(2). The court rejected this argument, stating that the Samadhan Scheme is a statutory scheme forming part of the Finance (No. 2) Act, 1998, and the designated authority is required to determine the amount payable in accordance with the scheme. The scheme operates notwithstanding the provisions contained in the Income-tax Act.

3. Applicability of section 88(a)(iv) of the Samadhan Scheme:
The petitioners argued that section 88(a)(iv) does not authorize the levy of both interest and penalty. The court clarified that the section provides that where tax arrears comprise only interest payable or penalty levied, the amount payable would be 50% of the tax arrears. The court held that the use of the alternative expression "interest" or "penalty" does not indicate that interest cannot be a subject-matter of consideration under the Samadhan Scheme.

4. Inclusion of interest under section 220(2) in tax arrears:
The petitioners argued that the interest under section 220(2) was not determined on or before March 31, 1998, and hence it cannot be regarded as tax arrears. The court held that the interest under section 220(2) is a statutory levy and is determined by the statute itself. Therefore, it forms part of the tax arrears determined on or before March 31, 1998.

5. Declarant's omission to include interest in the declaration form:
The petitioners contended that since they did not include the interest under section 220(2) in their declaration forms, the demand for such interest is not legal. The court held that the declaration form is relevant, but the designated authority is required to determine the amount payable in accordance with the Samadhan Scheme. The omission by the declarant does not affect the validity of the demand for interest.

6. Impact of CBDT clarifications:
The petitioners referred to CBDT clarifications, particularly question No. 29, to argue that interest under section 220(2) did not form part of tax arrears. The court rejected this argument, stating that the clarifications issued by the CBDT do not override the statutory provisions of the Samadhan Scheme. The court held that the interest under section 220(2) is subject to waiver under the Samadhan Scheme.

7. Loss of the right to approach the Commissioner of Income-tax for waiver of interest:
The petitioners argued that they lost their right to approach the Commissioner of Income-tax for waiver of interest under section 220(2A) because of the demand under the Samadhan Scheme. The court held that once the petitioners opted for the benefits of the Samadhan Scheme, the scheme would operate notwithstanding the provisions of the Income-tax Act. The loss of the right to seek waiver is not a material consideration.

Conclusion:
The court dismissed the writ petitions, holding that the demand for interest under section 220(2) in the certificate of intimation issued under the Samadhan Scheme is valid and justified. The court granted the petitioners four weeks to pay the interest amount under section 220(2). The court rejected all contentions raised by the petitioners and upheld the validity of the demand for interest under the Samadhan Scheme.

← Previous Next →