2015 (7) TMI 411 - HC - Income Tax

Interest payable by assessee on short payment of advance tax - whether the assessee was liable to pay interest on account thereof under Section 215 in respect of the enhanced share - Held that - The Deputy Commissioner, in the present case, considered the circumstances to justify a reduction or waiver. Sub-rule (5) of rule 40 is wide enough to cover cases where the assessee estimates his income bona fide and pays advance tax on the basis thereof. It is neither necessary nor proper to enumerate cases which fall within the ambit of Rule 40(5). It is sufficient to hold that the ambit of sub-rule(5) is wide and that the discretion thereunder must be exercised in a judicious manner. The bona-fides of the assessee in estimating his income and paying the advance tax accordingly are relevant factors and if established fall within the ambit of Section 215(4) read with Rule 40(5). The authorities, therefore, had the jurisdiction to reduce or even to waive the interest in the present case. We see no reason to interfere with the exercise of that discretion. - Decided against the revenue.

Summary

Issues:
1. Interpretation of Section 215 of the Income-tax Act regarding the chargeability of interest on assessed income excluding enhanced share of the assessee in a partnership firm.

Analysis:
The judgment pertains to a reference by the Income Tax Appellate Tribunal under Section 256(1) of the Income-tax Act, 1961, regarding the chargeability of interest under Section 215 on the assessed income excluding the enhanced share of the assessee in a partnership firm. The case involved the assessment year 1984-85 where the Assessing Officer treated the income declared by the assessee as an individual's income instead of as a Hindu Undivided Family (HUF) income. The Deputy Commissioner of Income Tax (DCIT) directed the Assessing Officer to consider the chargeability of interest under Section 215 even after excluding the enhanced share in the firm. The Tribunal upheld the DCIT's decision, emphasizing the absence of wilful attempt or knowledge of false information on the part of the assessee.

The crux of the matter revolved around whether the assessee, in good faith, estimated income and paid advance tax accordingly, justifying a reduction or waiver of interest under Section 215. The judgment highlighted that the Assessing Officer had the authority, under Section 215(4) and Rule 40(5) of the Income Tax Rules, to reduce or waive interest based on prescribed circumstances. It was established that the assessee acted in good faith while estimating income and paying advance tax, which fell within the ambit of Rule 40(5) empowering the Deputy Commissioner to reduce or waive interest.

The judgment concluded that the authorities had the jurisdiction to reduce or waive interest payable under Section 215 considering the bona fides of the assessee in estimating income and paying advance tax in good faith. The discretion provided under Rule 40(5) was deemed to have been exercised judiciously in this case. Consequently, the reference was answered in the affirmative in favor of the assessee, affirming the decision to reduce or waive the interest payable under Section 215 in the circumstances presented.