2017 (11) TMI 578 - HC - Income Tax

Stay petition - demand for payment of interest under Section 220(2) - recovery proceedings - non cooperation in proceedings - whether the petitioner satisfies the condition prescribed under Section 220(2A)? - visible financial hardship - Held that - Merely because the petitioner approached this Court and filed a writ petition, they cannot be put to prejudice nor can it be treated that the petitioner did not co-operate in the proceedings. Therefore, the condition no (iii) contained in Section 220(2A) stands complied with. With regard to other two facts, to be fulfilled for the entitlement of waiver, namely genuine hardship and circumstances beyond the control, the second respondent has interpreted the clause in the freight rate agreement dated 09.06.1987 and concluded that it is a self-inflicted injury by the petitioner. In my view, the second respondent has no jurisdiction to sit in judgment over a condition contained in an agreement between two parties viz., two Government organization and that cannot be put against the petitioner. Thus, the manner in which the second respondent has approached the issue is in-correct. With regard to financial difficulty, the second respondent would state that the petitioner has a fixed deposit of a sum of ₹ 4.4 Crores and they also earned interest income and the said fixed deposit is maintained specifically in connection with Kanniyakumari ferry service, which is a matter of national importance and the fixed deposit has to be maintained for the purpose of acquiring the ferry and cannot be diverted for any other purpose. Thus, the observation with regard to financial condition of the petitioner is also factually in-correct. Thus, for the above reasons, this Court has no hesitation to hold that the petitioner has fulfilled all the three conditions contained under Section 220(2A) of the Act and thus, entitled for waiver of interest. Writ petition is allowed and the impugned order is quashed. It is seen that at the time, when the writ petition was allowed, an order of interim stay was granted on condition that the petitioner pays 25% of the amount demanded within a period of eight weeks. This condition has been complied with by the petitioner. In the light of the above order, the petitioner is entitled for refund of the said amount and this amount can be adjusted against the future assessments.

Summary

Issues:
1. Investment allowance withdrawal under Income Tax Act.
2. Appeal against withdrawal of investment allowance.
3. Application for waiver of interest under Section 220(2A) of the Act.

Issue 1: Investment allowance withdrawal under Income Tax Act

The petitioner, a government-owned company, claimed investment allowance for the purchase of ships and a dredger. Initially allowed by the Assessing Officer, the allowance was later withdrawn due to non-utilization within the allowable period. The petitioner appealed the decision up to the Tribunal, seeking a stay of recovery. After various proceedings, including attachment of bank accounts, the petitioner agreed to pay arrears in installments. However, a demand for interest under Section 220(2) of the Act was raised, leading to a request for waiver based on financial hardship.

Issue 2: Appeal against withdrawal of investment allowance

The petitioner's appeal against the withdrawal of investment allowance was dismissed by the Tribunal. Subsequently, recovery actions were taken by the Income Tax Department, including attaching bank accounts. The petitioner filed a writ petition challenging these actions, seeking stay of recovery. Despite complying with installment payments, a demand for interest was issued, prompting the petitioner to apply for waiver under Section 220(2A) of the Act, citing financial losses and inability to pay the disputed tax.

Issue 3: Application for waiver of interest under Section 220(2A) of the Act

The petitioner sought waiver of interest under Section 220(2A) of the Act, arguing genuine financial hardship and circumstances beyond their control. The second respondent rejected the application, alleging non-cooperation and self-inflicted financial issues. The court analyzed the conditions for waiver under Section 220(2A), emphasizing genuine hardship, lack of control over default, and cooperation in inquiries. The court found that the petitioner met all conditions for interest waiver, including financial difficulty due to specific obligations and correct compliance with installment payments. Consequently, the court allowed the writ petition, quashed the impugned order, and granted a refund with adjustments for future assessments.

This detailed analysis covers the issues related to the withdrawal of investment allowance, the appeal process, and the application for waiver of interest under the Income Tax Act, providing a comprehensive overview of the legal judgment.