2017 (11) TMI 1225 - HC - Income Tax

Entitlement for waiver of interest under Section 220(2A) - Assessing Officer did not allow the mandatory interest under Section 244(1A) - proof of genuine hardship - Held that - In the application filed by the petitioner for waiver of interest, the petitioner has specifically stated that they had succeeded before the CIT(A) in respect of the year 1977-1978 and an order was passed on 25.02.1984. However, that order was given effect to only on 30.10.1996 i.e. after twelve years and even thereafter, the Department did not pay the mandatory interest under Section 244(1A). However, this interest was paid only on 07.10.2003. Therefore, this payment which was received by the petitioner on 07.10.2003 can hardly have an impact on the present issue which pertains to the assessment for the year 1985-1986 for which the petitioner filed return of income during September, 1985. As mentioned taxes fell in Category V of Schedule II to the Acquisition Act and the last among the priority of debts as stipulated under Section 18 of the Acquisition Act. The Assessing Officer as well as the Department was well aware with the said provision and this presumption can safely be drawn on account of the conduct of the Department in not enforcing any of the demands issued and for the first time interest demand was issued on 12.12.2000 much after the Club was handed over to the Committee of Management. From 1985 onwards till 2003 the assessment was not completed. As noticed above, there were three computations with regard to carry forward loss. The petitioner cannot be stated to be wholly incorrect for claiming a carry forward loss, while they filed the return atleast they were partially right since the Department rectified the mistake suo motu and arrived at the carried forward business loss at ₹ 12.82 lakhs as against the initial quantification of ₹ 35,435/-. Thus, these factors should enure to the benefit of the petitioner. Thus, in the light of the factual position referred above, payment of interest would cause undue hardship to the petitioner. With regard to the second aspect regarding Circumstances beyond the control of the assessee the petitioner having been received interest should not cringe to pay interest is an analogy which has been wrongly cited. The petitioner is, as a matter of right, entitled for the mandatory interest. Therefore, the 1st respondent cannot state that the petitioner has become financial richer on account of that payment of interest. This receipt of interest which is statutory and mandatory can have no impact on the petitioner s claim for waiver under Section 220(2A). This power has been conferred on the 1st respondent by the Statute. The manner in which he has to consider such application has also been spelt out in the Statute and if the Court finds that the reasons recorded are not germane to facts or without taking into consideration the relevant factors or taking note of irrelevant factors are all good and sufficient grounds to interfere with the order. To state that in the interregnum tax could have been paid is a wrong conclusion without due regard to the fact that the undertaking vested with the Government from 1986 to 1996 and even during the period when it vested with the Government, the respondent Department had no priority over their claims and they were the last among the list of priorities, the respondent Department did not challenge the provisions of the Acquisition Act. Therefore, to now pin down the petitioner/assessee and direct them to pay interest will be harsh especially when the circumstances stated above clearly shows that they were beyond the control of the petitioner. Thus this Court is fully convinced that the petitioner has satisfied all the three conditions as enumerated under Section 220(2A) of the Act and therefore are entitled for waiver of interest.

Summary

Issues Involved:
1. Justification of the Commissioner of Income Tax (CIT) in rejecting the application for waiver of interest under Section 220(2A) of the Income Tax Act, 1961.
2. Whether the petitioner satisfied the conditions for waiver of interest under Section 220(2A) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Justification of the Commissioner of Income Tax (CIT) in rejecting the application for waiver of interest under Section 220(2A) of the Income Tax Act, 1961:

The petitioner, a company involved in promoting racing, challenged the CIT's order dated 30.08.2004, which rejected their application for waiver of interest levied for the assessment year 1985-1986. The CIT's rejection was based on three grounds:

(i) The Department had already given interest under Section 244(1A) of the Act for the revision of assessment for the year 1977-1978, and the petitioner could not claim hardship after receiving a substantial interest amount.

(ii) The petitioner did not satisfy the conditions of genuine hardship and circumstances beyond their control, which are necessary for waiver under Section 220(2A).

(iii) The petitioner could have paid advance tax or self-assessment tax before the takeover of the Club by the Government on 10.04.1986, thus avoiding the interest liability.

2. Whether the petitioner satisfied the conditions for waiver of interest under Section 220(2A) of the Income Tax Act, 1961:

The Court analyzed whether the petitioner met the three cumulative conditions under Section 220(2A):

(i) Genuine Hardship: The petitioner argued that the business and assets were under Government control from 1986 to 1996, and they had no funds to pay the tax demand raised in March 1988. The Court noted that the interest under Section 244(1A) was paid to the petitioner only on 07.10.2003, long after the relevant assessment years. The Court found that the delay in assessment finalization and the fluctuating interest demands caused undue hardship to the petitioner.

(ii) Circumstances Beyond Control: The Court observed that the petitioner's business was under Government control for ten years, during which they had no control over financial matters. Taxes were categorized as the last priority under the Acquisition Act, and the Department did not enforce demands during the Government's control period. This situation was beyond the petitioner's control.

(iii) Cooperation in Inquiry: The Court confirmed that the petitioner cooperated in the assessment proceedings, as there were no adverse comments regarding their cooperation.

The Court concluded that the CIT's reliance on the interest received under Section 244(1A) to deny the waiver was misplaced. The statutory and mandatory interest payment had no bearing on the petitioner's claim for waiver under Section 220(2A). The Court found that the reasons recorded by the CIT were not germane to the facts and failed to consider relevant factors.

Conclusion:

The Court held that the petitioner satisfied all three conditions under Section 220(2A) and was entitled to a waiver of interest. The writ petition was allowed, the impugned order was set aside, and the interest levied on the petitioner for the assessment year 1985-1986 was waived. No costs were awarded.