2005 (10) TMI 60 - HC - Income Tax

Waiver/reduction of the interest levied under section 234B - respondent has recorded a finding that the assessee was under a bona fide belief that export cash assistance was not includible in the assessee s income. Further it has been held that immediately after amendment the assessee itself requested to include the said item in the taxable income of the year under consideration and paid taxes thereon - In fact no reason has been assigned by the respondent for retaining the interest at Rs. 1, 00, 000. In the circumstances the impugned order dated March 4 2005 cannot be permitted to stand and is quashed and set aside. The respondent is directed to waive the remainder interest by passing a fresh order

Summary

Issues:
- Claim of exemption on export cash assistance as a capital receipt for assessment year 1989-90.
- Levying of interest under section 234B of the Income-tax Act, 1961.
- Application for waiver/reduction of interest under section 234B before the Central Board of Direct Taxes.
- Interpretation of the notification issued under section 119(2)(a) by the Central Board of Direct Taxes regarding reduction or waiver of interest.
- Discretionary power of the respondent in reducing interest under section 234B.
- Compliance with judicial decisions and previous court rulings in similar cases.
- Validity of reasons provided by the respondent for retaining a portion of the interest amount.

Analysis:
The petitioner, a private limited company, claimed exemption on export cash assistance as a capital receipt for the assessment year 1989-90. However, the Assessing Officer brought the amount to tax along with levying interest under section 234B of the Income-tax Act, 1961. The petitioner then applied for waiver/reduction of interest before the Central Board of Direct Taxes, which was initially rejected. The High Court, citing relevant judicial precedents, interpreted a notification issued under section 119(2)(a) by the Central Board of Direct Taxes, emphasizing the circumstances under which interest under section 234B could be waived.

The respondent, in reducing the interest amount, considered the retrospective amendment of law making the export cash assistance taxable and the petitioner's bona fide belief based on previous Tribunal decisions. The High Court, however, found the respondent's reasoning lacking, especially in retaining a portion of the interest without sufficient justification. Referring to previous court rulings and legal provisions, the High Court quashed the respondent's order and directed a waiver of the remaining interest amount. The court emphasized the importance of complying with judicial decisions and the discretionary power of authorities in such matters.

The High Court highlighted the necessity for the respondent to provide valid reasons for their decisions, especially when dealing with waiver or reduction of interest under tax laws. The court emphasized the importance of following established legal principles and judicial precedents in such cases. Ultimately, the High Court ruled in favor of the petitioner, setting aside the respondent's order and directing a waiver of the remaining interest amount.