ONCE ALL CONDITIONS UNDER SEC.220 (2A) WERE SATISFIED WAIVER OF PART OF INTEREST IS NOT JUSTIFIED.

[Mr. M. GOVINDARAJAN]

                        Section 220(2) of the Income Tax Act, 1961 (‘Act’ for short) prescribes interest at the specified rate for the delay in payment of income tax within the stipulated time indicated in the demand notice.   Section 220(2A) of the Act provides that notwithstanding anything contained in Section 220(2) the Chief Commissioner or Commissioner may reduce or waive the amount of interest paid or payable by an assessee under the said sub section if he is satisfied that-

• payment of such amount has caused or would cause genuine hardship to the assessee;
• default in the payment of the amount on which interest has been paid or was payable under the said sub section was due to circumstances beyond the control of the assessee; and
• the assessee has co-operated in any inquiry relating to the assessment or any proceeding for the recovery of any amount due from him.

Under this section the Chief Commissioner or Commissioner is given discretionary power to waive interest or reduce interest after examining the facts of the case of the assessee in the light of the above tests.

                        In ‘Smt. Harbans Kaur V. Commissioner of Wealth Tax’ – 1997 (1) TMI 4 (SC), the Supreme Court held while interpreting Section 18B of the Wealth Tax Act that in exercise of that discretion, the Commissioner can either reduce the amount of the penalty or he may even waive the entire penalty.   It is for the Commissioner to decide on the facts of a particular case whether a waiver in entirety or a reduction alone is warranted.    This is also applicable to Sec. 220(2A).   This power should be exercised judiciously and fairly keeping in mind factors relevant to the issue and eschewing irrelevant factors and circumstances, to be inferred from the policy of the law itself. 

                        The Supreme Court  in ‘B.M. Malini V.  Commissioner of Income Tax’ – 2008 (10) TMI 2 (SC) while considering the ingredients of genuine hardship, held that it would, inter alia, be a genuine difficulty merely because a person has large assets that will not per se lead to a conclusion that he would never be in difficulty as he can sell all those assets and pay the amount of interest levied.  The Supreme Court further held that indisputably, the Commissioner has the discretion not to accede to the request of the assessee, but the discretion must be judiciously exercised.   He has to arrive at a satisfaction that the three conditions laid down therein have been fulfilled before passing an order waiving interest.

                        In ‘E.M. Joseph V. Chief Commissioner of Income Tax and others’ – 2012 (5) TMI 361 (HC) the petitioner is the legal heir of the deceased assessee.  The assessment for the assessment year 1989-90 was completed under Section 143(3).   The total income was later reduced.  The total demand raised contained interest under Sections 243A, 243B and 243C coming to Rs.14,61,916 which was waived by Chief Commissioner on 21.10.1999.   The application was filed for the waival of interest of Rs.1,95,570 levied under Section 220(2) of the Act.  The Chief Commissioner passed detailed order limiting interest levied to the amount already paid and directing waiver of the balance amount remaining unpaid.  Before passing this order the Commissioner has elaborately considered the scope of Section 220(2A) of the Act and found that all the three conditions regarding genuine hardship to the assessee, default in tax being not due  to the circumstances attributable to the assessee and the co-operation of the assessee were satisfied. 

                        The Department contended that the hardship found by the Chief Commissioner was only to the extent of further payment to be made by the petitioner, on behalf of the assessee, and that, with respect to that amounts already paid the same cannot be said to have been paid, bringing them within the ambit of Section 220(2A).  

                        The Court did not accept the contention of the Department that the adjustment would take it out of the ambit of Section 220(2A), since the same cannot be said to have been paid by the assessee or on her behalf by the legal heirs.   Section 220(2A) does not draw any such distinction and the manner in which the Revenue recovers the amounts, in the opinion of the court,  is not relevant while considering the waiver application made under Section 220(2A).  Since the Commissioner has found the three conditions to be satisfied, the contention of the Department cannot be countenanced because  the clear findings entered on the facts of the case is that the present petitioners, the legal heirs, are facing revenue recovery proceedings from the State authority.   Genuine hardship has to be found on the facts and circumstances of each case which satisfaction was entered by the Commissioner.  However there is no reason stated to limit the waiver to the amounts remaining due and payable.  In the absence of reasons of reducing the interest that is glaring in the order of Commissioner impugned in the writ petition.   In the impugned order it was indicated that ‘payment of further interest will cause hardship to them’ and does not state any reason for limiting or reducing the waiver.  The judicious exercise of power of waiver is conspicuously absent in this case.  It would have been a different situation if the Commissioner had considered the hardship on the facts involved and reduced the interest liability of the assessee for reasons stated.  Sec. 220(2A) not having made any such distinction, as contended by the Department both paid and unpaid interest are to be considered for waiver.  In the opinion of the Court the discretion has not been properly exercised by the Commissioner.  The  Court directed to pass fresh orders in accordance with the observations made by the Court.