CONDITIONS PRECEDENT FOR WAIVAL OF INTEREST UNDER INCOME TAX ACT, 1961

[Mr. M. GOVINDARAJAN]

Section 220(2) of the Income Tax Act, 1961 (‘Act’ for short) provides that if the amount specified in any notice of demand under section 156 is not paid within the period limited under sub-section (1), the assessee shall be liable to pay simple interest at one per cent for every month or part of a month comprised in the period commencing from the day immediately following the end of the period mentioned in sub-section (1) and ending with the day on which the amount is paid.

Section 220(2A) of the Act provides for waiver of interest subject to the conditions. The said section provides that notwithstanding anything contained in sub-section (2), the 1Chief 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—

(i) payment of such amount has caused or would cause genuine hardship to the assessee ;

(ii) 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

(iii) the assessee has co-operated in any inquiry relating to the assessment or any proceeding for the recovery of any amount due from him.

All the three conditions should be satisfied by the assessee to claim the benefit of waiver. If it is found that anyone of the conditions have not satisfied the claim of the assessee has to fail.

In ‘K.C. Mohanan V. Chief Commissioner of Income Tax and others’ – 2013 (1) TMI 312 - KERALA HIGH COURT the petitioner challenged the order passed by the Authority rejecting his application made under Section 220(2A) for waiver of interest levied under Section 220(2) of the Act.  The same was rejected on the ground that the petitioner did not satisfy the three conditions specified in Section 220(2A) of the Act. The Authority has specifically found that this is not a case where the assessee had established that payment of interest would cause genuine hardship to him. The conclusion is on the basis that the assessee is a partner in two firms doing business in liquor and also in a firm running a theatre. It is also found that the assessee has substantial agricultural income and that he owns 5.22 acres of coconut garden and 1.10 acres of cashew plantation. The High Court found that the petitioner did not contend the facts found by the Authority are not correct.  Therefore the Court was unable to infer that the payment of interest by the assessee would cause any genuine hardship justifying the invocation of Section 220(2A) of the Act.

Further the petitioner contended that non payment was due to circumstances beyond the control of the petitioner. The assessment was necessitated on account of addition of taxable income of the firm of which he is a partner. The Court held that the reason may justify delay in filing the return but not delay in the payment of tax for the post assessment period.  If that be so, the second requirement of Section 220(2A) of existence of circumstances beyond the control of the assessee is also not established.

In the same petition, the petitioner challenged the order where he sought waiver of interest levied under Sections 234A and 234B of the Act. Section 234A levies interest for default in furnishing income tax returns. Section 234B levies interest for defaults in payment of advance tax.The waiver of interest levied under the above two sections can be done if the conditions specified in Notification No.400/29/2002-IT (B), dated 26.06.2006.The first condition requires seizure of documents in search and seizure operations; the second condition is applicable only where interest is charged under Section 234C; the third condition is applicable only in case where the statute has been amended retrospectively and the fourth condition is applicable only where return is filed voluntarily.  The High Court held that since the conditions specified in the notification are not available, the petitioner cannot seek the waiver of interest levied under Section 234A and Section 234B of the Act.  The High Court dismissed the writ petition filed by the petitioner.