WAIVER OF INTEREST UNDER SECTION 220 OF INCOME TAX ACT, 1961

[Mr. M. GOVINDARAJAN]

Interest

Section 220(1) of the Income Tax Act, 1961 (‘Act’ for short) provides that any amount, otherwise than by way of advance tax, specified as payable in a notice of demand under section 156 shall be paid within thirty days of the service of the notice at the place and to the person mentioned in the notice.  Where the Assessing Officer has any reason to believe that it will be detrimental to revenue if the full period of thirty days aforesaid is allowed, he may, with the previous approval of the Joint Commissioner, direct that the sum specified in the notice of demand shall be paid within such period being a period less than the period of thirty days aforesaid, as may be specified by him in the notice of demand.

Section 220(2) of the Act 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.

Waiver of interest

Section 220(2A) of the Act provides that notwithstanding anything contained in section 220 (2), the Principal Chief Commissioner or Chief Commissioner or Principal 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 17[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.

Case laws

In ‘BM Malani v. Commissioner of Income Tax and others’ - 2008 (10) TMI 2 - SUPREME COURT, the application for waiver of interest was rejected by Commissioner of Income Tax.  The submission of assessee is that it will cause genuine hardship to them.   The Supreme Court held that whether the default in payment of the amount was due to circumstances beyond the control of the assessee has not been considered by Commissioner of Income Tax or High Court.  Whether a presumption that draft belongs to the person from whose possession it was seized can be drawn is a subject matter of Assessing Officer.  The Supreme Court remanded the matter to the Commissioner of Income Tax.

In ‘Vellore Electronics and Engineering (P) Limited v. Assistant Commissioner of Income Tax and others’ – 2010 (4) TMI 1204 (Madras HC), the petitioner prayed a direction to the third Respondent to waive the interest levied under Section 220(2) of the Income Tax Act, 1961, for the block assessment years 1987-88 to 1997-98, as per the settlement dated 29-7-1997 between the Petitioner and the Respondents.  A search was carried out in the premises of the Petitioner/Assessee on 4-7-1996. The Petitioner furnished block return on 28-7-1997 responding to the notice issued by the first Respondent calling for a block assessment return in the aftermath of the search carried out in the premises of the Petitioner/Assessee. Having accepted block returns submitted by the Petitioner/Assessee, a demand for ₹ 3,60,00,000 was raised. Interest under Section 220(2) of the Income Tax Act, 1961 was charged to the tune of ₹ 80,58,639 by the first Respondent vide order dated 15-2-2000.

 The third Respondent, having evaluated the background of the case which culminated in charging interest under Section 220(2) of the Income Tax Act, 1961 passed the impugned order saying that none of the conditions as adumbrated under Section 220(2A) of the Income Tax Act did exist in the case on hand. Consequently, the petition seeking waiver of interest was rejected.

The High Court observed that a settlement was arrived at between the department and the Petitioner/Assessee, block assessment was completed. The Petitioner on its part furnished the department all the documents and securities relating to the book debts giving authority to the department to collect the book debts. The department also recovered the debts and adjusted towards the demand of tax. The department also adjusted the amount available with the Petitioner under the prohibitory order.  The Petitioner/Assessee was also left with no amount as the entire amount to the credit of the Assessee was already attached and adjusted against the tax demand made by the department for the block assessment period.

The High Court found that the default in payment of amount was due to the circumstances beyond the control of the Assessee. It is also found that the Petitioner/Assessee had extended full co-operation in the enquiry relating to assessment and also in the process of recovering the amount from the book debt. The Petitioner also would have faced genuine hardship if he had been directed to pay the entire amount demanded under the block assessment period, as there was no amount lying with the Petitioner and the amounts were due from book debtors.   In view of the above, the High court found that the third Respondent should have exercised his discretion in waiving the amount of interest payable on the tax demanded for the block assessment period of 1987-88 to 1997-98.

In the above circumstances the impugned order passed under Section 220(2A) of the Income Tax Act, 1961 by the third Respondent is quashed and consequently the third Respondent is directed to waive the interest levied under Section 220(2) of the Income Tax Act, 1961 for the block assessment years 1987-88 to 1997-98.

In ‘Mansukhlal Pitalia v. The Principal Commissioner of Income Tax and another’ – 2019 (4) TMI 1175 MP a search was carried out by the income tax authorities under Section 132 of the Income Tax Act, 1961 on 26-27.06.2002 at the petitioner's premises and during the search certain papers, diaries, Hundis were found in possession of the petitioner. They were seized by the income tax authorities. The Assessing Officer issued a notice under Section 158BC of the Income Tax Act, 1961 to the petitioner to file return of income for the block period 01.04.1996 to 26.06.2002.    The petitioner has filed return disclosing the undisclosed income of ₹ 49,68,000/- and the tax payable thereon, was worked out to ₹ 30,40,416/-. An assessment order was passed on 17.06.2004 assessing income the income of the petitioner at ₹ 3,26,52,820/- and the tax was determined to be payable at ₹ 2,02,33,320/-. The petitioner's grievance is that assessing authority has calculated the interest at ₹ 33,31,465 under Section 220 (2) of the Income Tax Act, 1961 and a demand has been issued for ₹ 37,90,835.    The petitioner approached the Commissioner / Principal Commissioner for waiver of the interest by filing an application dated 29.12.2015 under Section 220 (2A) of the Income Tax Act, 1961 and the same has been rejected by the order 04.12.18.   The order held that assessee failed to justify that his case was falling under the conditions as mentioned in section 220(2) of the Income Tax Act, 1961. The assessed does not fulfill the conditions mentioned in sub-clauses (i), (ii) and (iii) of section 220(2A), as is evident from the facts of the case.

Against this order the petitioner filed the present writ petition before the High Court.  The petitioner contended that since the levy on interest was on the higher side, it was causing great hardship to the petitioner.  It has been argued before this Court on behalf of the Income Tax Department that the petitioner is not entitled for any relief of any kind, as three conditions laid down under Section 220 (2) of the Income Tax Act, 1961 are not satisfied at all.

The High Court heard the arguments put forth by the two sides.  The Highs Court has carefully gone through Section 220 (2) of the Act, 1961. The payment of amount towards interest certainly causes hardship to an assessee, but on this ground alone, the interest cannot be waived. The present case is a case of a assessee, who was a defaulter, who has suppressed his income and only after search and seizure operation, the department was able to find out the concealment of income by the assessee. It is a case of a person, who was with a calculative motive, evading the payment of income tax and in those circumstances, the department has carried out search and seizure operation and was able to unearth the concealed income. It is not a case where on account of some genuine bona fide mistake, the assessee was not able to pay the tax dues.

The High Court observed that it can never be said that the assessee was not able to pay the tax due to the circumstances beyond the control of the of the assessee. It is a case of willful evasion of payment of income tax and such willful evasion can never said to be due to the circumstances beyond the control of the assessee, and therefore, this Court is of the considered opinion that the Principal Commissioner of Income Tax was justified in passing the impugned order.

Then the High Court gave interpretation to the term ‘genuine’.  The term `genuine' as per the New Collins Concise English Dictionary is defined as  not fake or counterfeit, real, not pretending (not bogus or merely a ruse).  The said principle should also be applied for the purpose of determining as to whether any hardship had been caused or not. A genuine hardship would, inter alia, mean a genuine difficulty. That per se would not lead to a conclusion that a person having large assets would never be in difficulty as he can sell those assets and pay the amount of interest levied.  For the said purpose, another well--known principle, namely, a person cannot take advantage of his own wrong, may also have to be borne in mind.

Another principle should also be borne in mind, namely, that a statutory authority must act within the four corners of the statute. Indisputably, the Commissioner has the discretion not to accede to the request of the assessee, but that 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.

The assessee, at every stage, has challenged the order passed by the authorities. It is not a case where the assessee was ready to deposit the income tax. After the assessment order was passed by the Assessing Officer pursuant to the seizure operation, the Commissioner, keeping in view the conduct of the petitioner, has exercised its discretion judiciously and the three conditions laid down under Section 220 (2A) of the Income Tax Act, 1961 have not been fulfilled enabling the Commissioner to waive out the interest. Every person is having certain compulsion while paying interest and that cannot be the sole ground for allowing the application in respect of waiver of the interest.  The High Court dismissed the writ petition.