For write off of demands, so also for scaling down, there need not be any provision in the Income-tax Act. Every creditor, including the Government, has the inherent right to give up a part or whole of the debt due to him. - Income Tax - 873/CBDT

INSTRUCTION NO. 873/CBDT Dated : September 4, 1975 Section(s) Referred: 220 Statute: Income - Tax Act, 1961 Reference is invited to Board's letter of even number dated the 21st February, 1975, addressed to the Commissioner of Income-tax, Bombay City and copy forwarded to all the Commissioners of Income-tax and to say that the question of scaling down of tax arrears was examined by the Board in detail after certain doubts were raised in this regard consequent upon the conferment of enhanced powers on the Commissioners of Income-tax in respect of the write off of irrecoverable demand in 1973. 2. After such examination the Board are of the view that just as for write off of demands, so also for scaling down, there need not be any provision in the Income-tax Act. Every creditor, including the Government, has the inherent right to give up a part or whole of the debt due to him. 3. Besides, there would be no over-lapping between the powers relating to scaling down of arrear demand and those of the Income-tax Settlement Commission to be constituted u/s 245B of the Income-tax Act. This is because the Income-tax Settlement Commission will have powers to settle the tax liability of an assessee where any proceedings in connection with his assessment or re-assessment are pending before an Income-tax authority on the date of the application. On the other hand, the scaling down pertains to the arrear demand in cases where assessment or re-assessment proceedings have become final but the assessees are not in a position to pay the full demand. As was laid down in Shri K.S. Sundara Rajan's D.O. letter No. 16c/9/56-IT dated 31-1-1957, a settlement for scaling down is to be entered into only in a case in which the recovery in the normal course is difficult and the proposed settlement results in larger recovery than could be realised by recourse to enforced sale of assets or other modes of recovery. Further, such a settlement is to be made subject to the condition that the amount settled would be paid without delay and in case the instalments are required, adequate security would be furnished. Besides, an affidavit is required to be taken from the assessee concerned declaring particulars of his assets as on the date of the settlement and each such settlement is to be made expressly subject to the condition that of at a future date, any assets come to the notice of the Department, which were not disclosed in the affidavit, the settlement would be treated as void and the Government would be free to go ahead with the recovery proceedings according to law. 4. It has also been decided that Commissioners of Income-tax will continue to exercise powers of scaling down where the aggregate arrear demand outstanding against an assessee is Rs. 1 lakh or less. Cases in which such aggregate demand exceeds Rs. 1 lakh would continue to be sent to the Board after the same have been scrutinized and recommended for scaling down by the appropriate Zonal Committee. 5. The Board expect that the above clarifications will expedite the process of the reduction of tax arrears. You are, accordingly requested to take urgent steps to review and process all case of scaling down of tax arrears.