Power of ITO u/s 220(6) of the Income tax act 1961. - Income Tax - 1287/CBDT

INSTRUCTION NO. 1287/CBDT Dated : November 12, 1979 Section(s) Referred: 220(6) ,245 Statute: Income - Tax Act, 1961 The Board had occasion to examine a case in which an assessee who had requested the ITO to exercise his discretion u/s 220(6) of the I.T. Act in respect of the amount in dispute before the first appellate authority had been informed by the ITO that balance of demand is stayed till 31st December, 1979 or decision of first appeal, whichever is earlier. Subsequently, when certain refunds become due to the assessee, the ITO adjusted the refunds arising to the assessee against a part of the outstanding disputed demand, invoking the provisions of section 245 of the I.T. Act after giving an intimation to the assessee. The question to be considered was whether the I.T.O. had the power to invoke the provisions of section 245 against the demands which had already been "stayed" by him u/s 220(6) of the Income-tax Act. 2. The matter was examined by the Board in consultation with the Ministry of Law. The Board have been advised that the provisions of section 245 empower the Income-tax Officer to set off the amount found refundable to the assessee against the sum, if any, remaining payable under the Act. This power is exercisable by the Income-tax Officer without reference to the fact as to whether the assessee was in default or he was treated to be not in default due to the operation of any other provision in the Act. In coming to this conclusion reliance was placed upon the decision of the Madras High Court in the case of Ramanathan Chettiar Vs. Additional Income-tax Officer, Madras (1956) 29 ITR 683 in which a similar question arose. 3. The effect of instructions contained in Board's circular No.3-D(LXXII-21) of 1968, dated 29th January 1968 clarifying that the taxes kept in abeyance under the provisions of section 220(7) should not be adjusted against the refunds that may subsequently fall due to the assessee by invoking the provisions of section 245 of the Income-tax Act was also considered. It was felt that these instructions deal with a wholly different situation where the foreign income which has been taxed in India could not be brought to India due to prohibition or restriction prevailing in those foreign countries. Since the conditions under which an assessees is treated to be not in default u/s 220(6) are wholly different, the instructions referred to above will have no relevance to cases arising under sub-section 6 of section 220. 4. The Board has also been advised that the existence of a liability to pay the tax is distinct from its enforcement. The ITO has, by making the adjustment of the amount found refundable to the assessee, only adjusted the same towards the liability of the assessee to pay the tax which was in existence and which continued to be in existence notwithstanding the fact that the Income-tax Officer has "stayed" the enforcement of the demand till 31st December, 1979. 5. It has been pointed out that section 220(6) of the Income-tax Act only empowers an Income-tax Officer not to treat an assessee to be in default if the conditions mentioned therein are satisfied. This is a negative act. The provision does not entitle an Income-tax Officer to grant an order of "stay" as has been done in the instant case which is a positive act of not enforcing the demand or proceeeding with the recovery of the tax due. The Board would like this distinction to be brought to the notice of all the Income-tax Officers and Assistant Commissioners working under you so that, in future, whenever an Income-tax Officer acts under the provisions of section 220(6) or, as the case may be, section 220(7) and has to pass a speaking order, he uses the expression which is found in the section viz. to treat an assessee as not being in default in respect of the amount in dispute in the appeal or, as the case may be, on such part of the tax until the prohibition or restriction is removed. 6. The Board would also like to stress that before making any adjustment u/s 245, it is necessary for the Income-tax Officer to give an intimation of the action proposed to be taken under this section, in writing, to the assessees.