Interest u/s 220(2) in case of protective assessment. - Income Tax - 1556/CBDT

INSTRUCTION NO. 1556/CBDT Dated: March 7, 1984 The Board have had occasion to consider the question whether interest u/s 220(2) of the Income-tax Act, 1961 is leviable on the demands which were created consequent to protective assessments becoming final. This issue had arisen in the case of an individual who was the sole beneficiary of a trust. The trust and the beneficiary were separately assessed to tax. Since the individual was the sole beneficiary, the income from the trust was assessed in his hands. At the same time a protective assessment was made on the trust as the beneficiary had contended that the income of the trust was not assessable in his hands but liable to be assessed in the hands of the trust. The taxes were duly recovered from the individual beneficiary on the entire income including that part with respect to which protective assessment had been made on the trust. No taxes were, however, recovered from the trust on this income. 2. On appeal, the appellate authority held that the income was assessable only in the hands of the trust. As a result of the appellate decision, refunds due to the beneficiary for certain assessment years were adjusted fully against the demands raised in the case of the trust. On the demands pending on protective assessments in the case of trust, the interest was levied u/s 220 (2) of the Income-tax Act. The trust then requested for the cancellation of the interest on the plea that the payment made in the case of beneficiary should be deemed to have been made in the case of the trust and the date of payment should be taken as the original date when the demand was paid and not the date when the refund from one case was adjusted against the demand in the other case. 3. The Board are advised that having regard to the principle of income being subject to tax only once, if tax is already paid on certain income in the hands of the beneficiary it has to be taken into account and in case the beneficiary is not liable to pay interest on tax, the representative assessee to the same extent is not liable to pay interest thereon. 4. In view of the foregoing, the Board are of the view that the taxes paid in respect of income protectively assessed should be treated as paid on the date on which the original payment was actually made by the person in whose hands such an income is finally held to be assessable. The interest leviable and payable in their cases under the various provisions of the Act should be recomputed accordingly. The conditions precedent to this recomputation will be, firstly, that the appropriate adjustment for tax already paid is desired by the concerned persons. Secondly, the assessee making the original payment expressly forgoes his claim of any interest payable by the Department. It may be clarified that this position will obtain only in situations of representative assessees/beneficiaries or HUF/Individuals. 5. The aforesaid instructions may be brought to the notice of all the field officers working in your charge.