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October 2017

5 Sections 220(2) and 221(1) – Penalty – Default in payment of tax – Penalty should not exceed the amount of tax in arrears – Tax in arrears does not include interest payable u/s. 220(2)

By K. B. Bhujle, Advocate
Reading Time 1 mins

CIT vs. Oryx Finance and Investment P.
Ltd.; 395 ITR 745 (Bom):

The return of income was processed u/s.
143(1) Act, 1961 and a demand was raised. The Assessing Officer also imposed
penalty of Rs. 1,19,30,677 u/s. 221(1) of the Act for default by the assessee
in the payment of demand. The Commissioner (Appeals) and the Tribunal held that
the penalty should not exceed the amount of tax in arrears and that tax in
arrears does not include interest payable u/s. 220(2).

On appeal by the Revenue, the Bombay High
Court upheld the decision of the Tribunal and held as under:

 “i)   On reading the provisions
of section 221 conjointly with the definition of “tax” as detailed u/s. 2(43)
of the Act, the irresistible conclusion that would be drawn was that the
phraseology “tax in arrears” as envisaged in section 221 of the Act would not
take within its realm the interest component.

 ii)   The Assessing Officer
could impose penalty for default in making the payment of tax, but it should
not exceed the amount of tax in arrears. Tax in arrears would not include the
interest payable u/s. 220(2) of the Act.”

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