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Interest — Waiver of interest u/s.220(2) — Case of genuine
hardship — Merely because a person has large assets could not per se
lead to the conclusion that he would never be in difficulty as he can sell
those assets and pay the amount of interest levied — When a request has been
made to dispose of the seized assets and appropriate proceeds towards taxes,
why the request was not acceded to should be gone into by the Commissioner.
[B. M. Malani v. CIT, (2008) 306 ITR 196 (SC)]
The appellant had been carrying on money-lending business
and trading in shares and securities. On or about September 4, 1994, a raid
was conducted in his residential premises by the authorities in exercise of
their powers u/s.132 of the Income-tax Act, 1961 (for short, ‘the Act’).
Amongst others, shares worth market value of Rs.61.38 lakhs and a demand draft
worth Rs.10 lakhs in the name of PAN Clothing Company Limited were seized. By
a letter dated December 15, 1994, a declaration was made by the appellant in
terms of Ss.(4) of S. 132 of the Act, by reason whereof he opted to pay taxes
from out of the seized shares and securities stating that the shares be
expeditiously disposed of and the sale proceeds therefrom be appropriated
towards taxes. The said request of the appellant was not acceded to.
The Income-tax Department demanded and recovered a sum of
Rs.40 lakhs in between the period January and March, 1995, for the A.Y.
1991-92 to 1994-95.
The appellant filed an application in terms of Ss.(1) of S.
245C before the Settlement Commission on January 2, 1996, whereupon an order
was passed by the Settlement Commission on December 2, 1999. The demand draft
drawn in the name of PAN Clothing Company Limited worth Rs.10 lakhs which was
seized during the course of search was encashed by the Income-tax Department
in July, 2000, after the same was got revalidated.
By an order dated March 8, 2002, the Income-tax Officer,
Ward-10(1), Hyderabad, levied interest for a sum of Rs.31,41,106 u/s.220(2) of
the Act for the A.Ys. 1990-91 to 1995-96.
The appellant thereafter filed an application for waiver of
interest on diverse dates, i.e., April 3, 2002, May 14, 2002, and
September 16, 2002. The same was rejected by the Commissioner of Income-tax by
reason of an order dated November 26, 2002, opining that the appellant did not
satisfy all the three conditions which were required for allowing a waiver
petition. The High Court dismissed the writ petition filed by the appellant.
On an appeal to the Supreme Court, it was held that for interpretation of the
aforementioned provision, the principle of purposive construction should be
resorted to. Levy of interest although is statutory in nature, inter alia is
for recompensating the Revenue from loss suffered by non-deposit of tax by the
assessee within the time specified therefor. 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.
The Supreme Court further held that 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.
According to the Supreme Court, compulsion to pay any
unjust dues per se would cause hardship. But a question, however, would
further arise as to whether the default in payment of the amount was due to
circumstances beyond the control of the assessee.
The Supreme Court was of the view that, unfortunately, this
aspect of the matter had not been considered by the learned Commissioner and
the High Court in its proper perspective. The Supreme Court observed that the
Department had taken the plea that unless the amount of tax due was
ascertainable, the securities could not have been sold and the demand draft
could not have been encashed. The Supreme Court held that the same logic would
apply to the case of the assessee in regard to levy of interest also. It is
one thing to say that the levy of interest on the ground of non-payment of
correct amount of tax by itself can be a ground for non-acceding to the
request of the assessee as the levy is a statutory one, but it is another
thing to say that the said factor shall not be taken into consideration at all
for the purpose of exercise of the discretionary jurisdiction on the part of
the Commissioner. The appellant volunteered that the securities be sold. Why
the said request of the appellant could not be acceded to has not been
explained.
The Supreme Court observed that as the offer was voluntary,
the authorities of the Department subject to any statutory interdict could
have considered the request of the appellant. It was probably in the interest
of the Revenue itself to realise its dues. Whether this could be done in law
or not has not been gone into. The same ground, however, was not available to
the appellant in respect of the demand draft, as in relation thereto no such
request was made.
The Supreme Court was of the opinion that interests of
justice would be sub-served if the impugned judgment was set aside and the
matter was remitted to the Commissioner of Income-tax for consideration of the
matter afresh. The appeal was allowed accordingly.
