By Pradip Kapasi, Gautam Nayak, Chartered Accountants
Controversies
1. Issue for consideration
1.1 Any amount of tax, specified as payable in a notice of
demand u/s.156, is required to be paid within 30 days of the service of notice
as mandated by S. 220(1) of the Income-tax Act.
1.2 The assessee is liable to pay simple interest @ 1% for
every month or part thereof, for default in payment of the amount of tax
referred to in para 1.1 above, as per S. 220(2) of the Act. The interest levied
u/s.220(2) is to be reduced and the excess interest paid is to be refunded in
cases where the unpaid tax on which interest was levied itself is reduced on
account of orders u/s.154, u/s.155, u/s.245D, u/s. 250, u/s.254, u/s.260A,
u/s.262 and u/s.264.
1.3 A provision has been made for reduction or waiver of the
interest levied or leviable u/s.220(2) by insertion of S. 220(2A) w.e.f.
1-10-1994 by the Taxation Laws (Amendment ) Act, 1984 where-under the CBDT and
now the Chief Commissioner or Commissioner is empowered to reduce or waive the
interest u/s.220(2) on satisfaction of the conditions specified therein.
1.4 The said S. 220(2A) reads as under :
“Notwithstanding anything contained in Ss.(2), the Chief
Commissioner or Commissioner may reduce or waive the amount of interest paid
or payable by the assessee under the said sub-section if he is satisfied
that :
(i) payment of such amount has caused or would cause
genuine hardship to the assessee;
(ii) default in the payment of the amount on which
interest has been paid or was payable under the said sub-section was due to
the circumstances beyond the control of the assessee; and
(iii) the assessee has co-operated in any inquiry
relating to the assessment or any proceeding for the recovery of any amount
due from him.”
1.5 In the context of S. 220(2A), the issue that has come up
for consideration of the Courts, repetitively, is, whether an assessee is
obliged to satisfy all the three conditions laid down in S. 220(2A) for
reduction or waiver of interest or that compliance of any one or two of them
will enable the assessee to seek reduction or waiver of interest. In short, the
issue that is for consideration is whether the compliance of three conditions
specified in S. 220(2A) is cumulative or alternative. Recently, the Karnataka
High Court dissenting from the view of the Kerala, Allahabad and Madras High
Courts held that cumulative compliance of the three conditions is not required
for being eligible for reduction or waiver of interest u/s.220(2A) of the Act.
2. Ramapati Singhania’s case :
2.1 In the case of Ramapati Singhania, 234 ITR 655 (All), the
assessee’s application, made u/s.220(2A), for waiver of interest was rejected
for non-compliance of some of the conditions of the said Section. In the writ
petition filed by the assessee, he inter alia pleaded before the High
Court that for the purposes of seeking a waiver u/s.220(2A) it was not necessary
for him to have complied with all the conditions of the said Section and that he
was eligible for the requested waiver even in circumstances where some of the
conditions of the said Section stood complied with. It was emphasised that
payment of tax on capital gains without permitting the set-off of the amount to
which the petitioner was entitled u/s.50B of the Estate Duty Act, caused genuine
hardship to the assessee and thus the petitioner was justified in not making the
payment of taxes in time.
2.2 The Allahabad High Court observed that to avail of the
benefit, it was for the person seeking the relief to make out a case that the
requirements of those provisions were fulfilled and that on a plain reading of
that provision, it was evident that all the three conditions set out therein
must be satisfied cumulatively and if any of these requirements were wanting in
a given case, the discretion to reduce or waive, might be legitimately refused.
2.3 The Court accordingly upheld the action of the
authorities in denying the waiver of interest charged for delayed payment of
taxes.
3. M. V. Amar Shetty’s case :
3.1 In M. V. Amar Shetty v. CCIT & Anr., 219 CTR 141 (Karn.),
the assessee filed a writ petition being aggrieved by an order dated 21st August
2007 passed by the Chief CIT rejecting his request u/s. 220(2A) of the
Income-tax Act seeking reduction on waiver of the interest payable on the
delayed payment of tax demanded pursuant to a notice issued u/s.156 of the Act
and for defaulting in payment of tax. The petition was rejected by the Single
Judge of the Court, against which an appeal was filed by the assessee before the
Division Bench of the Court.
3.2 It was pleaded for the assessee that the impugned order
passed by the CCIT had been passed in violation of the provisions of S. 220(2A)
of the Act and was passed without an application of mind to the conditions
mentioned under the sub-section and that the request made by the petitioner had
been rejected in an arbitrary manner. It was inter alia submitted that
the finding that the petitioner had not satisfied condition (c) for waiver of
interest charged u/s.220(2A) of the Income-tax Act, 1961, by not co-operating
with the Department by filing returns or in the assessment proceedings/payment
of tax demand was not correct and it was also submitted that the CCIT had taken
into consideration the report of the AO, which was not made known to the
assessee and therefore, the order impugned was bad on that ground also.
3.3 For the CCIT, it was submitted that the order passed was
just and proper and did not call for any interference by the Court in the appeal
and that the learned Single Judge was right in dismissing the writ petition.
Reliance was placed upon two judgments in the cases of G.T.N. Textiles Ltd.
v. DCIT & Anr., 217 ITR 653 (Ker.) and Ramapati Singhania v. CIT & Ors.,
234 ITR 655 (All.) to submit that all the three conditions laid down in S.
220(2A) should have been satisfied before interest could be waived under the
said provision and that in the instant case the CCIT had categorically held that
condition (iii) of S. 220(2A) had not been fulfilled and therefore, the assessee
was not entitled to relief under the said provisions.
3.4 The Court on consideration of the submissions made by both the sides, was not persuaded to accept the submission made on behalf of the CCIT that, all the three conditions laid down in Ss.(2A) of S. 220 should be satisfied before relief could be given to an assessee under the said provision, as was enunciated in the two judgments referred to above and cited before the Court. The Karnataka High Court accordingly directed for due consideration of the assessee’s request for waiver of interest.
4. Observations:
4.1 S. 220(2A), begins with a non obstante clause and is a self-contained provision. It overrides the charging provision as contained in S. 220(2). At the same time the said provision restricts the power of the authority concerned to reduce or waive the amount of interest paid or payable by an assessee only on satisfaction of the conditions set out in the three causes of S. 220(2A). For claiming relief u/ s. 220(2A), the assessee has to satisfy the three conditions, namely, (i) he has to show that the payment of the amount has caused or would cause genuine hardship to him, (ii) that the default in payment of the amount of tax on which interest has been paid or was payable was due to circumstances beyond his control, and (iii) further that he had co-operated in the enquiry relating to the assessment or any proceeding for recovery of any amount due from him.
4.2 In G.T.N. Textiles Ltd., 217 ITR 653 (Ker.), the assessee had filed an appeal against the judgment of a Single Judge, 199 ITR 347, who had dismissed the original petition challenging the rejection of the application for waiver of interest levied u/ s. 220(2) of the Act. The Court in that case held that the three conditions mentioned above are to be satisfied for the operation of S. 220(2A) of the Act. The Commissioner in the said case had found that one of the necessary conditions for exercising the power u/ s. 220(2A) that the payment of interest has caused or would cause genuine hardship to the assessee was not satisfied in the case of the petitioner who was earning very good income from its business. On the facts of the case, the Kerala High Court upheld the order of the Single Judge.
4.3 In the case of Eminent Enterprises v. CIT, 236 ITR 883 (Ker.), the Kerala High Court again held that even where the first condition was most satisfied, the assessee could not avail waiver of interest.
4.4 Again in the case of Metallurgical & Engineering Consultants (India) Ltd. v. CIT, 243 ITR 547, (Pat.) the Court held that all the three conditions mentioned above are to be satisfied for the operation of S. 220(2A). Where the Commissioner had found that the first condition was not satisfied on the basis of certain facts, and had refused to waive interest u/ s.220(2), there was no scope for the High Court to interfere with such a discretionary order.
4.5 Lately, the Madras High Court in the case of Auro Foods Ltd., 239 ITR 548, held that an assessee for the purposes of waiver of interest u/ s.220(2A) has to satisfy all the three conditions and that non-compliance of anyone of them may expose his petition to rejection by the authorities.
4.6 On a plain reading of S. 220(2A), it is evident that all the three conditions set out therein are to be satisfied cumulatively for seeking a valid relief. Where any of the requirements has not been fulfilled the discretion to reduce or waive may be legitimately refused. Thus satisfaction of one or more but not all conditions may not make an assessee eligible for reduction or the waiver of interest u/ s.220(2A). This is the way the Courts have interpreted the law with the exception of the Karnataka High Court.
4.7 The order of the Karnataka High Court provides for fresh thinking on an almost settled position in law. The Court perhaps has been impressed by the important fact that the provision of S. 220(2A) has been inserted for granting relief to an assessee in circumstances which are found to be judicious by the Court and in a case where the Court finds the case of the assessee to be so judicious, the relief should not be denied on the ground of numerical non-compliance, but instead be granted in a deserving case.
