Waiver of interest: Section 220(2A): Provision to be construed liberally: Application for stay of recovery proceedings cannot be construed as non-cooperation: Partial relief granted:

For the A. Y. 2006-07, the Chief Commissioner rejected the assessee’s application for waiver of interest u/s. 220(2A) of the Income-tax Act, 1961 on the ground that the assessee blocked recovery by obtaining stay against attachment notices and the assessee had not cooperated in recovery proceedings and payment of interest would not cause any genuine hardship to the assessee.

On a writ petition challenging the rejection order, the Division Bench of the Kerala High Court directed the Assessing Officer to reduce 25% of interest and held as under:

“i) Section 220(2A) is an incentive to defaulter assessee to co-operate with the Department and to remit the tax voluntarily at the earliest and, therefore, compliance should be rewarded by taking a liberal view and approach. What is indicated by the provision is that relief to be granted u/s. 220(2A) should be proportionate to the extent of satisfaction of the conditions stated therein. In other words, if the conditions are partially satisfied, the assessee should be given partial relief, i.e. partial waiver which should be in proportion to the extent of satisfaction of the conditions.

ii) The right to move for stay against recovery during pendency of an appeal is a statutory right, exercise of which cannot be said to be an indication of assessee’s lack of co-operation. Lack of co-operation happens when the assessee makes recovery difficult for the Revenue by transferring or siphoning off his assets leading to protracted enquiry and continuation of recovery proceedings by the Department.

 iii) The assessee voluntarily remitted the entire amount of tax before the Department started chasing the assessee with steps for recovery such as attachment of movables and immovables, sale thereof in public auction etc. In fact, the entire arrears were paid within six months from the date of payment based on the assessment. During the pendency of the stay, the assessee was not required to remit the tax which was contested in appeal. Therefore, all the three conditions were to some extent satisfied and the refusal of the Chief Commissioner to grant reduction in interest was not justified. Partial relief had to be granted, taking into account the amount of tax paid by the assessee on the interest earned on term deposits, the retention of which delayed payment of tax that led to levy of default interest.”