Court Orders Reconsideration of Interest Waiver Denial in Income Tax Case

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Case Name:

V.M. Mathai Vs Principal Commissioner of Income Tax (High Court of Kerala)

WP(C).No. 20210 of 2016 (A)

Date: 10th August 2016

Key Takeaways:

1. Applications under Section 220(2A) must be considered judiciously.
2. Genuine hardship and circumstances beyond the assessee’s control are crucial factors.
3. The Commissioner must provide clear reasons for denying interest waiver or reduction.
4. Threats by the assessee alone cannot justify denial of interest waiver.

Issue:

Did the Commissioner properly consider the application for waiver or reduction of interest under Section 220(2A) of the Income Tax Act, 1961?

Facts:

1. V.M. Mathai (the petitioner) filed an application under Section 220(2A) of the Income Tax Act for waiver or reduction of interest.
2. The application was rejected by the Commissioner (Ext.P6), stating that the assessee had not fulfilled all conditions laid down in Section 220(2A).
3. The petitioner claimed he had cooperated with assessment proceedings and faced genuine hardship in paying the amount.
4. The petitioner’s only property was attached by the Income Tax Department.
5. The assessment was for the block period 1993-1994 to 1996-97.
6. The petitioner had paid only Rs.1,40,000/- so far.
7. The petitioner and his wife were suffering from bipolar disorder and under treatment (Exts.P7 & P8).

Arguments:

Petitioner’s arguments:

1. The Commissioner didn’t consider the reasons stated in the application.
2. The petitioner cooperated with proceedings and faced genuine hardship.
3. The attached property needed to be sold to pay even the principal amount.
4. The petitioner met all conditions specified under Section 220(2A).

Commissioner’s arguments:

1. The petitioner didn’t cooperate with proceedings.
2. He didn’t pay the due tax despite giving a self-declaration of undisputed income.
3. The petitioner had only paid Rs.1,40,000/- so far.

Key Legal Precedents:

1. B.M. Malani vs. Commissioner of Income Tax and Another (2008) (10) SCC 617:

• Defined “genuine hardship” and emphasized purposive construction of Section 220(2A).
• Stated that the Commissioner’s discretion must be judiciously exercised.
• Highlighted that compulsion to pay unjust dues can cause hardship.

Judgement:

1. The court set aside the Commissioner’s order (Ext.P6).
2. The court directed the first respondent (Commissioner) to reconsider the matter and pass appropriate orders on Ext.P5 within two months.
3. The reconsideration should be done in light of the law relied on by the Apex Court in the B.M. Malani case.

FAQs:

Q: What is Section 220(2A) of the Income Tax Act?

A: It’s a provision that allows for waiver or reduction of interest on tax dues under certain conditions.

Q: What conditions need to be met for interest waiver under Section 220(2A)?

A: The assessee must face genuine hardship, the default should be due to circumstances beyond their control, and they should have cooperated with the inquiry.

Q: Why did the court set aside the Commissioner’s order?

A: The court found that the Commissioner didn’t provide clear reasons for denying the waiver and didn’t consider the matter judiciously as required by law.

Q: Does having large assets automatically disqualify someone from claiming hardship?

A: No, the court clarified that genuine hardship can exist even for those with large assets, as selling assets to pay interest may not always be feasible.

Q: What should the Commissioner do in the reconsideration?

A: The Commissioner should consider all materials provided, verify if interest imposition causes genuine hardship, and if the default was due to circumstances beyond the assessee’s control, providing clear reasons for the decision.

1. Petitioner challenges Ext.P6 by which an application under Section 220(2A) of the Income Tax Act 1961 has been rejected on the ground that the assessee has not fulfilled all the conditions laid down in Section 220 (2A).

2. The main contention urged by the petitioner is that none of the reasons stated by the petitioner in the application has been considered by the Commissioner while issuing Ext.P6 notice. It is stated that the petitioner had all along cooperated with the assessment proceedings and he is having genuine hardship to pay the amount. That apart if the liability of interest is substantial, he will not be in a position to discharge the liability as such. The petitioner has also a case that the only property belonging to him has been attached by the Income Tax Department. Unless the property is sold, the petitioner will not be in a position to pay even the principal amount. In such circumstances, according to the petitioner he is a person who is entitled for the benefit of waiver or reduction of interest as all the conditions specified under Section 220 (2A) stands complied.

3. It is submitted that the Commissioner had not considered the matter in accordance with law and therefore, the matter requires reconsideration. Learned Senior Counsel appearing for the petitioner also relied upon the judgment of the Apex Court in B.M. Malani vs. Commissioner of Income Tax and Another (2008) (10) SCC 617 in which the Apex Court after considering similar issues regarding the scope and effect of Section 220 (2A) as held at paragraphs 16 to 21 as under.

“16. The term “genuine” as per the New Collins Concise English Dictionary is defined as under:

“ ‘Genuine’ means not fake or counterfeit, real, not pretending (not bogus or merely a ruse)”.

17. For interpretation of the aforementioned provision, the principle of purposive construction should be resorted to. Levy of interest is statutory in nature, inter alia, 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.

18. The ingredients of genuine hardship must be determined keeping in view the dictionary meaning thereof and the legal conspectus attending thereto. For the said purpose, another well-known principle, namely, a person cannot take advantage of his own wrong, may also have to be borne in mind. The said principle, it is conceded, has not been applied by the courts below in this case, but we may take note of a few precedents operating in the field to highlight the aforementioned proposition of law. [See Priyanka Overseas (P) Ltd. v. Union of India1 (SCC at pp. 122- 23, para 39); Union of India v. Major General Madan Lal Yadav (Retd.) (SCC at p. 142, paras 28-29); Ashok Kapil v. Sana Ullah (SCC at p. 345, para 7); Sushil Kumar v. Rakesh Kumar (SCC at p. 692, para 65, first sentence); Kusheshwar Prasad Singh v. State of Bihar (SCC at pp. 451-52, paras 13-14 and 16).]

19. Thus, the said principle, in our opinion, should be applied even in a case of this nature. A statutory authority despite receipt of such a request could not have kept mum. It should have taken some action. It should have responded to the prayer of the appellant. However, another principle should also be borne in mind, namely, that a statutory authority must act within the four corners of the statute. Indisputably, 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.

20. 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.

21. Unfortunately, this aspect of the matter has not been considered by the learned Commissioner and the High Court in its proper perspective. 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 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. It was a voluntary act on the part of the appellant. xxxxxx”

4. Statement has been filed by the Standing Counsel supporting the stand taken in Ext.P6. It is stated that the petitioner had not co-operated with the proceedings and that he did not pay any amount due as tax though he had given a self declaration regarding undisputed income. So far, he had paid only an amount of Rs.1,40,000/- though the assessment was with respect to the block period 1993-1994 to 1996-97. It is submitted that the Commissioner had considered the question regarding the plea of the petitioner and had rightly disposed of the same in terms of Ext.P6. Reply affidavit has been filed by the petitioner relying upon Exts.P7 & P8 to indicate that the petitioner and his wife were suffering from bipolar disorder and is under treatment.

5. Having heard the learned counsel on either sides, I am of the view that, when the statutory authority has been given the discretion to consider whether any of the conditions specified under Section 220 (2A) has been complied with, it is for the said authority to take into consideration all the necessary materials which had been placed before it in the form of a representation as well as documents and either to allow the same or to reject the same. On the basis of the facts made available, it has to be verified whether the imposition of interest causes genuine hardship to the assessee. It has also to be verified whether the default in payment of the amount was due to the circumstances beyond the control of the assessee and the assessee has co- operated with the enquiry. In Ext.P6, the Commissioner has observed that the petitioner had not complied with any of those conditions but apparently no reasons have been stated. As rightly contended by the learned counsel on behalf of the petitioner, the Hon'ble Supreme Court had clearly indicated that when an application is considered under Section 220(2A) it has to be considered in a judicious manner. The Commissioner in Ext.P6 stated that there is a threat by the assessee and waiver of interest cannot be done by threat. I do not think that the said reason alone would justify denial of the benefit of waiver or reduction of interest. The denial of reduction or waiver of interest has to be considered in the light of the statutory provisions as enumerated in Section 220(2A). Under such circumstances, I am of the view that the matter requires reconsideration by the Commissioner.

Accordingly, the writ petition is disposed of as under: Ext.P6 is set aside. The first respondent shall reconsider the matter and pass appropriate orders on Ext.P5 within a period of two months from the date of receipt of a copy of this judgment and in the light of the law relied on by the Apex Court as referred above.

(sd/-)

A.M.Shaffique,

Judge