Court Upholds Denial of Interest Waiver in Tax Case, Citing Strict Interpretation of Circular

Case Name: A. KUBERAN VS CHIEF COMMISSIONER OF INCOME TAX

Key Takeaways:

1. The right to claim waiver of interest is not a statutory right but based on a Circular. 2. Strict interpretation of the Circular is necessary when considering interest waivers. 3. Voluntary disclosure before detection is crucial for qualifying for interest waiver. 4. The court emphasized the importance of falling within specific clauses of the Circular for waiver eligibility. **Issue** Was the Chief Commissioner of Income Tax justified in denying the petitioner's request for waiver of interest charged under Sections 234A, 234B, and 234C of the Income Tax Act? **Facts** 1. The petitioner made a disclosure during a search under Section 132 of the Income Tax Act. 2. The disclosure was made only after detection, not voluntarily. 3. A sworn statement was recorded on 17.08.1990. 4. The Assessing Officer issued a notice under Section 148 on 19.08.1991. 5. The Assessee filed a return on 07.01.1994 after several notices. 6. The petitioner requested waiver of interest amounting to Rs.12.30 lakhs for assessment years 1989-90 and 1990-91. **Arguments** The petitioner argued for waiver of interest charged under Sections 234A, 234B, and 234C of the Income Tax Act. The respondent (Chief Commissioner of Income Tax) contended that the petitioner did not qualify for waiver under the CBDT Circular dated 26.06.2006. **Key Legal Precedents** Chief Commissioner of Income Tax Vs. Rajanikant & Sons [2017] 83 taxmann.com 162 (Madras) / [2017] 396 ITR 171 (Madras) - This case discussed the scope and ambit of the Circular dated 26.06.2006. - It established that the power to reduce or waive interest is limited to cases falling under paragraphs 2(a) to 2(d) of the Circular. **Judgement** 1. The court dismissed the writ petition. 2. It held that the petitioner does not fall under any of the Clauses 2(a) and 2(d) of the Circular dated 26.06.2006. 3. The respondent was justified in not exercising discretion to waive the interest levied. 4. The court emphasized that the right to claim waiver of interest is not a statutory right but based on the Circular, requiring strict interpretation. **FAQs** 1. Q: What is the significance of the CBDT Circular dated 26.06.2006? A: The Circular outlines the conditions under which interest can be waived or reduced by the Chief Commissioner or Director General of Income Tax. 2. Q: Why was the petitioner's disclosure not considered voluntary? A: The disclosure was made only after detection during a search under Section 132, not before any departmental action. 3. Q: Can interest be waived in all tax cases? A: No, interest waiver is subject to strict interpretation of the CBDT Circular and is not a statutory right. 4. Q: What are the key factors considered for interest waiver? A: Factors include voluntary disclosure, falling within specific clauses of the Circular, and filing returns and paying the principal tax amount. 5. Q: Does paying interest along with reassessed tax automatically qualify for waiver? A: No, as seen in the Rajanikant & Sons case, paying interest after reassessment doesn't automatically qualify for waiver.

1. Heard Mr.J.Balachander, learned counsel for the petitioner, Mr.A.P.Srinivas, learned Special Government Pleader appearing on behalf of the respondent.

2.The writ petition has been filed by the assessee challenging an order passed by the respondent dated 15.04.2005 under Section 119 (2) (a) of the Income Tax Act 1961 [for short "the Act”]. This order has been passed based on the application filed by the petitioner dated 29.11.2001, requesting for waiver of interest charged under Sections 234A, 234B and 234C of the Act, amounting to Rs.12.30 lakhs for assessment years 1989-90 and 1990-91.

3.Before I consider as to whether the petitioner is entitled for waiver, the following facts should be taken note of. The assessee has given a statement on oath under Section 132(4) during the course of Search under Section 132 in the premises connected with the petitioner. Disclosure was made only after detection pursuant to the search. Therefore, it is clear that the petitioner's disclosure is not a voluntary disclosure before the Department. The sworn statement was recorded on 17.08.1990 and subsequently, the Assessing Officer issued notice under Section 148 of the Act on 19.08.1991. The Assessee did nothing thereafter, but it appears that after several notices were issued, the Assessee filed return on 07.01.1994 and subjected for assessment. In the background of the conduct of the Assessee it has to be seen as to whether the Assessee is entitled to the waiver of the statutory interest payable under Sections 234A, 234B and 234C of the Act.

4.The Hon'ble Division Bench in the case of Chief Commissioner of Income Tax Vs. Rajanikant & Sons reported in [2017] 83 taxmann.com 162 (Madras) / [2017] 396 ITR 171 (Madras). While, considering the scope and ambit of Circular dated 26.06.2006 took note of the circumstances under which the Chief Commissioner and/or the Director General of Income Tax would have power to reduce or waive interest. At this juncture, it is worthwhile to refer a few paragraphs of the said judgment:

“11.2.Therefore, what is required to be seen is what is the scope and ambit of the circular dated 26.06.2006. A bare perusal of the Circular would show that the CBDT has delegated its power to the Chief Commissioner and / or the Director General of Income Tax to reduce or waive interest charged under Section 234A or under Section 234B or under Section 234C of the 1961 Act, in the classes of cases or classes of incomes specified in paragraph 2 of the said Circular.

11.3 The extent to which the said delegatees, i.e., Chief Commissioner/Director General of Income Tax, may waive or reduce the interest has been left to their discretion.

11.4 Furthermore, the Circular makes it clear that no reduction or waiver of interest under the provisions referred to above shall be ordered, unless the assessee has filed a return of income for the relevant AY and paid the entire income tax (principal component of demand due on the income, as assessed).

11.6 Therefore, what emanated upon perusal of the Circular is that, unless the Assesse's case falls under the circumstances set out in paragrapg 2(a) to 2(d) of the Circular dated 26.06.2006, which includes classes of cases and / or classes of incomes, the Chief Commissioner/Director General of Income Tax has no power to reduce or waive interest.

11.7 In the instant case, as indicated in the narration of facts above, though returns were filed for the subject periods, the assessment made in the usual and normal course, was reopened under Section 148 of the 1961 Act. The reassessed tax was paid only after the Revenue had passed the reassessment order. As noted above, the assessee, at that stage, as advised, it appears, has also paid interest under sections 234A, 234B and 234C of the 1961 Act.”

6.Thus, the discretion conferred upon the respondent is clearly circumscribed and set out in paragraphs 2(a) to 2(d) of the Circular dated 26.06.2006. The right to claim waiver of the interest is not a statutory right given to the Assessee but based on the Circular and therefore, strict interpretation of the Circular has to be done.

7.Facts of the case clearly reveals that the petitioner does not fall under any of the Clauses 2(a) and 2(d) of the Circular, dated 26.06.2006. Therefore, the respondent was fully justified in not exercising his discretion and waiving the interest levied. Thus, there is no error in the impugned order. Accordingly, the writ petition fails and dismissed. No costs.

07.12.2017