Arun Sunny vs Chief Commissioner of Income Tax and Another

S. Siri Jagan, J.—The petitioner is an assessee under the income tax Act. By exhibit P1 order, tax was assessed on him. The petitioner challenged the assessment in an appeal and a second appeal. Both were dismissed. During the pendency of the appeals, the petitioner had obtained conditional stay against recovery proceedings. Subsequently, the petitioner paid the entire amount due by exhibit P2. The petitioner was directed to pay interest on the defaulted tax and interest till the date of payment The petitioner invoked the jurisdiction of the first respondent u/s 220(2A) of the income tax Act, 1961 seeking waiver or reduction of the interest payable. That petition was rejected by exhibit P4 order holding that the petitioner has not satisfied the conditions in section 220(2A) for becoming eligible for waiver of interest. That is under challenge in this writ petition. The petitioner also raises a contention that in exhibit P2 interest has been calculated on interest also, which is not permissible.

The petitioner contends that the first respondent has not properly applied his mind to the facts and law applicable. He submits that in the appeals, the petitioner applied for and obtained conditional stay. The petitioner promptly complied with the conditions of stay. So until dismissal of the appeal by the Tribunal, there was a stay of payment of balance tax. As such, the petitioner was not at default at any time. He points out that, as is evident from exhibit P4, the petitioner paid the entire balance amount within a span of three months. He submits that the same has been considered as non-co-operation in the proceedings for collection of tax, which is totally arbitrary and against various decisions on the point. According to the petitioner, filing appeals and obtaining stay cannot be considered as non-co-operation with the proceedings for collection of tax.

The learned standing counsel for the income tax Department opposes the contentions of the petitioner. According to him, merely because an assessee obtains a stay from the appellate authorities, that does not ipso facto operate as a stay of accrual of interest on the defaulted tax as well. Once the appeal is ultimately dismissed, the entire assessed amount would be payable with full interest. He submits that the three conditions mentioned in section 220(2A) have to be satisfied cumulatively for an assessee to claim benefit of section 220(2A). He points out that as is evident from exhibits P3 and P4, the petitioner did not succeed in proving that payment of the tax would have caused hardship to him and that the non-payment was on account of circumstances beyond his control. On the other hand, his contention was that all his money was locked up in deposits in banks and financial institutions and if he withdraws the deposits prematurely, he would lose interest. According to the learned counsel for the income tax Department, that cannot operate as a circumstance beyond the control of the assessee and genuine hardship to the assessee. He had money with him and in order to make money with that money, he did not pay the tax due, which cannot be accepted as a genuine hardship or circumstance beyond the control of the assessee, is the contention.

As regards the second contention, he would point out that exhibit P2 demand for interest was dated June 17, 2009. The petitioner never raised any objection to the same even in exhibit P3. The petitioner does not dispute the correctness of the computation of that amount. According to him, section 220(2A) can be invoked only when the assessee accepts the interest payable as demanded and seeks waiver or reduction thereof. After having invoked section 220(2A), the petitioner cannot now dispute the correctness of the interest demanded is the contention raised. He also points out that against exhibit P2 demand for interest, the petitioner could have very well filed a revision u/s 264 before the Commissioner, which has not been done in this case.

The petitioner relies on various decisions in support of his contentions, which are:

(1) P. Ramasamy Vs. Commissioner of Income Tax and Others, ;

(2) KISHAN LAL Vs. UNION OF INDIA AND ANOTHER., ;

(3) Common Wealth Trust (India) Ltd. Vs. Deputy Commissioner of Income Tax and Others, ;

(4) J. Jayalalitha Vs. Commissioner of Income Tax and Others, ;

(5) Chief Commissioner of Income Tax and Another Vs. Jimmichan M. Varicatt, ;

I have considered the rival contentions in detail.

Section 220(2A) reads thus;

''220(2A) Notwithstanding anything contained in sub-section (2), the Chief Commissioner or Commissioner may reduce or waive the amount of interest paid or payable by an assessee under the said subsection 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.''

As is clear from the same, three conditions mentioned therein should be cumulatively satisfied to enable the assessee to avail of the benefit of that section. First of all, the petitioner should prove that payment of the said amount would cause genuine hardship to him and secondly, that default in payment of demand on which interest has been paid or was payable under the said sub-section was due to circumstances beyond the control of the assessee. Exhibit P4 order reads thus:

The assessee by his application dated July 2, 2009 filed in this office on July 6, 2009 has sought waiver of interest charged u/s 220(2) of Rs. 9,48,640 for the delay in payment of the tax demanded for the assessment year 2006-07. The application was posted for hearing and Shri C.V. Sunny, father of the assessee appeared on authorization. He has been heard.

The demand for Rs. 2,17,73,630 which fell due for payment in January 2009 was paid in the following manner:

A sum of Rs. 9,48,640 was charged u/s 220(2) for the delayed payment of tax for the period from January 2009 to June 2009.

According to the assessee, the non-payment of the demand within the stipulated time was due to circumstances beyond his control for the reasons given below:

(i) There was no liquid cash available for making the tax payment as the entire money received on sale of property had been invested as term deposits in banks and financial institutions. It was difficult to withdraw the deposits before the dates of maturity.

(ii) Due to various technical reasons, the banks and financial institutions in which the assessee had deposits, did not make tax payment directly to the Department on the basis of notices issued by Assessing Officer u/s 226(3) of the Act on March 16, 2009.

(iii) The recovery of tax stood stayed from March 19, 2009 to June 30, 2009 by the income tax Appellate Tribunal, Kochi.

It is also contended that tax payment before the stipulated date would have caused genuine hardship to him as withdrawal of term deposits before maturity would have resulted in loss of interest receipts. It is also contended that he had co-operated with the Department during the assessment proceedings and for remittance of the tax. Accordingly, the assessee has sought waiver of interest u/s 220(2A) of the Act.

Admittedly, the tax demanded in this case was not paid within the time prescribed in the notice of demand u/s 156. As such the assessee was in default from January 2009 onwards. Notices u/s 226(3) issued on March 16, 2009 could not be enforced by the Assessing Officer due to stay of collection of demand granted by the income tax Appellate Tribunal from March 19, 2009 at the instance of the assessee. Non- availability of liquid cash for tax payment, or non-collection of tax on the basis of notice u/s 226(3), or stay of recovery of tax by income tax Appellate Tribunal, cannot be a ground for waiver of interest u/s 220(2A). The assessee had received Rs. 11 crores from sale of land and was having substantial deposits in banks and other financial institutions. Had the assessee so decided, he could have even prematurely encashed some of the deposits for paying the tax. Instead of clearing the tax liability within the stipulated date with a view to avoid payment of interest u/s 220(2), the assessee chose to wait for maturity of the term deposits for making tax payment. As such the payment of interest u/s 220(2) of Rs. 9,48,640 in this case would not have caused genuine hardship to the assessee. The default committed in the payment of tax was admittedly for avoiding loss of interest on term deposits from banks, and as such was intentional. It cannot, therefore, be claimed that default in the payment of tax was due to circumstances beyond the control of the assessee. The assessee caused unnecessary hindrance to collection by applying for stay of operation of the notice of attachment u/s 226(3) issued by the Assessing Officer on March 16, 2009. As such, the assessee has not co-operated with the proceedings for collection of the tax which was due from him.

In the light of the above facts, it is found that the conditions specified in section 220(2A) are not satisfied in this case for ordering waiver of interest charged u/s 220(2) of the Act. It is settled law that all the three conditions prescribed in section 220(2A) are to be satisfied cumulatively for making eligible a case for waiver of interest u/s 220(2). None of the conditions is satisfied. Therefore, this is not a fit case for waiver of the interest. The application for waiver of interest u/s 220(2A) for the assessment year 2006-07 is rejected.''

The petitioner does not dispute the narration of the contention of the petitioner in paragraph 3 is not correct. Therefore, his contention in support of condition Nos. 1 and 2 was that he had no liquid cash available for paying tax as the entire money received on sale of properties had been invested as term deposits in banks and financial institutions and if he closes the same before the dates of maturity, he would lose interest. I am not satisfied that that would amount to satisfaction of condition Nos. 1 and 2. The gist of the contention of the petitioner is that he had money to pay the amount of tax, but since the same is locked up in deposits in banks and financial institutions, if he withdraws the said deposits before its maturity, he will lose interest on the same. That means he wants his deposits to accrue interest and at the same time, he wants to deny the income tax Department interest legitimately due to them. The same cannot be a situation where the payment of tax would cause genuine hardship to the assessee or a situation where the petitioner did not pay the tax due to circumstances beyond the control of the assessee. In view of the fact that I am satisfied that condition Nos. 1 and 2 have not been satisfied in the case of the petitioner, even if the contention of the petitioner regarding non-co-operation in the enquiry relating to the assessment is accepted, it will make no difference in so far as all the three conditions have to be cumulatively satisfied, I am not going into the satisfaction of the third condition mentioned in section 220(2A). Therefore, I do not find anything wrong with exhibit P4 order, by which, the Chief Commissioner of income tax denied the petitioner benefit u/s 220(2A).

As far as the other contention is concerned, I do not think that interest on interest has been charged on the petitioner. There is noting on record to show that interest on interest has been demanded from the petitioner. Only permissible interest has been charged on the petitioner. Even otherwise, exhibit P2 is dated June 17, 2009. The petitioner did not dispute the interest charged at any point of time except in this writ petition. Not even in exhibit P3 he had such a contention. That being so, I am not inclined to exercise my discretionary jurisdiction in favour of the petitioner to interfere with the said demand.

In view of my above findings, I find no merit in this writ petition and accordingly, the same is dismissed.

C.N. Ramachandran Nair, J.

This writ appeal is filed against the judgment of the learned single judge upholding the order issued by the Chief Commissioner of income tax u/s 220(2A) of the income tax Act, 1961 (hereinafter referred to "the Act" for short) declining to waive interest levied u/s 220(2) for belated payment of tax by the appellant. We have heard Shri S. Vijayan Nair, learned counsel appearing for the appellant and learned standing counsel appearing for the Revenue.

The facts leading to the controversy are the following. During the previous year relevant for the assessment year 2006-07, the assessee sold land for above Rs. 11 crores and deposited most of the sale proceeds in term deposits in the banks. Even though the assessee contested his liability for tax on the capital gains, the Assessing Officer computed tax on capital gains and raised a total demand of Rs. 2,17,73,630. As a result of the assessment and notice of demand issued, the tax fell due in January, 2009. The assessee''s first appeal against the assessment before the Assessing Officer was unsuccessful. During pendency of the second appeal, the Department initiated garnishee proceedings and issued notice to the bank u/s 226(3) of the Act directing the banks to make payment of tax in terms of the demand to the Department. At this stage, the assessee obtained stay against the garnishee proceedings and other recovery proceedings. The arrears of tax which fell due in January, 2009, were paid by the assessee in installments as follows:

After making payment as above, the assessee made an application u/s 220(2A) before the Chief Commissioner for waiver of interest demanded u/s 220(2) for belated payment, which was Rs. 9,48,640. The Chief Commissioner, however, held that the assessee has not satisfied all the three conditions provided under clauses (i) to (iii) of section 220(2A) inasmuch as the assessee blocked recovery by obtaining stay against attachment notices and the assessee had not co-operated in recovery proceedings and payment of interest will not cause any genuine hardship to the assessee. It is against this order of the Chief Commissioner, the assessee filed the writ petition, and on being unsuccessful filed this writ appeal against the judgment of the learned single judge.

Shri Vijayan Nair, learned counsel appearing for the appellant submitted that contrary to the findings of the Commissioner, the assessee has satisfied all the three conditions as provided u/s 220(2A) inasmuch as he had made payments voluntarily and in terms of the conditional stay orders and within six months from the due date for payment the entire tax was paid. Since the assessee has made full payments voluntarily without the Department taking any serious steps for recovery, we feel the assessee''s case requires close examination. Conditions for waiver as contained in section 220(2A) are as follows:

(2A) Notwithstanding anything contained in sub-section (2), the Chief Commissioner or Commissioner may reduce or waive the amount of interest paid or payable by an assessee under the said subsection 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 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.

The question to be considered is whether on the facts stated above the assessee was rightly held to be ineligible for waiver of any interest. The Chief Commissioner has in its order stated that unless all the conditions stated above are cumulatively satisfied the assessee is not entitled to waiver. Even though the legal position stated by the Commissioner is not the subject-matter of controversy, what we feel is that the Chief Commissioner has not taken into account the benefit derived by the Department in assessee retaining the term deposits with the banks, which led to delay in payment of tax by the assessee. The assessee''s counsel submitted that premature withdrawal of the term deposits for payment of tax would have led to loss to the assessee and, i.e., why the assessee waited for maturity of the deposits for payment of tax. The Chief Commissioner probably felt that premature withdrawal for payment of tax leading loss of interest cannot be said to be hardship to the assessee. However, the fact remains that interest on deposit is taxable at the hands of the appellant-assessee and the bank itself would have deducted tax at source from the interest and paid to the Department. If the assessee had on due dates withdrawn the term deposits and remitted the entire tax amount, the assessee would not have earned interest on which tax is levied and recovered by the Department. This is a matter which certainly calls for consideration by the Chief Commissioner because, in our view, the assessee is entitled to waiver of interest at least to the extent of tax paid on interest.

Besides the above, we are also unable to uphold the findings of the Chief Commissioner that the stay obtained against the recovery proceedings initiated u/s 226(3) of the Act should be treated as lack of co-operation from the assessee in collection of tax. Right to move for stay against recovery during pendency of appeal is a statutory right, exercise of which cannot be said to be an indication of the assessee''s lack of co-operation. Lack of co-operation happens when the assessee makes recovery difficulty for the Revenue by transferring or siphoning off his assets leading to protracted enquiry and continuation of recovery proceedings by the Department. From the pattern of payment stated above, what is clear is that 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 or immovables, sale of the same in public auction, etc. In fact, the entire arrears are seen paid within six months from the due date of payment based on the assessment. It is to be noted that the assessee was also pursuing challenge against the assessment before the statutory appellate authorities. Of course it is open to the assessee to have paid the tax under protest and proceeded with appeal without going for stay against recovery proceedings. However, when stay is obtained pending disposal of the appeal, the appellant-assessee cannot be expected to ignore the favourable stay orders obtained by him against payment of full tax pending appeal. So much so, during the pendency of the stay the assessee was not required to remit the tax which was contested in appeal. Therefore, we feel all the three conditions were to some extent satisfied, and the refusal of the Chief Commissioner to grant reduction in interest is not justified. What is clear from section 220(2A) is that the Commissioner or the Chief Commissioner need not always waive amount of interest in full but can grant waiver or reduction partially. 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. In our view, section 220(2A) is an incentive to defaulter-assessees 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. By denying any benefit the Chief Commissioner has equated the assessee who paid the entire tax demand of over two crores in six months of raising the demand with chronic defaulters chased by the Department for extraction of arrears of tax.

In view of the findings above, we hold that the assessee is entitled to partial relief. In the normal course, we should remand the matter to the Chief Commissioner for reconsideration for reduction of interest. However, for the sake of finality we can grant partial relief to the assessee by taking into account the amount of tax paid by the assessee on the interest earned on the term deposits, the retention of which delayed payment of tax that led to levy of default interest.

We, therefore, allow the writ appeal by vacating the judgment of the learned single judge and modify the impugned order of the Chief Commissioner by reducing the interest from 12 per cent. per annum levied to 9 per cent. per annum. Consequently, the Assessing Officer is directed to grant reduction of interest by 25 per cent. and recover 75 per cent. interest levied u/s 220(2) of the Act as default interest payable by the assessee. This writ appeal is allowed to the extent indicated above.