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Judgment
K. Chandru, J.—Heard both sides and perused the records.
This writ petition is filed by the petitioner challenging the order of the second respondent dated 02.05.2003, and for a consequential direction to
the second respondent to waive the interest charged u/s 220(2) of the Income Tax Act, 1961 (for short I.T. Act) for the assessment year 1995-
96.
The petitioner is an assessee under the third respondent. For the assessment year 1995-1996, a detailed assessment was framed u/s 143(3) of
the I.T. Act on 27.03.1998. The returned income was Rs. 69,79,571/- which included long time capital gain of Rs. 66,15,755/-. It was enhanced
to Rs. 72,31,320/-, apart from the long term capital gain of Rs. 1,73,87,750/-.
While doing so, the then Assessing Officer made the following additions:
a) The interest income included in the total
sale consideration for the sale of 1.5 acres
of lands treated as income from
other sources - Rs. 3,63,000/-
b) Consideration received for the
Sale of 2.3 acres of porambokku
lands included in the computation of
capital gains treated as income
from other sources - Rs. 5,17,500/-
c) Donation received from the
purchaser for the sale of 1.6
acres of pormabokku lands, treated
as sale consideration by the petitioner,
taxed as income from other sources - Rs. 5,51,000/-
d) Donations received from the purchaser
treated as sale consideration considered
as income from other sources - Rs. 7,53,412/-
e) National interest on the interest free
loans to Jeyaraj Chelladurai Trust - Rs. 28,07,605/-
f) Addition on account of inadequate
drawings - Rs. 36,000/-
---------------------------
Rs. 50,28,517/-
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The petitioner filed an appeal before the Commissioner of Income Tax Appeals (VII). The Commissioner by his order, dated 30.06.2000, held
for each of the issues / additions in the assessment which may be briefly recapitulated hereunder:
a) The addition of Rs. 3,63,000/- being the interest on the unpaid purchase price assessed under the head ""other sources"" had to be confirmed
inasmuch as it was the compensation for the amount owed to the petitioner at the specific rate of 15%.
b) As regard the addition of Rs. 5,17,500/- under the head ""other sources'' instead of ""long term capital gains"" it was held that the assessment of
the said amount received was correctly assessed under the head ""other sources"" since the petitioner had no right over the Proambokku lands
measuring 2.30 acres against which the said amount was received. According to the order, the petitioner had only an abstract right over which it
had no enforceable right.
c) As regards Rs. 5,51,000/- it was held that the said amount should be excluded from the computation of taxable income in view of the fact that
the amounts were passed on to M/s. Jeyaraj Chelladurai Trust directly as could be seen from the seized records.
d) As regards Rs. 7,53,412/- it was held that the Assessing Officer had failed to establish with evidence that the said amount had actually been
siphoned of by the petitioner from the Trust. Accordingly, it was held that the said addition should be deleted from the computation of taxable
income.
e) As regards the inclusion of interest chargeable to the extent of Rs. 28,07,605/- on the amounts lent to M/s. Jeyaraj Chelladurai Trust, it was
held that the said addition was sustainable on the facts and in the circumstances inasmuch as notional interest should not be included in the taxable
total income.
f) Addition towards inadequate drawings was deleted on the ground that no specific reasons have been adduced by the Assessing Officer to justify
his action.
As against the said order, both the department and the petitioner preferred Second Appeals to the Income Tax Appellate Tribunal. The ITAT,
by its common order dated 23.10.2001 held that the interest on unpaid purchase of Rs. 3,63,000/- added was correctly assessable under the
head ''Other sources''. Similarly, the interest on poramboke land of a sum of Rs. 5,17,500/- was correctly assessed under the other sources as the
petitioner did not have any legal right over those lands. Likewise, with reference to the ""Kurinji lands"" it was held that the cost of the land price was
to be fixed as Rs. 50,000/- per acre as certified by Sub-Registrar, Kodaikanal. The Tribunal also confirmed the costs as on 01.04.1981 for the
property known as ""Wydra Property"". The cross appeal filed by the department was rejected by the Tribunal on major issues.
The petitioner thereafter, moved an application u/s 220(2A) of the I.T Act, on 12.11.2002, before the second respondent to waive the interest
charged u/s 220(2) of the Act for the said assessment year. It was contended by him that he had extended full co-operation in all the proceedings
before the department and the charge of interest for the non-payment of tax, consequent to the order assessment was due to circumstances
beyond his control. Therefore, he claimed waiver of interest of Rs. 11,02,363/-. Alternatively, he prayed for reduction of interest.
During the pendency of the application before the second respondent, the petitioner moved the third respondent on 19.04.2003 and asked for a
rectification of quantification of interest from 1.5% to 1.25%. The third respondent reduced the interest chargeable to Rs. 10,72,148/- by an order
dated 06.06.2003.
However, the second respondent by the order dated 02.05.2003 rejected his request for waiver of interest u/s 220(2). He held that the
additions are made upon the re-determination of a market value of immovable properties as on 01.04.1981 for the purpose of determination of
capital gains. The tribunal also held that the department''s approach was proper. Thereafter, he recorded that the assesseee was a well to do
person owning lands at Kodaikonal and from time to time he was disposing of lands. Therefore, no hardship will be caused, if the assessee is
directed to pay interest u/s 220(2) for the delayed payment of tax demand.
The petitioner once again moved an application for reviewing the decision of the second respondent. However, the reconsideration petition
was rejected, as it was not maintainable. It is against this order the petitioner has come forward to challenge the said order.
A counter affidavit has been filed by the second respondent justifying the order passed by the authority. It is stated in the order that the
petitioner had paid a sum of Rupees Five Lakhs, on 09.10.2004, and the balance of Rs. 4,18,191/- on 10.12.2004 and there is no balance
demand of tax as on the date of the counter affidavit. It is also stated that the order of the Commissioner was correct and reduction of waiver of
interest can be only to the extent of relief as per the circular issued by the Central Board of Direct Taxes.
In this context, reliance was placed upon the judgment of the Supreme Court in Commissioner of Income Tax, Mumbai Vs. Anjum M.H.
Ghaswala and Others, . Though the said decision was rendered in the context of the power the Settlement Commission, it is argued that the same
principle will apply for this proceeding also.
Per contra, the learned Counsel for the petitioner placed reliance upon the judgment of the Supreme Court in KISHAN LAL Vs. UNION OF
INDIA AND ANOTHER., for the proposition that as to how the authorities should consider an application filed u/s 2202(A) of the I.T. Act. The
following passage found in page: 87, is pressed into service:
When an application is filed under Sub-section (2A) of Section 220 the authority concerned is called upon to take a quasi-judicial decision. If it is
satisfied that the reasons contained in the application would bring the case under Clauses (i), (ii) and (iii) of Section 220(2A) then it has the power
either to reduce or waive the amount of interest. Even though in the said sub-section it is not stated that any reasons are to be recorded in the order
deciding such an application, it appears to us that it is implicit in the said provision that whenever such as application is filed the same regard would
be clearly applicable. It will be seen that a decision which is taken by the authority u/s 220(2A) can be subjected to judicial under Article 226; this
being so and where the decision of the application may have repercussions with regard to the amount of interest which an assessee is required to
pay it would be imperative that some reasons are given by the authority while disposing of the application.
He also submitted the second respondent holding that the petitioner was a well to do person and will not face any hardship cannot be a
relevant ground in considering when an order to be passed u/s 220(2A). What is required is arriving at a decision with the following conditions
prescribed u/s 220(2A):
(i) payment of such amount (had 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 circumstance
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 learned Counsel for the petitioner placed reliance upon a judgment of this Court in J. Jayalalitha Vs. Commissioner of Income Tax and
Others, Madras. In that case, this Court rejected the stand of the department holding a person paying wealth tax would be a sufficient ground to
deny the relief u/s 220(2A) of the I.T. Act. The following passage found in page 87 may be usefully extracted below:
Insofar as the conditions mentioned in Section 220(2A) of the Act are concerned, it is imperative that the Commissioner should record a finding
that he is satisfied that the conditions mentioned in Section 220(2A) of the Act are fulfilled before reducing or waiving the interest paid or payable
under the Act. On the facts of the case, it is seen that the order of the Commissioner of Income Tax does not show that he has applied his mind to
the various conditions mentioned in Section 220(2A) of the Act while rejecting the applications filed by the petitioner for waiver or reduction of the
interest. Insofar as the first condition viz., that payment of tax amount would cause any hardship to the assessee is concerned, the Commissioner
has held that the said condition is not satisfied as the petitioner is a wealth tax assessee. The fact that the petitioner is a wealth tax assessee is not a
relevant consideration at all.
In the light of the above precedents, the order of the second respondent has to be scanned. It will be clear that the second respondent had not
applied the parameters indicated u/s 220(2A) for rejecting the claim of waiver of interest claimed by the petitioner. On the other hand, the second
respondent had vaguely stated that the petitioner is a wealthy person since he is owning lands in Kodaikonal and also selling it from time to time.
This was not based upon any material but done on a speculative basis.
In the light of the above, the writ petition stands allowed. The matter stands remitted to the second respondent for fresh consideration in
accordance with law. This exercise shall be undertaken by the respondents within a period of eight weeks from the date of receipt of a copy of this
order. No costs.