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Judgment
Honourable Mr. Justice Vinod K. Sharma
The Petitioner has invoked the writ jurisdiction of this Court, under Article 226 of the Constitution of India, praying for issuance of a writ, in the nature of certiorari, to quash the impugned part of demand notice, imposing tax u/s 220(2) of the Income Tax Act, as also the order of the Income Tax Commissioner, dismissing the application moved by the Petitioner, for waiver of interest imposed by the Assessing Authority.
The facts borne-out from the record, show that the Petitioner was issued a notice of demand, u/s 156 of the Income Tax Act 1961, on 18th March 2005, directing it to pay a sum of Rs. 19,04,202/- [Rupees Nineteen Lakhs Four thousand Two hundred and Two only] for the assessment year 1994-95.
The return filed by the Petitioner was initially accepted, and the Petitioner was found entitled to refund of Rs. 7,62,098/- [Rupees Seven Lakhs Sixty Two thousand and Ninety Eight only].
It is, on subsequent assessment, that the demand was raised u/s 156 referred to above.
In the demand notice, it was mentioned that in case, the amount demanded is not paid within 30 days of the demand, interest u/s 220(2) will be charged.
The tax was adjusted within the stipulated period, out of the payment due to the Assessee. There was, therefore, no reason to impose interest, u/s 220 of the Income Tax Act.
Section 220(2) of the Income Tax Act, reads as under:
220(2) If the amount specified in any notice of demand u/s 156 is not paid within the period limited under sub-s.(1), the Assessee shall be liable to pay simple interest at one and one-half per cent for every month or part of a month comprised in the period commencing from the day immediately following the end of the period mentioned in subs. (1) and ending with the day on which the amount is paid:
Provided that where as a result of an order u/s 154, or Section 155, or Section 250, or Section 254. or Section 260, or Section 262, or Section 264 or an order of the Settlement Commission under sub-s.(4) of Section 245-D, the amount on which interest was payable under this section had been reduced, the interest shall be reduced accordingly and the excess interest paid, if any, shall be refunded.
The Petitioner, before approaching this Court, filed a petition before the Commissioner of Income Tax, u/s 220(2A) seeking the waiver of interest, u/s 220(2) for the assessment year 1994-95.
The prayer of the Petitioner was rejected, by recording as under:
I have perused the Assessee''s petition and the case records as well. There are three conditions for waiver of interest u/s 220(2A).
(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. There is no dispute that the Assessee has paid the tax on its own without there being any coercive action taken for recovery. So, it can be held that condition No. (iii) in the instant case is fulfilled. However, condition Nos. (i) and (ii) is not fulfilled and the Authorized Representative of the Assessee did not have any satisfactory reply to the question that why the tax was not paid in time. The records also did not suggest any extraordinary circumstances which prevented the Assessee from discharging its statutory obligation. Nor the condition regarding financial hardship is satisfied as seen from Balance sheet of the company that the company enjoys sufficient financial wealth and is a profit making concern. In the instant case liability u/s 220(2) arises simply because the Assessee who was originally issued refund did not pay the tax in time when it was served with the Demand Notice. Interest u/s 220(2) is compensatory in nature and can be waived only in very special circumstances which do not exist in the facts of the case. Therefore the petition of the Assessee for waiver of interest for assessment year 1992-93 and 1994-95 is rejected.
The Learned Counsel for the Petitioner challenged the impugned part of order of the Deputy Commissioner, imposing interest, u/s 220(2), and that of Commissioner of the Income Tax, by contending, that the orders are contrary to the statutory provision of Section 156 r/w Section 220(2) of the Income Tax Act.
The contention of the Learned Counsel for the Petitioner, is that the interest u/s 220(2) of the Income Tax Act, can only be imposed, on failure to pay the amount demanded, u/s 156 of the Income Tax Act, within the period stipulated therein. In case, the demanded amount is paid, there arises no question of imposing any interest u/s 220(2) of the Income Tax Act.
On consideration, I find that this writ deserves to be allowed. It is not disputed that the payment was adjusted on the date of demand itself, and there was no arrear, on which the interest could be claimed u/s 220.
The impugned part of the order of the Deputy Commissioner, also does not discloses the basis of interest u/s 220, as the demand for the first time u/s 156 was made on 18.03.2005.
The learned Commissioner of Income Tax, has also committed an error, in rejecting the application for waiver by mechanically following the provisions of the Act, by ignoring the fact that the interest claimed was not due at all. The claim of interest, which is without jurisdiction would also fall u/s 220(2A) for the purposes of waiver or refund.
Once, it is not disputed that the interest u/s 220(2) was not payable by the Petitioner, as there was no delay, in payment of demanded tax, the finding that interest u/s 220(2) in compensatory in nature, and could be waived only in very rare circumstances cannot be sustained.
The interest u/s 220(2) is statutory and in case of non-payment of demanded tax, within the period stipulated it becomes payable and liberty is given to the Commissioner to waive of the said tax, on the conditions laid down, u/s 220(2A), but in case where the interest is demanded in violation of statutory provisions of law, then it becomes a mandatory duty to set aside/waive the demand of tax, by applying inherent powers.
For the reasons stated herein above, the writ petition is allowed, the impugned part of order of the Deputy Commissioner, imposing interest u/s 220(2) and order of the Commissioner of Income Tax, refusing the waive of tax, are hereby quashed.
The Respondents are directed to refund the interest to Petitioner in accordance with law, within a period of two months of the receipt of certified copy of this order.
No costs.