Christy Arockia Raj vs Commissioner of Income Tax and Others

T.S. Sivagnanam, J.—The petitioner challenges the orders, dt. 18th July, 2006, passed by the respondent, by which the respondent rejected the request made by the petitioner for waiver of interest under sub-s. 220(2A) of the IT Act, 1961 (hereinafter will be referred to as ''the Act''). The petitioner was assessed to tax on the file of the ITO, Circle-II(4), Trichirappalli, for the asst. yrs. 1977-78 and 1978-79. The demand, including interest, under s. 220(2) of the Act was certified by the TRO and after collecting the entire arrears, the Tax Officer raised demand of Rs. 65,472 representing the interest under r. 5 of the IT Rules, 1962 (hereinafter will be referred to as ''the Rules''). Against the said demand, the petitioner preferred an application before the CIT under s. 220(2) of the Act for waiver of the interest demanded.

In the said petition, the petitioner stated that more than 25 years, the petitioner was an assessee on the file of the ITO, Circle-II(4), Trichy, and then he was a student and his income-tax affairs were looked after by his father, Mr. K.S. Rajan, who is no more at present and the taxes were also paid and there was no outstanding demand. It was further stated that the petitioner has settled down in Madras and his old assessment records were not traceable. Further, the petitioner was served with the wealth-tax assessment order, dt. 21st Feb., 1983 under s. 30 of the WT Act, for the asst. yrs. 1977-78 and 1978-79 and as per the order and also the notice, the tax payable was ''nil''. It was stated that after the lapse of 27 years, the TRO issued summons, dt. 27th Feb., 2004, under s. 131 of the Act and the petitioner was asked to appear before him and to pay arrears of Rs. 58,000 together with interest levied under r. 5 of the Rules. The petitioner made a request to the TRO to furnish details and by reply, dt. 17th March, 2004, the petitioner was informed that interest under s. 220(2) of the Act and r. 5 of the Rules, upto January 1990 is Rs. 33,165 and the income-tax payable for the asst. yrs. 1977-78 and 1978-79 is Rs. 24,835. On receipt of the letter, the petitioner requested the TRO and the then AO to furnish copies of the assessment orders and also the evidence for service of notices of demand. Such a request was made by the petitioner because of the fact that the assessment years were 1977-78 and 1978-79 and summons were issued for the payment only in 2004, i.e., after a lapse of 27 years.

Though the petitioner did not receive any information on his request made, he paid the amount of Rs. 58,000 with a view to purchase peace and settle the matter and avoid further litigation. After making payment of Rs. 58,000, which includes the tax and interest, the TRO again raised a demand of Rs. 65,472 claiming interest under r. 5 of the Rules for the period from January, 1990 till October, 2005 and the demand shows arrears only as Rs. 24,835 and interest (including the sum of Rs. 65,472) is Rs. 98,637. Therefore, the petitioner stated that the entire interest charged may be waived, as the petitioner has paid the tax and interest earlier demanded, though it caused hardship to him in arranging the necessary funds, and then, the non-payment of tax is because of reasons beyond his control and he cooperated with the Department in all proceedings in the payment of tax.

Thereafter, the respondent was repeatedly issuing demands calling upon the petitioner to pay a sum of Rs. 65,472. Once again, another representation was made by the petitioner, on 14th July, 2006, wherein the petitioner has elaborately set out the reasons, as to why he is justified in his claim for waiver of interest. Thereupon, the impugned orders have been passed.

On a perusal of the impugned orders, it is seen that the authority, after extracting the conditions to be satisfied for waiver under s. 220(2A) of the Act, has stated that the assessee failed to satisfy the three conditions cumulatively and the assessee has not brought anything on record to show that the demand on r. 5 interest would cause or have caused hardship to him and even if hardship appears to have been really severe or grave, it is not genuine. The authority then proceeded to discuss on the petitioner''s financial position as on the date when the impugned orders were passed and stated that there is no genuine hardship. Challenging the same, the present writ petition has been filed.

Heard Mr. T.C.A. Ramanujam, learned counsel, assisted by Ms. T.C.A. Sangeetha, learned counsel for the petitioner and Mr. T. Pramod Kumar Chopda and Mr. Rajkumar Jhabath, learned standing counsel for the respondents.

The short issue, which fails for consideration, in these writ petitions, is as to whether the petitioner is entitled to waiver of interest, which has been levied by the Department for belated payment of the income-tax dues.

Sec. 220(2A) of the Act states that notwithstanding anything contained in sub-s. (2) of s. 220 of the Act, the Principal Chief CIT or the Chief CIT or the Principal CIT or the CIT may reduce or waive the amount of interest paid or payable by the assessee, subject to the assessee satisfying the following three conditions:

"(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....."

Therefore, while examining the application under sub-s. (2A) of s. 220 of the Act, the authority is bound to consider that, whether the payment of such amount has caused or would cause genuine hardship to the assessee; the default in payment of the amount on which the interest has been paid or payable was due to circumstances beyond the control of the assessee and whether the assessee co-operated in the enquiry relating to the assessment year.

On the facts noted above, the assessment was completed, for the asst. yrs. 1977-78 and 1978-79, when the petitioner''s father was alive. Admittedly, the petitioner was a partner of the firm, though at the time when he was admitted as a partner, he was a minor. Nevertheless, there was no allegation of failure to file returns or failure to pay tax for any anterior periods. Subsequently, the petitioner''s father died and the petitioner is said to have shifted his place of residence to Madras. For the first time, after about 27 years, after the completion of the assessment, notice was issued by the TRO and the petitioner was called upon to pay the income-tax liability of Rs. 24,835 for both assessment years and the interest under s. 220(2) and r. 5, upto January 1990, which was calculated as Rs. 33,165. The petitioner co-operated with the Department and did not contest the matter, but sought for information, such as copy of the assessment order, etc. This was not furnished, despite the petitioner''s pointing out that the matter has been racked up, after a period of 27 years. Nevertheless, the petitioner paid Rs. 58,000. After having accepted the amount, the respondents demanded interest from January, 1990 till the date of payment, i.e., October, 2005 and stated that if the same is not paid, the respondent would initiate action.

In the light of the above, the petitioner sought for waiver of the demand on interest, for the subsequent period, i.e., January, 1990 to October, 2005. The authority, while examining such application, as regards genuine hardship, should take into consideration the circumstances which was prevailing in the year 2005, when the petitioner made the remittance of tax, together with interest, which was calculated upto January, 1990. This observation is in the light of the peculiar facts of this case.

The Hon''ble Supreme Court in the case of B.M. Malani Vs. Commr. of Income Tax and Another, considered the term "genuine" and held that the genuine hardship inter alia means a genuine difficulty, that per se would not lead to the 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.

Further, the Hon''ble Division Bench of this Court, in the case of N. Haridas and Co. Vs. Chief Commissioner of Income Tax and Another, has held that the CIT should have taken note of the unavoidable circumstances, namely, the sudden demise of the managing partner, at the time when the tax under the Voluntary Disclosure of Income Scheme was demanded. Further, the petitioner therein filed revised return on receipt of notice under s. 148 of the Act and paid tax accepting the reassessment. It was further pointed out in the said decision, that the Chief CIT was not correct in rejecting the claim of the petitioner for waiver, without properly appreciating the facts and circumstances of the case and considering the fact that 12 years have passed, the earliest assessment year being 1994-95 and the assessee had already paid tax, as per the reassessment, the CIT was directed to waive the interest.

In the light of the above referred to decisions, if the case on hand is examined, it is seen that when the Department, for the first time issued the demand on the petitioner in the year 2005, the petitioner did not contest the demand, though he submitted representations requesting for furnishing of details. Nevertheless, the petitioner paid the tax amount together with the interest, which was calculated and demanded by the Department. At that point of time, prior to the petitioner remitting the amount, the Department did not issue the revised reassessment/demand, till that date, but the demand was only for interest calculated upto January ,1990.

Be that as it may the tax and interest upto that date (January, 1990) was paid in the year 2005. Thereafter, the Department now seeks to demand interest from January, 1990 till October, 2005 and the learned standing counsel for the respondents would submit that the interest is also leviable during the pendency of this writ petition also.

In my view, the respondents have not placed any material to show that as to why no action was initiated for 27 years. While considering the waiver application also, the Authority did not consider this question. Further, in the facts of the case, which are peculiar, the relevant date for considering the genuine hardship was also not taken into consideration. Therefore, the question of demanding interest for the period up to 2005 does not arise. However, the petitioner has admitted that in the year 2004, he was served with a demand notice. Despite such statement, the petitioner paid the tax and interest only in October 2005. Therefore, to that extent, the petitioner has to be blamed for not immediately making the payment of tax and interest.

Therefore, by taking note of the fact that sub-s. (2A) of s. 220 of the Act, empowers the authorities to reduce or waive the interest amount, this Court is of the view that it is a fit case where there should be a direction to the respondents to reduce the amount of interest, which has been demanded, which according to this Court, shall be Rs. 25,000. In the result, these writ petitions are partly allowed and the matters are remanded to the respondents, with a direction to the respondents to collect a sum of Rs. 25,000, as being interest, which shall be the full and final settlement of all claims against the petitioner. It is further made clear that, since the writ petitions were admitted and pending for all these years, no interest shall be demanded from October, 2005 to till date. However, if the petitioner fails to remit the amount, as fixed by this Court, then it is open to the respondents to proceed against the petitioner in accordance with law. No costs. Consequently the connected MPs are closed.