Kerala H.C : Where Chief Commissioner had found that assessee satisfied all conditions for waiver of interest, waiver of only part of interest was not justified

High Court Of Kerala

E. M. Joseph vs. CCIT

Section : 220

K. Vinod Chandran, J.

W.P. (C.) No. 20365 Of 2005

November 21, 2011

JUDGMENT

1. The petitioner, being the legal heir of the deceased assessee, filed an application under section 220(2A) of the Income-tax Act, 1961, which was considered by the Commissioner by exhibit P5 order, limiting the waiver to an amount of Rs. 24,408 which was the balance amount due from the deceased assessee.

2. The assessment for the assessment year 1989-90 completed under section 143(3) determining the total income was later revised reducing the total income. The total demand raised contained interest under sections 234A, 234B and 234C coming to Rs. 14,61,916 which was waived by an order dated October 21, 1999, by the Chief Commissioner of Income-tax. The application which is the subject-matter of the above writ petition was to waive the interest of Rs. 1,95,570 levied under section 220(2A) of the Income-tax Act.

3. The Chief Commissioner, the first respondent, passed detailed order by exhibit P5 limiting interest levied to the amount already paid and directing waiver of the balance amount remaining unpaid. In exhibit P5 order of the Commissioner has elaborately considered the scope of section 220(2A) of the Income-tax Act and found that all the three conditions regarding genuine hardship to the assessee, default in tax being not due to the circumstances attributable to the assessee and the co-operation of the assessee were satisfied. The learned standing counsel appearing for the Department would contend that the hardship found by the Chief Commissioner was only to the extent of further payment to be made by the petitioner, on behalf of the assessee, and that, with respect to the amounts already paid the same cannot be said to have been paid, bringing them within the ambit of section 220(2A). The said contention is advanced because the amount already paid was adjusted by the Department from the refund of the amounts consequent to the waiver of interest levied under sections 234A, 234B and 234C.

4. On admitted facts, the interest under sections 234A, 234B and 234C imposed at more than the tax due was waived by the Chief Commissioner, while the amounts were being deposited in instalments by the petitioner. The petitioner was paying the instalments on behalf of the assessee who died on October 22, 1996. It was in the context of the above payment of certain instalments and the refund consequent to the subsequent waiver that the said amounts were adjusted towards the interest under section 220(2A). I am unable to agree with the contention of the Revenue that the adjustment would take it out of the ambit of section 220(2A), since the same cannot be said to have been paid by the assessee or on her behalf by the legal heirs. Section 220(2A) does not draw any such distinction and the manner in which the Revenue recovers the amounts, in my opinion, is not relevant while considering the waiver application made under section 220(2A). What has gone to the coffers of the Revenue is to be considered payment by the assessee but subject to the three conditions.

5. Section 220(2A), for consideration of the waiver application to reduce or waive the amount, postulates three situations or conditions which are :

  1. that there was genuine hardship which the payment of such amount has caused or would cause.

2. that the default in the payment of tax was due to the circumstances beyond the control of the assessee ; and

3. that the assessee co-operated in the enquiry relating to the assessment or any proceedings for the recovery of any amount due from him.

6. The Commissioner in exhibit P5 order has found the three conditions to be satisfied. The learned counsel for the Revenue would but contend that with respect to the question of hardship the Commissioner has found the hardship only with respect to further payment of interest and no hardship has been found with respect to the amounts already adjusted towards the interest. I am afraid, the said contention cannot be countenanced because the clear finding entered on the facts is that the present petitioners, the legal heirs, are facing revenue recovery proceedings from the State authorities. Genuine hardship has to be found on the facts and circumstances of each case which satisfaction was entered by the Commissioner. However, there is no reason stated to limit the waiver to the amounts remaining due and payable. Section 220(2A), as it stood before the amendment of 1984, contemplated waiver of interest payable by the assessee and sub-section (1) also related to the hardship caused in further payment of the amount remaining unpaid. However, by the Taxation Laws (Amendment) Act, 1984, the provisions have been suitably amended with retrospective effect from October 1, 1984, conferring power on the Chief Commissioner or the Commissioner to reduce or waive the amount of interest already paid and the conditions have also been suitably amended to bring in those amounts which has already been paid.

7. The standing counsel for the Revenue would rely on Smt. Harbans Kaur v. CWT [1997] 224 ITR 418/90 Taxman 398 (SC) to contend that in interpreting section 18B of the Wealth-tax Act, Supreme Court has held that (page 420) :

“In exercise of that discretion, the Commissioner can either reduce the amount of the penalty or he may even waive the entire penalty. It is for the Commissioner to decide on the facts of a particular case whether a waiver in entirety or a reduction alone is warranted.”

8. I am in respectful agreement with the said proposition and section 220(2A) also confers the discretion on the Commissioner to waive the interest in its entirety or reduce the amount. However, I notice that the hon’ble Supreme Court dismissed the appeals of the assessee since in the said case the Commissioner had indicated his reasons for reducing the penalty instead of granting full waiver. Further, while considering the decision of the various High Courts cited in support of the appellant, the Supreme Court also held (page 421) :

“In all those decisions the learned judges have pointed out that without indicating any reason whatsoever the Commissioner cannot dispense with his discretion in granting waiver of the penalty. Those decisions have not laid down the proposition that the only course which a Commissioner can adopt on fulfilment of the conditions is to waive the penalty in entirety.”

9. It is the absence of reasons for reducing the interest that is glaring in the order of the Commissioner impugned in this writ petition. The Commissioner merely says that “payment of further interest will cause hardship to them” and does not state any reason for limiting or reducing the waiver. The learned standing counsel for the Revenue also placed reliance on the decision in Kerala State Cashew Development Corpn. Ltd. v. ITO [1990] 186 ITR 521/53 Taxman 381 (Ker). The dictum laid down in the said case is that cancellation of penalty does not ipso facto result in total waiver of interest since the former is punitive and the latter is compensatory. The same is not relevant in the facts of the instant writ petition since the Commissioner’s order is found improper by this court to the extent it limits the waiver for reason of total and glaring absence of reasons and not on the ground of waiver of entire penalty imposed. Further, while considering the scope of waiver contemplated by section 139(8) of the Income-tax Act the Division Bench of this court also held (page 529) :

“This power, no doubt, should be exercised judiciously and fairly, keeping in mind factors relevant to the issue and eschewing irrelevant factors and circumstances, to be inferred from the policy of the law itself.”

10. The judicious exercise of power of waiver, I am afraid, is conspicuously absent in the above case. It would have been a different situation if the Commissioner had considered the hardship on the facts involved and reduced the interest liability of the assessee for reasons stated.

11. I am further fortified by the decision of the hon’ble Supreme Court of India in B. M. Malani v. CIT [2008] 306 ITR 196/174 Taxman 363. The hon’ble Supreme Court, while considering the ingredients of genuine hardship, held that it would, inter alia, be a genuine difficulty merely because a person has large assets that will not per se lead to a conclusion that he would never be in difficulty as he can sell those assets and pay the amount of interest levied. The Supreme Court also considering the power of the Commissioner under section 220(2A) held (page 208) :

“Indisputably, the Commissioner has the discretion not to accede to the request of the assessee, but the discretion must be judiciously exercised. He has to arrive at a satisfaction that the three conditions laid down therein have been fulfilled before passing an order waiving interest.” (emphasis supplied)

12. In the instant case, what was stated by the Commissioner was that certain amounts were already paid by way of adjustment or otherwise and that certain amounts remained unpaid. The standing counsel for the Revenue would also contend that the waiver of interest was limited to that remaining unpaid since the amount adjusted cannot be taken to be having been paid. The section not having made any such distinction, as found earlier, and by virtue of the amendment entitling both paid and unpaid interest to be considered for waiver ; I am of the opinion that the discretion has not been properly exercised by the Commissioner.

13. In the circumstances and on the findings entered above, exhibit P5 order to the extent the same fails to consider waiver of the amounts already paid is set aside. The first respondent is directed to pass fresh orders in accordance with the observations made above, within a period of three months from the date of receipt of a copy of this judgment.

[Citation : 342 ITR 379]

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